Egypt’s economy is the most varied of the Middle East economies, where sectors of agriculture, industry, tourism, and services contribute at almost equal rates in the National Egyptian Economy.
The Egyptian economy is an outcome of successive stages that targeted comprehensive structural economic reforms, especially during the last 25 years, to move towards a market -oriented economy, to liberalize stock market and to encourage the private sector which contributes by more than 70 % in the Gross Domestic Product.
In the domain of economic foreign relations, Egypt moves towards trade liberalization through its membership in World Trade Organization, and participating in many regional and international economic groupings like the Egypt-Eu Partnership Agreement, the Agreement to Facilitate and Develop Inter-Arab Trade with a view to establish the Arab Common Market, the COMESA group, the African Union, the Agadir Agreement, the G-8 Islamic countries, and the G-15 developing countries, in addition to many bilateral free trade agreements.
As for investment, Egypt possesses many investment-attracting factors. These factors are: a strong infrastructure of transportation and communication, cheap energy sources, skilled manpower, eligible industrial cities, a strong and secure banking system, and an active stock market, in addition to a climate of political, legislation and economic stability.
Therefore, many experts consider Egypt's economy to be in a competitive position among the advanced world economies.
Development of Egyptian Economy
The Egyptian economy passed through a number of stages since 1952 .The first stage started from 1952 to up till 1960,and was characterized by economic policies that moved towards redistribution of resources through the state's obvious intervention in the economic activity. The most remarkable policies were: the Land Reform law in 1952, the direction to industry to absorb more labor, the establishment of the Permanent Council
For Developing National Production, the start of the direct governmental investments in Iron and Steel Co in 1954, and the nationalization of the Suez Canal in 1956.As the intervention of the state increased, National planning Committee was established instead of the National Production Council.
The second stage which is called the comprehensive planning stage, started in 1960 to 1966, the most distinguished features of this stage are the national comprehensive economic planning and the Social application. A leading economic sector implemented the first five-year plan relying on policies the most important of which are the social laws regulating wages, working hours, prices, and the landlord-tenant relationship. This stage achieved a growth rate of 38% through the five-year plan.
In 1960, the War Economy stage started, where economy suffered the problem of funding the plan. Policies served the preparations to liberate the occupied Egyptian territories. The military expenditures increased to 5.5% from the GDP in 1962 to 10% of GDP in 1967and then to 20% of GDP in 1973.
The fourth phase started in 1974 .the economy changed to open-door economic policy. The most distinguished aspects of this stage are: the replacement of the comprehensive planning system by annual programs, and making use of Arab and foreign capital in development. During this stage a growth rate of 9.8% was achieved but it was related to the growth in services sector but not to the productive sector.
Consequently, a new stage started returning to the comprehensive planning (1982-1990) and pursued in the open-door policy and encouraging the investment. President Mubarak, since he came into power in October 1981,
initiated in executing a national project, on top of which comes the economic reform, hence, was the call for an economic conference to decide how and when the journey of the economic development starts. During the conference, experts agreed on the importance of following ambitious continual developing policies through five-year plans, which started in 1982The developing process in its first stage focused on building a strong infrastructure, and scheduling debts, in addition to concentrating the procedures of changing to market-economy, and minimizing the role of the public sector gradually and converting to private sector, while keeping the role of the state in managing the entire economy in a manner that secures its balance domestically and internationally.
The previous policies are thought to be a start of a new stage in the Egyptian economy whose results are reflected on the first five-year plan(1982/83-1986/87) Due to the presence of the factors stability and flexibility, and detailed objectives in this plan, it is believed to be a one of "comprehensible objectives and principles" and an applicable nature where the overall objectives are distributed among the economic activities and the responsible establishments so that every establishment is fully aware of the objectives required to achieve in the production.
Results of the economic and financial performance indicated a great improvement during FY 2006/2007 and first quarter of FY 2007/2008.Egypt’s economy achieved a growth rate of 7.1%which is the highest growth rate since ten years where Gross Domestic Product with productions factors cost increased to reach LE 684.4 billion.
2007 witnessed the increase of the public revenues and grants by 19.1% to reach LE 180.2 billion where incomes of tax increased by nearly 16.9% to reach to reach LE 114.3 billion. Non –tax incomes increased by 23.2% to reach LE65.9 billion while the income tax proceeds in FY 2006/2007 reached 58.5%, i.e. an increase of 21.3% as compared to the previous year. Also, proceeds of sale tax increased by 13.7% to reach LE 39.4 billion while customs proceeds increased by 7.4% to reach LE 10.4 billion due to increase of imports. Spending on wages and salaries increased by 11.6% to reach LE 52.1billion while the item of subsidies ,grants and social advantages increased to LE 58.4 billion. Deficit dropped from 9.2% to 7.5% of GDP.
The state started in the reform of pensions system and application of partnership between the government and private sector in carrying out the development projects taking into account that many institutional and administrative reforms were implemented to guarantee the reform sustainability.
This stage started since 1990 up till now in the framework of changing to mechanisms of the market and adopting many policies to treat structural and monetary imbalances, the most important of which are: liberation of bank interest rates and exchange rates, establishing a free exchange market, implementing privatization programs and liberalizing public sector and foreign trade.
In the 1990’s Egypt exerted great effort to change from directed economy to market-oriented economy which contributed to a drop in the deficit and a reduction in the inflation rate to less than 3% and in stabilizing exchange rate, in addition to trade liberalization, eliminating investment obstacles resulting in the increase of growth rate to .5%.
From 1991 to 1997, Egypt succeeded in the reform program and the Egyptian economy started to improve remarkably, however, it faced some difficulties as a result of the global financial crisis of Asia in 1997 leading the world economy to a stagnation period. Since 1997 the Egyptian economy faced a group of challenges represented in: an increase in deficit and a decline in oil revenues in foreign exchange .In spite of these challenges the deficit was made up through economic measures and legislation reforms in the customs, taxes and some important economic laws.
Economic Reform in different sectors:
In the frame work of the second policy of reform and liberalizing the Egyptian economy, Egypt, since 1991, has applied the privatization policy, as the state is no longer the only investor and its role is based on the indicative planning and directly implementing the public investments necessary for socio-economic development that is mainly focused on infrastructure projects.
As the privatization policy is deemed an essential component of economic reform, its program was based on special mechanisms that aim at adjusting the Egyptian economy for the privatization process through restructuring the economic institutions and regaining the balance needed in the main economic changes, together with adopting policies that contributed to opening the door wide before the private sector to enhance its participation in the economic activity.
The goals of privatization are:
• To increase the rates of usage of the energies available for business sector companies.
• To widen the ownership base among citizens.
• To allocate the income of the sale to repay banks debts
• To attract foreign capitals for investment.
• To activate the capital market
Tax law no .91 of 2005 reflects a new thought in the tax system's dealing with tax payers .The new Tax Law represents a qualitative leap and a new turning point in the Egyptian national policy .This law contributes to reducing the tax categories to about 50% or less for the benefit of the citizens and those working in economic activities. It provides many privileges, the most prominent of which are: tax exemption, tax conciliation, eradicate tax complications together with building bridges of mutual understanding between the state and tax payers in a manner that encourages local and foreign investment in Egypt.
Corporate taxes law targeted the attraction of all kinds of investments through a package of tax exemption and through postponing taxes for periods of time that ranges from 5 to 20 years according to the geographic location, after which the income is subjected to taxes.
In agreement with the global approach to attract domestic and international investments, the corporate tax was comprehensively improved in order to:
Facilitate investment and production
To encourage technology conveyance and reducing its cost
To provide continual resources of public revenues
Activate the ideals of tax fairness
As the economic reform program started, the sales tax replaced scheduler taxes. The sales tax system was subjected to different developments leading to its stability and to implanting its concepts in the society.
Custom Duties Reform:
February 2007 witnessed a presidential decree to reduce the custom tariff on 1114 items in order to promote investment and ease the burden on citizens.
In January 2007 a free –trade agreement was signed with EFTA countries to eliminate all custom duties on industrial exports and to exempt some agricultural goods traded between the two sides from customs.
The executive regulation of custom law was issued by the prime minister decree no 10 of 2006.All procedures and explanations were gathered in one document to be the only reference to dealing with customs in all Egyptian ports. Facilitating custom duties procedures is considered one of the most distinguished economic reforms that were entrenched during the recent stage through a number of amendments that aim at scoring the following:
1. Facilitate the customs tax structure.
2. Promote investments in the light of tax cuts on imports, tools, and spare parts.
3. Move the market ahead and reduce prices together with a major increase in exports.
4. Raise the economic efficiency by offering the consumer high quality commodities.
5. Eliminate the disputes that might emerge from the various categories of customs tariffs through reducing the average of tariffs to about 9 %, in addition to reducing the number of tariff categories from 26 categories to five only.
Banking reform in Egypt started with issuing a new law for the Central Bank in 2003 .Such law grants the bank full independence to practice its mission with freedom and efficiency and make the necessary amendments in the monitory policy, thus increasing the bank’s resources of foreign currency .In this framework, the state pays special attention to accelerate the banking restructuring program, expand processes of merging, and increase foreign contributions in the banking sector. This is because this sector witnessed expanded processes of merging during 2006 ,thus contributed to liberalizing the rate of exchange and activating the movement of market dealings in addition to motivating investments so that the value of local liquidity rose in June 2006 to reach about LE 560.4 billion at a growth rate of about 13.5%.
During 2007, the banking reform program managed to reduce the debts of the Banks Public Sector from LE 32 billion to only LE 10 billion.
The state’s treatment of its foreign debts improved radically regarding the amount of these debts, where the long-term debt reached 28.7 billion in 2002, which shows an economic stability.
The policy of financial reform adopted by the state lead to a further merging of the Egyptian economy in the global economy during 2005/06.Thus, foreign trade imports and exports increased to about 60% of GDP. Export commodities realized a remarkable increase that reached about LE 16600.0million and petroleum exports made an unprecedented leap scoring about LE7.100.0billion. The value of commodity imports in 2005/06 reached about LE27.870.0 billion so that the surplus of total balance of transactions witnessed an increase at about $3.5 billion against a surplus of 2.9 billion the last year and at an increase that reaches about 20%
Social Fund for Development
The SFD's objective is to develop small, medium and micro business because it occupies a major place in the socio-economic development case. Developing this sector is also concerned by the Egyptian government, the international funding agencies and the non-governmental organizations.
Since its establishment in 1991, the SFD has been creating job opportunities for small business owners. The SFD provides them by credit packages, technical support and technological knowledge, either Egyptian or international, necessary for their success.
The SFD objectives are:
1. Creating job opportunities for fresh graduates and unemployed youth.
2. Directing public investments towards, health, social, educational and environmental services.
3. Finding mechanisms to protect vulnerable categories including women, children and old aged, and improving their conditions.
4. Making national and voluntary organizations a partner in executing projects that serve targeted categories.
5. Consolidating partnership with governmental establishments in decision making.
The SFD poured LE 9 billions to establish and Fund more than 510 small and micro businesses by a fund of LE 6 billion, thus, creating 1.2 million job opportunity ,as well as,500 thousand temporary jobs, as announced by the secretary general of SFD in Youth Forum for Peace held in Alex in 2006.
During the coming period the SFD will work on providing loans to develop small business as an important mechanism to face unemployment. All facilities and incentives will be offered to encourage youth to establish small business. The SFD also offers facilities in the field of training youth and marketing their productions through establishing exhibitions inside and outside the state