2009 Index of Economic Freedom

Quick Facts

Population:

• 74.2 million

GDP (PPP):

• $367.4 billion
• 6.8% growth
• 4.3% 5-year compound annual growth
• $4953 per capita

Unemployment:

• 9.1%

Inflation (CPI):

• 11.0%

FDI Inflow:

• $10.0 billion

Egypt's economic freedom score is 58.0, making its economy the 97th freest in the 2009 Index. Its overall score decreased by 0.5 point over the past year, primarily due to a falling government size score that reflects increases in food and energy subsidies. Egypt is ranked 10th out of 17 countries in the Middle East/North Africa region, and its overall score is just below the world average.

Improvements in financial freedom raise that component score to the world average; private ownership in the financial sector is growing, and government intervention has been declining gradually. Business freedom also increased significantly. Although Egypt scores at or above the world average in five freedoms, its only notably high score is in fiscal freedom. The top income and corporate tax rates remain very low, and the tax burden relative to GDP is not high.

Egypt has room for further improvement. Government spending on subsidies has contributed to persistent fiscal deficits. Corruption is still perceived as widespread, and fair adjudication of property rights is not always guaranteed.

Background Back to the top

Egypt is the most populous Arab country and a major force in Middle Eastern affairs. President Hosni Mubarak has held power for more than 25 years, but supporters of the radical (and illegal) Muslim Brotherhood hold 20 percent of the seats in Parliament. Despite incremental reforms to liberalize the socialist economic system that has hampered economic growth since the 1950s, the government still subsidizes food, energy, and other key commodities heavily. Reform became a higher priority under Prime Minister Ahmed Nazif, who took office in 2004 and placed liberal reformers in key positions. In 2005, the government reduced personal and corporate tax rates, cut energy subsidies, and privatized several enterprises. Since then, the economy has been bolstered by growing foreign investment and greater revenues from the production of oil and gas, the leading exports.

Business Freedom 64.7 Back to the top

The government has established a 'one-stop shop' for business investment and revamped regulation, and the overall freedom to conduct a business has benefited. Starting a business takes an average of seven days, compared to the world average of 38 days. Obtaining a business license still takes more than the world average of 18 procedures and 225 days.

Trade Freedom 63.4 Back to the top

Egypt's weighted average tariff rate was 13.3 percent in 2005. Customs administration is slowly improving, but import restrictions, services market access restrictions, some high tariffs, burdensome and non-transparent sanitary and phytosanitary measures, cumbersome bureaucracy, inconsistent regulations, and weak enforcement of intellectual property rights add to the cost of trade. Ten points were deducted from Egypt's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 89.5 Back to the top

Egypt has low personal income and corporate tax rates. The top income and corporate tax rates are 20 percent. A special corporate tax of 40.55 percent remains in effect for oil, gas, and exploration companies. Other taxes include a value-added tax (VAT) and a property tax. In the most recent year, overall tax revenue as a percentage of GDP jumped to 15.8 percent due to a widening tax base and improvements in the collection system, including incentives for timely payments.

Government Size 66.1 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 33.6 percent of GDP. Beginning in 2009, a license will be awarded to a new telecommunications company, ending the monopoly on landline telephone service.

Monetary Freedom65.9 Back to the top

Inflation is high and rising, averaging 9.1 percent between 2005 and 2007. The government controls prices for some basic foods, energy (including fuel), transport, and medicine and subsidizes basic food items, sugar, pharmaceuticals, and public transportation. Fifteen points were deducted from Egypt's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom50.0 Back to the top

All investment projects must be reviewed to gain legal status and qualify for incentives. Foreigners may own up to 100 percent of a project, but the approval process is easier to navigate for joint ventures with domestic partners. Reforms are increasing regulatory transparency and reducing the burden of bureaucracy. Popular acceptance of foreign investment is uncertain, and help from senior government officials may be needed to facilitate certain investments. Residents and non-residents may hold foreign exchange accounts. There are no restrictions on repatriating capital, payments, and transfers. Foreign ownership of prime agricultural land is almost always prohibited.

Financial Freedom50.0 Back to the top

Egypt's financial sector is not fully developed but functions relatively well. Efforts have been made to divest state ownership of public banks and increase private-sector involvement in the financial sector. The government has moved gradually from direct intervention in the financial sector to indirect control of monetary aggregates through such measures as bond issues. Full private-sector ownership, including foreign ownership, is allowed in banking and insurance. Many large international financial institutions in commercial and investment banking, mutual funds, insurance, and securities trading now operate in Egypt. The government sold a majority stake in the Bank of Alexandria in October 2006. Sale of Banque du Caire, one of the largest public banks, has been indefinitely delayed following the failure of the government's attempt to sell a 67 percent stake in June 2008.

Property Rights40.0 Back to the top

The government sometimes uses fast-track military courts to circumvent the judiciary. On average, it takes six years to decide commercial cases, and appeal procedures can extend court cases beyond 15 years. Local contractual arrangements are generally secure. Islamic law is officially the main inspiration for legislation, but the Napoleonic Code exerts a significant influence. Judicial procedures tend to be protracted, costly, and subject to political pressure. The enforcement of intellectual property rights is seriously deficient.

Freedom From Corruption29.0 Back to the top

Corruption is perceived as widespread. Egypt ranks 105th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Bribery of low-level civil servants seems to be a part of daily life, and there are allegations of significant corruption among high-level officials.

Labor Freedom61.3 Back to the top

The government has adopted a new labor code, but employment regulations are not flexible enough to enhance employment opportunities and productivity growth. Restrictions on work hours are relatively flexible, but the non-salary cost of employing a worker remains high.