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Why are thousands of companies leaving Egypt? | economy

manhattantribune.com by manhattantribune.com
14 January 2025
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Why are thousands of companies leaving Egypt? | economy
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Cairo Thousands of Egyptian companies have recently entered neighboring markets, benefiting from the attractive investment facilities provided by those countries compared to the difficult investment environment they face in Egypt, which has been exacerbated by the ongoing economic crisis.

This development sparked a wide debate in the corridors of the Egyptian government and economic circles, to which Finance Minister Ahmed Kojak commented, in a televised interview, on the necessity of taking rapid measures to improve the investment environment within the country and reduce the burdens facing local companies.

One of the most prominent reasons that prompted these companies to decide to expand into foreign markets is the extensive investment facilities provided by those countries, which include tax exemptions, simplifying procedures, and providing advanced infrastructure.

On the other hand, Egyptian companies face many challenges within the local market, such as bureaucratic complexities, an unfavorable investment environment, and high tax burdens, which weaken their ability to compete and continue.

One of the popular markets in Cairo (Getty)

This challenge was clearly presented during Prime Minister Mostafa Madbouly’s meeting with a group of senior businessmen and investors two weeks ago, where Mohamed Al-Etreby, Chairman of the Board of Directors of the National Bank of Egypt (the largest government bank), indicated that the attractive work environment in the Emirates succeeded in attracting about 2,360 Egyptian companies during the period. First half of 2024.

Al-Etreby warned of the negative effects of this investment exodus on the Egyptian economy, which he described as a serious threat, especially since Egypt has all the potential for development, calling for urgent steps to be taken to address the problems facing companies locally.

Expansion of Egyptian companies into neighboring markets

  • The number of Egyptian companies in Saudi Arabia jumped from 500 to 4,000 companies.
  • The companies’ capital doubled from 5 billion riyals to 50 billion riyals.
  • 30% of Saudi investment permits during the first quarter of 2024 were obtained by Egyptian companies.
  • Egyptians rank third among the nationalities most establishing companies in Dubai during the first half of 2024.
  • The number of new Egyptian companies registered in Dubai reached 2,355.
Officials in the Madbouly government also acknowledge that there are real problems in the local investment environment and the tax system (social networking sites)

Government acknowledgment of the problem

Officials in Madbouly’s government admitted that there were real problems in the local investment environment and tax system. In this context, the Minister of Finance stressed the need to reform this environment and make it more attractive for investment.

In September 2024, the Egyptian government announced what it called “a new page between the Tax Authority and the business community based on partnership, support, and certainty” as part of its new plans in the tax system.

What are the challenges facing companies in Egypt?

This comes amid urgent questions about the government’s ability to create an attractive competitive climate for investment that maintains the continuity of companies, stops their exit into other markets, and addresses its concerns related to the business environment.

The Secretary-General of the Arab Investors Union, Ambassador Gamal Bayoumi, agrees with the statements of the President of the National Bank of Egypt, and described this development as “a drain on the Egyptian economy and requires urgent intervention from the government to develop radical solutions to improve the local investment environment.”

Speaking to Al Jazeera Net, Bayoumi confirmed that the investment facilities provided in many countries, such as tax exemptions and simplification of procedures, attract Egyptian companies that face major challenges locally, which threatens the competitiveness of the Egyptian business environment.

Ambassador Bayoumi enumerated the types of complications facing investors, such as administrative complications, the slow flow of procedures, and financial complications related to the difficulty of dealing with local banks and the high cost of financing, calling for defining the identity of the Egyptian economy: Is it a state-led economy or a market-led economy?

Deteriorating conditions in the private sector

The difficult business environment was reflected in operating conditions in Egypt’s non-oil private sector, which deteriorated last December with production and new orders declining at the fastest rate in 8 months amid increasing cost pressures, according to Standard & Poor’s.

The headline Purchasing Managers’ Index continued to contract for the fourth month in a row below 50 points for reasons related to weak customer demand and increased inflationary pressures, which were exacerbated by the weakness of the Egyptian pound against the dollar.

Despite this, the International Monetary Fund is pushing to strengthen the role of the Egyptian private sector in the local economy within the framework of the economic program implemented by the Egyptian government under an $8 billion loan agreement, and Egypt has received three tranches of this loan so far.

Inflationary pressures in Egypt were exacerbated by the weakness of the Egyptian pound against the dollar (Getty)

Corporate environment

Egyptian-American businessman Mohamed Rizk attributed the reasons for the migration or expansion of Egyptian companies in foreign markets to two reasons:

  • The first is the natural extension of the work of these companies in the Middle East, especially the large, successful companies, in search of new opportunities.
  • The second is the exit of some companies from the Egyptian market due to the difficulties they face and the unsuitable investment environment, not to mention the advantages offered by the countries of the region.

He stressed, in his speech to Al Jazeera Net, that the Egyptian government must pay attention to this negative phenomenon, “and it has done well recently by sitting with some of the heads of these companies to find out the problems and try to find realistic solutions to them, as the main problem remains the provision of foreign currency and the high interest on borrowing, thus putting pressure on all sectors.” economy, and the lack of a clear comprehensive vision to end this deficiency due to the dollar gap.”

Despite this, optimism that the Egyptian government will solve the problems of the investment environment remains limited, according to Rizk, for two main reasons:

  • The first is the state’s adherence to its control over the management of the economy.
  • The second is the lack of ministries and government agencies in the competencies and infrastructure necessary for digital transformation, in addition to bureaucratic legacies that hinder reform efforts.
Tags: companieseconomyEgyptleavingthousands
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