Cairo, 15 November 2018

Finance for Impact presented its Trade Assessment for Egypt, an EBRD assignment conducted in 2017-2018.

In 2016, Egypt has embarked on a major economic reform program, including the liberalization of the exchange rate regime, fiscal consolidation measures and reforms to the business environment. The liberalization of the exchange rate regime has been seen as a key step towards restoring the competitiveness of the economy and boosting private sector activity. The devaluation helped lure foreign investors back to the local debt market but also it triggered a new set of challenges, including soaring inflation (above 30%-40% in 2017) and rising borrowing costs (above 20% in 2017), thus causing many companies to put their expansion plans on hold.

Today, there are many signs of a recovery in Egypt and the reforms seems to pay off. Real GDP grew at 5.3% in fiscal year 2018 (July to June), compared to 4.2% in the previous year. Inflation remained elevated in 2017 but started to significantly recede, signalling the dissipating effects of energy price hikes. For instance, inflation is now around 8.5%.

Egypt’s economy suffers from a situation of chronic trade deficit. Exports reached USD 25.9 billion in 2017, or an increase of 15.2% from the previous year (exports reached USD22.5 billion in 2016 and USD21.9 billion in 2015). At the same time, imports reached USD 66.3 billion in 2017 (against USD58.1 billion in 2016 and USD74.4 billion in 2015). Still, the deficit remains important as imports exceed by far export. Egyptian external trade still suffers from a relatively high trade concentration and low value-added exports. For instance, companies in the food industry have not been able to fully take advantage of the weak pound to boost exports because traditional markets for the Egyptian industries, e.g. Libya, Syria and Yemen, have been plagued by conflict.

Export partners are fairly stable over time, with little renewal in the historical partnerships. In 2017, the top export destinations of Egypt were UAE (USD2.7 billion); Italy (USD2.2 billion); Turkey (USD1.9 billion); Saudi Arabia (USD1.6 billion); USA (USD1.3 billion); UK (USD1.1 billion); India (USD0.9 billion); Spain (USD0.7 billion); China (USD 0.7 billion); Lebanon (USD 0.7 billion); Germany (USD 0.6 billion); France (USD 0.6 billion); Iraq (USD 0.5 billion); and Jordan (USD 0.5 billion). Libya is not anymore in the top 15 export destination but was part of it in 2016 (USD0.6 billion).

In 2017, the key 10 products exported by Egypt were: Fuel and oil products (19.5% of the total exported, against 14.3% in 2016); pearls, stones and metals (8.2%); electrical machinery & components (6.7%); fruits (4.9%); plastics (5.8%); vegetables (4.1%); fertilisers (4.1%); clothing (3.5%); iron & steel (3.3%), and perfumery (2.1%). In 2017, the key 10 products imported by Egypt were: Mineral fuels and oils (17.4% of the total imported and an increase of 39.3% from the previous year, from USD 8.3 billion to USD 11.5 billion); machinery (8.6%); electrical equipment (7.3%); cereals (6.6%); iron and steel (4.9%); plastics (4.8%); vehicles (4.7%); articles of iron (4.2%); pharmaceutical (3.3%); and meat (2.3%).

It should be noted that oil prices have an important impact on Egypt. In recent months, the price of oil has been rising, causing the budget deficit to increase. Egypt is heavily reliant on oil imports, mostly from Saudi Arabia and Iraq, to meet its energy needs, with estimates indicating that Egypt spent about USD11.5 billion on mineral fuel imports in 2017 (or 17.4% of the total value of imports). The high cost of imports, especially of petroleum imports, is a major problem as it creates a situation of chronic large trade deficits, which are not under control.

Micro, Small and Medium Enterprises (MSMEs) represent an important pillar of the Egyptian economy. SMEs provide cheap goods and services to citizens, create employment for low-skilled labour, and encourage the use of simple and local technology. SMEs represent around 98% of all industrial facilities in Egypt, and employ around 47% of this sector’s labour.

The development of SMEs has been facing many other constraints. For instance, most SMEs indicated the need for enhanced services to import and export, including accurate and detailed information on trade and customs-related laws, regulations, procedures, and documentation. In order to reach out new markets, in particular the new ones in Africa, trade promotion infrastructure and services have to be greatly developed.

Although the banking sector in Egypt is relatively large, credit is mostly channelled to a small number of large firms. Many firms have disconnected from the banking sector altogether, often due to the lack of opportunities to secure regular credits. The % of those small SMEs getting access to a credit dramatically fall in Egypt as only 4.7% can get access to finance, against 24.1% in the other MENA countries. Although financing is technically possible via funded transactions in Egypt, the trade financing of business, in particular SMEs, is largely lagging behind. Commercial banks are reluctant to provide working capital solutions to SMEs, in particular the smallest ones. As a result, the overall SME portfolio of the banking system typically remained below 10% of all credit facilities in past years.

This is why, in 2016, the Central Bank of Egypt (CBE) launched a four-year programme aimed at obliging banks to increase their lending to SMEs at below-market rates of interest. The programme aims to provide finance over the next four years to 350,000 SMEs, helping to create 4 million jobs. The mechanism to achieve this will entail requiring commercial banks over this period to ensure that at least 20% of their loan portfolio comprises facilities for SMEs. The CBE indicated that this will result in a total of EGP 200 billion (about USD 25 billion) of financing for small businesses. This program shows promise and many banks have already significantly increase their share of business with SMEs.


In conclusion, Egyptian SMEs require financing over shorter and longer horizons to borrow working capital to complete orders, to obtain credit guarantees to protect against counterparty defaults, or to purchase fixed assets. Looking forward, and assuming that access to finance constrains can be removed, the existing export sector is well placed to play a more constructive role in economic diversification, with promising sectors for exports and new markets to open their doors.