Wednesday, 09 Jan 2013
Overseas Business Risk - Egypt
Political and Economic
Egypt has a strategic geographical location in the heart of the Middle East and North Africa (MENA) region with sea ports scattered over the Mediterranean, Red Sea and Suez Canal making it a hub for international trade between Europe, the Middle East, Africa and the Far East. The Suez Canal links the Red Sea to the Mediterranean – a connection vital not just to Egypt but to the world.
Egypt has undergone a dramatic political upheaval over the past two years. Mounting grievances over political oppression, corruption, and lack of social justice erupted into an 18-day revolution that toppled President Hosni Mubarak on 11 February 2011. The Supreme Council of the Armed Forces took over administrative and legislative control of the country until the presidential elections in June 2012.
The Muslim Brotherhood’s candidate Mohamed Mursi, who won 51.7% of the vote, took office on 1 July 2012 becoming Egypt’s first democratically elected president. A month later he appointed his first cabinet headed by Prime Minister Hesham Qandil. A new constitution is now being drafted. It will be put to national referendum and parliamentary elections will follow (probably around February/March 2013).
The Egyptian economy is still recovering from the adverse shocks of the revolution, after tourism collapsed, capital flowed out, foreign investment dried up, and fiscal pressures increased due to lower revenue collection and higher spending. Since then, growth has been held back by political and policy uncertainty, security problems, and the global slowdown.
The country is facing a number of economic challenges. The biggest is to restore growth and regain business confidence in order to attract investors and create jobs. Economic growth was 1.8% in the financial year ending June 2011 and 2.2% a year later; well below the growth level needed to create enough jobs for over 700,000 new jobseekers every year.
The government faces another challenge having to reconcile the aspirations of the people for better services and better living standards with the objective of reducing the fiscal deficit, which has reached 11% of GDP in FY2011/12. The authorities do not have much fiscal space given that nearly three-quarters of public spending goes to civil service wages, subsidies and debt service. A comprehensive reform programme is needed to increase state revenues and rationalise spending including through the reform of subsidies particularly energy subsidies.
The external side of the economy is also under pressure following the decline in tourism revenues and capital outflows, which have led to a sharp fall in the country’s net international reserves to nearly 3 months of imports. Weaker external demand, particularly from the Eurozone, is also hurting the economy.
Egypt’s near-term challenges are huge but the country’s medium-term outlook is favourable provided the authorities put together a comprehensive economic reform programme to salvage the economy and set a long-term path aimed at reducing the budget deficit and achieving high and inclusive growth. The programme will form the basis for negotiations with the IMF over a $4.8 billion loan.
Egypt remains an attractive market that offers significant business opportunities. Its economy is among the most diversified in the MENA region and its geographic location is hard to beat. Egypt also has a big and growing population, exceeding 80 million, of whom 50% are below the age of 25.
Business and Human Rights
Egypt continues to be a country of concern with regards to human rights. For more information, please refer to the FCO’s Annual Human rights report on Egypt and Quarterly updates.
Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
Rampant corruption has been one of the major causes of discontent which forced Egyptians to take to the streets in 2011. On most global indices, Egypt ranks below the regional average for MENA countries and behind her peers. Transparency International ranked Egypt 112th among 182 countries on its 2011 Corruption Perception Index. Global Integrity and Heritage Foundation’s Index of Economic Freedom echo Egypt’s weak performance on integrity indicators.
A Global Financial Integrity (GFI), US think tank, report found crime and corruption cost Egypt approximately US$6 billion per year. Much of this money, the report authors' note, was driven out by personal tax evasion, in addition to corruption and crime.
The OECD recognises corruption as a serious issue for business operations in Egypt. The findings of the Business Climate Development Strategy show that anti-corruption is the area in which Egypt is least compliant with international best practices.
Though several measures had been taken to strengthen and empower institutions in the fight against corruption, weak law enforcement, political interference in the work of anti-corruption agencies, and widespread conflict of interest had impeded the efforts to combat corruption. Lack of access to information, excessive limitations on media and civil society freedoms, and the lack of effective whistle-blowing mechanisms had also hindered efforts to fight corruption.
The revolution in Egypt has unveiled the pervasive corruption that existed under the Mubarak regime. A number of former ministers and government officials have been convicted of corruption charges.
The People of Egypt are now demanding greater transparency and they will continue to demand greater openness from any new government that will come to office. Egyptians want to have channels to inquire, question and demand transparency from the institutions that run the country.
A number of laws – such as bills to prevent conflict of interest and allow access to information – are being drafted, while several existing laws will be amended to close any loopholes that have allowed corruption to exist.
Read the information provided on our Bribery and corruption page.
Whilst attacks in Egypt can be indiscriminate and often take place in areas frequented by foreigners, it is not apparent that Western commercial interests are deliberately targeted. The last bombing in Egypt occurred in January 2011 when a bomb exploded outside a Coptic church in Alexandria. The last terrorist attack targeting westerners occurred in 2009 in the famous market area - Khan il Khalili. Prior to that incident there were bombings in 2006 in Dahab, 2005 Sharm El Sheikh and 2004 in Taba, the latter three all Red Sea tourist resorts located in the Sinai Peninsula.
Since the revolution there has been a decline in the capabilities of the security agencies due to ministerial paralysis. The election of a new parliament coupled with a revised constitution should enable the Egyptian authorities to gain the ascendency.
There have also been attacks in metropolitan Cairo, and there continues to be a significant threat in the Sinai Peninsula.
The most up to date information on the current situation is on the FCO Travel Advice.
Protective Security Advice
The Centre for the Protection of National Infrastructure also provides protective security advice to businesses
On the whole, the security situation is not a hindrance to the successful operation of British business in Egypt.
The crime rate in Egypt is low but you should safeguard valuables including your passport and money. You should carry some form of photographic ID at all times. A copy of your passport is sufficient.
The greatest danger to foreign visitors or residents is the traffic. Traffic rules are routinely ignored. Common hazards include unlit vehicles at night, few road markings, dangerously fast vehicles, vehicles going the wrong way up one-way streets, divided highways and connecting ramps, pedestrians dodging in and out of traffic, and animals on the roads. Most traffic lights in Cairo appear not to function, but rather are staffed by policemen who use subtle finger movements to indicate which cars may move.
Read the information provided on our Protective security advice page.
Read the latest Travel Advice for Egypt from the Foreign & Commonwealth Office.
IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, they you should consider registering your IP rights in your export markets.
Egypt is signatory to the main Intellectual Property Conventions (Rome, Paris, Berne & Washington). Egypt passed a new IPR law in June 2002, bringing practices in line with WTO Law 82 of 2002 provides for patents, copyrights, trademarks, and new plant varieties.
Egypt protects the creative works of authors under copyright and protects performers, producers of phonograms, and broadcasting organizations under related rights.
However, copyright piracy remains a major problem in Egypt.
The laws governing copyright and related rights are provided for in Articles 138 –188 of Law 82 of 2002 (copyright law), Prime Ministerial Decree No. 497 of 2005, and Prime Ministerial Decree No. 2202 of 2006. Egypt is a WTO member (1995) as well as being a member of the Berne Convention (1977) and the Phonograms Convention (1978).
As in many emerging economies, the scope and scale of Intellectual Property Rights (IPR) infringement in Egypt continues to outpace government enforcement efforts. Egyptian enforcement efforts are improving. But there are serious losses to Egyptian and international companies due to trademark counterfeiting, copyright piracy, and patent infringements.
Read the information provided on our Intellectual Property page.
Read the information provided on our Organised crime page.
For advice on serious organised crime visit the Serious Organised Crime Agency (SOCA) website.
More information is available on overseas business risk in a range of markets.