Egypt is a major trade destination strategically located at a crossroads between Europe, the Middle East, Africa and South Asia and has an area four times the size of the UK. It is a very large market, with a population of nearly 84 million which is expected to double in the next 25 years.
On 25 January 2011, Egypt was rocked by an unprecedented popular uprising, which ultimately toppled President Hosni Mubarak, whose nearly 30-year rule was marked by political oppression, allegations of corruption and growing poverty. The Supreme Council of the Armed Forces assumed power for the interim period. The first democratic elected president for Egypt, Mohammed Mursi, took office on 1 July 2012 after winning 51.2% of the vote. Abdel Fattah el-Sisi was sworn in as President following elections in June 2014.
There will continue to be a period of economic and political uncertainty until stability is restored. For companies looking to invest in Egypt, now is a time for assessing, performing due diligence, and looking closely at market development in relation to your particular sector. The business to business trading relationship will be less affected by recent events and will continue, though instruments such as letters of credit will gain in importance as a higher risk profile is encountered in the market.
UK – Egypt Relations
Britain has a long-standing and historic relationship with Egypt due to it being a former British protectorate and a strategically vital country in the MENA region. Britain remains the largest investor in Egypt, with direct investments from the top 20 UK companies operating in Egypt exceeding US$20 billion. Investments span diverse sectors such as financial services, energy, construction, tourism, pharmaceuticals, textiles and IT & communications. According to the Egypt State Information Service, ‘the number of companies, with British capital participation, working in Egypt exceeds 1000 companies, from household names such as BP, BG, Shell, Vodafone, GlaxoSmithKline and HSBC to smaller, high tech start-up companies’.
Egypt is an import-dependent country, and business relations and demand for British goods are predicted to remain healthy for the foreseeable future. Since the uprising, BG Group investments announced additional projects in Egypt of US$2.5 billion, and BP’s new US$11 billion investment, a vote of confidence in Egypt’s future, will create 5000 new jobs. Official figures provided to the Middle East Association show that total import figures from Egypt between January and December 2012 were £624m, down 21% from 2011. In terms of export over the same period, they totalled £921m down 11% from just over £1bn in 2011.
There are many reasons why British companies should consider Egypt as a possible destination to invest in or export to, and these include some of the following points:
- There are over 900 UK-invested companies operating in Egypt (source: GAFI, Egyptian General Authority for Investment), including companies such as British Gas, BP, Shell, Vodafone, Barclays, HSBC, GSK, AstraZeneca and Unilever.
- The UK’s investment portfolio is diverse including oil and gas, financial services, pharmaceuticals and telecommunications.
- Bilateral trade figures have risen every year but one since 2000 and continued to climb through the economic crisis and remains at record levels.
Egypt is an attractive market that can offer major business opportunities to informed traders and investors. Trade and investment between the UK and Egypt is promising. However it is not always an easy market. A successful entry into Egypt will be determined by the quality of the information and advice upon which the decision to enter is based.
Continued success is also dependent upon the ability to navigate the laws and practices of Egypt. The Egyptian market requires careful study and a sustained sales effort. There is strong competition from other exporting countries. Price and credit terms are a deciding factor when obtaining contracts, though quality is increasingly important. Back-up servicing facilities and the supply of spare parts is also important.
Having a local partner can be vital to successful penetration of this market. There are several reasons for this. Firstly, given the continuing bureaucracy, a local partner can shepherd the foreign business through the delays and obstacles. Secondly, foreign companies require a local agent to bid for government tenders. Thirdly, as the Egyptian market becomes more sophisticated there is a growing demand for after sales service, which a local agent can convincingly provide.
In general, British products and services are very highly regarded in Egypt for their quality. The main obstacle facing the growth of British involvement in the Egyptian market is that British products have a reputation as being expensive compared to some foreign products, though this has lessened slightly over the past year as exchange rate fluctuations have been in favour of UK exporters.
Strengths of the market
Egypt is an emerging market with a multitude of opportunities for business for UK Companies. It is an attractive location for foreign companies keen to expand their business in the region and has a stable environment with regards to infrastructure, climate, costs, language and geographical location.
- Egypt’s strategic geographical location in the centre of MENA region (800 million people) bridges the continents of Asia, Africa and Europe and makes it a hub for international trade between Europe and Middle & Far East. The Suez Canal links the Red Sea to the Mediterranean - a connection vital not just to Egypt but to the world.
- It is a highly accessible country through a number of airports and ports.
- The movement of goods has speeded up with an improved transport system and ports modernized.
- The cost of doing business in Egypt is favourable, particularly labour and land costs
- Egypt’s economy is one of the most diversified in the Middle East and has an area four times the size of the UK. It is the fourth largest economy in the Arab world after Saudi Arabia, the UAE and Algeria.
- The economy has been changing from central command and control to free market system with the private sector asserting its leadership.
- The state is being modernized. Efficient public administration methods and sound business management are being introduced and practiced.
Opportunities in Egypt
Egypt is a growing market that offers significant business opportunities to UK companies, predominantly in the following sectors:
- Oil and gas
- Education and training
- Environment and water
- Power and renewable energy
Events since the uprising have had a negative impact on the economy, as manufacturing declined, tourism collapsed and foreign investment dried up. Ongoing political instability, social unrest and high unemployment have acted as a drag on the economy and the incumbent government faces significant hurdles to reinvigorate growth and attract foreign investors. The economy saw negative growth of 4% year-on-year in the first quarter of 2011 and the value of the Egyptian pound has eroded by some 10% which has contributed to rising inflation. According to the World Bank, Real GDP growth slowed to just 2.2% year-on-year in October-December 2012/13 and investments declined to 13% of GDP in July-December 2012. A diagram of key economic indicators published by the Brookings Institute (May 2013) can be seen below:
Despite these challenges, it is important not to overlook the fact that Egypt has carried out a major economic reform programme since 2004. The reforms have centred around four main areas: reforming the tax system, transforming the customs administration, improving the business climate, and reforming the monetary and banking sector.
However, the market fundamentals remain sound, including a dynamic and young population, a large domestic market of over 85 million people, (expected to double in the next 25 years), and a diverse industrial economy. British business still sees Egypt as a natural hub for regional trade, positioned at the crossroads of Europe, Middle East and Africa.