Overseas Market Profiles

Major Economic Indicators

Source: IMF, Economist Intelligence Unit (EIU)
* IMF or EIU estimate
^ January-September

Recent Developments

• Egypt’s GDP growth for the third quarter of 2009 was 4.9%, a pick-up from the 4.7% recorded for the fiscal year ending 30 June 2009.
• In response to the financial tsunami, the Egyptian government initiated a US$2.7 billion (EGP15 billion) stimulus package in November 2008, with spending targeted at improving Egypt’s infrastructure.
• The Egyptian government has initiated economic reforms since the 1990s. Reform measures include the privatisation of state enterprises, introduction of banking reforms, and tax and tariff reduction.

Current Economic Situation

Egypt’s GDP growth for the third quarter of 2009 was 4.9%, a slight pick-up from the 4.7% recorded for the fiscal year ending June 2009. The pickup was mainly attributed to the government’s timely stimulus package and robust domestic demand.

nflation, however, was rising again. Since the outbreak of the financial tsunami, Egypt’s inflation fell from a peak of 23.7% in August 2008 to 9% in August 2009. In November 2009, inflation rebounded to 13.3%. Should food and commodity prices continue to rise, Egypt’s consumer spending would likely be affected.

The main challenge for Egypt’s economy is a weak external environment. The US and EU are Egypt’s major export destinations, and a lower trade volume would also affect Egypt’s lucrative Suez Canal receipts. In addition, a weaker EU economy could also affect tourism in Egypt.

However, exports are estimated to only account for 15% of Egypt’s GDP in 2008, with private consumption taking a share of some 70%. A strong domestic market can help offset the adverse effect of weak external demand.

In response to the financial tsunami, the Egyptian government initiated a US$2.7 billion (EGP15 billion) stimulus package in November 2008. The package consists mainly of infrastructure spending. With US$1.3 billion (EGP7.2 billion) allocated to water and sanitation projects, US$583 million (EGP3.3 billion) to roads, bridges, ports and railways development, schools, and the health sector, and US$494 million (EGP2.8 billion) to export promotion and speeding up of industrial zone development, including six new industrial zones on the outskirts of Cairo. Energy price cuts have also been announced to help manufacturers lower costs.

Since the 1990s, the Egyptian government has instituted economic reforms that have taken the country further along the road to a market economy. This involves the implementation of policies to unleash market forces to drive growth and employment. Such measures include the privatisation of state enterprises, introduction of banking reforms, and tax and tariff reduction.

Egypt’s economy is fairly diversified. Its largest sector was “extractions of oil, gas and others”, accounting for 17% of its GDP in the fiscal year 2007/08 (From July to June of the next year), followed by manufacturing (16%), “agriculture, irrigation and fishing” (13%), and “internal trade, wholesale and retail trade” (11%).

Trade Policy

Egypt has gradually moved towards a more liberal trade regime. It became a member of the World Trade Organization (WTO) in 1995, and revamped its tariff regime in 2004 as agreed in its accession agreement. In September 2004, the Egyptian government announced a new tariff structure, which removed services fees and import surcharges inconsistent with the WTO. These changes in the tariff structure lowered the official tariff rate (weighted average) from 14.6% to 8.9%. In 2007, the government further cut duties for 1,114 items, which reduced the weighted average tariff rate to 6.9%. More than 90% of all items on the tariff schedule are now charged at less than 15%, although some tariffs remain unchanged, such as the 40% charge on most imported vehicles, a measure designed to protect the local automotive industry. Other items, such as clothes, are still highly protected, even though the rate has decreased from 40% to 30%.

Egypt requires restrictive labelling for imports of food products. All food products should be packed in appropriate packages, which should be clean, intact, and odourless so as to preserve the products and not affect its characteristics. Imported products must be marked and labelled in Arabic. The language requirement is mandatory for all information, including the brand and type of the products, country of origin, date of production, expiry date, and instructions on handling products. For imported tools, machines and equipment, a user manual in Arabic has to be attached.

There are a number of free trade zones in Egypt: Cairo (Nasr City), Alexandria, Port Said, Suez, Ismailia, Damietta, Media, Shebin El-Kom, Qeft and Port Said East Port. Goods exported from or imported into the free zones are not subject to normal import/export customs procedures, duties or other taxes and fees. Likewise all instruments, machinery, equipment, and transportation equipment necessary for establishments authorised within the free zones are exempt from customs and duties.

The EU-Egypt Association Agreement entered into force in June 2004. The EU lifted all trade barriers to Egyptian industrial exports, while Egypt committed itself to removing all related trade barriers over a 12 -15 year transitional period.

Besides the Association Agreement with the EU, Egypt has signed a number of free trade agreements (FTAs), which give Egyptian exports preferential access to markets of the signatories. Such FTAs include the Pan Arab Free Trade Agreement (PAFTA, with 17 members including Egypt), the Common Market for Eastern and Southern Africa (COMESA, with 19 members including Egypt), the Agadir Agreement (with Egypt, Morocco, Tunisia, and Jordan as members), and the Egypt-Turkey FTA.

Egypt also has a preferential trade agreement between the US and Israel, under which the US grants Egyptian exporters in Qualified Industrial Zones (QIZs) tariff-free access to the US market provided that they import at least 10.5% of the content from Israel.

Hong Kong Trade with Egypt ^

Despite a difficult start for 2009, Hong Kong's total exports to Egypt were up 5.5% year-on-year (YoY) to US$225 million in the year 2009, after growing by 21.9% YoY in 2008. Major exports in 2009 included telecommunication equipment and parts (US$57 million, 25.6% of total, +18.6% YoY), woven cotton fabrics (US$20 million, 8.9% share, +5.6% YoY), semi-conductors, electronic valves and tubes (US$17 million, 7.7% share, -1.2% YoY), printed matter (US$17 million, 7.6% share, -11.9% YoY) and parts and accessories of office machines and computers (US$16 million, 7.2% share, +72.5% YoY).

On the other hand, Hong Kong's imports registered flat growth in 2009. Major imports in 2009 were glassware (US$181 million, 91.9% share, +7.2% YoY) and leather (US$6 million, 2.8% share, -52.4% YoY).

^ Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export businesses managed by Hong Kong companies.