For the past 13 years, Egypt has survived economic challenges every two to three years. It started with the 2011 and 2013 revolutions. In 2015, there was the first currency black market followed by the first significant devaluation by the end of 2016 when the pound lost half its value. COVID-19 in 2020, the Russia-Ukraine war in 2022, and the Gaza in 2023 all pushed Egypt’s economy to the brink.
“The government had to step in and stimulate the economy after seeing investments nearly stall between 2011 and 2013,” Hassan El Khatib, the newly-appointed Minister of Investment and Foreign Trade, told AmCham members on Oct. 22.
He said the current administration has invested about $550 billion in the economy to date. “Our focus was building new and upgrading existing infrastructure, which was severely lacking for many years – even before the [2011] revolution,” El Khatib said. “It was important for the government to take the lead.” That caused the private sector’s contribution to the economy to “drop from 75% to 25%,” he said.
However, that will change. El Khatib stressed the ministry is addressing this imbalance, aiming to return the private sector to leading the economy. “It is part of our transition plan,” El Khatib said. “The narrative needs to change, and it is.”
The investment minister sees government policies as the biggest problem facing the private sector. “The private sector is doing well, given the current circumstances,” El Khatib said. “The issue is with the policies.”
Monetary policy obstacle
The Central Bank’s (CBE) contractionary monetary policy led to all-time high interest rates (27.25% overnight interbank rate), meaning the cost of securing loans has never been higher. “The policy we always start with is the monetary policy,” El Khatib said. “It is key.”
He noted that “for the past three decades, CBE policies focused on keeping the exchange rate fixed, not lowering inflation. [We all] suffered because Egypt’s pound was [almost] always overvalued.” El Khatib noted. “Egypt’s small export base [suffered the most] because of that policy.”
In 2024, the CBE is rectifying that. “I assure you, monetary policy is now targeting inflation,” El Khatib said. “There is no more currency fixing. We are already seeing it in carry trade [where investors borrow low-interest money to invest in high-interest assets], which is moving in and out of Egypt without affecting our reserves.”
He added it is promising to see the exchange fluctuate every day. “Flexibility is what industry needs.”
Fixing fiscal policy
Another issue that El Khatib said is hampering the local private sector is the local tax system. “We have reasonably competitive [headline] rates. However, over the years, we [slowly introduced] additional taxes, fees, burdens, and levies. That made the picture more complicated and [therefore] not easy to address.”
Accordingly, the investment ministry is working with the Ministry of Finance on “an effective tax rate,” El Khatib said. “One number to tell investors is what they will be paying for the next 20 years … We want our policies to be transparent, clear, and predictable.”
In mid-October, the investment minister presented two tax-related modifications to the Cabinet. The first relates to how the universal tax is calculated. This 2.5% tax is taken from the top-line revenue of all companies in Egypt. However, it is not deducted from the “taxable” net profit.
“From a principal point of view, taxing revenue [in that way] is not right,” El Khatib said. “You are penalizing companies with … slim profit margins.”
The proposed change is to make that revenue tax deductible. Later, the universal tax would be calculated based on net profit, like all other taxes, instead of revenue. Proceeds would go to the universal healthcare fund. “We are still working out the rate and should announce it soon,” El Khatib said.
Another problematic tax all companies in Egypt must pay is “1% [of their net profits] to support employee training and rehabilitation,” El Khatib said. “Companies … are not seeing any benefit from this tax.” He convinced the Cabinet to drop that levy to 0.25%, and they are “working on exempting companies that offer their employees training.”
El Khatib praised the Ministry of Finance’s tax reform. “It is really transformative, closing the backlog that is over 10 years old, eliminating penalties, which sometimes were twice or three times the owed tax.”
El Katib also commended the Ministry of Finance’s updated tax provisions for SMEs, describing them as “transformative ” and “turning a new page” in the relationship between the government and taxpayers.
Challenges: trade
Another obstacle facing the private sector in Egypt is the country’s lack of competitiveness in international trade. “We rank 171 out of 189 countries in ease of international trade,” El Khatib said. “That is very shameful.”
Also troubling for El Khatib is that exports are only 10% of Egypt’s GDP. “That makes us one of the lowest-ranked nations worldwide,” he said. “This low rank is primarily because of our policies.”
The first challenge is to reduce the cost of importing goods. “It takes an average of 14 days to clear imported goods from customs. Each day costs [local businesses] $150 million,” El Khatib said. “That is a lot of time and money.” The investment minister noted that in Saudi Arabia clearing imported goods takes two hours, and in Marseille (France), it takes three minutes.
The ministry’s first target is to cut “one week from those 14 days” by the end of 2025, El Khatib said. ”Our [ultimate] target is to cut it … to two days.”
El Khatib stressed he is tackling one problem at a time. “The EU is our biggest trading partner. We have taken from them a list of the challenges they face when trading with Egypt and are working through each point individually.”
The minister aims to almost triple export revenue from $35 billion to $100 billion by 2030. “We need open and efficient borders to achieve that,” he said. That would also require imports to increase first, as “83% of our imports go to local industry.” El Khatib is not worried about those potential jumps. “Our imports stand at 20% of our GDP, which is very reasonable.”
Ultimately, El Khatib’s focus revolves around increasing exports rather than export substitution, which he sees as an opportunity for the local market.
He stressed that all reforms will “respect trade agreements, trade in general, and World Trade Organization rules and guidelines.”
New bureaucracy
El Khatib said his ministry is working with the General Authority for Investment and Free Zones to “analyze the roles of the 67 government agencies” that companies in Egypt must deal with to pay fees or secure services. “We are working on a solution: one ministry, one tax rate, one agency that receives payment. That agency can then pay dues to the rest of the government,” El Khatib explained. “Having a company open to 67 agencies is not acceptable.”
El Khatib is also tackling the availability of industry-ready plots. “The plots will be available via the Industry Development Authority. Investors will pay only the cost of the infrastructure.”
The investment minister also stressed the government’s commitment to privatization and the role of the sovereign wealth fund in creating lucrative local investment opportunities that meet foreign investors’ expectations and standards.
Selling assets will not be the first option, he said. “We need to [first] look at what it would take to manage them correctly [with the private sector’s help] and build a narrative around that.”
That strategy should help the ministry “rebalance” the private sector’s contribution to Egypt’s GDP.
Opportunities
Beyond the challenges, El Khatib said, “the opportunities are immense.” He has met with hundreds of businesspeople inside Egypt and abroad, as well as foreign government representatives, to discuss investing in Egypt. “There is huge interest in Egypt,” he said.
El Khatib noted that geopolitical tensions worldwide create opportunities in Egypt. “Onshoring is real, and supply chain shifts are also real … the result of the West versus China narrative.”
He also highlighted how countries that once were more attractive than Egypt are losing their edge, especially regarding labor costs. “We have noticeably high availability of local engineering expertise at a fraction of the cost” in other Arab countries, El Khatib said.
Investing in eco-friendly (green) solutions is a massive opportunity. “Our biggest opportunities are in green investments, which we haven’t exploited yet,” El Khatib said. “We can generate north of 100 gigawatts of electricity from renewables. One proposed project – floating solar panels behind the Aswan Dam — could generate 50 gigawatts, alone.”
He stressed that all those opportunities will be “only” for the private sector. “The government’s challenge [and role] will be to upgrade the [national] power grid.”
El Khatib also discussed the growing opportunity to sell “green hydrogen and ammonia [to] the European market … While those opportunities are expensive today, there is a great need for green hydrogen in the U.S. and Europe. The key to those projects will be concessional finance.”
The key to El Khatib’s plans predictably revolves around the private sector accelerating investment. “If you don’t invest quickly, the challenges will increase,” El Khatib told business leaders at the AmCham event. “You have to take a leap of faith and trust the government’s commitment to improving the business environment.”
This story first appeared in November’s print edition of Business Monthly.
