Egypt Development Study

In the wake of the upheaval of recent years, Egypt’s political transition would appear to be complete, with the current parliament largely supportive of the president’s policies. However, security challenges are undermining economic recovery, and the country is underperforming in several key economic sectors, despite overall bright prospects.

Egypt is the 29^th largest country in the world and the 4^th largest country in the Middle East and North Africa. It is the most populous country in the region, with a young population of 88 million, and a relatively high birth rate. The Egyptian system of government reflects a combination of the prime ministerial and presidential systems. The former commander of the armed forces, El-Sisi, currently serves as chief of state.

Egypt has a relatively diversified economy, including a significant manufacturing sector. The country’s GDP was worth USD 282,2 billion in 2014, making it world’s 38^th largest economy. As the political transition was concluded in December 2015, the economy started to recover. GDP growth is expected to average at 3,3% in 2016, before rebounding thereafter. Exports reached USD 42,9 billion in 2014, while imports stood at USD 81,9 billion in 2014. The inflation rate increased from previous years and reached 10.1% in 2014, while the unemployment rate has remained stubbornly high and rose progressively during the past three years, reaching 13.37%. Egypt’s budget showed increased deficit from 2009 onwards, reaching USD 271,6 billion in 2014, representing a whopping 6.09% of the GDP.

Egypt’s oil production has been in decline since it peaked in the mid-1990s. Its natural gas reserves, however, have been steadily growing, and the ‘supergiant’ natural gas field Zohr discovered in the Mediterranean in 2015 is set to revive the country’s energy sector. Egypt has a low energy efficiency and is vulnerable to frequent electricity cuts, due to fuel shortages, a rising power demand, ageing infrastructure and insufficient generation and transmission capacity. Still relatively undeveloped, Egypt’s renewable energy sector is prioritised by the government, aiming to use the country’s vast solar and wind resources to diversify its energy generation mix.

Egypt is a water stressed country that is losing water at a high rate, as resources are overused and demand continues to increase. Being almost entirely dependent on the River Nile for servicing its industrial and agricultural demand, as well as providing drinking water for the population, Egypt’s vulnerability has been exposed with neighbouring Ethiopia’s construction of a giant hydropower plant, as well as the regional establishment of the Nile Basin Initiative that threatens Cairo’s historic rights to the Nile waters. The government of Egypt has recently pushed for better wastewater network and tariff increases to build awareness of water consumption, coupled with de-salination projects to supply drinking water in coastal areas.

Egypt’s food and drinks industry is a promising sector. The low-income population segment is quite high, with food dominating consumer budgets. Food consumption is increasing by more than 10% per year and over the long term, the country’s large and youthful population and its developing middle class will offer vast growth opportunities. Price-sensitive food and drink products in particular, are expected to perform well in the coming years, but also more specialised products, e.g. in the healthy eating spectrum. Organic production is expected to take off in the near future with increasing export to the EU.

ICT is a prioritised strategic industrial sector in Egypt. Being an enabler of development across all domains of modern society, Egypt, as the long-standing cultural and informational centre of the Arab world, with Cairo the region’s largest publishing and broadcasting centre, is leading the way in many respects. The government has created fertile conditions for ICT-led growth by investing heavily in developing world-class IT-infrastructure facilities. Its dedicated ICT and business parks have propelled the country to become a multicentre offshore location.

Tourism represents a cornerstone of the Egyptian economy and a critical source of hard currency, making considerable contributions to the national GDP and employment. From the all-time high of 15 million visitors reached in 2010, numbers have fallen significantly, due to security threats and political upheaval. Tourism is projected to rebound, but it may take longer than previously expected.

The business environment in Egypt is restrictive, with the World Bank ranking it 131 out of the 189 countries surveyed in its 2016 Doing Business. While its political and security environment remains uncertain, the relative stability under President El-Sisi is encouraging FDI across key sectors, as economic momentum gradually gathers pace.