Egypt Country Report

Infortal Worldwide Geopolitical Risk Summary  

Egypt has one of Africa’s largest economies and populations. It is located at the confluence of the African and Asian continents, linking North Africa to the Middle East. It is also home to one of the busiest shipping lanes in the world, the Suez Canal, linking Africa, Asia, and Europe together. 

While Egypt offers enormous potential for lucrative business and investment opportunities, regional unrest, geopolitical risk, and a precarious domestic political climate make navigating these opportunities a clinical task. 

Political Update 

Egypt has been under authoritarian rule since current President Abdel Fattah al-Sisi came to power via a military coup in 2013 after mass protests called for former President Mohamed Morsi. Al-Sisi’s rule has displayed characteristics common to authoritarian rule, such as restrictions on civil liberties and harsh suppression of political opposition, which has led to the imprisonment of thousands of journalists, activists, and others. In 2019, new constitutional amendments extended al-Sisi’s ability to rule until 2030. This prompted protests that were put down by government security forces. 

Egypt has taken a nuanced approach to the conflict between Israel and Gaza. While it generally condemns violence from both sides, it is particularly wary of Hamas due to its ties to the Muslim Brotherhood. This radical political group has been outlawed in Egypt following the events of the Arab Spring. It has maintained an open dialogue with Israel and, like other Arab countries, has refused Palestinian refugees. This can be explained by Egypt’s strategy of non-alignment with major global power blocs such as the US and its close allies. This allows Egypt to pursue its geopolitical desires in the region. 

Economic Update 

Egypt’s economic performance is one of the country’s primary concerns. Economic reform and development have been high on President al-Sisi's agenda, resulting in several policy shifts to tackle some macroeconomic challenges facing the country, such as poverty and attracting foreign investment. 

The fallout from the COVID-19 pandemic and, more recently, the war in Ukraine has led to rapidly increasing inflation due to supply chain issues. Egypt was largely reliant on Russian and Ukrainian grain exports. Interruptions in the production and exportation of grain from these two countries have heightened food costs and contributed to high inflation levels. Other pervasive economic challenges include the rising cost of living, a high fiscal deficit resulting from extensive government spending, and high unemployment rates, particularly amongst youth and young adults. 

Critical investments in infrastructure, trade liberalization policies, and shifts in fiscal and monetary policies are being used to curb inflation and address some of the other macroeconomic challenges facing Egypt. Beginning in 1990, efforts to liberalize trade with other countries have successfully driven a significant increase in trade. Some more recent initiatives important to this growth have been the implementation of free economic zones, the construction of ports, and designated industrial areas along the Suez Canal. This has attracted international trade, businesses, and investors and is vital to Egypt’s economic diversity.

Key Investment Sectors 

Egypt’s Suez Canal particular economic project, SCZONE, comprises 4 designated industrial zones served by six ports. Each zone has unique target industries. 

1. East Port Said Industrial Zone: Key investment and business opportunities are in the following industries: the electric power industry, ICT and hardware, construction and building materials, engineering equipment and machinery, robotics and automation, textiles, home appliances and electronics, pharmaceuticals, automotive assembly, food processing, and logistics services.
2. Sokhna Industrial Zone: Target areas in this zone include energy components manufacturing, refinery products, construction and building materials, chemicals and petrochemicals, heavy industry, textiles, automotive assembly, and food processing.
3. West Qantara Industrial Zone: Agribusiness due to its proximity to extensive farmlands, textiles, logistics, and administration. West Qantara is well situated to be a logistics hub due to the large population in the Ismailia administrative district and the developed infrastructure between it and Cairo.
4. East Ismaila Industrial Zone: East Ismailia is set to be the tech hub of SCZONE, aiding West Qantara in logistics and trade with complimenting tech industries. 

Additional potential investment opportunities lie in tourism, green energy, telecommunications, infrastructure development, and real estate and construction.

Egypt has attracted foreign investors to its SCZONE project by enabling the ease with which investors and businesses can navigate customs and regulatory red tape. The zone is managed by an authority independent of Cairo whose sole focus is the tax and regulatory environment of all economic activity in SCZONE. This separate administrative body has expedited the ease businesses and investors can operate through and in SCZONE. Although the implementation of special economic zones has made doing business easier, there are still challenges regarding navigation regulations and Egyptian bureaucracy.

Recommendations for Companies and Investors  

Challenges facing foreign companies in Egypt include the complex and often uncertain bureaucracy and legal limitations regarding business licenses and permits, political uncertainty and unrest, security, corruption, obscurity in navigating the legal system, and high import costs. 

Navigating the bureaucracy in foreign countries is often difficult and can take considerable time and effort to obtain business licenses and permits, among other things. This requires careful consideration and examining your regulatory and legislative risks. 

Egypt’s special economic zones and separate administrative authority have made things more straightforward. However, challenges persist. Partnering with local companies or consultants familiar with bureaucratic processes and regulations can bring more timely results and help establish valuable local connections. The Middle East, particularly states in the Arabian Peninsula, has taken advantage of the unique economic zone concept to attract foreign investment. Competition between these countries for foreign investment and the provision of services will drive further innovations and attractive policies in these specialized zones. 

Egypt has been susceptible to political unrest and insecurity due to terrorism and extremist groups. This has led to instability in the country and harsh government policies, which have raised human rights concerns. Operating in polarized environments such as this can bring a level of uncertainty. Cultural differences can also accurately assess the situation on the ground. Including contingency plans in your business model for uncertain times is necessary when operating in Egypt and the Middle East. 

Broader geopolitical concerns also must be accounted for, as they can significantly affect the security and efficacy of your business and investing models. For example, the war between Israel and Gaza has prompted Houthis in Yemen to launch missile attacks on shipping vessels, leading to hiked insurance rates and diversion of shipping around the Cape of Africa. This has impacted the viability of the Suez Canal as a reliable shipping lane. Including geopolitical risk analysis in decision-making is necessary for your business's secure and productive functioning. 

Corruption is a pervasive problem in Egypt, particularly in the construction, real estate, and tourism industries. Lack of transparency in the government and large public infrastructure projects renders it vulnerable to corruption scandals. This means that companies must prioritize due diligence of supply chains, business partners, and transactions with local entities to safeguard the company from corruption allegations for which they may be held liable. Adopting clear policies and developing a risk-minded culture in your company may help to avoid being caught in corruption schemes. 

US businesses in Egypt must consider the country's risk profile and carefully assess any new business partners by conducting in-depth due diligence investigations.  

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For a deeper review of political, economic, due diligence and security risks for Egypt, please contact us.