The U.S. is Egypt’s largest bilateral trading partner, and Egypt is the fourth largest export market for U.S. products and services in the Middle East. Globally, Egypt is the 33rd largest export market for the U.S. In 2010, the bilateral trade is expected to exceed $7 billion. 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.
With a population of over 80 million, Egypt is by far the largest Arab country. It sits in the heart of the Middle East with a growing economy that has become much more diversified than in the past. It is a major oil and gas producer, with natural gas production increasing rapidly. Investment needs in power infrastructure remain substantial. The government is putting in place an institutional framework for privatepublic partnerships (PPPs). PPP projects in the pipeline include building and maintaining public schools, hospitals, potable and wastewater stations, and freeways. Unmet demand for housing construction is currently estimated to be 200,000 units annually. In 2008, the U.S. Overseas Private Investment Corporation (OPIC) signed an agreement with the Government of Egypt to provide $250 million in financing to local banks to provide mortgages for affordable housing. Other significant sectors of interest to U.S. companies include steel, cement, chemicals, pharmaceuticals, renewable energy and light consumer goods. Agriculture, although shrinking as a percentage of GDP, still employs almost 30% of the population. Egypt imports most of its meat, and all of its wood and grains.
Due to the current global financial situation, a slowdown in economic activity was expected. According to the IMF estimates, economic growth fell to 4½-5½ percent in 2008 and 2009 (from a 7 percent average in the last three years), with inflation declining to 8-12 percent over the same period. The international economic crisis is also likely to weaken FDI flows and net exports of goods and services would most likely decline as key markets shrink and export prices fall. On a positive note, the financial sector has escaped the negative effects of the international crisis so far. This can be attributed to improved banking supervision, conservative lending practices, and the central bank recently guaranteeing all bank deposits.
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. Also, pervasive corruption is of serious concern, which in turn adds significant inefficiencies to commerce. In 2009, Egypt was ranked 111 out of 180 countries on Transparency International's Global Corruption Perception Index. Potential investors should check out the track record of would-be partners before making a big commitment.
In spite of transitional and at times ill-defined regulatory frameworks that pose significant downside risk to doing business in Egypt; the country still has the potential to be counted among the emerging markets poised to offer good returns for foreign investment. The reality of the risk diminishes with the application of due diligence and thorough market research.
U.S. firms have competed successfully four 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
Cultural differences alone dictate appointment of an Egyptian representative to help navigate the complexities of doing business with locals. In fact, a local partner is imperative to successful penetration of this market because foreign companies cannot bid directly on government tenders and they must act through local agents. Also, as the market becomes more sophisticated in Egypt, there is a growing demand for after-sales service requiring the services of a local agent.