PEST Analysis

Prepared for
MBA Egypt
Dr Afifi
Prepared By
Ahmed M. Ezzat
Agenda
Introduction

Key FACTS about Egypt

Political Environment

Political structure
Main political parties
Environmental laws
Foreign trade
Tax Rate
Labor force and laws

Economical Environment

Facts and figures on the Egyptian economy

Risk Assessment
Performance statistics

Sociocultural Environment

Technological Environment
 Introduction
Key FACTS about Egypt
Full name: Arab Republic of Egypt
Capital: Cairo
Population: 82,079,636 million (July 2011 est.)
Age structure:
0:14 years: 32.7% (male 13,725,282/female 13,112,157)
15:64 years: 62.8% (male 26,187,921/female 25,353,947)
65 years and over: 4.5% (male 1,669,313/female 2,031,016) (2011 est.)
Median age:
total: 24.3 years
male: 24 years
female: 24.6 years (2011 est.)
Population growth rate: 1.96% (2011 est.)
Birth rate: 24.63 births/1,000 population (2011 est.)
Death rate: 4.82 deaths/1,000 population (July 2011 est.)
Area: 1 million sq km contains land: 995,450 sq km & water: 6,000 sq km
Major language: Arabic
Major religions: Muslim 90% , Coptic 9% & other Christian 1%
Currency: Egyptian Pound
Natural resources : petroleum, natural gas, iron ore, phosphates, manganese, limestone, gypsum,
talc, asbestos, lead, rare earth elements, zinc
Main exports: Petroleum, petroleum products, cotton, Textile, Metal product and Chemicals.
Geographical Location: Northern Africa, bordering the Mediterranean Sea, between Libya and the
Gaza Strip, and the Red Sea north of Sudan, and includes the Asian Sinai Peninsula
To make an external scanning on Egypt, we have to know what characterizes
the political, economic, sociocultural and technological environments in
Egypt.

P Political Factors

E Economic Factors

S Sociocultural Factors

T Technological Factors
 Political Environment:
Political structure

Following a revolution and during a challenging period of political transition,chief of state:

President (vacant); Vice President (vacant); note - following the resignation of President
Mohamed Hosni MUBARAK in February 2011, the Supreme Council of the Armed Forces,
headed by Defense Minister Muhammad Hussein TANTAWI, assumed control of the
government

head of government: Prime Minister Essam Abdel Aziz SHARAF (since 4 March 2011);
Deputy Prime Minister Ali elslme

cabinet: a new cabinet was sworn in on 7 March 2011

Constitution :11 September 1971; amended 22 May 1980, 25 May 2005, and 26 March
2007; note - constitution dissolved by the military caretaker government 13 February
2011
 Political Environment:
Political structure
Legal system: mixed legal system based on Napoleonic civil law and Islamic religious law;
judicial review by Supreme Court and Council of State (oversees validity of administrative
decisions)
The president's term runs for 4 years. Egypt's legislative body, the People's Assembly, has
454 members--444 popularly elected and 10 appointed by the president. The constitution
reserves 50% of the assembly seats for "workers and peasants." The assembly sits for a 5-
year term
Legislative branch: bicameral system consists of the Advisory Council or Majlis al-Shura
(Shura Council) that traditionally functions mostly in a consultative role (264 seats; 176
members elected by popular vote, 88 appointed by the president; members serve six-year
terms; mid-term elections for half of the elected members) and the People's Assembly or
Majlis al-Sha'b (518 seats; 508 members elected by popular vote, 64 seats reserved for
women, 10 appointed by the president; members serve five-year terms)
Judicial branch : Supreme Constitutional Court.
Political Environment:
Main political parties :

The multi-party system was restored in 1976 by the then president Sadate.
However, in practice it is the ruling National Democratic Party (NDP) which
completely dominates the political arena. The Muslim brothers, a
brotherhood created in 1928 by Hassan El Banna is the main opposition
party of the country. They were banned but in spite of it, they were able to
win 88 seats in the People's Assembly in the 2005 elections. The other
opposition parties like Wafd, El-Ghad or the Nasserian Party are minority
parties and were nearly wiped out in the 2005 elections.
Political Environment:
Environmental laws

According to the Law 4/1994 for the Protection of the Environment, the
Egyptian Environmental Affairs Agency (EEAA) was restructured with the
new mandate to substitute the institution initially established in 1982. At
the central level, EEAA represents the executive arm of the Ministry.

The Principal Functions of the Agency Include:

Formulating environmental policies.
Preparing the necessary plans for Environmental protection and Environmental
development projects, following up their implementation, and undertaking Pilot
Projects.
The Agency is the National Authority in charge of promoting environmental relations
between Egypt and other States, as well as Regional and International Organizations.
Political Environment:
Foreign trade

The Egyptian market is gradually opening up, especially after signing an

agreement with the European Free Trade Association (EFTA) in 2006, and
a free trade treaty with the United States. Its three primary export
partners are the European Union, which represents more than a third of
the trade, United States and Syria. Its three primary import partners are
the European Union, the United States and China. Egypt mainly exports
mineral fuels and oil, cotton, iron and steel. It imports mainly consumer
electronic goods and capital goods, nuclear reactors and nuclear-powered
boilers, cereals, food products and chemical products. Import volume has
doubled and is twice the export volume, a fact which contributed to the
deterioration of the country's trade balance.
Political Environment:
Tax Rate

The standard rate of corporate income tax is 66%. The rate is 32% on
profits arising from export operations and on profits of an industrial
company as long as they arise from its industrial activities.

Withholding Tax
Any business operating in Egypt must withhold against any payments--
made to any contractor or supplier of goods or services-- the following
basic percentages:
Contracting and supplying: 1%
Services: 3%
Commissions: 10%
Professional fees (under LE 500): 10%
Professional fees (over LE 500): 15%
Leasing of property or selling of goods for trading or manufacturing: 1% - 5% (to be
added on the payee's tax liability account.
Political Environment:
Tax Rate
Corporate Tax Exemptions and Deductions
Almost all business expenses are deductible including depreciation, interest, royalties,
rent, profit sharing payments to employees, legal expenses, pension and Egyptian state
social insurance contributions.
Profits of companies located in the free zones.
capital gains are applicable in some cases of asset replacement.
All tax holidays granted under Investment Law No.8/1997.
Joint stock companies employing more than 50 employees and maintaining proper
books of accounts are granted a tax holiday for a five-year period. Also, hotels and
tourist projects are granted a tax holiday for a five-year period which can be extended to
ten years if the project is located in a remote area.
For joint stock companies listed in the stock market, a deductible allowance is made that
is equal to interest income, which can be earned on a bank deposit (currently 10.5
percent).
Ninety percent of income generated by companies from their movable capitals which
have been subject to the new tax imposed by Law 187 of 1993.
Political Environment:
Tax Rate
Personal Income Tax Taxable Income
Tax Law No. 187 of 1993 distinguishes among the following categories of
income of individuals (as well as partners in partnerships):
Salaries and wages.
Commercial and industrial profits
Income from immovable property
Income from movable capital
Noncommercial profits.

Taxation of Foreigners
Foreigners that have been working in the country for more than 183 days with their annual
salaries varying from LE 1.00 to LE 50,000 are subject to paying a 20 percent income tax.
However, if the employee's annual income exceeds LE 50,000 then they will be liable to pay
32 percent income tax.
Political Environment:
Tax Rate
Social Insurance Contribution Rates

Employer(%) Employee(%)
On basic monthly salary up to L.E. 500 / month 26 14

On variable pay (such as production incentive bonuses)-

24 11
up to L.E. 500/month
Political Environment:
Labor force

26.1 million (2010 est.)

Labor force - by occupation:

agriculture: 32%
industry: 17%
services: 51% (2001 est.)

Unemployment rate:
9.7% (2010 est.)
9.4% (2009 est.)

Population below poverty line:

20% (2005 est.)
Economical Environment
Occupying the northeast corner of the African continent, Egypt is bisected by the
highly fertile Nile valley, where most economic activity takes place.
Egypt's economy was highly centralized during the rule of former President Gamal
Abdel NASSER but opened up considerably under former Presidents Anwar EL-SADAT
and Mohamed Hosni MUBARAK. Cairo from 2004 to 2008 aggressively pursued
economic reforms to attract foreign investment and facilitate GDP growth. The global
financial crisis slowed the reform efforts.

The budget deficit climbed to over 8% of GDP and Egypt's GDP growth slowed to 4.6%
in 2009, predominately due to reduced growth in export-oriented sectors, including
manufacturing and tourism, and Suez Canal revenues. In 2010, the government spent
more on infrastructure and public projects, and exports drove GDP growth to more
than 5%, but GDP growth in 2011 is unlikely to bounce back to pre-global financial
recession levels, when it stood at 7%. Despite the relatively high levels of economic
growth over the past few years, living conditions for the average Egyptian remain poor.

In the past year, the cabinet economic team has simplified and reduced tariffs and
taxes, improved the transparency of the national budget, revived stalled privatizations
of public enterprises and implemented economic legislation designed to foster private
sector-driven economic growth and improve Egypt's competitiveness. Despite these
achievements, the economy is still hampered by government intervention, substantial
subsidies for food, housing, and energy, and bloated public sector payrolls. Moreover,
the public sector still controls most heavy industry.
Economical Environment
Facts and figures on the Egyptian economy
GDP (purchasing power parity):
$497.8 billion (2010 est.)
$473.4 billion (2009 est.)
$452.3 billion (2008 est.)
note: data are in 2010 US dollars
GDP - composition by sector:
agriculture: 13.5%
industry: 37.9%
services: 48.6% (2010 est.)
Population below poverty line:
20% (2005 est.)
Budget:
revenues: $46.82 billion
expenditures: $64.19 billion (2010 est.)
Commercial bank prime lending rate:
11.98% (31 December 2009 est.)
12.33% (31 December 2008 est.)
Market value of publicly traded shares:
$89.95 billion (31 December 2009)
$85.89 billion (31 December 2008)
$139.3 billion (31 December 2007)
$93.48 billion (31 December 2006)
Current account balance:
$270 million (2010 est.)
$-3.195 billion (2009 est.)
$-1.331 billion (2008 est.)
Debt - external:
$30.61 billion (31 December 2010 est.)
$29.66 billion (31 December 2009 est.)
GDP (official exchange rate):
$218.5 billion (2010 est.)
Labor force:
26.1 million (2010 est.)
Household income or consumption by
percentage share:
lowest 10%: 3.9%
highest 10%: 27.6% (2005)
Public debt:
80.5% of GDP (2010 est.)
80.9% of GDP (2009 est.)
Stock of narrow money:
$37.8 billion (31 December 2010 est.)
$33.42 billion (31 December 2009 est.)
Agriculture - products:
cotton, rice, corn, wheat, beans, fruits,
vegetables; cattle, water buffalo, sheep,
goats
Exports:
$25.34 billion (2010 est.)
$23.09 billion (2009 est.)
Stock of direct foreign investment - at
home:
$72.41 billion (31 December 2010 est.)
$66.71 billion (31 December 2009 est.)
$59.13 billion (31 December 2008 est.)
GDP - real growth rate:
5.1% (2010 est.)
4.7% (2009 est.)
7.2% (2008 est.)
7.1% (2007 est.)
Labor force - by occupation:
agriculture: 32%
industry: 17%
services: 51% (2001 est.)
Distribution of family income - Gini index:
34.4 (2001)
Inflation rate (consumer prices):
12.8% (2010 est.)
11.9% (2009 est.)
Stock of broad money:
$166.2 billion (31 December 2010 est.)
$146.7 billion (31 December 2009 est.)
Industries:
textiles, food processing, tourism,
chemicals, pharmaceuticals,
hydrocarbons, construction, cement,
metals, light manufactures
Imports:
$46.52 billion (2010 est.)
$45.56 billion (2009 est.)
Stock of direct foreign investment -
abroad:
$4.9 billion (31 December 2010 est.)
$4.272 billion (31 December 2009 est
$12.08 billion (31 December 2008 est.)
GDP - per capita (PPP):
$6,200 (2010 est.)
$6,000 (2009 est.)
$5,900 (2008 est.)
$5,500 (2007 est.)
Unemployment rate:
9.7% (2010 est.)
9.4% (2009 est.)
Investment (gross fixed):
18.4% of GDP (2010 est.)
Central bank discount rate:
8.5% (31 December 2009)
11.5% (31 December 2008)
Stock of domestic credit:
$145.6 billion (31 December 2010 est.)
$131.5 billion (31 December 2009 est.)
Industrial production growth rate:
5.5% (2010 est.)
Reserves of foreign exchange and gold:
$35.72 billion (31 December 2010 est.)
$33.93 billion (31 December 2009 est.)
Exchange rates:
Egyptian pounds (EGP) per US dollar -
5.6124 (2010),5.545 (2009),5.4
(2008),5.67 (2007),5.725 (2006)
Economical Environment
Risk Assessment

The economy grew strongly in 2007 driven by domestic demand. The government's
liberal approach since 2004 has fostered a climate of confidence conducive to
consumption and investment. The economy has also benefited from oil country boom
via their investments and emigrant worker remittances. In this context, the business
environment is improving with the Coface payment incident index remaining below
the world average. While the gas sector has continued to develop, manufacturing,
construction, tourism, and communications have achieved excellent performance. The
outlook for 2008 is bright with growth likely to reach between 7.0 and 7.5 per cent.
.
The external financial situation remains healthy amid the good trend on foreign
currency earnings and the increase in foreign direct investment fuelled by the
privatizations. Debt service is low and Egypt is building up foreign exchange reserves.
However, the fiscal deficit and public sector debt remain a source of concern.
Controlling public spending and reducing the debt necessitates a spending overhaul
that will take time. Regional conflicts and poverty have strengthened Islamist
opposition movements. In this context social climate is tense and officials have
exercised caution in pursuing reforms.
Economical Environment
Risk Assessment

STRENGTHS
The business climate has benefited from an active reform program
and a regional economic boom.
Egypt boasts diversified sources of foreign exchange (the Suez Canal,
tourism, private transfers, and oil and gas exports).
Foreign exchange reserves are high.
The country enjoys the political and financial support of Western
countries.

WEAKNESSES
The interest on public debt and the cost of subsidies weighs on public
finances limiting the capacity for infrastructure development.
The banking system is not yet capable of meeting the economy's
needs.
The tourism sector, whose revenues are of fundamental importance
to the current account balance and economic growth, remains
vulnerable to the terrorist menace
Economical Environment
Performance statistics
 Subject Descriptor Units Scale 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Gross domestic product, constant prices National Billions 354.70 367.20 378.90 391.00 407.00 425.20 454.30 486.50 521.39 545.89 570.44
currency
Gross domestic product, constant prices Annual 5.38 3.52 3.19 3.19 4.09 4.47 6.84 7.09 7.17 4.70 4.50
percent
change
Gross domestic product, current prices National Billions 340.10 358.70 378.90 417.50 485.30 538.50 617.70 744.80 896.50 1,038.60 1,182.62
currency
Gross domestic product, current prices U.S. dollars Billions 99.16 95.40 87.51 81.38 78.80 89.79 107.38 130.35 162.62 187.96 208.46
Gross domestic product, deflator Index 95.88 97.68 100.00 106.78 119.24 126.65 135.97 153.09 171.95 190.26 207.32
Gross domestic product per capita, National Units 5,603.52 5,675.47 5,740.91 5,809.81 5,932.95 6,074.29 6,371.67 6,610.05 6,933.32 7,116.81 7,291.09
constant prices currency
Gross domestic product per capita, National Units 5,372.83 5,544.05 5,740.91 6,203.57 7,074.34 7,692.86 8,663.39 10,119.57 11,921.54 13,540.36 15,115.71
current prices currency
Gross domestic product per capita, U.S. dollars Units 1,566.42 1,474.48 1,325.85 1,209.27 1,148.71 1,282.77 1,505.96 1,771.00 2,162.45 2,450.41 2,664.41
current prices
Gross domestic product based on Current Billions 247.52 262.03 274.76 289.63 309.65 333.35 367.76 405.11 443.43 471.51 500.25
purchasing-power-parity (PPP) international
valuation of country GDP dollar
Gross domestic product based on Current Units 3,910.25 4,049.93 4,162.96 4,303.62 4,513.88 4,762.12 5,157.97 5,504.17 5,896.67 6,147.12 6,393.94
purchasing-power-parity (PPP) per international
capita GDP dollar
Gross domestic product based on Percent 0.59 0.60 0.60 0.60 0.59 0.59 0.60 0.62 0.64 0.66 0.67
purchasing-power-parity (PPP) share of
world total
Implied PPP conversion rate National 1.37 1.37 1.38 1.44 1.57 1.62 1.68 1.84 2.02 2.20 2.36
currency per
current
international
dollar

Inflation, average consumer prices Index, 100.00 102.43 104.92 108.28 117.06 127.36 132.71 147.25 164.48 191.20 207.36
2000=100
Inflation, average consumer prices Annual 2.85 2.43 2.43 3.21 8.11 8.80 4.20 10.95 11.70 16.24 8.45
percent
change
Inflation, end of period consumer prices Index, 100.00 102.23 105.04 109.26 122.05 127.76 137.01 148.73 178.75 196.55 212.27
2000=100
Inflation, end of period consumer prices Annual 2.54 2.23 2.75 4.01 11.71 4.68 7.24 8.55 20.18 9.96 8.00
percent
change
Population Persons Millions 63.30 64.70 66.00 67.30 68.60 70.00 71.30 73.60 75.20 76.70 78.24
Economical Environment
Performance statistics
Real GDP Growth Rate
8
7
6
5
4
Series 1
3
2
1
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2016
Economical Environment
Performance statistics

Consumer Prices
18
16
14
12
10
8 Consumer Prices
6
4
2
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Economical Environment
Performance statistics

Balanced on current account

5
4
3
2
1
0 Series 1
-1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2016
-2
-3
-4
-5
Sociocultural Environment
Egypts total population stood at 82,079,636 million. Out of this approximately 90% are Muslims
while the remaining are Christians. Most of the population inhabits the area near the Nile River and
almost half of Egypts population is urban, living in the densely populated cities such as Cairo and
Alexandria.

One of Egypts biggest socio-economic problems is the high unemployment rate which has been
growing over the years. The unemployment rate, which has averaged more than 10% over a
decade, increased to over 12% in 200506. With the population growing at 1.8% per annum, the
economic growth of 4.4% is not enough to curb the unemployment rate. While the average growth
in employed population during the last five-year period stood at 2.3%, the rise in unemployed
population has been much higher during the same period averaging around 8%. The high rates of
unemployment and population growth coupled with meager wages in most of the public sector
companies contribute to the poverty levels, with close to 20% of Egypts population below the
poverty line. A big challenge for Egypt in the near future will be to create jobs, as the population
within the 2045 age-group constitutes around 65% of the total population.

The education indicators of Egypt project a poor image of the education system. Only about 58% of
the population is literate and there is a big difference in the literacy rates for males and females.
Male literacy rate is around 68%, while female literacy rate is just about 47%, indicative of gender
disparity. The National Council for Women, a nodal government agency that works for the welfare
of women in Egypt, aims to completely eradicate illiteracy among females.

The healthcare system in Egypt is underdeveloped with only around 29% of the population covered
by governmental health insurance. Egypts public healthcare system is under-funded, with the
government committing only around $1 billion in 200506 for upgrading the healthcare sector,
which represents a meager 2.7% of the total state budget. The ministry of health is the largest
institutional financier providing free healthcare services in Egypt but its reach is limited. Almost
65% of the Egyptian people pay for their own insurance through private and other health insurance
organizations. The total spending on healthcare in Egypt is only about 4% of its GDP.
Technological Environment
Egypt's IT spending is expected to increase from US$1.3bn in 2010 to US$2.1bn by 2014 and the Egyptian IT
market growth is forecasted to remain below pre-economic crisis levels in 2010, but economic recovery, tenders
delayed from 2009 and higher incomes boosted by pay raises for civil servants and other groups should help to
keep sales on an upwards trajectory. .

A number of policies have been implemented to attract foreign investment in IT outsourcing, including local
employment subsidies, lower corporate taxes and deductions for training costs. The Egyptian minister of state for
administrative development has said that 200 government services will soon be available online through a new e-
government portal. The portal will offer 70 services in both English and Arabic. According to the Ministry for
Administrative Development, more than 20 government agencies currently offer services and licenses online.

Egypt's computer hardware sales are projected at US$821mn in 2010 and are forecast to reach around US$1.3bn
in 2014.Egypt's IT market will stay hardware dominated, with spending on PCs sustained by initiatives like the
'Computer for Every Student' and 'PC for Every Home' programs. Hardware accounted for an estimated 62% of
Egypt's IT spending last year. Households account for 20-25% of unit sales, with almost 1-1.5mn households said
to possess a computer at present. .

Overall spending on software remains rather low, which reflects the relative immaturity of Egypt's IT market. One
market driver has been a significant fall in software piracy, with the illegal software usage rate, as measured by the
Business Software Association, falling a further 1% to 59% in 2008. While large corporations have long understood
the business case for deploying technology, small and medium-sized enterprises is increasingly beginning to see
such investments as important if they are to avoid being overtaken by more tech-competent competitors.
.In 2008, Egypt continued liberalization of the telecoms market, with the award of a second national fixed license.
This development, which followed the award of 3G licenses to three mobile telecoms service providers in 2007, is
likely to drive new opportunities for IT vendors. As well as generating additional spending on IT products and
services from the telecoms sector, the spread of internet should provide a boost to the PC market over the next
few years. . . .

The Egyptian IT services market is dominated by demand from government, finance and telecoms sectors, which
account for more than 25% of Egypt's total spending.
Technological Environment
Communications
Telephones - main lines in use:10.313 million (2009)
Telephones - mobile cellular:55.352 million (2009)

Telephone system:
general assessment: underwent extensive upgrading during 1990s; principal centers at Alexandria, Cairo,
Al Mansurah, Ismailia, Suez, and Tanta are connected by coaxial cable and microwave radio relay
domestic: largest fixed-line system in the region; as of 2010 there were three mobile-cellular networks
with a total of more than 55 million subscribers
international: country code - 20; landing point for Aletar, the SEA-ME-WE-3 and SEA-ME-WE-4 submarine
cable networks, Link Around the Globe (FLAG) Falcon and FLAG FEA; satellite earth stations - 4 (2 Intelsat -
Atlantic Ocean and Indian Ocean, 1 Arabsat, and 1 Inmarsat); tropospheric scatter to Sudan; microwave
radio relay to Israel; a participant in Medarabtel (2009)

Broadcast media:
mix of state-run and private broadcast media; state-run TV operates 2 national and 6 regional terrestrial
networks as well as a few satellite channels; about 20 private satellite channels and a large number of
Arabic satellite channels are available via subscription; state-run radio operates about 70 stations
belonging to 8 networks; 2 privately-owned radio stations operational (2008)

Internet country code:.eg

Internet hosts:187,197 (2010)
Internet users:20.136 million (2009)
References

CIA the world fact book USA

The international Monetary Fund
Thank you