Egypt's Long Transition to a Modern, Private-Sector-Led Economy
In recent decades and with mixed results, Egypt has been grappling with the challenges of emerging as a modern, private-sector-led economy with affordable and effective social protection for vulnerable groups. The country has transformed its business environment to become more business friendly, tried to achieve sustainability in its macro balances, sought to increase its economic and employment growth performance, and achieved a degree of openness to international trade. The remaining road to travel may be difficult, but the transformation to a modern, private-sector-led, inclusive and sustainable economy is within reach.
Business Environment
The 2013 World Bank Doing Business assessment ranks Egypt 109th out of 185 countries in ease of doing business. Egypt ranks 11th among Middle East and North Africa (MENA) countries and 23rd among lower-middle-income countries. It lags far behind Malaysia, a comparator country. Morocco appears to offer a more friendly business environment than Egypt, although not by much (table 1). When compared with Malaysia and Morocco, Egypt ranks much higher for ease of starting a business, but significantly lower in dealing with construction permits, enforcing contracts, paying taxes, and resolving insolvencies.
Table 1: Business Environment: Comparing Egypt, Morocco, and Malaysia
Ease of Doing Business 2012 |
Egypt |
Morocco |
Malaysia |
|||||
World |
MENA |
LMIC |
World |
MENA |
LMIC |
World |
UMIC |
|
Rank (of 185 countries) |
109 |
11 |
23 |
97 |
8 |
15 |
12 |
1 |
Starting a business |
26 |
2 |
4 |
56 |
3 |
10 |
54 |
15 |
Dealing with construction permits |
165 |
16 |
48 |
79 |
7 |
17 |
96 |
24 |
Getting electricity |
99 |
14 |
20 |
92 |
13 |
19 |
28 |
7 |
Registering property |
95 |
12 |
24 |
163 |
17 |
47 |
33 |
9 |
Getting credit |
83 |
2 |
20 |
104 |
6 |
27 |
1 |
1 |
Protecting investors |
82 |
6 |
18 |
100 |
9 |
23 |
4 |
1 |
Paying taxes |
145 |
18 |
39 |
110 |
14 |
27 |
15 |
2 |
Trading across borders |
70 |
11 |
11 |
47 |
6 |
4 |
11 |
2 |
Enforcing contracts |
152 |
17 |
41 |
88 |
4 |
21 |
33 |
9 |
Resolving insolvencies |
139 |
16 |
35 |
86 |
7 |
15 |
49 |
10 |
Source: Doing Business 2013, World Bank; http://www.doingbusiness.org/rankings.
Note: LMIC = lower-middle-income country; MENA = Middle East and North Africa; UMIC = upper-middle-income country.
Like in other countries, In Egypt, micro and small and medium enterprises (MSMEs) are the mainstay of the economy. While definite numbers vary and depend on definitions, MSMEs account for over 90 percent of active enterprises, over 80 percent of gross domestic product, and 75 percent of total employment.[1]
In Egypt, 31 percent of firms identify access to finance as a major constraint to economic activities, compared with a 32 percent world average; however, the percentage is much higher (45.5 percent) for small firms. More than 90 percent of small firms and 84 percent of large firms finance their investments with their own resources. Whereas large firms finance close to 7 percent of the value of their investments through bank credits, only about 1.5 percent for small firms finance their investments this way. In addition, small firms are required to present collateral equal to 100 percent of loan value while the requirement for large firms is closer to 80 percent.[2]
[2] See IFC/World Bank “Enterprises Survey Data,” 2008, http://www.enterprisesurveys.org/Data/ExploreEconomies/2008/egypt.
Wafik Grais is an International Senior Adviser specializing in Islamic finance, financial regulation, investment financing, private equity management, and corporate governance with expertise in SMEs and green growth financing. He was co-founder and chairman of Viveris Mashrek, a Cairo-based, financial advisory services company specialized in private equity investments in SMEs, licensed by Egypt's Financial Supervisory Authority. He spent 28 years in international finance notably with the World Bank in Washington DC where he held several senior positions both in operations and at corporate levels. He holds a Ph.D. in Economics.