Major Economic Indicators

Source: IMF, Economist Intelligence Unit (EIU)
* IMF or EIU estimate

Recent Developments

• 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.
• Egypt’s real GDP is estimated to have grown 7.2% in 2008, and is forecast to slow to a 3.6% growth in 2009, reflecting the impact of the financial tsunami.
• 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.

Current Economic Situation

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.

The financial tsunami’s impact is global, and Egypt is not immune to it. But Egypt is relatively less affected compared with many other markets. First and foremost, Egypt’s banking system remains healthy, and no major banks suffer from the “toxic” securities and derivatives that have plagued their counterparts in Europe or the US. Egypt also has a large domestic market, with private consumption constituting about 70% of its GDP in 2007, which makes the country less reliant on the external market to keep its economy afloat.

Aside from certain positive factors, Egypt’s economy is not short of challenges under the current economic climate. A number of sectors are being hit directly. First, exports are falling. Oil and gas account for about half of Egypt’s exports; with lower oil prices, export receipts will fall. In addition, the US and EU absorb some 60% of Egypt’s exports; with both places in recession, Egyptian exports are taking a hit. Second, with the EU’s imports dwindling, the number of ships passing through the Suez Canal (constituting 3% of GDP in FY2007/2008) has fallen sharply. Third, a downturn in the global economy is also likely to dampen demand in tourism, a sector that is a major employer in the country.

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.

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 Government of Egypt 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 Exports to Egypt ^

In line with global trade contraction, Hong Kong's total exports to Egypt were down 33.5% year-on-year (YoY) to US$50 million in the first four months in 2009, after a growth of 21.9% YoY to US$213 million in 2008. Major export items in 2008 included telecommunication equipment and parts (US$48 million or 22.8% of the total), woven cotton fabrics (US$19 million, 8.8% share), semi-conductors, electronic valves and tubes (US$17 million, 8.2% share), knitted or crocheted fabrics (US$12 million, 5.4% share), and parts and accessories of office machines and computers (US$9 million, 4.4% share).

On the other hand, Hong Kong's imports from Egypt rose by 9.9% to US$67 million in January to April 2009, after growing by 56.9% YoY to US$197 million in 2008. Major imports in 2008 were glassware (US$169 million, or 85.7% of the total) and leather (US$12 million, 5.9% share).

^ 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.