Environmental Technologies Industries

Environmental Technologies Industries

Market Plans

Egypt Environmental Export Market Plan

Chapter 1 - Overview of the Egyptian Market

Environmental Conditions In Egypt

Since the 1960s, Egypt's rapid industrialization has created public health and environmental concerns. Severe air and water pollution problems are observed in the two largest cities, Greater Cairo and Alexandria, which account for over 80 percent of Egypt's industrial activity. Environmental problems are also likely to extend to the cities of Suez, Ismailia, and the Tenth of Ramadan, where private industrial activities are rapidly expanding, largely without pollution controls. With the exception of the new industrial cities, the Tenth of Ramadan and the Sixth of October, industries are concentrated in highly populated areas, exposing millions of people to industrial pollution and the resulting serious health risks.

Air pollution from lead and dust is the most acute health hazard in Egypt. Cairo has the world's highest lead concentrations in its air; eight times safety levels approved by the World Health Organization. About 90 percent of Egypt's wastewater discharges are untreated, and 80 percent of industrial wastewater effluents are not even monitored. Low levels of water reuse and a lack of wastewater treatment have led to depletion of potable water resources. It is estimated that Egyptian industries generate at least 10 tons of solid waste per minute, 1 percent of which is hazardous. One-third of this waste goes into uncontrolled landfills, canal banks, and drains.

Political and Economic Overview

Political Situation

The Egyptian political system has undergone significant liberalization since the 1960s. Today, citizens enjoy a substantial degree of freedom of expression, and the judiciary has demonstrated its independence from the executive branch. The political scene is dominated by the governing National Democratic Party, which harbors a wide range of views on political and economic reform among its members. However, Egypt has been under an official state of emergency since 1981; this state of emergency was extended in 1997 for another three years because of the rise of terrorist attacks on tourists.

The Egyptian Constitution provides for a strong president who appoints the prime minister, the Cabinet, and governors of Egypt's 26 provinces. In 1993, President Hosni Mubarak was elected for his third six-year term. President Mubarak has supported a strong U.S.-Egypt relationship based on shared interests in promoting regional peace and stability, revitalizing the Egyptian economy, and strengthening trade ties.

The U.S.-Egyptian Partnership for Economic Growth and Development was launched by U.S. Vice President Gore and President Mubarak in September 1994 as a mechanism to promote stability and prosperity in Egypt. The partnership initiative has been an effective approach to resolving problems related to rapid and sustainable economic growth in Egypt. This initiative encourages dialogue between the highest levels of government decisionmaking and the private-sector participation.

Economic Trends

Economic and Social Indicators

Before 1990, Egypt had developed an isolated, public-sector-dominated economy. In 1991, the Government of Egypt (GOE), faced with large external debt service arrears, declining growth, and high inflation, launched the comprehensive Economic Reform and Structural Adjustment Program (ERSAP). With the support of the International Monetary Fund (IMF), the World Bank, and other international donors, the ERSAP has focused on macroeconomic stabilization, reduction of inflation rates, and structural adjustments to encourage medium- and long-term economic growth.

Real gross domestic product (GDP) growth has been gradually rising in recent years (see table 1). However, performance across economic sectors has been uneven. While agriculture (16.3 percent of GDP) has been growing steadily, overall industrial production (17 percent of GDP), particularly in the public sector, has declined. The fastest growing sector in Egypt is tourism (16.2 percent growth in 1996).

Table 1: Egypt's Economic Indicators

		1996/97	1997/98
Indicator	1995/96	(est.)	(est.)
GDP ($ billion)	64.3	67.5	70.9
GDP Growth Rate (%)	4.9	5.0	5.0
GDP per Capita ($)	1,085	1,118	1,148
Inflation (%)	8.3	7.1	7.0

Source: U.S. Department of Commerce, Country Commercial
Guide: Egypt, 1998.

The GOE’s commitment to fiscal control has been a major element of its successful stabilization program. From a high of 17 percent of GDP in FY 1990–91, the government's budget deficit was slashed to less than 1 percent in FY 1996–97. The government calculated the annual inflation rate for FY 1996–97 to be 7.1 percent and projected an even lower rate in FY 1997–98.

Despite the declining inflation rate, the living standard of the majority of people has not improved. Poverty has been exacerbated since 1991, when the government began to dismantle the country's pervasive subsidy system, causing the prices of basic goods to increase. When poverty is defined as having a total income of less than $35 per month, the proportion of the population living in poverty has risen from 20 to 25 percent in 1990 to about 33 percent today.

Unemployment remains an acute political, social, and economic problem. The World Bank estimates that 17.5 percent of the work force, or 2.8 million people, are currently unemployed, of whom 70 percent are under 20 years old. Underemployment is estimated to affect one-third to one-half of all persons of working age.

Privatization and Investment Trends

As part of its reform program, the GOE is focusing on liberalizing its trade regime, encouraging private-sector growth, and improving the investment climate. The Cabinet has begun to make progress toward selling off state-owned companies. Overall, the majority of privatization transactions have taken place either through stock offerings, employee purchases, or a combination of both. Share sales through the capital market are growing, both to Egyptian and foreign investors. These trends are a positive change from years past, when the government was reluctant to privatize its extensive public holdings. Privatization is still seen in Egypt primarily as a means of mobilizing domestic savings for investment rather than altering the nature of the public sector.

Despite liberalization, the public sector still plays a dominant role in the economy, accounting for a share of gross output and employment that is among the highest in the developing world. The public sector produces about half of the country's GDP and more than 60 percent of total output in industry and mining. Freeing up the private sector will require, among other things, a massive reduction in bureaucratic requirements that tend to suffocate private initiative.

In May 1997, President Mubarak signed a new investment law (Law 8/1997) reaffirming basic guarantees for investors and clarifying the framework for investment incentives. Key provisions of Law 8 include the guarantee against confiscation, sequestration, or nationalization; the right to own land; the right to maintain foreign currency bank accounts; freedom from administrative attachment; the right to repatriate capital and profits; and the right to equal treatment regardless of nationality. Responsibility for implementing the provisions resides with the General Authority for Investment and Free Zones until a Presidential decree is issued establishing the new special administrative body envisioned in the law. In an effort to improve coordination between the central government and the localities on investment issues, Egypt has also established investment offices in the governorates.

Law 8 distinguishes between “inland” investments and free-zone investments. Free zones are established by ministerial decree. Companies operating in free zones are not subject to laws applied to the rest of Egypt. Although exempted from taxes and fees stipulated by Egyptian laws, free-zone companies are subject to an annual fee of 1 percent of the value of goods entering or leaving the free zone, or of the gross revenues realized by the project if its activity does not require the entry or exit of goods.

Trade Policy

The other key area of Egypt's economic policy reform has been trade liberalization. In 1995, Egypt joined the World Trade Organization. It has pursued closer trade ties with the United States, the European Union, Japan, Russia and other countries.

However, Egypt has yet to reduce many of its trade barriers and eliminate unnecessary regulations and restrictions on business activities. Law 228/1997 reduces import duties on finished goods that have at least 30 percent local content from an average of 50 to 45 percent. These reductions are part of the IMF-approved economic liberalization program and are meant to encourage investments in local manufacturing. In addition to the import duty, a sales tax ranging from 5 to 25 percent is added to the final customs value of the imported item. The current tariff policies and structures do not give special treatment to environmental equipment.

The domestic industry also remains protected by many nontariff import barriers, including service fees and the mandatory product inspection list. Fear of the pressure of increased imports on the current account, and concern over the political cost of replacing lost revenues with new taxes continue to constrain the government from lowering tariffs. In addition, some administrative procedures regarding customs clearances appear to be causing unnecessary delays to bringing environmentally useful equipment into the country. Egyptian customs authorities do not have to justify their decisions, and there is no formal appeals process. The customs procedures are subjective in determining whether a commodity fits in one tariff category or another, and experience has shown that the same commodity may be classified differently and consequently be subject to different tariff rates under different shipments.

Environmental Market Overview

Market Estimates

Table 2 presents estimates of the size of the principal environmental market segments in Egypt. The estimates are based on the size of donor funding, the availability of funding from the GOE, and the possible level of environmental investments by private-sector industries. There is little or no consumer market for environmental goods and services at this time.

Table 2: Environmental Market Size ($US millions)

Market Estimate	Market Segment 1998
Municipal Water Supply and Wastewater Treatment	480
Industrial Wastewater Treatment	70
Air Pollution Control: Stationary Sources	25
Air Pollution Control: Mobile Sources	5
Hazardous Waste Management	30
Solid Waste Management	10
Environmental Consulting Services	60
Total	680

Source: Hagler Bailly, 1998.

The market estimates in table 2 are conservative. The U.S. Commercial Service in Egypt estimates the total market size at $856 million, growing at a rate of 10 percent per year. By all accounts, municipal water supply and wastewater treatment constitutes the largest and fastest growing market segment with the best opportunities for U.S. companies. Another strong market is environmental consulting, which includes performing environmental impact assessments, pollution prevention audits, and monitoring and laboratory services. The markets for industrial wastewater treatment, air pollution control, and hazardous waste management are still relatively small but are expanding rapidly as the GOE strengthens enforcement of environmental standards for industry.

Import Market Shares

Source: Hagler Bailly, 1998

Competition

Currently, most of Egypt's environmental equipment is imported. Although Egyptian companies manufacture basic components of water and wastewater management systems for municipalities (steel structures, pipes, etc.), the import market for high-tech environmental equipment is not affected. The total import market is estimated at $527 million, or 77 percent of the overall environmental market.

Because there are already many foreign companies providing goods and services in Egypt's environmental market, competition is stiff. U.S., British, and French firms are the major foreign suppliers of equipment (see pie chart above). U.S. firms dominate the market because of the large amounts of USAID funding. European competitors have achieved their combined 50 percent market share primarily through the use of public-sector loan packages provided to the GOE by multilateral agencies such as the World Bank, the United Nations Development Program, and others. Japanese firms are just entering the market, particularly in the solid waste sector, but their share is still small.

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