In 2004, the Egyptian government launched a far-reaching economic reform process. Under the leadership of the Prime Minister, Ahmed Nazif, the Egyptian government has undertaken reforms specifically aimed at making the country more attractive to foreign investors by improving the competitiveness of Egypt’s export sectors and its domestic market.

This publication, “A Business Climate Development Strategy (BCDS) for the Arab Republic of Egypt – Making Private Sector Reform Succeed”, is a collaborative effort of the MENAOECD Investment Programme and the European Union Delegation in Cairo, led by the Egyptian Ministry for Investment. The MENA-OECD Investment Programme Steering Group mandated the Programme to conduct BCDS assessments of partnering countries during its 2007 Ministerial meeting in Cairo. The MENA-OECD Investment Programme would like to thank the Egyptian Minister for Investment, His Excellency Dr. Mahmoud Mohieldin, for his strong support during the length of this project.

The global economy has witnessed several crises during the past few years, ranging from a crisis in food prices, an energy crisis, and finally the financial crisis and its aftermath. These successive crises have posed challenges, yet created opportunities for developed and emerging economies. The world economy is now reshaping itself, and countries that work to create a balanced and stable investment environment for recovery and growth will be in a better position in the future.

In September 2009, it was announced that Egypt had just been selected for the fourth year in a row as a Top 10 Reformer by the World Bank Doing Business Report. During those same years Egypt had achieved record rates of GDP growth – in several cases of over 7%.

The recent global financial and economic crisis has starkly underlined the need to establish and maintain effective public institutions to oversee efficient markets and favour sustainable private sector development. Based on recent work on economic growth and sustainable development a consensus has emerged among the international development community that private-sector led economic development strategies are essential to guaranteeing sustainable growth and longterm job creation. The Business Climate Development Strategy (BCDS), developed by the Private Sector Development Division at the OECD, builds on a number of tools referenced in the OECD’s Policy Framework for Investment (PFI) and which provide a checklist of important policy issues for consideration by any government interested in creating an attractive business environment for domestic and international investors. This chapter discusses how the BCDS methodology was derived and the criteria used to establish the scores for the BCDS ranking system.

Egypt’s business environment has improved substantially in recent years as a result of a series of successful economic reforms, mainly at the macroeconomic level. The reforms have been undertaken by the pro-business government formed under the Prime Minister, Ahmed Nazif, in 2004. This chapter discusses the substantial and tangible advances in many areas of the operational business environment and highlights some of the major reforms that have taken place in Egypt since 2004, and which have played a positive role in improving Egypt’s business climate. Arising from a need to stimulate economic growth and generate new jobs, the government set out to improve Egypt’s overall economic performance in order to increase its growth potential and favour sustainable development. Areas highlighted here that have showed noticeable improvements include the government’s privatisation programme, taxation, trade tariffs, monetary policy, the banking sector and infrastructure.

The macroeconomic environment is an important determinant of a country’s business climate. Its soundness, stability and overall quality can sway decisions of foreign and local investors alike. Egypt’s macroeconomic environment has shown significant improvement since 2004, driven by the pro-business administration of Prime Minister Ahmed Nazif. Real GDP growth rose to 7.2% year on year in 2008. However, in the early 2000s, the economy had suffered from sluggish growth rates, averaging below 3% a year, high inflation and high unemployment. Structural bottlenecks, high barriers to entry, and little growth potential were keeping investors away. It is in no small measure the reform agenda implemented since 2004 that has set Egypt on the path to an improved economic performance. This chapter provides a brief overview of the macroeconomic environment in Egypt until end-2009, including the fiscal and banking sectors. It then takes a look at the main remaining challenges to the economic performance against a backdrop of a more unpredictable global economic environment.

The Business Climate Development Strategy (BCDS) assessment can provide timely insights on structural policy reforms that should be introduced to further improve the business climate and continue to attract investment into the economy. This chapter summarises the findings of a recent assessment of the Egyptian business climate carried out by the MENA-OECD Investment Programme. The BCDS analysis has produced important insights into the state of Egypt’s current business climate. The results presented here are grouped in two categories, going from broader insights to ones that are more specific and detailed. First, cross-dimensional findings are insights pertinent to several of the twelve BCDS dimensions. They identify common challenges that have been encountered in different parts of government. These findings matter to policy makers since they typically represent governance or managerial shortcomings that can be addressed and potentially leveraged across several topic areas. Second, dimension-specific findings summarise the main achievements and key remaining challenges and areas for improvement in the 12 dimensions covered by the BCDS.

Egypt has made impressive strides with regard to improving its business environment in recent years. So far, much of the government’s reform effort has focused on improving the macro-economic framework. This is the case with regard to policies such as banking sector reform, income-tax reform, improving the monetary policy framework, opening up the capital account and allowing free and unhindered capital transfers, and the lowering of average weighted tariffs. Despite these improvements, Egypt still does not fulfill its potential as a highgrowth economy, or to become the prime investment location warranted by its geographical position. Foreign investment still accounts for less than one-third of all investment, and FDI inflows fell between mid-2008 and end-2009. The competition for global investment is fierce and a country such as Egypt should no longer count on low costs to attract investors. To attract high value-added investors, a better overall investment climate is needed. This chapter presents the conclusions to the Business Climate Development Strategy findings for Egypt and finishes by inviting the Egyptian government to pursue its reform efforts in order to achieve its growth objectives.