Egypt’s financial services sector is one of the oldest and most developed in the region. It is a key component of the economy contributing around 7% of GDP.
FINANCIAL SERVICES? EGYPT
Alan Penrith - Director, Trade & Investment
Hanaa Ramzy - Economic Officer
Naglaa Fanous - Advisor, Trade & Investment
Last revised: November 2009
Whereas every effort has been made to ensure that the information given in this document is accurate,
neither UK Trade & Investment nor its parent Departments (the Department for Business, Innovation
and Skills, and the Foreign & Commonwealth Office), accept liability for any errors, omissions or
misleading statements, and no warranty is given or responsibility accepted as to the standing of any
individual, firm, company or other organisation mentioned.
Published November 2009 by UK Trade & Investment.
Crown Copyright ©
FINANCIAL SERVICES - EGYPT
Table of Contents
CHARACTERISTICS OF MARKET 4
THE KEY METHODS OF DOING BUSINESS 17
MORE DETAILED SECTOR REPORTS 25
CONTACT LISTS 26
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Egypt?s financial services sector is one of the oldest and most developed in the
region. It is a key component of the economy contributing around 7% of GDP
(including pensions). The sector has been subject to reform efforts over the past
decade and half but the reforms undertaken in the past five years, in particular,
have transformed the financial landscape in Egypt.
The appointment of a new government in July 2004, under Prime Minister Ahmed
Nazif, saw the creation of the Ministry of Investment bringing all non-banking
financial services as well as the asset management (privatisation) programme
under one umbrella. The new ministry pledged to reinvigorate the financial sector;
upgrading the stock exchange, overhauling the insurance sector, creating a
mortgage market, and stepping up the privatisation of public assets. The banking
sector, under the supervision of the Central Bank of Egypt, was also subject to a
comprehensive reform programme launched in September 2004. Public Private
Partnerships in services and infrastructure projects were introduced.
The financial sector reform was part of a major agenda for macroeconomic and
structural reforms aiming to put Egypt on the path towards a full market economy.
The government adopted a series of bold policies including cuts in import tariffs,
slashing income taxes, simplifying tax filing procedures, and streamlining the
country?s investment climate.
The reforms paid off. Economic growth reached levels unseen in over a decade
expanding by an average 7% in the past three years (from 4.3% in FY 2003/04).
External indicators were healthy fuelled by strong growth of external receipts, a
declining foreign debt, which is mostly bilateral and concessional, and rising net
international reserves. Foreign direct investment hit record highs diversifying away
from the petroleum sector into real estate, manufacturing, financial services,
agriculture, tourism, services, and ICT where Egypt is becoming a major player in
But just as Egypt was preparing to consolidate its achievements and prepare for the
second phase of reforms, the country was faced with soaring global commodity
prices. Inflation shot up to over 23% and the budget suffered from the sharp rise
in bread and energy subsidies. Then, the global financial crisis hit. The initial
financial contagion was contained by limited direct exposure to toxic assets and low
levels of financial integration, but Egypt was susceptible to the real spillovers of the
global slowdown. Exports, Suez Canal receipts, tourism revenues and foreign
investment plunged. However, sustained reforms since 2004 reduced the fiscal and
monetary vulnerabilities and policy actions taken, including a stimulus package,
helped cushion the impact of the global slowdown on economic activity in Egypt.
The economy expanded by 4.7% in the financial year ending June 2009, beating
forecasts by economists, the IMF and the Egyptian government.
£1= approx. LE8.85 (September 2009)
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CHARACTERISTICS OF MARKET
Tight regulation and the reform of the financial sector have sheltered Egypt
relatively well from the fall-out of the global financial crisis. The authorities are
keen on maintaining strong supervision of the sector. One important development
is the launch of a single regulator for the non-banking financial sector in July 2009.
The Egyptian Financial Supervisory Authority will oversee the capital market,
insurance, mortgage finance, financial leasing and other activities, such as
factoring. The mandate of the new authority also includes promoting transparency
and disclosure, furthering knowledge and protecting the rights of investors.
The Egyptian banking sector is stable despite the global financial crisis, thanks to
the considerable progress of reform over the past five years, tight regulation, the
unsophisticated nature of products, and the dominance of domestic financing and
investment. Egyptian banks have no toxic assets and they have strong and liquid
balance sheets with a loan to deposit ratio below 54% (48.3% for local currency,
68.8% for foreign currencies).
For decades, the banking sector was dominated by the public sector due to the
1956 nationalisation campaign. During 1957-1974, state-owned banks were the
only players in the market. In 1974, access for foreign banks was permitted but a
minimum 51% domestic ownership was imposed on joint venture banks
establishing in Egypt. The market remained dominated by the four state-owned
commercial banks ? National Bank of Egypt, Banque Misr, Banque du Caire and
Bank of Alexandria ? which held majority stakes in many of the newly established
joint venture banks.
In the 1990s, the banking sector witnessed radical changes. Curbs on interest
rates were lifted, direct credit controls were removed, restrictions on banks?
commissions and fees were eliminated, prudential regulations were upgraded, and
foreign banks were allowed to deal in local currency. In 1996, the banking law was
amended to allow joint venture banks to be wholly foreign-owned, though CBE
approval was still needed for shareholdings exceeding 10%. The government?s
decision to sell public stakes in joint venture banks allowed many international and
regional banks ? such as Barclays, HSBC, Societe Generale and BNP Paribas ? to
buy out their public sector partners gaining majority control of their joint ventures.
As the banking sector was being transformed so was the regulator. Banking Law
88 was promulgated in 2003 granting the Central Bank of Egypt (CBE)
independence and putting it under the direct supervision of the President. A new
management team was appointed in December 2003 and nine months later, the
CBE Governor announced a comprehensive plan to overhaul the banking sector.
There were 57 banks operating in Egypt but the market was under-branched (one
branch per 24,500 people) and under-penetrated (only 10% of the population with
bank accounts). Many of the banks were insolvent suffering from poor asset quality
and huge portfolios of non-performing loans (NPLs). The reforms focussed on
consolidating the highly-fragmented sector, privatising the remaining joint venture
banks, restructuring public banks with the privatisation of at least one bank,
settling NPLs, stabilising the foreign currency market and strengthening CBE
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The requirement for banks to raise their paid-in capital by July 2005 to LE500
million for domestic banks and joint ventures and $50 million for branches of
foreign banks sparked a wave of mergers and acquisitions. Several international
and regional banks ? such as Greece?s Piraeus, Lebanon?s BLOM and Audi, Bahrain?s
Ahli United Bank, Abu Dhabi-based Union National Bank, and National Bank of
Kuwait ? seized the opportunity to acquire local banks in order to gain access to the
Egyptian market in the presence of a moratorium on new banking licences. Others
such as France?s Societe Generale and Credit Agricole, which were already
operating in the market, increased their market share through the acquisition of
large private banks. A number of weak banks were forced to merge and four
foreign banks decided to cease operations. The number of banks fell from 57 in
mid-2004 to 39 by mid-2009 (five public banks including two specialised, 27 private
and joint venture banks, and seven branches of foreign banks).
The privatisation of public banks was a highlight of the banking reform programme.
Bank of Alexandria, the smallest of the four commercial public banks, was prepared
for its long-awaited privatisation and after a highly competitive auction, Italy?s
Intesa Sanpaolo in October 2006 acquired an 80% stake, in a deal worth $1,612
million (5.5 times book value). The remaining 20% stake will be sold through an
initial public offering on the stock exchange, with a 5% stake allocated to the
employees of the bank. Banque du Caire, the third largest public bank, was also
cleaned up in preparation for its sale in 2008. Investors were invited to bid for 67%
of the bank but the government cancelled the auction saying the bids were too low.
The bank is now off the privatisation list.
In the meantime, the two largest public banks ?National Bank of Egypt and Banque
Misr ? were subject to financial and operational restructuring. Experienced bankers
from the private sector were recruited, early retirement schemes introduced and
loan portfolios cleaned up. ING Baring and ABN Amro were appointed to restructure
the IT, human resources and risk management functions of the two banks.
Decisive efforts were made to clean banks? balance sheets and settle performing
NPLs which had reached 25% of total loans (in 2004), using a CBE-led arbitration
approach. A special unit for dealing with NPLs was established within every bank
reporting to the bank?s board of directors and the CBE. More than 90% of private
sector NPLs were settled and the CBE expects to close the NPLs file by the end of
2009. The first credit bureau (I-Score) was established to provide credit
information about borrowers? payment histories, allowing banks and mortgage
lenders to make well-informed credit decisions.
Strengthening the regulator was fundamental. The CBE?s systems, regulatory and
supervisory framework and human capabilities were upgraded. The CBE last year
completed a two-year programme with the European Central Bank, through three
of its members, to provide technical assistance and capacity building to implement
a new banking supervision system based on international standards. This helped
the CBE shift its banking supervision from a compliance-based approach to a risk-
based one. A new three-year programme with the European Central Bank was
launched in January 2009.
The success of the banking reforms encouraged the CBE, in May 2009, to announce
the launch of the second phase of the reform programme. The new stage aims at
enhancing access to finance particularly for small and medium enterprises,
increasing the efficiency and risk assessment capacities of the sector, implementing
Basle II, restructuring the specialised banks and continuing the restructuring of the
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other three public banks, and strengthening the CBE?s technical capacities. The new
phase also involves strengthening monetary policy tools, formulating advanced
models for inflation measurement and forecasting, strengthening the interbank
market, and launching a CAIBOR by end-2009. The CBE will sell its stakes in three
banks ? Arab African International Bank, British Arab Commercial Bank and United
Bank. It is already in negotiations with the Kuwaiti Finance Ministry to arrange a
public offering of 60% of Arab African International Bank, which they jointly own,
by no later than 2011, and to sell its 7% stake in British Arab Commercial Bank to
the Libyan partner. The CBE also plans to sell its 99.8% of United Bank (formed as
a result of bailing out three failing banks) by the end of 2011.
The reform of the banking sector and the CBE?s commitment to upgrading the
sector was acknowledged by rating agency Moody?s Investors Service. In August
2009, Moody?s said that the outlook of Egypt?s banking sector was stable citing the
system?s relative isolation from and resilience to the global financial crisis and the
considerable progress of banking reforms. However, the sector faces some
challenges including the high lending concentrations, mismatches in the maturity
profile of assets and liabilities and the still weak fundamentals of state-owned
banks, which account for nearly 43% of the sector?s total assets. The market is
also still relatively fragmented. But the banking sector has huge potential to grow
and develop new products to attract savings and expand the customer base.
Egypt?s Islamic banking may start growing with the influx of Gulf banks entering
the market, although the authorities have not shown any strong signs of trying to
boost this segment. Islamic banks are regulated by the same banking law as
conventional banks (Law 88 of 2003).
Islamic banking in Egypt dates back to 1961; however, the market has not
developed as fast as the Gulf and South East Asia. Over the past decades,
monetary authorities have put undeclared reservations on the establishment of
fully-fledged Islamic banks, though it allowed a number of commercial banks,
including public banks, to set up branches that deal in Islamic banking. This is
mainly due to the financial disaster brought about by the so-called Islamic
investment companies in the 1980s, which turned to be a little more than pyramid
schemes promising returns far above local interest rates then collapsing causing
millions of Egyptians to lose their savings.
In mid-2009, there were three Islamic banks operating in Egypt in addition to 13
conventional banks that have between them 85 Islamic branches. One of the
country?s Islamic banks ? Islamic International Bank for Investment & Development
? was forcibly merged in 2006 after years of struggling with high debt and failing to
meet the new capital requirement. Islamic banks accounted for 3.2% of banking
sector assets in 2006. There is no data for Islamic branches of conventional banks.
The Central Bank is not granting new Islamic banking licences to existing banks or
new entrants because it sees no shortage in the market (economic needs test).
Banks that want to deal in this business need to acquire a bank that has an Islamic
licence. Over the past three years, several Gulf banks such as Abu Dhabi Islamic
Bank and National Bank of Kuwait have acquired Egyptian banks with Islamic
licences. These banks will be looking at expanding the sector and introducing more
sharia-compliant products. Analysts expect the share of Islamic banks to increase
to 7% with the entry of these banks.
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The Egyptian Exchange (EGX)
The Egyptian Exchange (EGX), formerly known as Cairo & Alexandria Stock
Exchanges (CASE), has become one of the most active and best performing
bourses in the emerging markets with gains exceeding 800% between 2004 and
2007. It is one of the highly regulated and most open securities exchanges in
emerging markets with a strong core of diversified sectors. It is also one of the
deepest, most liquid and open exchanges in the MENA region making it the first
Arab exchange to gain membership of the World Federation of Exchanges in 2005.
There are 324 companies listed covering 17 sectors, of which 11 have shares
traded in the form of Global Depository Receipts on London Stock Exchange.
The Egyptian stock market, the fifth busiest in the 1940's, is one of the oldest
bourses. Alexandria Stock Exchange was officially established in 1883 followed by
Cairo in 1903. The chairman of the Board of Directors is appointed by the Prime
Minister whereas the board is elected from the market participants, in addition to
representatives of the Central Bank of Egypt and the banking sector.
The main laws governing the securities market are Capital Market Law 95 of 1992,
which lays the regulatory framework within which the exchange and financial
intermediaries can operate, and Central Depository Law 93 of 2000 regulating the
shareholders? record keeping and clearing and settlement. Before the launch of the
Egyptian Financial Supervisory Authority, the market was regulated by the Capital
Market Authority, which was responsible for maintaining the integrity of the bourse
and overseeing key market participants. The stock market follows the international
standards governing capital markets including the principles of the International
Organisation of Securities Commissions, the corporate governance rules of OECD,
the International Financial Reports Standards (IFRS) and the anti-money laundering
directives of the Financial Action Task Force on Money Laundering (FATF).
Member firms are classified according to the activities they are licensed to perform.
All licensed securities intermediaries can undertake cash transactions and over the
counter trading. Other activities such as margin trading, short selling, electronic
trading, intra-day trading and primary dealers require a special permit. Foreign
member firms are treated on par with their Egyptian counterparts. There are no
restrictions on foreign participation in the market and no rules against repatriation
of dividends or capital gains. No taxes are levied on dividends, capital gain and
interest on bonds for individuals, mutual funds and international funds.
The Capital Market Law promulgated in 1992 breathed life into the market, which
was severely crippled during the period of nationalisation, and the privatisation of
state-owned companies through public offerings in the 1990s provided impetus for
the revival of the market. The authorities worked strenuously over the past decade
and half to develop the market infrastructure and regulations. The reforms
undertaken over the past four years focused on enhancing supervision of financial
institutions working in the market, raising trading levels, protecting investors?
rights, promoting disclosure and transparency and developing new investment
vehicles. The capital requirement for all brokerage firms was increased, rules
prohibiting insider trading were imposed, a settlement guarantee fund was set up
to clear unsettled transactions, and a fund to protect investors against non-
commercial risks was activated. The settlement period for all securities was reduced
over time to T+2 (T+0 for securities traded by the intra-day trading system and
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T+1 for government bonds traded through primary dealers). Listing rules were also
tightened to attract only quality companies to list on EGX and companies that did
not comply with disclosure and corporate governance principles were delisted. The
rules also introduced the concept of Egyptian Depository Receipts (EDRs), to
facilitate the listing of regional and other foreign issuers, and accommodated for the
listing of new products such as Exchange Traded Funds and sukuks.
New investment tools and instruments were developed to increase trading, market
depth and liquidity. Online trading, margin trading, short selling and same day
trading were introduced leading to a 15-25% increase in the volume of trading. A
number of structured products (open and closed-end certificates) issued by
international investment banks ? ABN AMRO, Deutsche and Goldman Sachs, on the
EGX30 price index are currently listed and traded on various European exchanges
including Euronext, SWX, Frankfurt, Stuttgart and Borsa Italiana. BNP Paribas
launched the first Exchange Traded Fund on the Dow Jones EGX Egypt Index, which
tracks the 20 blue chips of the Egyptian market in terms of free float adjusted
market capitalisation, sales and net income. The fund's certificates are traded in
Euros on Euronext. A new trading system ? OMX ?X-Stream? ? was launched last
November to accommodate a larger number of transactions, and allow the
simultaneous trading of several asset class products, including derivatives.
The authorities? efforts to develop the market have paid off and EGX, which the
Financial Times described in 1993 as a sleepy coffee house, is now one of the
leading and active bourses in emerging markets with more than LE1.5 billion
($270mn) worth of trading per day. In the past five years, trading value multiplied
12 times from about LE42 billion ($7.6bn) in 2004 to LE530 billion ($95.5bn) in
2008, trading volume rose tenfold to 25.6 billion securities. Foreign investors hold a
third of the market; more in case of blue-chips. The UK is the top foreign investor
on the Egyptian Exchange accounting for 41% of foreign trading in 2008.
2008 was a difficult year for the exchange. Buoyed by the impressive performance
in 2007 (up 51%), the market was very bullish rising 13% to a new peak on 5 May.
But, a raft of decisions taken by the government on the day, including cancelling
the tax-free status of free zone energy-intensive projects, imposing a 20% tax on
interest on treasury bills and rumours that the authorities might consider imposing
a capital gains tax, caused the market to plunge. EGX lost 15% of its value in less
than ten days. The slump in international markets and the global financial crisis in
September had their toll on the Egyptian market, which suffered an immediate blow
tumbling to its lowest levels in over 18 months. Concerns about slower economic
growth, higher inflation and eroding corporate profit margins (after cuts to
subsidies on fuel to energy-intensive industries and subjecting them to income tax)
also contributed to the market plunge. Market capitalisation was 53% of GDP at the
end of 2008 from 86% of GDP the previous year.
But unlike equities, the bonds market remains underdeveloped particularly the
secondary market. Government bonds, offered on EGX since 1998, are categorised
into treasury bonds and housing bonds, with T-bonds accounting for the bulk of
trading on the bond market. Most T-bonds are held by banks, insurance companies
and mutual funds that tend to hold on to them until maturity reducing activity on
the secondary market. The corporate bond market is small. There are only four
corporate bonds, of which two offer fixed coupon rate and two are floating. Only
private companies with credit rating of at least BBB- are allowed to issue corporate
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bonds. There are six listed securitised bonds, with a total size of LE 1.7 billion at
the end of December 2008.
Nile Stock Exchange (Nilex)
An important milestone for the Egyptian market was the launch of a small cap
bourse. Nile Stock Exchange (Nilex), the first small cap market in the MENA region,
was launched in October 2007 to give small and medium enterprises access to
capital by easing registration and lowering fees while maintaining transparency and
disclosure rules. Nilex will provide growth opportunities for SMEs, which account
for nearly 90% of Egypt?s GDP. Companies, from any country and any industry,
with paid-in capital of between LE500,000 ($91k) and LE25 million ($4.5mn) can
list on Nilex. The companies should have a minimum free float of 10% of total
issued shares within one year of listing and at least 25 shareholders. Trading will
occur via an auction system and transactions will be settled on a T+2 basis. Similar
to NOMADs on the London AIM market, Nilex candidates need to have an adviser.
Over 20 firms including certified financial consultants, investment banks and private
equity firms have obtained licences to act as advisers. In August 2008, Nilex had
the first landmark transaction when Tarek Nour Group sold 49% of its shares to
Omnicom?s DDB Europe for $70 million. Currently there are three companies listed,
of which two are preparing for the offering of a portion of their stocks. Trading on
Nilex has not yet started. A number of investment banks are setting up new funds
to invest in SMEs.
Nilex Future Plane
The authorities are committed to the development of the capital market, upgrading
the regulatory infrastructure, promoting transparency and disclosure, increasing the
product mix available to investors by listing and trading Exchange Traded Funds
and sukuk, and stimulating the corporate bond market. Egypt also aims to
introduce derivatives in 2011, starting with futures trading linked to the main
index, while trading in other instruments such as swaps and options would be
considered later. It was originally intended for the end of 2009 but was pushed
back because of the global financial crisis. Promoting the Nilex is also a priority.
Factoring and Leasing
Non-traditional financial instruments such as factoring are not much talked about.
Although the law regulating the activity was passed in 2007, the actual application
started this 2009. Factoring is now regulated by the Egyptian Financial Supervisory
Authority (EFSA). At present there are just three companies operating, two of
which are public companies for credit guarantee and export credit guarantee.
There are no official statistics on the size of the factoring portfolio. Currently,
factoring is mainly targeting SMEs.
Financial leasing has been available in Egypt since 1995; however the size of the
portfolio does not exceed LE28 billion (June 2009), mainly targeting SMEs and
focussing on construction and vehicles. There are 267 registered leasing companies
but only 10 are active. EFSA is drafting amendments to the law to promote leasing.
Micro-lending, mainly served by NGOs and the Social Fund for Development (funded
by donor agencies and the Egyptian government), is attracting attention. Citadel
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Capital, one of the leading private equity firms in Egypt and the region, has set up a
new portfolio company (Tanmeyah) earlier this year. Others are in the pipeline. A
law is currently being drafted to regulate micro finance companies, which will be put
under the supervision of the Egyptian Financial Supervisory Authority. Several
issues need to be addressed including taxation issues as the new companies are
subject to a 20% income tax while the NGOs are tax exempt and supervised by the
Ministry of Social Solidarity. There is large unmet demand for micro finance services
in Egypt where the default rate for micro loans in Egypt does not exceed 2%.
The Egyptian insurance sector is small and underdeveloped by international
standards. Insurance premiums represent 1.1% of GDP. The underdevelopment of
the sector is a result of the lack of awareness of insurance among the population as
well as the dominance of the public sector. State-owned insurers have a 52%
market share though they have been less successful recently in expanding their
business (70% market share in 2003/04). Growth in the life insurance business
outstrips the non-life and much of this growth is driven by foreign companies.
However, there are still only 1.2 million life insurance policies in a country with over
76 million people.
The insurance sector is regulated by Law 10 of 1981 and its amendments and Law
72 of 2007 for Motor Liability Insurance, while private insurance funds are governed
by Law 54 of 1975. In July 2009, the Egyptian Financial Supervisory Authority
replaced the Egyptian Insurance Supervisory Authority in the supervision and
regulation of the market.
The sector comprises 29 insurance companies ? two state-owned companies and
three local private companies transacting all classes of insurance; nine joint venture
companies transacting property and liability insurance; six joint venture firms
transacting life insurance; seven Takaful (Islamic) insurance companies, one co-
operative insurance society; and one credit guarantee company. There are also
638 private insurance funds and four government insurance funds.
The Egyptian market was highly protected until June 1998 when Parliament ratified
a law that permitted the privatisation of the four state-owned companies and
abolished the 49% ceiling on foreign ownership, though holdings over 10% still
require the authorities? approval. Several international insurance companies such as
Allianz, ACE and AIG entered the market by acquiring controlling stakes through
the privatisation of joint venture firms, while others such as Legal & General opted
to set up Greenfield operations with local partners. But certain restrictions
remained. For example, only Egyptian natural persons were allowed to offer
insurance intermediation services.
Overhauling the insurance sector was a key priority for the Ministry of Investment.
The plan focused on reforming the regulatory environment, restructuring public
insurers and strengthening supervision. The law was amended to raise the capital
requirement of all insurers, separate the practices of life and non-life insurance
companies, obligate car insurance and develop insurance intermediation services.
Corporate entities were allowed to act as insurance brokers and the restriction that
intermediaries be Egyptian was lifted (7 corporate brokerages are now operational
including international brokers such as Marshy and Grassavoa). The role of the
regulator was also strengthened and supervision of insurance companies was
shifted from being compliance-based to risk-based supervision. The high stamp
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duty on insurance policies, often perceived as a major obstacle to the development
of the industry, was also cut, and measures were taken to pave the way for
developing a banking insurance (bancassurance) marketing system.
The restructure and privatisation of state-owned insurance companies was also on
the agenda. A new company was established to manage real estate assets owned
by public insurers and a holding company was set up to assume responsibility for
the financial and operational restructuring of the four state-owned companies in
preparation for their eventual privatisation. In December 2007, Al Chark Insurance
and Egypt Reinsurance were merged with the largest state company Misr Insurance
creating a giant with a market share of 54% of the general insurance market and
34% of the life insurance business (March 2009). The plan is now to separate the
life insurance unit from non-life operations in preparation for an initial public
offering of the life unit by July 2010, if conditions permit. The remaining public
company, National Insurance, was also restructured and its capital strengthened.
Both public companies are still under a structuring programme to improve their
customer base and product offering.
The authorities hope that the reform of the insurance sector over the past three
years and efforts to raise public awareness among new potential customers will
contribute to the expansion of the insurance market in a market which has many
uninsured and underinsured individuals and companies. The second phase of the
reform programme, launched in 2009, focuses on developing small and micro
insurance, enforcing corporate governance principles, issuing a code of ethics for
the insurance industry, expanding insurance services nation-wide through obliging
new companies to establish branches outside Cairo and big cities, and encouraging
companies to expand regionally. Discussions are also underway with the Central
Bank of Egypt to relaunch a revamped bancassurance system, which has been put
on hold for some time. The government?s target is to raise insurance premiums
from the current 1.1% of GDP to 2% within 2-3 years and 3% in the longer term.
There is huge potential for growth and insurance companies are encouraging the
authorities to add new compulsory insurance types (only three in Egypt) to realise
the potential in the sector.
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The Egyptian housing finance sector is growing but it remains underdeveloped with
outstanding mortgages representing a meagre 0.4% of GDP. The mortgage market
started to take off in 2006, five years after the promulgation of the mortgage law.
Prior to the passage of the law, housing finance was available in the market
through consumer lending by banks and instalment payment facilities provided by
Starting July 2009, the Egyptian Financial Supervisory Authority replaced the
Mortgage Finance Authority in the development and regulation of the market. There
are 11 specialised mortgage finance companies and 17 banks offer mortgages.
There are also trained mortgage appraisers, brokers and some mortgage legal
agents. Total mortgage lending reached LE3.7 billion (0.36% of GDP) in June 2009,
from LE16 million in June 2005. About 34% come from mortgage finance
companies and 66% from banks. The Central Bank of Egypt restricts banks?
maximum mortgage commitments to 5% of their total loan portfolio in order to
limit their exposure to mortgage risk. The Central Bank also limits real estate
lending to 5% of a bank?s loan portfolio.
The country?s first mortgage finance legislation was ratified in August 2001.
Mortgage Finance Law 148 allowed banks and specialist companies to issue
mortgages and provided, for the first time under Egyptian law, clear procedures for
foreclosure on property of defaulting debtors. A mortgage may be given to
purchase real estate, to build a new house or to renovate an existing property.
Mortgages are also available for commercial properties. However, the law remained
ineffective for three years. Not a single loan was provided until mid 2004.
When the Ministry of Investment was created in July 2004, developing the
mortgage business became one of its top priorities. The ministry and the regulator
began working with other ministries to address the key problems hindering the
development of the mortgage market; including property registration, the cost of
finance for borrowers and mortgage lenders, and the lack of consumer credit
Several measures were taken to tackle these obstacles, build the market
infrastructure and move the system into full gear. Property registration procedures
were simplified, registration fees were capped at LE2000 instead of 12% of the
property value, stamp duties on mortgage contracts were abolished, and a credit
bureau (I-Score) was established to provide credit information. Moreover, training
and licensing for appraisers, brokers and foreclosure agents was provided and
public awareness campaigns were launched. To address the shortage of long-term
financing, the Central Bank and 24 financial institutions established the Egyptian
Mortgage Refinancing Company to offer secured loans over a period of 20 years.
The recent successful closure of several foreclosure cases, brought when the
borrowers defaulted, would also reduce lenders? risk and encourage lending.
The expansion of mortgage coverage to the middle-to-lower income segment was a
priority. The Mortgage Guarantee and Subsidy Fund was created to offer a cash
subsidy to low-income groups who want to buy a house. The fund offers applicants
earning LE1,750 a month or less (or families earning LE2,500 or less) a grant of up
to 15% of the value of the property they are purchasing, up to a maximum of
LE15,000 (the authorities plan to increase this to LE25,000) for properties worth
LE95,000 at most. The fund also offers payment insurance to lenders, covering up
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to three months of unpaid instalments. Up to June 2009, the fund had provided
about LE42 million to subsidise 4486 units. Middle-to-lower income segments
accounted for 60% of outstanding mortgages.
But despite the steady growth of mortgage finance in the past three years, it
remains under-utilised partially because of cultural factors that make Egyptians
generally less comfortable with taking out large loans over long periods of time, but
more importantly because of the high interest rates. The average interest rate for
a mortgage over the past five years was about 12.7%. There is also a mismatch
between real estate demand and supply. While there is demand for housing among
the middle-to-lower income segment of the population, much of the properties
developed were targeted at the high-income consumers. Government figures show
there is a backlog of 2-3 million units needed in the housing sector. About 300,000
units are needed every year, while annual supply ranges between 150,000 and
200,000. The government has recently partnered with the private sector to
encourage the construction of affordable houses.
Mortgage lending has a huge potential to grow and the country?s demographics
(over 50% of the population below 25 years old) ensure there will be steady
demand but there is a need for long-term, cheaper credit. The development of a
strong bond market and securitisation will be crucial. The government?s target is to
increase mortgages to LE40 billion within seven years.
Public Private Partnerships - PPP
The Egyptian government has traditionally been the major provider of infrastructure
projects. However, with an increasing population, an expanding economy and tight
finances, the government has announced a plan to promote Public Private
Partnerships (PPP). The government will contract the private sector to build, finance
and operate infrastructure for public services with the public sector retaining the
provision of the core social services (such as education and medical care).
The government had used private finance initiatives to secure funding for large
projects in the late 1990s. Legal procedures to allow build-operate-transfer (BOT)
concessions were a major element of the 1997 and 1998 legislative programmes.
The country?s first BOT project was a 40-year concession to build a private airport
(signed in February 1998). A number of power plants, airports, seaports and gas
grids were built with private sector participation. However, the Egyptian experience
uncovered a number of obstacles to promoting private participation in infrastructure
The reformist government of PM Nazif was determined to address these obstacles
and reintroduce public private partnership with advice from the UK. A Central PPP
Unit was established in June 2006 within the Ministry of Finance (reporting directly
to the minister). The unit is responsible for co-ordinating the PPP national agenda
across ministries and public bodies and supporting line ministries on all forms of
The government then embarked on an ambitious PPP programme to expand public
services and infrastructure projects including schools, water and wastewater plants,
hospitals and roads. Projects are currently tendered under Law 89 of 1998
regulating tenders and bids for public procurement until the draft PPP law is
debated and ratified by parliament.
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Funding PPP projects in local currency is one of the obstacles to attracting foreign
investments but the government argues that the high return will mitigate the
foreign exchange risk. The lack of long-term financial instruments and the absence
of a yield curve also makes it difficult to price long-term debt in Egypt. The longest
T-bond is 20 years (LE1 billion maturing in 2025) and the authorities seem
reluctant to issue bonds longer than 10-15 years. To encourage investors, the
Ministry of Finance provides its guarantee and commits to annually reviewing
interest and inflation rates pertaining to the value of operation and maintenance as
well as interest rates on loans. In case of contract termination, the financing
bodies obtain their funds from the state, which acquires ownership of the project.
No special preference is given to Egyptian investors bidding for PPP projects,
although Tenders Law 89 gives priority to an Egyptian investor bid by 15%.
The country?s first PPP project ? a wastewater treatment plant ? was awarded to a
team of Egypt's Orascom Construction Industries and Spain's Aqualia. The contract
was signed on 29 June 2009 and financial closure is expected by the end of 2009.
The 20-year contract involves the design, construction, financing, operation and
management of a new wastewater treatment plant in New Cairo, a new community
on the outskirts of Cairo. The plant will have a capacity of 250,000 cubic metres a
day (cm/d) of wastewater.
Contracts for the construction of two public university hospitals and a blood bank in
Alexandria are also expected to be signed. Three new projects ?two wastewater
treatment plants and an axis road will be put out to tender and seven other
projects are in the pipeline. The authorities expect to close LE15 billion worth of
PPP projects by June 2010. Egypt has plans for $15 billion worth of PPP projects
over the next five years.
Details of the government?s PPP agenda are listed under the Opportunities section
of this report.
The Central Bank is not issuing new banking licences for foreign or domestic banks.
New applications are subject to an economic needs test. As such, even though the
banking sector is completely open to foreign investment, entry is currently only
possible through the acquisition of an existing entity. Several international and
regional banks have gained access to the market through the acquisition of existing
banks. There is a lot of potential in the market where less than 15% of the
population have bank accounts. Mortgage finance, SME lending and retail banking
are growth opportunities in the Egyptian market.
The Egyptian insurance market is still small. There are many uninsured and
underinsured individuals and companies (only 1.2 million life insurance policies).
There is no ceiling on foreign ownership of insurance companies in Egypt; however
investors taking a stake of more than 10% have to obtain government approval.
There is room for new strong insurance companies and much room for growth in
property and casualty insurance. Micro insurance has great potential.
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There are no restrictions on foreign participation in the stock market nor are there
any restrictions on the repatriation of dividends or capital gains. Foreign
membership firms are treated on par with their Egyptian counterparts and listing
rules for foreign issuers are being redefined to match international standards.
Exchange-traded funds have been authorised and structured products tracking
EGX30 or DJ EGX Egypt Titans 20 Index now trade on international markets
creating new investment opportunities. An exchange for derivatives is to be
launched in 2011. The establishment of Nile Stock Exchange (NILEX), a bourse for
small and medium enterprises, also provides new investment opportunities and
could attract venture capitalists and private equity firms to Egypt.
The penetration in the relatively new Egyptian mortgage finance market remains
low and the government is encouraging new investors to participate in its mortgage
market. The real estate sector has been growing rapidly in the past three years,
especially the upper-middle and upper end housing market. The Ministry of
Investment wants to issue mortgage-backed securities in order to establish a
secondary market for mortgages.
The government is seriously pursuing Public Private Partnerships (PPP) to expand
and improve public services in various sectors; including water and wastewater,
hospitals, schools, and roads. The following is a summary of the proposed projects
as published by the Ministry of Finance Central PPP Unit. Full details are posted and
updated on the website of the PPP Unit:
? New Cairo Wastewater Treatment Plant
In December 2007, the New Urban Communities Authority invited prequalification
applications from prospective bidders for a PPP contract for the design, financing,
construction, operation and maintenance of a new 250,000 cubic metres a day
wastewater treatment plant in New Cairo, a new community on the outskirts of
Cairo. The 20-year contract was awarded to a team of Egypt's Orascom
Construction Industries and Spain's Aqualia. The contract was signed on 29 June
2009 and financial closure is expected by the end of 2009.
? University Hospitals
The Ministry of Higher Education, represented by Alexandria University has invited
private investors to enter into PPPs for the design, construction, finance, equipping,
furnishing, maintenance and provision of non-clinical services for two university
hospitals and a blood bank. The tender is offered in two different lots whereby
each qualified bidder is entitled to submit a bid for one or both contracts as follows:
1) The new 200 bed Semouha Maternity University Hospital and a blood bank at the
same hospital. 2) The new 223 bed New Mowassat University Hospital with centres
for the provision of highly specialised services in Neurology and Urology/Nephrology
(including kidney transplants). The hospital will be located in the same site adjacent
to the old Mowassat Hospital. Tendering for this project has issued with closure
scheduled for the second quarter of 2010. The project?s financial and lead advisor
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is the International Finance Corporation (IFC), the technical advisor is Mott
Macdonald and legal advisor is Trowers & Hamlins.
? Sixth October City Wastewater Treatment Plant
The Ministry of Housing Utilities and Urban Development intends to invite private
investors to enter into partnership for the design, construction, finance, operation
and maintenance of two new wastewater treatment plants: one for domestic flow
with capacity 175,000 m /day and another for industrial flow with capacity 125,000
m /day with total investments amounting to around $200 million. The request for
prequalification is expected in October 2009 with closure in April/May 2010. The
lead and financial advisor is Ernst & Young, technical advisor is a consortium of
Ecroy, DHV & Chemonics Egypt, legal advisor is Trowers & Hamlins and
environmental advisor is Ch2mhill.
? Abu Rawash Wastewater Treatment Plant
The Ministry of Housing Utilities and Urban Development intends to invite private
investors to enter into partnership for the construction of a new wastewater
treatment in Abu Rawash, Giza Governorate. The developer will be required to
design, construct, finance, operate and maintain the new plant, which is expected
to upgrade the level of treatment from primary to secondary treatment for the
whole capacity of the existing wastewater plant 1,200,000 m /day. The request for
prequalification is expected in November 2009 with closure in May 2010. The lead
and financial advisor is KPMG, technical advisor is Pb Consult and legal advisor is
Trowers & Hamlins. The investment cost of the project is estimated at $500 million,
excluding the cost of operation.
Three projects are in the pipeline. The first project involves the construction,
operation and maintenance of Rod El Farag Axis (Cairo) with prequalification
expected in Q1 2010, tendering in Q2 2010 and closure Q3 2010; with investments
amounting to around $800 million. The second project involves the construction,
operation and maintenance of a new dual three-lane motorway freeway linking
Shubra to Banha City (Greater Cairo). The third project involves the operation and
maintenance of the Cairo-Alexandria Desert Highway.
The Finance Ministry together with the General Authority for Educational Buildings
invited companies to prequalify for a PPP contract to design, construct, furnish,
maintain, finance and provide non-educational services for a period of 15 years for
230 new public schools divided into seven geographical areas. The project, the first
PPP project tendered, has faced many difficulties and needed to be redesigned.
The revised timeline is currently as follows: request for tendering in the first
quarter of 2010 and expected closure in the following quarter.
? Water Desalination Plants
Three projects are in the pipeline. A water desalination plant West of the Gulf of
Suez to supply the industrial zone with its industrial water demands, second plant
in Mazar area close to Arish City (North Sinai) to supply water for the sodium
carbonate factory, and a third plant in Hurghada to serve the city.
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The Ministry of Health & Population intends to use the UK PFI model for the design,
construction, finance, equipping, furnishing, maintenance and provision of non-
clinical services for two general public hospitals in Cairo (Boulak and El Abassia)
and the oncology centre.
? Wastewater Treatment Plants
Three projects are in the pipeline. The Alexandria West wastewater treatment plant
is an expansion of the existing plant and upgrading the level of treatment from
primary to secondary treatment. The second project involves the construction,
finance, operation and maintenance of Nahia Wastewater Treatment Plant in Giza
Governorate. The third project - Helwan Wastewater Treatment Plant ? involves
the expansion of the capacity of the existing plant.
More details on all PPP projects are published on the Ministry of Finance Central PPP
Unit website http://www.pppcentralunit.mof.gov.eg/pppcusite/content/Projects
UKTI publishes international business opportunities gathered by our network of
British Embassies, High Commissions and Consulates worldwide. These
opportunities appear in the Opportunities portlet on the relevant sector and country
pages on the UKTI website. By setting up a profile you can be alerted by email
when relevant new opportunities are published. New or updated alert profiles can
be set in My Account on the website.
The Egyptian government is offering 48 infrastructure projects with investments
worth LE97.4 billion ($17.7bn) to foreign investors. Details of these projects can be
found at the following link
Investment opportunities in the fields of agriculture, environment, health,
education, industry, integrated development, IT, petrochemicals, tourism and
recreation, trade, transportation, and utilities are listed at the following link
THE KEY METHODS OF DOING BUSINESS
In general, a local partner is imperative to successful penetration of the Egyptian
market (see Market Entry Strategy below).
There are a number of forms of business organisation in the Egyptian private
sector. A foreign company may establish a direct presence in Egypt through a
representative or liaison office, branch office, Joint Stock Company or a limited
liability company. However the usual vehicle for foreign investment is the joint
stock Company or the limited liability Company.
There are two regimes under which a foreign company may incorporate an Egyptian
joint stock or a limited liability company Law 8/1997: the Investment Guarantees
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and Incentives Law (known as the Investment Law) and Law 159/1981 (The
Public joint stock companies are incorporated under the Capital Markets Law.
However, generally foreign companies prefer to form companies under the
Investment Law to be eligible for the benefits and privileges it affords. Foreign
employees must obtain work and residence permits. The Ministry of Manpower &
Employment has announced that it will not renew 5-year work permits for
foreigners working in technical jobs in the private sector. Instead renewed permits
will be valid for 3 years only, after which the foreigners should be replaced by
? Market Entry Strategy
Having a local partner can be vital to successful penetration of this market. There
are several reasons for this. Firstly, given the continuing bureaucracy, a local
partner can shepherd the foreign business through the delays and obstacles.
Secondly, foreign companies require a local agent to bid for government tenders.
Thirdly, as the Egyptian market becomes more sophisticated there is a growing
demand for after sales service, which a local agent can convincingly provide.
Commercial, agency agreements in Egypt are considered the most liberal in the
? Registration Procedures
The process of registration whether for agents or companies, is governed by the
Commercial Register Law. The basic rule is that anyone carrying on a commercial
activity must register in the Commercial Register. The Commercial Register Law
provides that all registrations must be renewed every 5 years. Once a person,
company, or partnership is registered, it must put its trade name, place of
registration and registration number on the front of its premises and on all its
correspondence (Article 5 of Commercial Register Law).
The penalties for violating the provisions of the Commercial Register Law are set
forth in the Ministerial Decision Implementing that Law and range from a fine of
LE10-100 to three months - two years imprisonment and/or a fine between LE100-
LE500. (Articles 18 and 19 of the Ministerial Decision, Implementing the
Commercial Registry Law).
The Government of Egypt (GOE) is undertaking a series of versatile amendments
towards reforming and improving business and investment climate in Egypt. The
government strategy is strongly committed to streamlining investment procedures,
dismantling bureaucratic obstacles, and liberalising business.
New government policies, investment laws, and guarantees have been introduced
with the purpose of fortifying and revitalising the investment environment in Egypt,
encouraging more foreign investment flows into Egypt, thereby increasing the
competitiveness of Egyptian businesses to meet international standards and
compete in global markets. All companies established in Egypt are granted
guarantees against expropriation and nationalisation and their assets cannot be
attached, seized or expropriated by administrative order. Also, no administrative
body may interfere in setting prices or profit margins, or revoke or suspend a
license for the use of property except where the licence terms are violated.
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In order to encourage investment in Egypt, Investment Law 8/1997 provides
certain incentives for foreign investors who carry out commercial activities in Egypt
in accordance with its provision. These include reduced custom duties, guarantees
against expropriation and sequestration, guarantees regarding foreign exchange
and guarantees regarding repatriation of capital and profit.
The tax law, passed in June 2005, removed the tax holiday for new projects as the
Government halved the corporate tax to 20% (different rules apply for Free Zones
and Special Economic Zones).
Projects carried out by companies in Egypt must come within the areas of
investments permitted under the Investment Law. Egyptian, Arab and foreign
investors have the right to act separately or together.
Currently approved investment fields include:
? Manufacturing and mining ? Housing and infrastructure projects
? Tourism projects (including hotels, hotel ? Venture capital projects
related facilities & tourist transportation) ? Information technology, software
? Agricultural projects development, developing technology zones
? Aviation, maritime & transportation services ? Development of industrial zones and urban
? Oil exploration services communities
? Finance leasing ? Factoring and underwriting
? GAFI - One Stop Shop
The General Authority for Investment (GAFI) is the Government agency concerned
with the review of all investment applications. It is the main government
organisation tasked with attracting foreign investment to Egypt, and strives to be
As part of their drive to make life easier for the new investor, in October 2004 GAFI
opened a ?One Stop Shop? at their new premises in Heliopolis (next to Cairo Fair
Ground). Representatives of most relevant Ministries have offices attached, and in
theory the potential investor can complete all necessary paperwork during one visit,
with permissions granted within a few days. According to GAFI the only problems
that cannot be resolved at the One Stop Shop are land purchases and tax
For complete text of the law and contacts of GAFI, please visit the following
websites: www.investment.gov.eg and http://www.gafinet.org
? Free Zones in Egypt
Since early 1970s, Egypt designated public free zones in order to expand exports,
attract foreign capital, introduce advanced technology and create job opportunities.
Free zones are located within the national territory but are considered offshore.
Types of activities permitted in free zones include repackaging, manufacturing,
assembling, must export more than 50% of their production. Free zones are
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adjacent to seaports and airports to facilitate the import and export of their
products. Free zones are established in two different forms: public and private.
Foreign investors can also carry out projects in the Egyptian Free Zones, which are
regulated by the Investment Law and considered as being located offshore.
? Most goods and materials imported to a Free Zone project are not subject to
import duties or customs regulations.
? Goods and materials exported from Egyptian Free Zones are also not subject to
export duties or regulations.
? Free zone projects are subject to 1% duty of the value of goods entering or
leaving the free zone, or to an annual duty of 1% of the annual value added in
? A company formed to operate in a Free Zone is exempt from all Egyptian
income taxes for an unlimited period.
? Tax incentives for energy intensive industries operating in free zones (fertilisers,
iron and steel, petroleum production, liquefaction and transportation of natural
gas) have been abolished as of May 2008.
There are two types of Free Zones:
? Public Free Zones: The Investment Authority established a new Media City
Free Zone and public free zones in Alexandria, Suez, Port Said & Nasr City
(Cairo). There is also
? Private Free Zones: They are established exclusively for a specific project or
company. Generally the types of projects permitted in Free Zones are storage,
mixing, repackaging, manufacturing, blending, assembling, processing and
? Special Economic Zones (SEZs)
In an attempt to boost exports and attract foreign direct investment, the
Government is creating new private economic zones that would enjoy considerable
autonomy and operate away from bureaucracy. Law No 83 of 2002 establishes
special economic zones (SEZ) in non-urban areas for the purpose of setting up
industrial, agricultural and services projects.
Each SEZ is self-governing through an independent authority, established by
presidential decree and the head of the authority is a presidential appointment. The
authority reports directly to the Prime Minister and its 17-member board includes
nine members representing various ministries, one representing the governorate
and six members from the private sector. Decisions are made by majority vote. The
board possesses the powers of a cabinet of ministers and issues all licences and set
its own customs and tax regulations, import and export rules as well as civil and
social matters. However, customs and tax systems require Ministry of Finance
approval and the registration and notarisation systems need approval from the
Ministry of Justice. The authority takes possession of the land and all state assets
within its zone. It establishes solely or jointly with third parties, a main
development company, which is responsible for building the infrastructure.
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? Investment incentives include a more flexible labour code that permits multiple
contracts and allows the employer to terminate the contract against
? The authority will decide on the ratio of Egyptian to foreign workers for each
? Imports of capital goods, raw materials and spare parts are exempt from
custom duties, sales tax and stamp duties but all duties will be paid on the
imported components of products exported to Egypt and sold locally.
? Projects established within SEZ will be subject to corporate profit tax of 10%,
salary tax of 5% and real estate revenue tax of 10%.
? The law protects against nationalisation or sequestration of funds and prohibits
? There is no condition on the percentage of output to be exported but the law is
hoped to boost exports by making Egyptian products more competitive on
? SEZ-based exporters would qualify for Egyptian certificates of origin usable
under international trade agreements. Four zones will be designated as SEZ in
Toshka, the Gulf of Suez, East Port Said and Damietta. (See page 16 - Mega
? Promotion and Protection of Investments
There is a 1978 bilateral agreement between Britain and Egypt on Investment
Promotion and Protection. For further information on Investment, please contact
the General Authority for Investment GAFI or visit the following website:
? Sole Traders
All traders carrying on commercial activities are required to register with the
Commercial Registry held in each Governorate. There is a general requirement that
sole traders must be Egyptian; non-Egyptians may operate and register if they
undertake export activity and obtain permission from GAFI. All sole traders are
liable to the full extent of their assets for any business liabilities.
Simple Partnership: With all partners jointly or severally liable for partnership
Limited Partnership: Where the managing partners are fully liable and sleeping
partners, whose role is limited to capital investment, are liable only to the extent of
the amount contributed by them.
Partnerships limited by shares are also possible, again with managing partners fully
liable but with shareholding partners? liability limited to the value of their shares. All
partnerships carrying on trade activities must be registered with the Commercial
Registry. Foreign participation in all three is permitted.
However, unless the Investment Law covers the partnership?s business activities, a
partnership with foreign participation cannot be registered except if the Egyptian
partner holds at least 51% of the capital and has management control.
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If the business undertaken falls under the Investment Law, there are no restrictions
on the proportions of foreign ownership and management.
? Joint Stock Companies (SAE)
These companies usually need at least 3 founders who cannot sell their shares for 2
years. These are run by a board of directors, which must consist of an odd number
not less than three. Any or all ma