Occupying the northeast corner of the African continent, Egypt is bisected by the highly fertile Nile valley where most economic activity takes place. Egypt’s economy was highly centralized during the rule of former President Gamal Abdel NASSER but opened up considerably under former Presidents Anwar EL-SADAT and Mohamed Hosni MUBARAK. Agriculture, hydrocarbons, manufacturing, tourism, and other service sectors drove the country’s relatively diverse economic activity.
Despite Egypt’s mixed record for attracting foreign investment over the past two decades, poor living conditions and limited job opportunities have contributed to public discontent, According to the CIA World Factbook. These socioeconomic pressures were a major factor leading to the January 2011 revolution that ousted MUBARAK. The uncertain political, security, and policy environment since 2011 has restricted economic growth and failed to alleviate persistent unemployment, especially among the young.
In late 2016, persistent dollar shortages and waning aid from its Gulf allies led Cairo to turn to the IMF for a 3-year, $12 billion loan program. To secure the deal, Cairo floated its currency, introduced new taxes, and cut energy subsidies – all of which pushed inflation above 30% for most of 2017.
Egypt’s macroeconomic situation is improving, with its twin deficits shrinking and inflation falling sharply in recent months. The Central Bank of Egypt (CBE) has cut key interest rates for the first time since the tightening cycle that accompanied the liberalization of the exchange rate in November 2016. Economic activity began to recover and unemployment fell below 12 per cent for the first time since 2011.
The economy grew by 5.2 per cent in the first half of the 2018/2019 fiscal year, compared to 3.7 per cent in the previous year, according to the World Bank, driven mainly by investment, exports and consumption. The gas extractive sector has been a major contributor to growth, especially since the operationalization of the large Zohr gas field in mid-December 2018. The improvement in energy supply has had an indirect positive impact on other sectors, particularly the manufacturing sector. The tourism sector has also begun to recover, aided by the impact of the devaluation of the local currency. The economic recovery has been accompanied by a steady decline in unemployment, which fell below 12 per cent for the first time since 2011.
Gross domestic product
Growth is accelerating despite ambitious measures to adjust public finances. The real growth rate of gross domestic product (GDP) was 5.3 per cent in the 2018/2019 fiscal year, compared to 4.2 per cent in the previous year. The main factors in this improvement were public and private investment and the flexibility of private consumption. The recovery of oil and non-oil exports, the Suez Canal and the tourism sector continued. However, state-led projects continue to play a key role in the economy, as evidenced by large public investments.
The World Bank expects a growth rate of 5.6 per cent in the 2019/2020 fiscal year, supported by private consumption, the continued recovery of the tourism sector and the utilization of the newly discovered natural gas fields. Public investment is also expected to grow, and private investment will recover if the business environment is effectively reformed.
Public finance control measures will be supported by an expected increase in tax revenues and further reductions in energy subsidies. Additional efforts are needed to improve the efficiency of public expenditure and the management of the tax system. Interest payments are expected to decline in the medium term through debt repayment and prolonging the maturity structure.
|Indicators||measuring unit||2016||2017||Change ±|
|GDP (at constant 2010)||Billion US$||260.82||271.72||10.90|
|GDP growth (annual)||%||4.35||4.20||-0.15|
|GDP per capita (constant 2010)||US$||2,725.7||2,785.4||59.7|
|GDP (at current value)||Billion US$||332.93||235.37||-97.56|
Source: World Bank.
In the context of the continuous efforts exerted by the industrial sector to support the industrial base and push Egyptian industrial products in foreign markets, production capacity in many basic industries increased by 25 per cent between the mid-1990s and the revolution in 2011. Egyptian industry has also succeeded in entering new fields such as advanced technologies and microelectronic software.
The industrial structure is based on seven industries, which account for more than 80 per cent of industrial institutions. The three largest industrial activities are concentrated in the textile, food and beverage and furniture sectors, followed by the mining, chemical and basic metals sectors.
Some transformative manufacturing firms saw remarkable development in the period following the uprising in 2011 until the end of 2017, with the cumulative total number of manufacturing firms during that period reaching 2.6 per cent, according to the Ministry of Trade and Industry. Meanwhile, the cumulative growth rate of the transformative manufacturing production value between 2011-2017 reached 4.3 per cent, causing the cumulative total value of production to reach about $86.44 billion in 2017 ($1=17.70 Egyptian pound), compared to $201 billion in 2011 ($1=5.93 Egyptian pound), according to the average official exchange rate for each year.
The growth rate of transformative manufacturing firms in 2017 was about 3.6 per cent, or 38,279 firms compared to 36,968 firms in 2016. The growth rate of total industrial outputs was 25 per cent in the 2016/2017 fiscal year compared to 11.8 per cent a year earlier, according to the Central Agency for Mobilization and Statistics (CAPMAS).
The food, beverage and tobacco industries ranked in terms of the number of manufacturing firms, with 8,143 firms of relative importance accounting for 21.3 per cent of the total cumulative number of manufacturing firms at the end of 2017. These are followed by the textile and leather industries (7,978 firms) and the engineering, electronic and electrical industries (7,525 firms), with a relative importance of 20.8 per cent and 19.7 per cent respectively of the total number of firms, according to the Ministry of Trade and Industry. In fourth and fifth place are the chemical industry (5,233 firms) and the wood industry (3,055 firms), with a relative importance of 13.7 per cent and 8 per cent respectively of the total number of firms.
The contribution of the industrial sector to GDP currently ranges from 17 per cent to 17.7 per cent, according to the Ministry of Trade and Industry, with plans to increase that to 21 per cent by 2020.
Agriculture and livestock
According to CAPMAS, the total land reclaimed for agricultural development during the 2016/2017 fiscal year was 157,422 hectares, compared to 155,803 hectares in 2015/2016. The total cultivated area of field crops, vegetables in the three seasons of each year and fruit gardens during 2015/2016 amounted to 6.4 million hectares, compared to 6.3 million hectares in 2014/2015, a 1.1 per cent increase. Meanwhile, the crop area cultivated with temporary or permanent agricultural crops (without repeating the varieties of crops grown more than once throughout the year) amounted to 3.7 million hectares during 2015/2016, the same as 2014/2015.
According to World Bank data, the value added in the agricultural sector decreased from $39.18 billion in 2016 to $37.03 billion in 2017, accounting for 11.5 per cent of GDP in 2017, compared to 11.8 per cent in 2016, constituting a 0.3 per cent decrease.
Agricultural exports have had a mixed performance in recent years. In 2018, they were 5.2 million tons, up from 4.74 million tons in 2017 and 4.43 million tons in 2016 but significantly down from 9.4 million tons in 2015, according to the Ministry of Agriculture and Land Reclamation.
The agricultural sector accounted for 24.8 per cent of the total workforce in 2017, which is a decrease of 0.73 per cent decrease when compared to 2016, according to World Bank data.
Livestock and poultry account for 42 per cent of the total value of agriculture in Egypt. CAPMAS estimated the total number of cows, buffalo, sheep, goats and camels at 18.3 million in 2016, compared to 18.2 million in 2015, a 1 per cent increase.
Egypt’s trade balance had a deficit of around $4 billion in August 2018, compared to a deficit of $4.1 billion the previous month. Exports totalled $2 billion in August 2018, with an 8.6 per cent decrease on an annual basis, and imports totalled $5.9 billion, with an 8.2 per cent increase on an annual basis.
The volume of foreign trade during the 2016/2017 fiscal year rose to about $78.8 billion (representing 33.5 per cent of GDP based on current value), compared to about $76.1 billion in the previous fiscal year.
The trade balance deficit declined by 8.4 per cent in the 2016/2017 fiscal year to about $35.4 billion, against $38.7 billion in the 2015/2016 fiscal year. This was driven by the increase in export revenues of about $3 billion to reach $21.7 billion, compared to about $18.7 billion in 2015/2016, according to the CBE’s annual report. Payments for commodity imports dropped to $57.1 billion in 2016/2017, compared to $57.4 billion in the previous fiscal year.
Regarding the export commodity composition, non-petroleum commodity exports accounted for 69.8 per cent of the total exports in 2016/2017, reaching $15.1 billion, compared to $13 billion in 2015/2016. While oil exports accounted for 30.2 per cent of the total exports, 2016/2017 saw a 15.4 per cent increase in oil exports to about $6.6 billion, compared to about $5.7 billion in the previous fiscal year.
Non-oil imports accounted for 80.4 per cent of the total imports in 2016/2017, compared to 83.8 per cent in the previous fiscal year. The proportion of food commodities and grain imports amounted to 22.5 per cent of the total non-petroleum imports in 2016/2017, compared to 21.1 per cent in the previous fiscal year, according to the CBE.
The problem of extreme poverty in Egypt has been dealt with practically. About one third of the population (27.8 per cent) live below the poverty line, according to the 2015 census. Moreover, the high rate of inflation between 2015-2017 led to a decline in household purchasing power, limiting the indirect positive effects of economic growth and severely affecting social and economic conditions. Inter-regional disparities continue to be part of the overall scene, with poverty rates in Upper Egypt three times higher than in major cities. Recent increases in social welfare payments have helped to mitigate the effects of inflation, but some groups have been left unprotected due to the inadequate coverage and orientation.
New Administrative Capital
The New Administrative Capital project aims to transfer the capital and create housing and jobs for about 2 million people. The large-scale project was announced on 13 March 2015 and is currently being built between Greater Cairo and the Suez Canal. It is planned to be the main seat of the government and foreign embassies and will include a park and international airport. The total area of the city will be 68,796 hectares and the expected population at completion of the city will be 6.5 million people.
The Ministry of Finance announced in December 2018 the completion of 60 per cent of the construction of the government district, parliament, administrative district, opera site in the arts and culture district, business and banking district, international airport, residential neighbourhoods, roads and bridges, power and water stations, alongside al-Fattah al-Alim Mosque and the Birth of Christ Cathedral, which were opened in early 2019.
Tourism witnessed several crises between 2011 and 2017, which began with the outbreak of the 25th January revolution and the subsequent events that affected the security situation and economic performance. These led to a 34.7 per cent drop in tourist numbers and a 47.9 per cent decrease in tourism revenues in the 2014/2015 fiscal year.
Several terrorist incidents in Sinai resulted in losses of more than $1.5 billion in 2016. In addition, the bombing of a cathedral in December 2018 led to the cancellation of about 40 per cent of hotel reservations in Cairo over Christmas from Arab countries, especially the United Arab Emirates and Kuwait, as well as several East Asian and European countries.
Official statistics showed that tourist arrivals in July 2016 fell by 41.9 per cent compared to the same month in 2015. Tourist companies experienced a 20 per cent drop in reservations in 2016 and have seen a staggering 75 per cent drop overall since 2011.
Russian visits to Egypt dropped by 60 per cent, British visits by 17.5 per cent and German visits by 10.4 per cent in 2017. However, Hurghada began receiving many foreign visitors who stopped travelling to Sinai. The tourism crisis forced hotel and tourist establishments to lay off 720,000 workers out of a total of 800,000 workers (90 per cent) in 2016 and 2017.
Tourism revenues reached only $500 million in the first quarter of 2016, a 66 per cent decrease compared to 2015, due to Russia’s withdrawal from the tourism market, which accounts for more than 40 per cent of the incoming tourism volume to Egypt, according to the State Information Service website.
By the fourth quarter of the 2016/2017 fiscal year, tourism revenues had risen to $1.5 billion, according to a Bloomberg report based on CBE data. Despite the recovery of the sector, revenues are still far below the $11.6 billion generated in the 2009/2010 fiscal year.
According to the Federation of Tourist Chambers, 100,000 Russian tourists visited Egypt in 2017, although there are no direct flights between Moscow and Cairo.
A recent study on the development of tourism traffic to Egypt indicated that the tourism sector achieved strong growth during 2018 compared to the years following the 2011 revolution. Preliminary data showed that the number of tourists increased by 40 per cent in 2018, reaching around 11.6 million compared to 8.3 million in 2017.
According to CAPMAS, Europeans accounted for 56.3 per cent of the total number of tourists in 2017, whereas Arab tourists accounted for 29.7 per cent, Americans 4.3 per cent and other nationalities 9.6 per cent.
The number of hotels and resorts declined from 1,057 in 2015 to 1,031 in 2016, whereas the number of floating hotels increased from 51 in 2015 to 54 in 2016.
|Number of Classified Hotels||255||261||6|
|Number of Rooms (Classified Hotels)||19,732||20,353||621|
Tourism sector indicators. Source: Department of Statistics.
Egypt has 40 private and public banks, including three Islamic banks. The largest bank is the National Bank of Egypt with assets of more than $48 billion, followed by Bank Misr with assets of $27 billion and Commercial International Bank with assets estimated at $13.5 billion.
The National Bank of Egypt, Bank Misr and Banque du Caire together control 40 per cent of the banking sector. All banks in Egypt are subject to CBE supervision, except Arab International Bank, Nasser Social Bank and National Investment Bank due to special provisions in law and treaty.
In November 2016, the CBE resorted to liberalizing its exchange rate as part of the economic reforms required by the International Monetary Fund for the disbursement of a $12 billion loan. This came after a parallel market developed and the market differential reached close to 100 per cent by the end of October 2016. Consequently, the Egyptian pound (EGP) lost almost half its value, dropping from 8.88 EGP to the dollar to 17.5 EGP a year after the liberalization of the exchange rate and about 17.8 EGP two years after this step.
The cabinet’s Information and Decision Support Center monitored the development of the net foreign exchange reserves in Egypt from 2014, until these reached $44.42 billion at the end of August 2018.
International market position
Egypt was ranked 100th out of 137 countries covered by the Global Competitiveness Index 2017-2018, 15 positions higher than in 2016-2017 and similar to the ranking it achieved in 2009-2010. The index revealed that the Egyptian government made major reforms in terms of the development of financial markets and infrastructure, in addition to opening the second Suez Canal in 2015. Some transport routes were also renewed, contributing to the expansion of delivery roads and railways.
The financial markets benefitted from Egypt’s liberalization of its exchange rate and the devaluation of the Egyptian pound at the end of 2016, which the banking sector managed to navigate relatively smoothly. The Global Competitiveness Index expected the country to benefit from its ambitious program of financial reforms, which included the introduction of value-added tax in 2016 and the gradual reduction of many fuel and energy subsidies. However, it stressed the negative impact on the macroeconomic environment resulting from the rise in inflation following the greater than expected devaluation of the Egyptian pound.
The index also noted that over the past decade, Egypt’s performance against developed economies has been relatively stable in terms of competitiveness, with the exception of infrastructure and the development of financial markets. The macroeconomic environment has seen the greatest decline in absolute and relative values, and today it is the country’s highest relative weakness, followed by innovation and labour market efficiency.
|Indicator||Rank (out of 138) 2016–2017||Rank (out of 137) 2017–2018||Change in rank ±|
|Health and primary education||89||87||2|
|Higher education and training||112||100||12|
|Goods market efficiency||112||90||22|
|Labor market efficiency||135||134||1|
|Financial market development||111||77||34|
|Global Competitiveness Index||115||100||15|
Source: Global Competitiveness Index 2016/2017 and 2017/2018.
The unemployment rate during the third quarter of 2018 was 10 per cent, slightly higher than the 9.9 per cent in the previous quarter but down 1.9 per cent compared to the third quarter of 2017. According to a labour force research survey for the third quarter of 2018, the labour force increased. The size of the labour force (both employed and unemployed people) also grew by 179,000 (0.6 per cent) to 29.2 million (23.4 million men, 5.8 million women). This was due in part to the arrival on the labour market of recent graduates.
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