Egypt PEST Analysis

Key FACTS about Egypt:

• Full name: Arab Republic of Egypt
• Capital: Cairo
• Population: 80.3 million
• Area: 1 million sq km
• Major language: Arabic
• Major religions: Muslim 90% , Coptic 9% & other Christian 1%
• Currency: Egyptian Pound
• Main exports: Petroleum, petroleum products, cotton, Textile, Metal product and Chemicals.
• Geographical Location: Northern Africa, bordering the Mediterranean Sea, between Libya and the Gaza Strip, and the Red Sea north of Sudan, and includes the Asian Sinai Peninsula

 To make an external scanning on Egypt, we have to know what characterizes the political, economical, sociocultral and technological environments in Egypt.

Economical Environment:

Occupying the northeast corner of the African continent, Egypt is bisected by the highly fertile Nile valley, where most economic activity takes place. Egypt's economy was highly centralized during the rule of former President Gamal Abdel NASSER but has opened up considerably under former President Anwar EL-SADAT and current President Mohamed Hosni MUBARAK. Cairo from 2004 to 2008 aggressively pursued economic reforms to attract foreign investment and facilitate GDP growth, but is postponing further economic reforms because of global economic turmoil. With the installation of the 2004 Egyptian parliament, the Government of Egypt began a new reform movement, following a stalled economic reform program begun in 1991, but moribund since the mid-1990s.

In the past year, the cabinet economic team has simplified and reduced tariffs and taxes, improved the transparency of the national budget, revived stalled privatizations of public enterprises and implemented economic legislation designed to foster private sector-driven economic growth and improve Egypt's competitiveness. Despite these achievements, the economy is still hampered by government intervention, substantial subsidies for food, housing, and energy, and bloated public sector payrolls. Moreover, the public sector still controls most heavy industry.

The international economic downturn slowed Egypt's GDP growth to 4.5% in 2009, predominately affecting export-oriented sectors, including manufacturing and tourism. Unemployment is rising. In 2009 the government implemented a $2.7 billion stimulus package favoring infrastructure projects and export subsidies, and is considering up to $3.3 billion in additional stimulus spending in 2010 to mitigate the slowdown in economic growth.

In September 2009 - Egypt was ranked among the world’s 10 most active reformers for the fourth time. The country moved up to 106 from 116 among 183 economies worldwide in the overall ease of doing business ranking. According to the recently released report by IFC and the World Bank “Doing Business 2010: Reforming through Difficult Times”, Egypt made business start-up less costly, expedited the construction permit process, expanded the information available from the private credit bureau, and created commercial courts to speed up contract dispute settlements.

Being a former global leading reformer and a regional leading reformer in 2008/09, Egypt continued to make it easier to deal with construction permits by issuing executive articles for the 2008 construction law and eliminating most preapprovals for construction permits. Contract enforcement was expedited with the creation of commercial courts. Access to credit information has expanded with the addition of retailers to the database of the private credit bureau. Finally, company start-up was eased by the removal of the minimum capital requirement.

Facts and figures on the Egyptian economy:

GDP (purchasing power parity): $470.4 billion (2009 est.) country comparison to the world: 27 $450.1 billion (2008 est.) $419.9 billion (2007 est.)	GDP (official exchange rate): $188 billion (2009 est.)	GDP - real growth rate: 4.5% (2009 est.) country comparison to the world: 29 7.2% (2008 est.) 7.1% (2007 est.)	GDP - per capita (PPP): $6,000 (2009 est.) country comparison to the world: 133 $5,800 (2008 est.) $5,500 (2007 est.)
GDP - composition by sector: agriculture: 13.1% industry: 37.7% services: 49.2% (2009 est.)	Labor force: 25.8 million (2009 est.) country comparison to the world: 21	Labor force - by occupation: agriculture: 32% industry: 17% services: 51% (2001 est.)	Unemployment rate: 9.7% (2009 est.) country comparison to the world: 113 8.7% (2008 est.)
Population below poverty line: 20% (2005 est.)	Household income or consumption by percentage share: lowest 10%: 3.9% highest 10%: 27.6% (2005)	Distribution of family income - Gini index: 34.4 (2001) country comparison to the world: 90	Investment (gross fixed): 17.9% of GDP (2009 est.) country comparison to the world: 121
Budget: revenues: $48.86 billion expenditures: $61.61 billion (2009 est.)	Public debt: 79.8% of GDP (2009 est.) country comparison to the world: 15 86.5% of GDP (2008 est.)	Inflation rate (consumer prices): 10.1% (2009 est.) country comparison to the world: 193 18.3% (2008 est.)	Central bank discount rate: 11.5% (31 December 2008) country comparison to the world: 48 9% (31 December 2007)
Commercial bank prime lending rate: 11.82% (31 December 2008) country comparison to the world: 67 12.51% (31 December 2007)	Stock of money: $31.72 billion (31 December 2008) country comparison to the world: 27 $27.6 billion (31 December 2007)	Stock of quasi money: $112.2 billion (31 December 2008) country comparison to the world: 21 $102.6 billion (31 December 2007)	Stock of domestic credit: $126.5 billion (31 December 2008) country comparison to the world: 35 $113.9 billion (31 December 2007)
Market value of publicly traded shares: $85.89 billion (31 December 2008) country comparison to the world: 43 $139.3 billion (31 December 2007) $93.48 billion (31 December 2006)	Agriculture - products: cotton, rice, corn, wheat, beans, fruits, vegetables; cattle, water buffalo, sheep, goats	Industries: textiles, food processing, tourism, chemicals, pharmaceuticals, hydrocarbons, construction, cement, metals, light manufactures	Industrial production growth rate: 3.9% (2009 est.) country comparison to the world: 30
Current account balance: $-3.32 billion (2009 est.) country comparison to the world: 160 $-1.331 billion (2008 est.)	Exports: $22.91 billion (2009 est.) country comparison to the world: 64 $29.85 billion (2008 est.)	Imports: $43.98 billion (2009 est.) country comparison to the world: 48 $56.62 billion (2008 est.)	Reserves of foreign exchange and gold: $34.99 billion (31 December 2009 est.) country comparison to the world: 27 $33.85 billion (31 December 2008 est.)
Debt - external: $28.45 billion (31 December 2009 est.) country comparison to the world: 60 $32.12 billion (31 December 2008 est.)	Stock of direct foreign investment - at home: $66.43 billion (31 December 2009 est.) country comparison to the world: 44 $59.13 billion (31 December 2008 est.)	Stock of direct foreign investment - abroad: $12.23 billion (31 December 2009 est.) country comparison to the world: 43 $12.08 billion (31 December 2008 est.)	Exchange rates: Egyptian pounds (EGP) per US dollar - 5.6 (2009), 5.4 (2008), 5.67 (2007), 5.725 (2006), 5.78 (2005)

Source: CIA the world fact book - USA

Egypt Risk Assessment

Rating: B

Risk Assessment

The economy grew strongly in 2007 driven by domestic demand. The government's liberal approach since 2004 has fostered a climate of confidence conducive to consumption and investment. The economy has also benefited from oil country boom via their investments and emigrant worker remittances. In this context, the business environment is improving with the Coface payment incident index remaining below the world average. While the gas sector has continued to develop, manufacturing, construction, tourism, and communications have achieved excellent performance. The outlook for 2008 is bright with growth likely to reach between 7.0 and 7.5 per cent.                               .

The external financial situation remains healthy amid the good trend on foreign currency earnings and the increase in foreign direct investment fuelled by the privatizations. Debt service is low and Egypt is building up foreign exchange reserves. However, the fiscal deficit and public sector debt remain a source of concern. Controlling public spending and reducing the debt necessitates a spending overhaul that will take time. Regional conflicts and poverty have strengthened Islamist opposition movements. In this context social climate is tense and officials have exercised caution in pursuing reforms.

STRENGTHS

• The business climate has benefited from an active reform program and a regional economic boom.
• Egypt boasts diversified sources of foreign exchange (the Suez Canal, tourism, private transfers, and oil and gas exports).
• Foreign exchange reserves are high.
• The country enjoys the political and financial support of Western countries.

WEAKNESSES

• The interest on public debt and the cost of subsidies weighs on public finances limiting the capacity for infrastructure development.
• The banking system is not yet capable of meeting the economy's needs.
• The tourism sector, whose revenues are of fundamental importance to the current account balance and economic growth, remains vulnerable to the terrorist menace

Performance statistics:                                                                  Source: The international Monetary Fund

Subject Descriptor	Units	Scale	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
Gross domestic product, constant prices	National currency	Billions	354.70	367.20	378.90	391.00	407.00	425.20	454.30	486.50	521.39	545.89	570.44
Gross domestic product, constant prices	Annual percent change		5.38	3.52	3.19	3.19	4.09	4.47	6.84	7.09	7.17	4.70	4.50
Gross domestic product, current prices	National currency	Billions	340.10	358.70	378.90	417.50	485.30	538.50	617.70	744.80	896.50	1,038.60	1,182.62
Gross domestic product, current prices	U.S. dollars	Billions	99.16	95.40	87.51	81.38	78.80	89.79	107.38	130.35	162.62	187.96	208.46
Gross domestic product, deflator	Index		95.88	97.68	100.00	106.78	119.24	126.65	135.97	153.09	171.95	190.26	207.32
Gross domestic product per capita, constant prices	National currency	Units	5,603.52	5,675.47	5,740.91	5,809.81	5,932.95	6,074.29	6,371.67	6,610.05	6,933.32	7,116.81	7,291.09
Gross domestic product per capita, current prices	National currency	Units	5,372.83	5,544.05	5,740.91	6,203.57	7,074.34	7,692.86	8,663.39	10,119.57	11,921.54	13,540.36	15,115.71
Gross domestic product per capita, current prices	U.S. dollars	Units	1,566.42	1,474.48	1,325.85	1,209.27	1,148.71	1,282.77	1,505.96	1,771.00	2,162.45	2,450.41	2,664.41
Gross domestic product based on purchasing-power-parity (PPP) valuation of country GDP	Current international dollar	Billions	247.52	262.03	274.76	289.63	309.65	333.35	367.76	405.11	443.43	471.51	500.25
Gross domestic product based on purchasing-power-parity (PPP) per capita GDP	Current international dollar	Units	3,910.25	4,049.93	4,162.96	4,303.62	4,513.88	4,762.12	5,157.97	5,504.17	5,896.67	6,147.12	6,393.94
Gross domestic product based on purchasing-power-parity (PPP) share of world total	Percent		0.59	0.60	0.60	0.60	0.59	0.59	0.60	0.62	0.64	0.66	0.67
Implied PPP conversion rate	National currency per current international dollar		1.37	1.37	1.38	1.44	1.57	1.62	1.68	1.84	2.02	2.20	2.36
Inflation, average consumer prices	Index, 2000=100		100.00	102.43	104.92	108.28	117.06	127.36	132.71	147.25	164.48	191.20	207.36
Inflation, average consumer prices	Annual percent change		2.85	2.43	2.43	3.21	8.11	8.80	4.20	10.95	11.70	16.24	8.45
Inflation, end of period consumer prices	Index, 2000=100		100.00	102.23	105.04	109.26	122.05	127.76	137.01	148.73	178.75	196.55	212.27
Inflation, end of period consumer prices	Annual percent change		2.54	2.23	2.75	4.01	11.71	4.68	7.24	8.55	20.18	9.96	8.00
Population	Persons	Millions	63.30	64.70	66.00	67.30	68.60	70.00	71.30	73.60	75.20	76.70	78.24

Technological Environment:

Egypt's IT spending is expected to increase from US$1.3bn in 2010 to US$2.1bn by 2014 and the Egyptian IT market growth is forecasted to remain below pre-economic crisis levels in 2010, but economic recovery, tenders delayed from 2009 and higher incomes boosted by pay raises for civil servants and other groups should help to keep sales on an upwards trajectory.                                                 .

A number of policies have been implemented to attract foreign investment in IT outsourcing, including local employment subsidies, lower corporate taxes and deductions for training costs. The Egyptian minister of state for administrative development has said that 200 government services will soon be available online through a new e-government portal. The portal will offer 70 services in both English and Arabic. According to the Ministry for Administrative Development, more than 20 government agencies currently offer services and licenses online.                                                   .

Egypt's computer hardware sales are projected at US$821mn in 2010 and are forecast to reach around US$1.3bn in 2014. Egypt's IT market will stay hardware dominated, with spending on PCs sustained by initiatives like the 'Computer for Every Student' and 'PC for Every Home' programs. Hardware accounted for an estimated 62% of Egypt's IT spending last year. Households account for 20-25% of unit sales, with almost 1-1.5mn households said to possess a computer at present.                                      .

Overall spending on software remains rather low, which reflects the relative immaturity of Egypt's IT market. One market driver has been a significant fall in software piracy, with the illegal software usage rate, as measured by the Business Software Association, falling a further 1% to 59% in 2008. While large corporations have long understood the business case for deploying technology, small and medium-sized enterprises is increasingly beginning to see such investments as important if they are to avoid being overtaken by more tech-competent competitors.                                         .

In 2008, Egypt continued liberalization of the telecoms market, with the award of a second national fixed license. This development, which followed the award of 3G licenses to three mobile telecoms service providers in 2007, is likely to drive new opportunities for IT vendors. As well as generating additional spending on IT products and services from the telecoms sector, the spread of internet should provide a boost to the PC market over the next few years.                                   .                 .                      .

The Egyptian IT services market is dominated by demand from government, finance and telecoms sectors, which account for more than 25% of Egypt's total spending.                            .

Sociocultural Environment:

Egypt’s total population stood at 80.3 million. Out of this approximately 90% are Muslims while the remaining are Christians. Most of the population inhabits the area near the Nile River and almost half of Egypt’s population is urban, living in the densely populated cities such as Cairo and Alexandria.

One of Egypt’s biggest socio-economic problems is the high unemployment rate which has been growing over the years. The unemployment rate, which has averaged more than 10% over a decade, increased to over 12% in 2005–06. With the population growing at 1.8% per annum, the economic growth of 4.4% is not enough to curb the unemployment rate. While the average growth in employed population during the last five-year period stood at 2.3%, the rise in unemployed population has been much higher during the same period averaging around 8%. The high rates of unemployment and population growth coupled with meager wages in most of the public sector companies contribute to the poverty levels, with close to 20% of Egypt’s population below the poverty line. A big challenge for Egypt in the near future will be to create jobs, as the population within the 20–45 age-group constitutes around 65% of the total population.

The education indicators of Egypt project a poor image of the education system. Only about 58% of the population is literate and there is a big difference in the literacy rates for males and females. Male literacy rate is around 68%, while female literacy rate is just about 47%, indicative of gender disparity. The National Council for Women, a nodal government agency that works for the welfare of women in Egypt, aims to completely eradicate illiteracy among females.

The healthcare system in Egypt is underdeveloped with only around 29% of the population covered by governmental health insurance. Egypt’s public healthcare system is under-funded, with the government committing only around $1 billion in 2005–06 for upgrading the healthcare sector, which represents a meager 2.7% of the total state budget. The ministry of health is the largest institutional financier providing free healthcare services in Egypt but its reach is limited. Almost 65% of the Egyptian people pay for their own insurance through private and other health insurance organizations. The total spending on healthcare in Egypt is only about 4% of its GDP.

Political Environment:

Political structure

The Egyptian Constitution provides for a strong executive. Authority is vested in an elected president who can appoint one or more vice presidents, a prime minister, and a cabinet. The president's term runs for 6 years. Egypt's legislative body, the People's Assembly, has 454 members--444 popularly elected and 10 appointed by the president. The constitution reserves 50% of the assembly seats for "workers and peasants." The assembly sits for a 5-year term but can be dissolved earlier by the President. There also is a 264-member Shura (consultative) Council, in which 88 members are appointed and 174 elected for 6-year terms. Below the national level, authority is exercised by and through governors and mayors appointed by the central government and by popularly elected local councils.In March 2007, Mubarak introduced several constitutional amendments that would increase presidential powers and, more significantly, ban any political parties based on religion, race, or ethnicity. The amendments were put to a popular referendum and, despite low voter turnout and boycotts by opposition groups, passed with 75.9% approval.

Main political parties

The multi-party system was restored in 1976 by the then president Sadate. However, in practice it is the ruling National Democratic Party (NDP) which completely dominates the political arena. The Muslim brothers, a brotherhood created in 1928 by Hassan El Banna is the main opposition party of the country. They were banned but in spite of it, they were able to win 88 seats in the People's Assembly in the 2005 elections. The other opposition parties like Wafd, El-Ghad or the Nasserian Party are minority parties and were nearly wiped out in the 2005 elections.

Environmental laws

According to the Law 4/1994 for the Protection of the Environment, the Egyptian Environmental Affairs Agency (EEAA) was restructured with the new mandate to substitute the institution initially established in 1982. At the central level, EEAA represents the executive arm of the Ministry. The Principal Functions of the Agency Include:  . Formulating environmental policies.  . Preparing the necessary plans for Environmental protection and Environmental development projects, following up their implementation, and undertaking Pilot Projects.  . The Agency is the National Authority in charge of promoting environmental relations between Egypt and other States, as well as Regional and International Organizations.

Foreign trade

The Egyptian market is gradually opening up, especially after signing an agreement with the European Free Trade Association (EFTA) in 2006, and a free trade treaty with the United States. Its three primary export partners are the European Union, which represents more than a third of the trade, United States and Syria. Its three primary import partners are the European Union, the United States and China. Egypt mainly exports mineral fuels and oil, cotton, iron and steel. It imports mainly consumer electronic goods and capital goods, nuclear reactors and nuclear-powered boilers, cereals, food products and chemical products. Import volume has doubled and is twice the export volume, a fact which contributed to the deterioration of the country's trade balance.

Tax Rate

The standard rate of corporate income tax is 40%. The rate is 32% on profits arising from export operations and on profits of an industrial company as long as they arise from its industrial activities.
Withholding Tax
Any business operating in Egypt must withhold against any payments-- made to any contractor or supplier of goods or services-- the following basic percentages:
Contracting and supplying: 1%
Services: 3%
Commissions: 10%
Professional fees (under LE 500): 10%
Professional fees (over LE 500): 15%
Leasing of property or selling of goods for trading or manufacturing: 1% - 5% (to be added on the payee's tax liability account.
Corporate Tax Exemptions and Deductions

• Almost all business expenses are deductible including depreciation, interest, royalties, rent, profit sharing payments to employees, legal expenses, pension and Egyptian state social insurance contributions.
• Profits of companies located in the free zones.
• capital gains are applicable in some cases of asset replacement.
• All tax holidays granted under Investment Law No.8/1997.
• Joint stock companies employing more than 50 employees and maintaining proper books of accounts are granted a tax holiday for a five-year period. Also, hotels and tourist projects are granted a tax holiday for a five-year period which can be extended to ten years if the project is located in a remote area.
• For joint stock companies listed in the stock market, a deductible allowance is made that is equal to interest income, which can be earned on a bank deposit (currently 10.5 percent).
• Ninety percent of income generated by companies from their movable capitals which have been subject to the new tax imposed by Law 187 of 1993.

Personal Income Tax
Taxable Income
Tax Law No. 187 of 1993 distinguishes among the following categories of income of individuals (as well as partners in partnerships):

• Salaries and wages.
• Commercial and industrial profits
• Income from immovable property
• Income from movable capital
• Noncommercial profits.

Taxation of Foreigners 

Foreigners that have been working in the country for more than 183 days with their annual salaries varying from LE 1.00 to LE 50,000 are subject to paying a 20 percent income tax. However, if the employee's annual income exceeds LE 50,000 then they will be liable to pay 32 percent income tax.

Social Insurance Contribution Rates

	Employer(%)	Employee(%)
On basic monthly salary up to L.E. 500 / month	26	14
On variable pay (such as production incentive bonuses)-up to L.E. 500/month	24	11

Labor force and laws

Labor force

Government, armed forces & public sector : 36%

Agriculture : 34%

Private sector : 30%

The Egyptian labor market is regulated by the new unified Labor Law No. 12 for 2003. The new Law comprises 257 articles that address all the legal aspects regulating the Egyptian labor market. The new law aims at increasing the private sector involvement and at the same time achieving a balance between employees' and employers' rights. Amongst the most important issues that the new law addresses is the right of an employer to fire an employee and the conditions pertaining to this as well as granting employees the right to carry out a peaceful strike according to controls and procedures prescribed in the new law.

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