The African Continental Free Trade Area (AfCFTA) agreement could mean Egypt adds at least 32 new trade partners to its repertoire, and help diversify and upgrade the country’s economy.
To fully benefit from the AfCFTA agreement, Egypt needs to update its policy approach for economic transformation, says the country’s recently released Production Transformation Policy Review (PTPR).
The report said that Egypt is among Africa’s economic heavyweights. Although the country is a small industrial player, accounting for only 2% of world manufacturing, Egypt is the continent’s top manufacturing hub, accounting for 22% of its value added in this sector.
The country’s fast-growing economy has been increasingly attracting international investors, who are choosing Egypt to produce for the Middle East and Africa (MEA) region.
Between 2017 and 2020, Egypt attracted the highest percentage of foreign direct investment (FDI) in electronics and electrical manufacturing in Africa, accounting for 21% of the total number of projects. The country also had the second highest of knowledge-intensive projects, which accounted for 14% of the total, according to the report.
However, Egypt still conducts little trade with other African economies, with only 15% of its goods exports traded on the continent.
The report mentioned that the country reacted quickly to mitigate the economic effects of the novel coronavirus (COVID-19) pandemic.
It noted that the recovery package mobilised in 2020 accounted for 1.9% of Egypt’s GDP, including tax breaks, loan repayment deferrals and subsidized credit to firms.
Since 2017, Egypt has been reforming its governance and regulatory framework to attract investment, and foster trade and digitalisation in its companies, the report says.
Among the country’s key reforms carried out, and which stand out, was the implementation of a single nationwide online platform to speed up customs processes in 2021. Egypt has also been investing in raising quality, as demonstrated by the establishment of the National Food Safety Authority (NFSA) in 2017.
The country has also become one of Africa’s top hubs for start-ups, accounting for 14% of the continent’s start-ups and 10.5% of its venture capital.
However, Egypt continues to rely predominantly on traditional tools to support industrialisation, including special economic zones.
The report says the country needs to continue implementing effective reforms for more economic progress. Although the agenda is vast, the report identifies three actions that could be game-changers in the current context.
This includes investing in making AfCFTA a real development driver. An important step will be implementing effective industrial policies and observing their impact, by setting up a monitoring and evaluation system. This will track the progress of AfCFTA’s implementation in relation to the country’s Vision 2030 and the National Structural Reform Programme for 2021 to 2024.
Also important is engaging the private sector in innovation. Egypt falls short, by international comparison, in the typology of tools and the budget allocated to innovation and research and development.
The introduction of fiscal incentives through Law no 72/2017 is a step forward. The country should increase public support for innovation to all firms across all sectors, leveraging existing tools, such as the ones managed jointly by the Industrial Modernization Centre and the Science and Technology Development Fund (STDF).
In addition, there is a need to get policymaking ready for the future. Egypt would benefit by rationalising and strengthening implementation institutions, for example by building their capacities to operate across the whole country. This includes modernising its infrastructure to operate better in an industry and Agro 4.0 landscape.
The report is the product of a 21-month policy support process requested by the Egyptian Government and implemented by the Development Centre of the Organisation for Economic Co-operation and Development (OECD).
This has taken place in collaboration with the United Nations Conference on Trade and Development (UNCTAD), the United Nations Economic Commission for Africa (ECA), and the UN Industrial Development Organization (UNIDO).
Malaysia and Italy made peer contributions, whilst the German International Cooperation Agency (GIZ) supported the production of the report. The African Export Import Bank (Afreximbank) also contributed to the process.