Egypt Open for Business

By

Dr. Hany Barakat

Ministry of Trade & IndustryEgypt

2008

Sustainable economic growth Deregulation as a driver for success Public-private partnership as a vehicle

for growthInvestor-friendly business environmentStable political conditionsReliable and transparent operating legal

environment

•Key Reform Objectives

•Introduction• Principles • Values

Macro-economic Fundamentals

Real Economy

GDP growth rate increased to 6 % and expected to reach over 7% in 2007

GOE introduced significant changes in the past 36 months increasing the ability of the economy to withstand exogenous shocks

Inflation down by approx. 13 percentage points between 2003/2004 and 2005/2006

Stable exchange rate

External position

C/A posted its fourth surplus in a row reaching $2.9Bn in 2005/2006

Key current inflows: hydrocarbons, Suez Canal, tourism, Exports , private remittances and FDI

C/A balance reached 3% of GDP in 2005/2006

Current Account Surpluses & capital inflows (2006) led to a significant rise in CBE reserves.

FDI Surge

Non-oil FDI tripled to USD 1.3 Bn bringing total FDI in June 2006 to USD 6 B.

In 2005/2006, newly established companies reached 6236 with an issued capital amounting to EGP 19.3 B, representing a leap from 1434 established in 2002/2003 with only EGP 3.8 B in issued capital

Issued capital from foreign sources doubled in 2005

Issued capital from Egyptian sources was twice as much as capital from foreign sources

68% of total issued capital was in the industrial and finance and services sectors in 2006

• Privatization

Reform of the public sector has been the hallmark of the new Govt.

Cumulative Privatization proceeds over the period July 2005 - 2006 reached LE 20 B representing 55 deals

This value is approximately equivalent to the total privatization proceeds between the years 1995-2000

Banking Sector Reform

A plan has been initiated to restructure the six main

Public Banks in Egypt .

Privatizing State owned Banks and Divesting Public Shares in Joint Venture Banks

Bank of Alexandria was totally acquired by Sao Paolo

10 major transactions over a period of 12 months

Stock Market

Market cap rose to 83% of GDP in April 2006 up from 50% in January 2005.

Reshaping of the organizational structure of the CMA and introduction of corporate governance department

Issuance of the executive regulation of the securitization law.

Strong Earnings Reports

Attractive valuations in absolute terms

 Attractive valuations in comparison with other emerging markets Average price earnings ratio of most of the actively traded

securities is 14-16 times 2005 earnings.

 Strong fundamental economic backdrop Strong earnings reports Active Mergers and Acquisitions Market

 Attractive dividend yields Many companies offer yields in excess of 10%

Stock Market

Mergers & Acquisitions

A 4-fold increase in M&A transactions between 2004 and 2006

15 M&A Major transactions in the financial sector in 2006

22 M&A Major transactions in the Industrial sector in 2006

Source: CBE and EFG-Hermes

The privatization program has regained momentum under the current government

The pace is likely to pick up in 2007 with additional targets in industries including banking, oil and gas, cement and insurance

Acquiring Party Date

Italcementi Group March 2005

Consortium led by Citadel Capital

July 2005

NSGB August 2005

IPO December 2005

Calyon January 2006

SIDPEC

IPO May 2005

Acquisitions in 2006

Measures to Improve Business Climate

New Customs Law

New Tax Law

Mortgage Law

Securitization Law

An amendment on the Corporate Law to allow the adoption of Employee Stock Option (ESP) Plans

Established the Investor Protection Fund (IPF) against non-commercial risk

Issuance of Codes of Ethics and Conduct for the Brokerage and Fund Management Activities

Legal and Structural Reforms

Europe-Mediterranean Partnership

Trade and Investment Framework Agreement

(TIFA)(with the US)

Greater Arab Free Trade Area

Bilateral Agreements with Libya, Tunisia, Morocco, Lebanon, Jordan and Syria

World Trade Organization

Free trade zone Agreement with Israel

Common Market for Eastern and Southern

Africa (COMESA)EGYPT

Preferential Trade Agreements

Immediate access to over 1 billion customers

Free Zones

•Corporate income tax exemption•Low infrastructure cost•No customs duty (except for sales into Egypt)•No Sales tax•Mere 1%annual duty on the value added of the project

Inland•Low infrastructure cost•Project contracts exempted from stamp duties and feesfor five years from the date of registry in the commercial register (Bank loan agreements, Mortgages)•Free land in Upper (South) Egypt•20% Tax rate on industrial projects•0- 5% customs duties on imported machinery

Incentive Schemes

Qualified Industrial Zones (QIZ) Agreement with the United States and Israel in December 2004 & other FT agreements

Special Economic Zones (SEZ)–The tax rate on all activities within these zones is 10%–First Zone Created under the new law: The North West Suez Special

Economic Zone.The Red Sea port of Ain Sokhna East Port Said located on the Mediterranean Sea.

Incentive Schemes

Establishing a ‘One-Stop-Shop’ at the General Authority for Investment Promotion (GAFI)

The one Stop Shop started operating in Cairo head office in 2004,

Opened in Alexandria in 2005 Three other governorates (Assiut, Giza and Ismailia).

Reduction of some administrative start up and operational barriers

Simplification Procedures

Investor Protection & Transparency

• Implementation of the executive regulations of Intellectual Property Rights Law passed in 2002

• Issuance of Antitrust Law (August 2005)

• Set up Competition Council to ensure the prohibition of anti-competition practices

• Institute of Directors (IOD) was established with the aim of strengthening corporate governance practices

• Issuance of the Corporate Governance Best Practice Code in Aug 2005

• Restructure of the Ministerial Committee for Dispute Settlement

• Specialized Economic Courts (in Progress)

•A new budget classification system compliant with IMF has been adopted to improve transparency on budget reporting

Investor Protection & Transparency

Fortune Global 500 (2006) Egypt

And the list goes on…..Egypt

Industrial profile

Strategic Vision &Targets

1.6

2.7

5.2

6

0

1

2

3

4

5

6

7

2002/2003 2003/2004 2004/2005 2005 / 2006

Real Growth of the Industrial Sec .

Ministry of Trade and Industry Trade & Industry Growth Plans

• Industrial Growth

Factories Built and Operated

( 2005 – 2006 ) : 610

–Number : Large ( <15 M ) : 110 Medium ( 5 – 15 M ) : 140 Small ( > 5 M ) : 360

–Total Investments : 10 B

–Employment : 100 Thousand Direct Jobs

Factories Under Construction

–Number of Factories Under Construction : 1227

– Land Allocated for new factories ( 2005 – 2006 ) : 4.8 M Sq meter for 496 factories

Total Number of Factories Under Construction : 1723

New Industrial Parks (Under Construction)

#CityProjectTotal Area

(Acers)

Total Investments

(LEM)1Robaiky / Badr

CityLeather Tanning

and Manufacturing110500

2Al Safa / Kalioubeia

Foundries142596

3Borg El ArabTextile & Ready Made Garments

60420

4DamiettaFurniture & Wood Products

150378

5Al Mahalla Al Kobra

Textile35249

6AssiutFurniture City20120

Ministry of Trade and Industry Trade & Industry Growth Plans

Ministry of Trade and Industry Trade & Industry Growth Plans

• Exports Performance

8826

33963675

4735

6201

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

01/02 02/03 03/04 04/05 05/06

M $

Total Exports (M$) : 2004/2005 : 6201

2005/2006 : 8826

Growth : 42%

Sectorial Distribution

• Exports Performance

Million $

Sector 05/06 Exports

Building Materials2425

TEX

Finished Garments620

Home Wear394

Spinning and Textiles294

**Total TEX1308

Chemicals1420

Engineering1179

Agriculture1665

Food Industry519

Pharma109

Furniture102

LeatherTannery82

Leather Products17

**Total Leather99

TOTAL8826

05/06 Exports Sectorial Distribution

Strategic Thrusts

–Industrial Zones–Human Resource Development–Industrial Modernization–Technology Transfer Centers–Exports Promotion–Development of Local Market

Egypt Open for Business