Egypt

Economic Overview

The Arab Republic of Egypt is navigating one of its most challenging yet transformative economic periods in recent history. As one of Africa's largest and most diversified economies, it has been grappling with severe macroeconomic pressures, including a foreign currency shortage, high inflation, and a significant debt burden. In response, the government has undertaken a bold and aggressive reform program, supported by a major financing package from the International Monetary Fund (IMF) and substantial direct investments from Gulf partners. The 2025-2026 outlook is contingent on the successful implementation of these reforms, which include a shift to a fully flexible exchange rate, aggressive monetary tightening, and a renewed privatization drive aimed at boosting private sector participation and foreign direct investment (FDI).

GDP Size & Growth Trajectory

Egypt's economy, with a GDP of approximately $394 billion, is a regional heavyweight. However, recent economic headwinds have slowed its growth trajectory. After posting strong post-pandemic growth, real GDP growth decelerated to an estimated 3.8% in the 2023/24 fiscal year.

The outlook for 2025-2026 is one of stabilization and gradual recovery. The IMF projects growth to slow further to 3.0% in 2025 as the economy absorbs the initial shock of monetary tightening and fiscal consolidation. However, growth is expected to rebound to 4.5% in 2026 as the reforms take hold, inflation moderates, and investment picks up.

Sector Composition

Egypt's economy is well-diversified, with strong contributions from services, industry, and agriculture.

• Services: This is the largest sector, accounting for over 50% of GDP. It is driven by key activities such as wholesale and retail trade, real estate, and, most critically, tourism and Suez Canal revenues, both of which are primary sources of foreign currency. The ICT sub-sector is also a significant and rapidly growing component.

• Industry: Contributing around 32% of GDP, the industrial sector is broad, encompassing manufacturing, oil and gas extraction, and construction. Manufacturing activities include textiles, food processing, chemicals, and automotive assembly. The energy sector, particularly natural gas, is a key component, with Egypt being a significant regional producer.

• Agriculture: This sector makes up about 11% of GDP but remains a vital source of employment, particularly in the Nile Valley and Delta. Key crops include cotton, rice, wheat, and fruits and vegetables.

Inflation Trends

Soaring inflation has been the most acute challenge for the Egyptian economy and populace. Driven by the sharp depreciation of the Egyptian Pound (EGP), supply chain disruptions, and growth in the money supply, headline inflation reached a peak near 40%.

The central bank's aggressive response, including a massive 600-basis-point interest rate hike in March 2024, is designed to combat these pressures. Inflation is expected to remain elevated through 2025 but is forecast to moderate significantly as the effects of monetary tightening work their way through the economy. The IMF projects inflation to fall back towards single digits by 2026.

Fiscal & Monetary Policy Stance

• Monetary Policy: The Central Bank of Egypt (CBE) has made a decisive pivot to a tight, orthodox monetary policy. The core elements are a commitment to a fully flexible exchange rate regime—allowing the EGP to float freely—and using high interest rates to fight inflation and attract foreign capital into the local debt market.

• Fiscal Policy: The government is pursuing fiscal consolidation to reduce its budget deficit and put the public debt-to-GDP ratio on a downward path. This involves rationalizing expenditure, phasing out subsidies, and enhancing domestic revenue mobilization. A major component of this strategy is an ambitious privatization program, which aims to sell state-owned assets to strategic investors, raising revenue and boosting private sector efficiency.

Debt Sustainability Indicators

Egypt's public debt is high, estimated at over 90% of GDP, with a significant portion being external debt. This created the foreign currency crisis that necessitated the recent reforms. The enhanced IMF package and large-scale investments from partners like the UAE are designed to provide the necessary foreign exchange liquidity to manage short-term debt obligations and restore market confidence. The success of the fiscal consolidation and privatization programs is critical to ensuring long-term debt sustainability.

Table 1: Key Macroeconomic Indicators (2023-2026F)

Market Size & Demand Potential

Egypt's market is defined by its massive scale and youthful, rapidly urbanizing population.

Population Size and Demographics

With a population exceeding 114 million, Egypt is the most populous country in the Arab world and the third-most populous in Africa. Its demographic profile is overwhelmingly young, with approximately 60% of the population under the age of 30. This creates a vast consumer base and a large labor pool.

Urbanization and Consumer Hubs

Egypt is highly urbanized, with over 43% of its population living in cities. The Greater Cairo metropolitan area is one of the largest urban agglomerations in Africa and the world, serving as the country's undisputed political, economic, and cultural center. Other major cities include the port city of Alexandria and cities along the Suez Canal like Suez and Port Said.

Consumer Spending & Market Access

Despite recent economic pressures, the sheer size of the population supports a large and resilient consumer market. A significant middle and upper-middle class drives demand for a wide range of goods and services, from modern retail and automotive to private healthcare and education. The country has a well-developed formal retail sector, including numerous international brands and modern shopping malls.

Business Environment

The Egyptian government is actively promoting a narrative of reform aimed at improving the ease of doing business and attracting FDI.

Ease of Doing Business & Regulatory Reforms

While historically burdened by bureaucracy, significant reforms are underway. The government has been working to streamline processes for starting a business, obtaining construction permits, and registering property. The General Authority for Investment and Free Zones (GAFI) is the primary body for investment promotion and facilitation, offering a "one-stop-shop" for investors.

Company Registration Process

The process for establishing a business in Egypt involves registering with GAFI and the commercial registry. While steps have been taken to simplify this, it can still be a complex process often requiring local legal expertise. The government is pushing for greater digitization to improve efficiency.

Tax Regime

• Corporate Income Tax (CIT): The standard rate is 22.5%.
• Value Added Tax (VAT): The standard rate is 14%.

Egypt offers various tax incentives through its Investment Law, particularly for projects located in designated special economic zones and for priority sectors like renewable energy, manufacturing, and ICT.

Political Stability & Governance

Egypt operates as a presidential republic with a highly centralized state structure.

Political Environment

President Abdel Fattah Al-Sisi has been in office since 2014, providing a high degree of political and policy continuity. The political environment is stable but tightly controlled. While this stability is often seen as a positive by investors focused on predictable policy-making, it comes with limitations on political freedoms and expression.

Rule of Law & Investor Protection

The legal system is based on a civil law code derived from the Napoleonic code. The government has made efforts to strengthen investor protection, and the Investment Law provides guarantees against nationalization and expropriation. Egypt is also a signatory to various international investment and arbitration treaties. However, the bureaucracy can be slow, and contract enforcement can sometimes be a lengthy process.

Infrastructure Readiness

Egypt's strategic location is enhanced by some of the most critical infrastructure on the continent.

The Suez Canal: A Global Chokepoint

The Suez Canal is the country's most important strategic and economic asset. It is one of the world's most heavily used shipping lanes, connecting the Mediterranean Sea to the Red Sea and providing the shortest maritime route between Asia and Europe. Canal revenues are a vital source of foreign currency for the Egyptian economy. A major expansion project completed in 2015 increased the canal's capacity, allowing for two-way traffic and accommodating larger vessels.

Transport and Logistics

• Ports: Besides the canal, Egypt has major commercial ports at Alexandria on the Mediterranean and Ain Sokhna and Suez on the Red Sea, forming a robust network for maritime trade.
• Road and Rail: The country has a well-developed network of roads and railways connecting major cities and industrial zones. A new high-speed electric rail network is currently under construction, which will further enhance connectivity.

Energy Sector

Egypt is a significant energy player.

• Natural Gas: The discovery of the supergiant Zohr gas field in the Mediterranean has transformed Egypt from a net importer to a net exporter of natural gas. It has also become a regional energy hub, importing gas from Israel and processing it at its LNG terminals for re-export to Europe.
• Renewable Energy: Egypt is making a major push into renewable energy, leveraging its excellent solar and wind resources. The Benban Solar Park near Aswan is one of the largest solar installations in the world, and there are major wind farm projects in the Gulf of Suez region.

Sector-Specific Opportunities

1. Energy (Renewables and Green Hydrogen)

This is a top government priority. Leveraging its abundant solar and wind resources, Egypt aims to become a major producer and exporter of green energy. A key focus is on green hydrogen, with numerous MOUs signed with international companies to develop large-scale production facilities in the Suez Canal Economic Zone (SCZone), aimed at supplying green fuel for shipping and for export to Europe.

2. Tourism

As one of the world's oldest and most iconic tourist destinations, the sector remains a cornerstone of the economy. While vulnerable to regional instability, the potential for growth is immense. Opportunities exist not only in developing new hotels and resorts along the Red Sea and Mediterranean coasts but also in upgrading infrastructure around key historical sites in Cairo, Luxor, and Aswan.

3. Real Estate and Construction

With a population growing by over 2 million people per year, the demand for residential real estate is insatiable. The government is leading this with massive construction projects, including the development of a New Administrative Capital outside of Cairo. This creates vast opportunities in construction, building materials, and real estate development for residential, commercial, and retail projects.

4. Manufacturing

Egypt's large domestic market, preferential trade agreements with Europe and the Middle East, and relatively low labor costs make it an attractive manufacturing base. Opportunities exist in automotive assembly, pharmaceuticals, electronics, and food processing. The SCZone offers a dedicated, modern industrial area with streamlined regulations and logistics.

5. Information and Communication Technology (ICT)

The ICT sector is one of the fastest-growing parts of the economy. With a large, young, and tech-savvy population, there are significant opportunities in software development, business process outsourcing (BPO), data centers, and digital application development for the large domestic consumer market.