Egypt's private sector is key to the country's prosperity amidst fast-changing global and domestic economic conditions. As an engine of innovation and productivity growth, private enterprises are central to job creation, a factor of increasing importance given that Egypt’s working-age population has been growing by an average of 1.2 million annually over the past 5 years. However, long-standing structural imbalances and a series of global shocks have hampered the private sector’s potential to contribute to Egypt’s economic prosperity. Over the past decade, private investment in Egypt has only averaged 6.3 percent of GDP, about a fifth of the average level of middle-income countries.
Egypt has set ambitious targets in this area to be achieved by 2030. These include growing the contribution of private investments to 65% of total investments, attracting around US$60 billion worth of foreign direct investment (FDI), and boosting exports to reach US$145 billion per year. Peer countries like Morocco and Turkey have achieved similar ambitious targets by adopting an export-led growth approach.
To reach these ambitious targets, Egypt has taken several initial steps towards creating a more conducive environment for private sector growth. This includes unifying the exchange rate and addressing the severe distortions in the foreign currency market, the adoption of several new laws to improve the legislative framework governing the business environment, and the ongoing implementation of the State Ownership Policy, which regulates state involvement in economic activities.
"The most important action the government can take to create conditions for private sector growth is to reduce policy uncertainty by implementing a stable and structured set of regulations for doing business in Egypt that aligns with international standards," said Norhan El Gabaly, Vice Chairman of the Egyptian Junior Business Association and Managing Director of Polyserve for Fertilizers and Chemicals. "This can be achieved in various ways, including by adjusting existing investment laws to further empower private sector companies and enable them to increase production and manufacturing participation, which will lead to higher employment rates, benefiting citizens and the economy as a whole."
Research done by the World Bank Group demonstrates that Egypt has clear opportunities that it can capitalize on. The 2020 Country Private Sector Diagnostic (CPSD) highlighted the potential of sectors such as agribusiness – indicating that approximately US$10 billion in export potential in agriculture and food remain untapped, manufacturing – also indicating that the average share of GDP and employment in 2020 have been 16.6 percent and 12 percent respectively, and information and communication technology – where Egypt is well positioned to become a regional digital hub for the Middle East and Africa. The report also highlighted that in several manufacturing industries, the government could provide local firms with support to reach international standards and reallocate workers to scale up/shift production lines to in-demand medical products and devices.
To realize these opportunities, the CPSD proposed reforms to create a supportive regulatory environment, rationalize the state's role in the economy and create a level playing field with the private sector, foster competition, and streamline barriers to trade. Building on the CPSD and recent reforms, the World Bank Group is currently supporting the government to develop actionable recommendations for industrial development, trade enhancement, and attracting foreign direct investment.
An important area of focus is increasing Egypt’s links to global value chains. The World Bank Group recently supported Egypt’s Trade Facilitation Committee in developing a new risk-based approach to border control that, once implemented, should reduce the time required for moving goods across the border. Improved efficiency of the commercial justice system is another key area of focus, particularly as it relates to contract enforcement and resolution of insolvency.
The World Bank Group also supports the government in implementing its state-owned enterprise policy, including helping improve the governance, and financial management of enterprises that remain in state ownership. Furthermore, through the Asset Monetization Program, designed to harness private capital and expertise for managing state-owned assets, the International Finance Corporation (IFC), the private sector arm of the World Bank Group, is playing a strategic advisory role to help the government unlock key sectors for private sector investments and public private partnerships.
The World Bank’s recently approved "Generating Resilience, Opportunities, And Welfare for a Thriving Egypt" Development Policy Financing operation is also helping to advance key private sector enhancement reforms, including the creation of a legal basis for the State Ownership Policy, empowering the Egyptian Competition Authority in combatting non-competitive mergers and acquisitions, and introducing a Small Claims Law to help streamline the commercial justice system.
Since 2020, IFC has committed and mobilized over US$3.7 billion, out of which over US$1.3 billion included support to the financial sector in Egypt through a number of financial institutions to adopt climate finance, and increase access to finance for privately-owned micro, small and medium-sized enterprises (MSMEs), while the remaining portion of the IFC portfolio in Egypt focuses on the renewable energy, ports, logistics, manufacturing, agribusiness, healthcare, tourism, retail, venture capital (for tech startups and fintech) and other productive sectors.
The Multilateral Investment Guarantee Agency’s (MIGA) risk mitigation instruments have also been integral to enabling World Bank Group investments that aim to boost the private sector. One example is the Benban Solar Park, where IFC and a consortium of other lenders pledged $653 million to support the project. MIGA guarantees helped with the initial mobilization of private sector investment in FY2018, and in FY2020, MIGA provided additional guarantees enhancing the issuance of a first of its kind Green Bond Project, attracting major institutional investors to invest in Egypt for the first time.
The World Bank Group continues to be committed to enabling Egypt’s private sector through financing, advisory services, and knowledge, with aim to help empower the private sector to pave the way for sustainable and inclusive growth.
Egypt’s growing young population, strategic location, and high-level commitment to private sector-led growth are good ingredients for reviving private sector dynamism. To unlock the private sector’s full potential, it is crucial to maintain an accelerated approach, in partnership with the government and key stakeholders, to empower businesses by establishing a supportive and more authorizing business environment. Fully implementing the initial steps taken towards this goal is also essential for building on the country's progress and achieving further success.
