A Negative Perception
Egypt is generally considered as a poor place to make business as a lot of country in Middle East notably because of the lack of transparency. An example embodies this issue, the case of Ahmad Ezz, a Steel magnate and former member of Parliament, whose companies dominated the steel industry after 2000, controlling at some stage 65% of the local market, and who is accused of having improperly acquired the largest public steel corporation at an artificially low price, used market power to generate excess profits, and lobbied to raise external tariffs to gain protection from foreign competition and for Parliament to pass watered down anti-monopoly legislation. Ezz was a prominent member of the National Democratic Party (NDP), the dominant party in Egypt – a member of its influential Policy Committee, and the chair of Mubarak’s election campaign in 2005 and of the NPD for the Parliamentary elections of 2010. In Parliament, he was the Chair of the Budget Committee, which among other functions oversaw the work of the Competition Commission (Werker et al, 2012)[1].
Challenges doing business in Egypt:
Egypt has some unique challenges, including[2]:
- a crippling fiscal deficit
- political and social instability
- poverty has increased to 26.4%
- rising unemployment
- investment and tourism both falling
- excessive bureaucracy that makes it difficult to do business (ranks low on World Bank doing business)
- high-levels of corruption (ranks fairly low on the transparency index)
- a shortfall of foreign exchange
- restrictions on foreign property ownership
- lack of legal and contractual certainty
- slow and cumbersome customs procedures
Opportunities for UK businesses in Egypt
Education and training
Education and training is a major priority for the Egyptian government and reform is highly required in all levels and all industries.
There is a strong growth in private schooling and independent for-profit universities, some of which include foreign participation. Schools are being upgraded at the rate of 10% each year with modern facilities such as computers, multimedia laboratories and internet connectivity.
Approximately 11.9% of government spending is on education and is forecast to increase by 10%. Government educations plans include:
- a 50% increase in number of Egyptians enrolled in university or technical education by 2021
- 120 additional universities and technical / vocational institutes
- another 2,200 private and 2,500 public schools over the next 5 years
- over 1,400 of the public schools to be completed using Public Private Partnership (PPP) approach
- technical and vocational training
- skills for employability
- school, curriculum and university development
- teacher training
- management and leadership training
- school equipment and Information and Communication Technology (ICT)
- vocational training
- English language skills
- qualifications certification
- school construction projects
Oil and gas
The oil and gas sector accounts for 15% of national GDP in Egypt and 31% of Foreign Direct Investment (FDI).
Egypt is making positive strides towards reforming its oil and gas sector. Repayment of debt owed to oil companies and commitments to be debt free by end-2016, have provided a boost to upstream investment.
There are around 50 international petroleum companies currently operating in Egypt in exploration, digging and oil extraction. There are approximately 143 rigs in operation. Major oil companies have committed billions in investment to Egypt’s upstream including:
- BP – USD 12 billion over 5 years
- Eni – USD 5 billion over 4 years
- BG – USD 4 billion over 4 years
- exploration and field development
- operations and maintenance
- training and sustainable development
Retail
Egypt offers an excellent and growing market for retail that is supported by:
- growing demographics
- a growing affluent middle class
- low penetration levels of modern retail shops
- a growing acceptance of 21st century retail concepts
At least 30 well known UK retail brands are currently trading successfully in Egypt. There are various opportunities in:
- clothing
- food
- consumer goods
- online retailing
- over-the-counter (OTC) pharmaceuticals
- franchising
Power
Egypt’s demand for electricity is growing rapidly and there is an urgent need to develop alternative power resources.
The power supply programme 2010-2020 aims to add about 30,000 MW to installed capacity, almost doubling electricity generation. This programme includes investment in a variety of projects and indicates an annual investment in excess of USD 3 billion.
Currently, 88% of total electricity capacity is dependent on oil or natural gas, while the share of wind and solar power represents only 3%. However, Egypt is considered to have a great wealth of renewable energy resources. It hopes to produce 12-20% of its electricity from renewable sources by 2020.
To achieve this target, the government introduced a new ‘feed in tariff’ scheme for wind and solar energy production with capacity of 50 MW or less. It also announced sovereign guarantees and interest subsidy loans, depending on production capacity.
In January 2015, the New and Renewable Energy Authority (NREA) selected 18 foreign investment bids with a value of USD 6 billion to build renewable power plants. The total capacity of 4,000 MW will ber divided between solar and wind power projects.
To further diversify Egypt’s energy mix, coal imports for use by energy-intensive industries will be permitted, within limits.
There are opportunities for UK companies in the following projects:
- a wind farm with a total capacity of 500 Megawatt (MW) in Gulf of Suez
- installation of a 7.2 Gigawatt (GW) wind energy projects by 2020
- construction of a 3.5 GW solar power station by year 2027
- a nuclear power plant in Dabba with a capacity of 1,000 MW
- 3 power generation projects in Dayrout, Qena and Beni Suef
- a steam power plant in Ain El Sokhna
Construction and infrastructure
The Suez Canal Zone (SCZone) project is worth estimated at £20 billion over 15 years. The project presents UK companies with significant opportunities in:
- ports and logistics development
- development of a 76,000 sq km industrial and logistics hub
- new industrial zones and urban areas
- new transport infrastructure
- power generation
- water desalination
- waste water treatment plants
- power infrastructure – Egypt plans to invest USD 110 billion up to 2027
- waste water plant expansions
- water infrastructure PPPs projects
- tourism infrastructure – in April 2014, the government earmarked USD 136 million for the tourism infrastructure
- airport city at Cairo International Airport with an investment of USD 20 billion
- New Cairo Capital city – a £30 billion project
Start-up considerations
There are several ways you can do business in Egypt. The most common are:
- appoint a local partner, distributor or agent
- set up own branch office in Egypt
- form a joint stock or Limited Liability Company
Legal considerations
There are a number of laws in Egypt that regulate business, the 2 main ones are:
- the companies law (No 159 of 1981), which regulates the common business in Egypt
- the investment guarantee and incentive law (No 8 of 1997)
- Capital Market Law No. 95 for 1992 (“Capital Market Law”)
The Egyptian Organisation for Standardisation and Quality (EOS) is the official body responsible for standardisation activities, quality and industrial metrology.
Intellectual Property (IP)Egypt is signatory to the main Intellectual Property Conventions (Rome, Paris, Berne and Washington). Egypt passed a new IP law in June 2002, bringing practices in line with WTO Law 82 of 2002.
Patents are registered at the Egyptian Patent Office and trademarks at the Department of Trade Registry at the Ministry of Trade and Investment.
The Egyptian Center of Intellectual Property and Information Technology (ECIPT) can help provide information for IP related queries.
Trademark counterfeiting, copyright piracy and patent infringements remains a major problem in Egypt. Enforcement of IP law is not strong.
Tax and custom considerations
VAT
The VAT rate is currently 10%.
Corporate tax
The corporate tax rate in Egypt is currently 22.5%. Oil and exploration activities are taxed at a higher rate of 40.55%.
Individual tax
The maximum individual tax rate is 25%.
Indirect tax
The tax rate for goods ranges from 10% to 50% for goods. For services, the tax ranges from 5% to 10%.
Customs
The Egyptian Customs Authority as a part of the Ministry of Finance implements laws and regulates customs. The Ministry of Finance issues decrees dealing with custom tariffs for each imported product.
For goods sourced from the UK or the European Union (EU), the Egyptian Customs Authority accepts the EUR1 certificate of origin form and applies preferential import duties.
Documentation
The following documents are required for any shipment to be accepted through customs in Egypt:
- commercial invoice
- certificate of origin (should be authenticated by the Egyptian Consulate in the country of origin)
- packing list
- bill of lading
- pro-forma invoice and letter of credit
Business behaviour
English is widely spoken throughout Egypt.
Although it is common for written correspondence to be in English, Arabic is often preferred within some public sector organisations.
Entry requirements
If you are traveling to Sharm El Sheikh, Dahab, Nuweiba or Taba for up to 15 days, you will receive a free entry permission stamp upon arrival. You need a visa to travel anywhere else in Egypt.
A passport is required to travel, which must be valid for at least 6 months.
Visit visas for stays of up to a month can be obtained also on arrival at the airport by payment of USD25. Payment can also be made in other currencies.
[1] Crony Capitalism in Egypt Hamouda Chekir, Lazard Group and Ishac Diwan, Harvard Kennedy School
[2] Gov.UK making Business in Egypt