Egypt

Originally published: Jul-25-2006

Full Name: Arab Republic of Egypt

Government

Egypt is a republic which gained its independence from Great Britain in 1922. In 1971, it adopted a constitution that provides for three branches of government: Judicial, Legislative, and a strong Executive branch. Authority is vested in an elected president who appoints one or more vice presidents, a prime minister and a cabinet. The legislative body, called the People’s Assembly, has 454 members of which 44 are popularly elected and 10 are appointed by the president. There is also a 264-member Shura Council comprised of 174 elected and 88 appointed members.

Population

With an estimated 78.9 million population in July 2006, Egypt is the most populous country in the Arab world and the second-most populous on the African continent. Practically all of the country’s people live in Cairo and Alexandria. The population growth rate in 2006 is an estimated 1.75%. The primary ethnic groups are Egyptian, Bedouin Arab and Nubian. Languages: Arabic (official), English and French.

Legal System

Egypt’s legal system is based on English common law, Islamic law and the Napoleonic codes. Under the current president, Mohammed Hosni Mubarak, the courts have demonstrated increasing independence, and the principles of due process and judicial review have gained greater respect. Egypt accepts compulsory International Court of Justice (ICJ) jurisdiction, with reservations.

Economy

Currency: Egyptian Pound (EGP)

• EGP per USD: 5.80519 (July 25, 2006)
• EGP per EU: 7.34298 (July 25, 2006)

Economic Indicators

Egypt’s fiscal year ends June 30th.

f=forecast

Leading Markets (2004): Italy 11.9%, US 10.8%, Syria 6.2%, Germany 4.7%, Spain 4.2%

Leading Exports: crude oil and petroleum products, cotton, textiles, metal products, chemicals

Leading Suppliers (2004): US 12.2%, Germany 7%, Italy 6.6%, France 5.6%, China 5.4%, UK 4.7%, Saudi Arabia 4.1%

Leading Imports: machinery and equipment, foodstuffs, chemicals, wood products, fuels

Top Industries: tourism, agriculture, food processing, textiles, chemicals, petrochemicals, construction, light manufacturing, iron and steel products, aluminum, cement, military equipment

General Economic Situation

Egypt, one of Africa’s most prosperous economies, is continuing its gradual recovery from the declining growth rates of 2001 and 2002. It is still falling far short, however, of the long-term target of 7% per year. Reforms implemented since 2004 have rekindled consumer and investor confidence. The external financial situation has been good with increases in foreign currency earnings for oil, gas, tourism, emigrant workers and the Suez Canal. However, there has also been a rapid increase in spending (interest, subsidies, wages), resulting in increasingly widening deficits and debt.

A dynamic business sector provides prosperity and opportunities for a small part of the population. The majority, though, depend on traditional agriculture, poorly paid government employment and a large, informal economy.

Successful economic reforms have been implemented since the beginning of 2005, including floatation of the Egyptian pound, elimination of foreign exchange shortages and the related black market, reduction in tariffs, reduction of tariffs and simplification of the tariff structure, and a decrease in the red tape necessary to conduct business. Some of the results have been an increase in tourism and significant new natural gas exports. Egypt is considered on track to become the sixth largest gas exporter worldwide.

Business Climate

Starting in the early 1990s, Egypt has been following a path toward liberalization of its economic markets. There is currently no licensing system, although the import of certain products continues to require authorization from the Ministry of Foreign Trade. Trade agreements with the European Union, as well as the establishment of Qualified Industrial Zones (QIZs) allowing duty-free exports to the United States augur well for strong export growth.

Although reform is developing momentum, red tape is still a significant impediment to business in Egypt. Typical issues include the multiplicity of regulations and regulatory agencies, delays in clearing goods through customs, arbitrary decision-making, high market entry transaction costs, and a generally unresponsive commercial court system.

Perhaps the main risk in doing business in Egypt is the situation external to the country – conflict in the Middle East and terrorist activities emanating from other Moslem countries.

Patents and Brands: Egypt adheres to the Agreement establishing the World Intellectual Property Organization and is a signatory to the Agreement of Paris for the Protection of Industrial Property. It is a member of the Hague Convention on the International Deposit of Trademarks and Industrial Designs, and has signed the Convention on International Classification of Patents.

Foreign Exchange Control: Since 1994, there is no exchange control in Egypt. Free currency conversion is allowed, as well as the right to transfer profits and capital with no limitation on the amount or time-frame.

Business Practices

A local partner is essential to a successful entry in the Egyptian market. Egyptian business people network, much more than their western counterparts, and who you know is extremely relevant to the potential for success or failure.

Egyptian business people and government employees tend to be conservative. Foreign businessmen should not only wear a suit and tie, but also ensure that everything is spotless and shoes are polished. Women should dress modestly – longer skirts and higher necklines.

When sitting, keep both feet on the floor since showing the bottom of your shoes to an Egyptian is considered an insult. Refrain from using hand gestures or pointing as this too is considered rude. Eye contact is good with the businessmen, as it conveys honesty. However, the same eye contact with an Egyptian businesswoman could be considered to convey too much intimacy.

Most business meetings will begin with coffee and small talk, but steer clear of questions about the Egyptian’s family, particularly female members. Exchanging gifts, not necessarily expensive but with some meaning, is an established custom, so be prepared to both give and receive gifts even from brand new contacts. As with many eastern countries, time is flexible in Egypt. It is not unusual for meetings to begin late and run well over, so prepare your agenda accordingly.

Credit and Collections

• Collection Experience: Fair-Poor
• Exchange Delays: 6 months
• Preferred Credit Terms: Confirmed Letter of Credit
• Minimum Credit Terms: Unconfirmed Letter of Credit

Risk Assessment

Coface Country Risk Rating: B - An unsteady political and economic environment is likely to affect further an already poor payment record.

Ducroire Delcredere Political Risk Rating: 2 (low)

Ducroire Delcredere Commercial Risk Rating: C (high) -- of a private buyer being unable to meet its financial obligations or not honoring them without any legitimate reason. Commercial risk not only depends on the situation of the buyer at its micro-level, but also on macroeconomic and systemic factors impacting on the repayment capacity of all the buyers in a country.

Sources for further information on doing business in Egypt

American Chamber of Commerce in Egypt: Detailed information on business laws, incorporation, taxation and various regulations.

Doing Business in Egypt: 2007 Country Commercial Guide, U.S. Department of Commerce

Egyptian Investment Portal, Ministry of Investment: Information about the economy and business laws of Egypt and reasons for doing business in Egypt, from Egypt’s perspective.

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Hong Kong. For further information, contact info@abc-amega.com.

This report represents a compilation of information from a wide variety of reputable sources including: the U.S. Department of State, U.S. Commercial Service, CIA World Factbook, Federation of International Trade Associations, and Economist Country Briefings.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere

Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," June 2006.