Market Overview

At 78.8 million, Egypt is by far the largest Arab country by population.  It sits in the heart of the Middle East and has a reasonably well-educated labor force.  Egypt’s economy, traditionally associated with agriculture and particularly cotton, has become much more diversified than in the past.  Its unmatched ancient monuments and spectacular coral reefs have made tourism its single largest foreign exchange earner.  It is also a major oil and gas producer, with natural gas production increasing rapidly.  The clothing and textile sector is the largest industrial employer and also a major foreign exchange earner.  Other major industries include steel, cement, chemicals, pharmaceuticals, and light consumer goods.  Agriculture, although shrinking as a percentage of GDP, still employs almost 30% of the population.

The U.S. is Egypt’s largest bilateral trading partner.  Egypt is a significant importer of American agricultural commodities, machinery, and equipment.  The U.S. is also the second largest investor in Egypt. , Roughly two-thirds of total U.S. investment is in the oil and gas sector, but also includes investment in areas such as consumer goods, pharmaceuticals, automobile production, and financial services. Given its strategic position in the region, Egypt continues to benefit from strong donor support. The U.S. Government has worked closely with Egypt on its economic reform program, and is its largest bilateral aid donor.  U.S. non-military economic assistance to Egypt in FY  2006 was more than $490 million.

Since 2005 – due mainly to a new reformist government that was appointed in the summer of 2004 – the economy has improved considerably.  The reformers have successfully floated the Egyptian pound, eliminated the foreign exchange shortages along with the black market, reduced tariffs and simplified the tariff structure by cutting the number of rates and categories, moved to reform the financial sector, introduced measures in Parliament to simplify the tax structure while lowering rates, reduced the amount of red tape necessary to conduct business, etc.  The economy is now growing at a 6% rate and the new measures have inspired a wave of enthusiasm in the business community.

The reforming spirit has been supported by other, tangible economic considerations.  Tourism revenues are on the rise and Egypt began significant natural gas exports in 2005 and is expected to eventually reach the level of the sixth largest gas exporter worldwide.  Suez Canal revenues are also up smartly and various trade agreements with the European Union and regional countries such as the Free Trade Agreement with Turkey and the establishment of Qualified Industrial Zones (QIZs) allowing duty-free exports to the United States augur well for strong export growth. 

Market Challenges

Although the reformers have developed considerable momentum, red tape remains a business impediment in Egypt, including a 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.

Market Opportunities

U.S. firms have competed successfully for major infrastructure projects in Egypt.  More projects are on the way, some of which have regional impact, such as airports, telecommunications, TV broadcasting, and port projects.  The petroleum, power generation and transmission, and telecommunications/information-technology sectors represent the most promising sectors in Egypt.  Tourism, as the largest earner of foreign exchange and employer of more than 10% of Egyptian workers, also offers strong possibilities.  Expansions in the Red Sea resorts provide increasing opportunities for exporters of hotel equipment and environmental management services.  Airports and other infrastructure being built to serve the new resorts also represent additional opportunities for U.S. exports and investment.  Tourism along the Red Sea coast continues to be a big draw and the government is pushing development along the Mediterranean coast as well.  These opportunities are attracting U.S. project management expertise and quality U.S. building systems and equipment.

Market Entry Strategy

A local partner is imperative to successful penetration of this market.  There are several reasons for this.  First, given the continuing bureaucracy, a local partner is necessary to shepherd business through the delays and obstacles.  Second, foreign companies cannot bid directly on government tenders; they must act through local agents.  Third, as the market becomes more sophisticated in Egypt, there is a growing demand for after-sales service requiring the services of a local agent.