Macroeconomic Context of Egypt's Business Climate Reforms

The macroeconomic environment is an important determinant of a country’s business climate. Its soundness, stability and overall quality can sway decisions of foreign and local investors alike. Egypt’s macroeconomic environment has shown significant improvement since 2004, driven by the pro-business administration of Prime Minister Ahmed Nazif. Real GDP growth rose to 7.2% year on year in 2008. However, in the early 2000s, the economy had suffered from sluggish growth rates, averaging below 3% a year, high inflation and high unemployment. Structural bottlenecks, high barriers to entry, and little growth potential were keeping investors away. It is in no small measure the reform agenda implemented since 2004 that has set Egypt on the path to an improved economic performance. This chapter provides a brief overview of the macroeconomic environment in Egypt until end-2009, including the fiscal and banking sectors. It then takes a look at the main remaining challenges to the economic performance against a backdrop of a more unpredictable global economic environment.