Strengthening the role of the Egyptian private sector

The Egyptian economy had a GDP of US$ 347.6 billion in current prices as of April 2024, and annual real GDP growth of 3% (IMF). It’s attractiveness as an economy is driven by several factors. The government has been implementing a series of reforms since 2016 to achieve faster and more sustainable GDP growth. It has been implementing a series of infrastructure projects in the areas of transportation and roads, electricity and energy, and petroleum and natural gas. The country has the advantage of a highly strategic location that provides businesses with easier access to markets of Europe, Middle East, Africa, and India.

A recent report by UNCTAD has ranked Egypt as the most favourable market in Africa for investments in 2023, for the second time. It attracted 18.6% of Africa’s total FDI during the period, with investments reaching US$ 52.6 billion.

The Egyptian Government is focused on boosting its economic growth by advancing the State Ownership Policy, which was endorsed by President Abdel Fattah El-Sisi in December 2022. This policy aims to enhance the private sector’s role in driving growth, addressing challenges that hinder its contribution, and focusing on increasing the private sector’s share of GDP, job creation, investment, and exports. 

According to the report “A Package of Reform Measures to Encourage the Private Sector (May 2022 – June 2024)”, the government implemented nearly 293 reforms during this period across six key areas to improve the business environment and stimulate private sector growth.

The 6 main pillars include

Ensuring Exchange-rate flexibility and exchange rate policy reforms

Eight reforms, constituting 3% of all measures, targeted exchange rate policy. A major reform was the transition to a flexible exchange rate system in March 2024, which addressed unmet foreign exchange needs. Complementary measures included tighter monetary and fiscal policies, a 15% reduction in the funding of investment budget, and a currency swap agreement with the UAE in September 2023. Earlier reforms in 2022 and 2023 included enhancing exchange rate flexibility, rationalizing dollar expenditure, and issuing dollar savings certificates. These reforms are designed to stabilize the economy and control inflation.

Enhancing competition and competitive neutrality

Fifteen reforms, or 5% of the total, were focused on enhancing competition and ensuring competitive neutrality. Legislative changes were made to remove preferential treatment for state-owned enterprises and promote tax fairness. A decree in January 2024 eliminated tax exemptions for state entities, ensuring a level playing field for private investors. The Egyptian Competition Authority (ECA) began reviewing economic concentrations and issued 351 decisions in 2023. The ECA’s strategy for 2021-2025, the formation of the Higher Committee for Competitive Neutrality, and the launch of the Intellectual Property Strategy (2022-2027) have improved competition practices and transparency, according to the report.

Stimulating the industrial sector

To bolster local industry and reduce import reliance, the government introduced 78 reforms, representing 27% of all measures. These included a tax clearing system for investors and EGP 40.5 billion allocated in the FY 2024-2025 budget for industrial and export support. Financial incentives were provided, such as export rebates, lower electricity costs, and cash incentives for small businesses. Incentives for green hydrogen projects include tax exemptions and VAT relief.

The government has streamlined industrial investment by reducing application fees and expanding financing options. Significant projects in the Suez Canal Economic Zone (SC Zone) and agreements for local car assembly underscore the commitment to industrial growth. Support for SMEs includes initiatives to promote products in Africa and the National Initiative of Developing Egyptian Industry “Ebda“- an initiative to encourage local manufacturing.

Promoting investment and improving business climate

A focus on enhancing the business climate led to 108 reforms, accounting for 37% of the total measures. Key initiatives include the Golden License and Government Offerings Program, aimed at maximizing private sector investment. The Golden License program was expanded to 31 companies and supported by a new online platform (in both Arabic and English) to facilitate various processes for investors and improve the business climate.

Other measures include the launch of the Hafiz platform for financial and technical support, approval of 61 projects in Suez Canal Economic Zone (SC Zone), and streamlined processes through 22 Supreme Council for Investment decisions. Net FDI rose by 12.3% to US$ 31.6 billion in FY 2022-2023, with the private sector’s investment share increasing to 37%, targeting 48% by 2025, in line with Egypt’s Vision 2030 and structural economic reforms.

Amending the legal, regulatory, and institutional frameworks

To improve legal, regulatory, and institutional frameworks, the government introduced 63 reforms, or 21% of total measures. These included modernizing the tax system to enhance compliance and address business concerns. Law No. 87 of 2024 encourages private investment in health facilities while safeguarding public health services. New legislation regulates state-owned enterprises, and a central monitoring unit was established.

The Supreme Council of Taxes was created to support private sector involvement, and amendments to the Economic Court and Income Tax Laws streamlined legal and tax processes. Customs reforms aimed to boost exports and establish Egypt as a global trade hub. International agreements, such as with the UAE on double taxation and integration into China’s Silk Road initiative, have strengthened global partnerships. Laws eliminating tax exemptions for state entities and the creation of the National Council for Green Hydrogen further promote a competitive investment environment.

Implementing the State Ownership Policy

The government has enacted 21 reforms, making up 7% of total measures, to advance the State Ownership Policy and encourage private sector involvement. These reforms focus on improving governance, transparency, and competitive neutrality. The Government Offerings Program has generated US$ 5.6 billion from divesting 14 companies, with additional privatizations planned.

A draft law approved in May 2024 regulates state-owned enterprises, emphasizing on better governance and efficient asset management. Partnerships with the International Finance Corporation (IFC) and Abu Dhabi Ports Group aim to attract investments in sectors like energy and ports, enhancing the Egyptian Exchange (EGX) to record levels. The government is also restructuring state-owned enterprises to boost efficiency and expanding public finance policies to include more economic entities by 2030. Efforts to increase transparency include publishing reports on state-owned enterprises and procurement opportunities, aiming to build investor confidence, stimulate growth, and enhance market efficiency.

These comprehensive reforms are designed to drive sustainable economic growth, improve investment attractiveness, and create a competitive and transparent business environment in Egypt.