Egypt’s Economic Reforms Empower Private Sector

Cairo, Egypt | August 19, 2007 by D-8 Secretariat

D-8 Organization noticed that Egypt’s economic reform program, since 2004, has been empowering private sectors and allows significant economic progress. GDP growth rates are at 7 percent for the first half of the fiscal year 2006-2007. The Balance of Payment has a $3 billion surplus. Domestic investment has increased by 35 percent and Foreign Direct Investment (FDI) has surged by 93 percent. Today, unprecedented FDI flows (concurrently $6 billion, expected to reach $8 billion by the end of 2006-2007,) record tourist numbers (9.8 billion in 2006) and strong surges in non petroleum exports (up from $2.3 billion in 2001 to $8.5 billion in May 2006) are fueling the state’s optimism.

Egypt has made significant headway in transforming its state dominated economy into an investor friendly one, with a development agenda touching every sector. The new investment Authority licenses companies in 72 hours, a process that previously took months.  Major tax reforms have simplified filing procedures while providing substantial reductions on the corporate and personal levels. The contribution of the private sector to the gross domestic product contribution GDP now exceeds 70 percent, as the government relinquishes its control on production and service providing, adopting a more supervisory and coordinating role.

These changes, empowering the private sector as never before, represent a reversal not only in economic policy, but in a mind-set that formerly favored total control. Breaking longstanding economic taboos, Telecom Egypt, the nation’s 150 year old state-owned provider, went public in 2005.  Another milestone divestiture was the Bank of Alexandria’s 2006 privatization, which signaled the state’s banking reform intentions and demonstrated the sector’s appeal. Overall, public sector companies showed a profit of $2.6 billion in 2005-06, compared with a $230 million loss in 2002-03.

The new set of reform policies includes tailored programs targeting specific regions. Programs targeting Upper Egypt include an incentive package offering investors substantial paybacks per worker.  Road building and construction of a liquid natural gas pipeline running from the Mediterranean to Aswan are additional signs that the long-neglected provinces are finally being factored into Egypt’s growth. The North Coast is also witnessing massive tourism development, heavily backed by investors such as the Dubai-based real estate giant Emaar and Germany’s largest travel group, TUI AG.  Tourism, a major source of jobs and revenues (and an indicator of how Egypt’s stability is perceived) was up 5.5 percent in 2006 over the previous year.

For average Egyptians, unemployment (10 percent) and inflation (around 12 percent) are pressing issues.  Closing the skill gap is also a serious state priority, as crucial as creating jobs. Prior to his 2005 re-election, President Hosni Mubarak announced his party’s promise to provide of 4.5 million new jobs by 2011.  With record-breaking FDI and the creation of new industrial zones (including a recent deal with Turkey involving a 2 square kilometer land allotment near Alexandria dedicated to textile and garment manufacture), Egypt is on the way to achieve this target. Meanwhile, existing companies are expanding, hiring new people and building new production lines, whereas a few years ago they were shrinking.

D-8 Secretary General expects Egyptian private sectors will more active in D-8 intra-trade, since Egypt has already free trade agreement with Turkey, and soon has Preferential Trade Agreement (PTA), Visa Agreement, Custom Agreement, and other trade facilitation activities with other D-8 member states.

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