Economic Reforms

Egypt's economy is the most varied of the Middle East economies, where sectors of tourism, agriculture, industry and services contribute at almost equal rates in the national production. Egypt possesses of solid infrastructure in terms of transportation, communication, energy sources, skillful manpower, modern industrial communities, banking system and stock market. Furthermore, Egypt's economy is picking up development at increasing rates, based on a climate luring investments represented in proper legislation, convenient policy, social stability, trade and market liberalization.

Background
The Egyptian Economy has passed through a number of stages since 1952.
• 1952 to 1960, State intervention: The evolution of a number of policies favoring effective state intervention for the re-distribution of the country's economic resources.
• 1960 to 1966, Comprehensive Planning: The beginning of Comprehensive National Economic Planning, having a leading economic sector supported by several policies. The first such policies included determination of work hours and wages, organization of relation between the owner and the tenant, and intervention in determining prices.
• 1967, War Economy: Economic and fiscal policies were set to serve preparation for war, as the military expenses soared.
• 1974, Open Door policy: A drastic shift in strategy in favor of private sector-led and market-based economy. Attempts were made to improve investment climate by implementing economic, financial and administrative programs.
• 1982 to 1990, return of Comprehensive Planning: The open door policy was maintained and investments were encouraged, however, the growth was concentrated mainly in the services sectors, rather than the productive sectors. These circumstances led to a return to comprehensive national planning.
• 1991, first wave of Integrated Reforms: Basic aspects named as macroeconomic stability, trade liberalization, privatization of state-owned enterprises, financial-sector reforms, and small business development.
• From 1998 onwards, new waves of reforms: Highlighted by the deepening of trade reforms through bilateral and multi-lateral agreements as well as institutional, legislative, and sectorial reforms, aiming regulation, deregulation, restructuring in all walks of economy.

Main Components
Essential components of Egypt's current economic reform policy are:
1. Privatization
2. Legislative reform
3. Banking System Reform
4. Foreign Debt
5. Foreign Trade & Export Promotion
6. The Social Fund for Developing Small and Medium Enterprises

1 - PRIVATIZATION
The Egyptian Government drew a blueprint of a privatization program in 91/1992. The detailed program was declared in January 1993, to be carried out over a period of five years in two parallel lines namely: separation of management from ownership (privatization of management), and encouraging the Private Sector to take part as a shareholder or purchase public companies. A number of laws, amendments and decrees then followed to help implementation run smoothly.
Privatization process aims at:
• Utilizing the possibilities available for the Public Business Sector at a larger scale,
• Expanding the individual ownership base,
• Allocating sales returns to bank debt payments,
• Attracting foreign capital for investment purposes, and
• Activating the money market.
By June 2002, the government had completed 132 main privatization operations and 57 partial privatization processes, out of 314 Public companies, which were offered for privatization. The revenue amounted to L.E. 14.4 Billion. Consequently, the Public Companies' share of the total labor force shrank to 2.5% by mid 2002, from 7% in 1991.

2 - LEGISLATIVE REFORM
a) Taxation System:
Main orientations of Income Tax system development:
Taxes on Individuals' Profits: Law No. 91/ 2005 reflects a new concept of dealing with the taxpayers, bringing a cut by about 50 per cent all taxable categories and multiple benefits in exemptions and settlements.
Taxes on Corporate Profits: The current system of corporate taxation aims at encouraging investments through implementing a package of exemptions. A full tax exemption is applicable during project-launch-up (the first 5 to 20 years), with consideration given to its location. Afterwards profits are taxable.
In order to attract local and foreign investments a complete overhaul of the corporate tax system has been implemented with the purpose of:
• Facilitating the operations of production and investment;
• Ensuring an uninterrupted inflow of state revenue;
• Encouraging, and reducing the cost of technology transfer;
• Alleviating the burden of corporate funding; and
• Activating the principles of fair taxation.
Sales Tax: with the launch of economic reform, law No. 11 /1991, replacing other consumption taxes, adopted the general sales tax system. Several changes took place, which turned the system into one of the pillar of Egypt's taxation system.

b) Customs Legislations:
In 2006, Decree No. 10 carrying the executive statute of the Law on Tariffs was issued by the Minister of Finance. All procedures, instructions and interpretations were published in a single document, which would serve as the only reference to dealing with customs duties throughout Egypt. These reforms sought:
• To simplify tariff structure;
• To encourage investments by cutting down on custom duties levied on imports, capital goods and spare parts;
• To revive the market, reduce prices and increase exports;
• To eliminate disputes resulting from multiple tariff categorization; new tariffs averaged at 9 per cent; with the number of categories brought down from 36 to 5.

3- BANKING SYSTEM REFORM
In 2003, a law was promulgated, making the Central Bank of Egypt a fully independent entity, capable of implementing the changes required for the country's monetary policies in order to multiply hard currency reserves. Moreover, great attention has been given to speeding up the process of restructuring banks, mergers and increasing foreign shares. As a result, by 2006 many banks were merged, exchange rates deregulated and market dealings revived. Investments have increased and local liquidity multiplied to about EGP 560.4 billion by June 2006 at a growth rate of 13.5 per cent.

4 - FOREIGN DEBT
A notable improvement has been achieved in debt repayment and servicing of Egypt's foreign debt. Long-term debts in 2002 were valued at $28.7 billion, vis-à-vis $28.3 billion in 1990.

5 - FOREIGN TRADE & EXPORT PROMOTION
Egypt's financial reforms have contributed effectively to the country's integration into global economy in 2005/06. Imports and exports have risen to 60 per cent of GDP, with commodity exports amounting to EGP 16600.00 million; and petroleum exports to an unprecedented EGP 7100.00 million. Meanwhile, commodity imports, in 2005/06 were valued at EGP 37870.00 million. As a result, current account and transference surpluses have increased by $3.5 billion as compared to the 2004/05 figures of $2.9 billion, at a growth rate of 20 per cent.

6 - THE SOCIAL FUND FOR DEVELOPING SMALL AND MEDIUM ENTERPRISES
The development of small and medium enterprises has become a key component of Egypt's social and economic development plan. Since the inception in 1991 of the Social Fund for Development (SFD), its mandate has been to create a great number of work opportunities, provide credit lines and supply technical assistance and technological know-how to SME-owners. The SFD aims at:
• Generating work opportunities to benefit fresh graduates, unemployed youth and low-income groups;
• Re-channeling funds towards social, health, educational and environment projects;
• Creating mechanisms likely to protect women, children and elderly people;
• Engaging NGOs in implementing target-group serving projects; and
• Promoting partnerships with Government agencies and key decision-makers.

Since its establishment, the SFD has provided a total of EGP 9 billion and funded more than 510 thousand small and medium-size enterprises, and generated a total of 1.3 million employment and 500 thousand temporary employment opportunities.

Source: Egypt State Information Service (www.sis.gov.eg)