Egypt has embarked on an ambitious and transformative plan to advance its potential through the construction of a modern, responsive and equitable economy. Having inherited an economic system burdened with structural impediments to growth, the government today is working on multiple tracks to transform Egypt’s economy through difficult political decisions, smart reforms, social justice and targeted investment.
The ambitious modernization program adopted by President El Sisi and supported by the IMF and World Bank includes several key components:
• Decreasing the budget deficit to 9.1 percent and reducing public debt to 95 percent of GDP;
• Cutting energy subsidies by 14 percent during the current fiscal year, introducing a 13 percent value-added tax (VAT) and limiting food subsidies;
• Liberalizing Egypt’s foreign exchange policy to strengthen competitiveness, support exports and tourism and attract foreign direct investment, which in turn will foster growth and jobs and reduce financing needs;
• Overhauling the legislative and regulatory environment for investment, including the implementation of a new unified investment law that will significantly reduce bureaucratic hurdles;
• Ensuring social protection for all Egyptians by directing 1 percent of GDP to additional food subsidies, cash transfers to the elderly and low-income families, health insurance for young children and female primary family providers and other targeted social programs, including vocational training for youth; and
• Partially divesting from several state-owned enterprises and banks through public offerings, which, for the first time, will cover public utility companies that have historically been excluded from divesture as a strategic sector.
In addition, Egypt has embarked on a number of national megaprojects that aim to enhance the competitiveness of the economy, create employment opportunities and attract foreign and domestic private investments. With work underway by more than 1,000 companies and nearly two million Egyptian workers, these national megaprojects represent a new chapter for Egypt. Chief amongst these megaprojects is the historic $8.6 billion expansion of the Suez Canal. The enlargement of this strategically important waterway increases capacity, allowing two-way maritime traffic for the first time, reducing waiting and transit time and creating new jobs and revenue. A new integrated network of economic centers is being created, known as the Suez Canal Area Development Project (SCZone), an innovative development area that will transform 76,000 square kilometers along one of world’s most important trading routes into an international commercial hub.
In addition to these projects, Egypt’s energy sector is also ripe for growth and investment thanks to the massive Zohr natural gas field that was discovered in the Mediterranean Sea and began production in 2017. Daily production from the field is expected to begin at 350 million cubic feet per day, which will increase to 2.7 billion cubic feet by the end of 2019. Production from Zohr is expected to bring Egypt closer to energy independence.
To help foster growth and foreign investment, in June 2017 President El Sisi ratified a new investment law following its passage by the House of Representatives. The new law includes a 50 percent tax break on investments made in underdeveloped areas and government support for the cost of connecting utilities to new projects. This follows the February 2016 launch of Egypt Vision 2030, a sustainable development strategy that establishes a roadmap for maximizing the use of Egypt’s competitive opportunities and advantages. The framework commits the government to continue supporting a competitive, diversified, knowledge-based and private sector-led economy, characterized by a stable macroeconomic environment and sustainable inclusive growth.
Additionally, one year after historic monetary and fiscal policy changes and an agreement with the International Monetary Fund (IMF), Egypt’s economy has responded with rapid growth in exports, investment, and improved public finances. Through bold reforms to public subsidy programs, a modernized investment policy and progressive taxation reforms, Egypt has transformed its economy to better compete on the global stage and create jobs for Egyptians. As a result, today Egypt is building one of the most dynamic economies.