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How could U.S. Investments strengthen Egyptian capital markets?

Egypt is one of the heaviest economies in Africa. With a GDP of $404 billion, Egypt is undeniably one of the most advanced economies of the continent, and the United States has always had a particular strategic interest in the pharaohs of Africa. The most recent data from the U.S. Department of Commerce shows that Egypt is the largest recipient of U.S. direct investment in Africa at the end of 2020 and fifth in the Middle East after Israel, the UEA, Qatar, and Saudi Arabia. Indeed, the United States has an investment of over $2.3 billion in the Egyptian market spread across sectors as of January of last year.

American firms are active in most economic sectors in Egypt, primarily oil and gas and production, with Apache Corporation, Chevron Corporation, Exxon Mobil, Halliburton, and IPR Energy Group operating in the market. Manufacturing represents the second largest beneficiary of American investment, accounting for 29% of American non-petroleum capital and 22% of the number of companies operating with U.S. capital in Egypt. Although Egypt is a country mainly covered by the Sahara Desert, its agricultural sector remains an important sector of its whole economy. Indeed, agriculture accounts for 28% of all jobs in Egypt and 11.3% of its GDP. Egypt heavily imports agricultural commodities such as wheat, soybeans, and corn. The United States invested $1.4 billion in the Egyptian agricultural market since 1978. Since then, USAID has provided technical assistance to more than 500,000 smallholder farmers, enabled farmers to purchase land, improved farm management techniques and access to financial services, and liberalized agricultural markets.

Source: Bureau of Economic Analysis

Egyptian markets are still facing challenges and American investments can improve some of these market conditions. For example, it is quite difficult to do business in Egypt. The market conditions to do business, especially for foreign investors can be tedious. Excessive bureaucracy, shortage of skilled labor, limited access to credit, expansive intellectual property issues, and corruption remain present in Egyptian markets, which can impede market efficiency. Thus, to improve the ease of doing business and increase foreign direct investment, the GoE in coordination with the IMF has introduced significant reforms since 2016, including floating the local currency, introducing a value-added tax system, and implementing various laws related to investment, bankruptcy, and capital markets. In 2021, the U.S. direct investment position in Egypt (outward) was $11.7 billion, an increase of 6.3% from 2020. And the direct investment position from Egypt in the United States (inward) was $48 million, an increase of 108.7% from 2020.

In that same year, in 2021, Egypt’s government announced plans to launch a second round of economic reforms aimed at increasing the role of the private sector in the economy, addressing long-standing customs and trade policy challenges, and modernizing its industrial base, and increasing exports. As a result of the government’s increased focus on infrastructure development, Egypt’s $259 billion project finance pipeline is the third-largest in the Middle East and the largest in Africa as of March 2022.

Moreover, the Egyptian government loosened the legal conditions for real estate ownership by non-Egyptians. Indeed, under Law 230/1986, the main conditions are (1) real estate ownership is limited to two real estate properties in Egypt that serve as accommodation for the owner and his family in addition to the right to own real estate needed for activities licensed by the Egyptian government; (2) the area of each real estate property does not exceed 4,000; (3) the real estate is not considered a historical site. These conditions remain tight under most circumstances, which could the expansion of real estate ownership by foreign investors. A loosened set of conditions for the Egyptian real estate market could incentivize investors to increase capital investments in that market as well as in other aspects of the Egyptian capital market.


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