Every ten years Egypt appears to be struck by economic disaster. A decade ago, it was the political revolution of the Arab Spring. Today it is Covid-19. In-between these crises, positive development ensued for Egypt, whose economic powerhouse is Cairo and its surrounding regions.
For example, GDP growth has been mostly on the up since 2011, while foreign direct investment (FDI) has shown positive figures too, both in terms of headline flows (see chart below) and greenfield FDI. In fact, for the latter, 2019 was a record high year – mainly thanks to large amounts of Chinese investment.
The Covid-19 pandemic brought these festivities to an abrupt end. According to the World Bank, real growth in Egypt declined from 5.6% in the financial year 2018/19 to 3.6% in 2019/20 and then 2.3% in 2020/21, not least thanks to a renewed surge in Covid cases in late 2020.
Meanwhile, FDI to the country fell by 39% in 2020, according to the UN Conference on Trade and Development (UNCTAD). Egypt attracted $5.5bn in FDI in 2020, down from $8.5bn in 2019, a drop that was sharper than the 32% average among North African economies and the 18% dip across Africa. All-important greenfield FDI is only expected to recover in 2022 and beyond.
Despite this, Egypt maintained its standing as the top destination for FDI on the continent in 2020 – testimony to its long-standing allure to investors.
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The makeup of foreign investment to Cairo
Although Egypt still faces huge structural issues, economic reforms undertaken by the country's government over the past eight years have improved macroeconomic stability and boosted investor confidence.
Investors are attracted by Egypt’s strong GDP growth, strategic geographical position, large and skilled talent pool, and enormous domestic market. Incentives and subsidies are another factor, as is the government’s spree of new special economic zones endowed with tax savings, speedy registration and simple customs procedures. Chinese manufacturers have been particularly quick to enter these zones in recent years.
The country's huge infrastructure push is also opening up opportunities, when they are not squeezed out by domestic competition. For example, Egypt’s first nuclear power project is being built and financed, to the tune of $25bn, by Russia, while many other countries are getting involved in real estate and transportation projects.
To meet Cairo’s rapidly growing population, the government estimates that 500,000 new homes will be need to be built annually. Meanwhile, the city is building a rapid transit bus system for Cairo’s ring road, along with road expansion work and new metro stations in Cairo and Giza.
Covid has highlighted several key problems in Cairo
Much, if not most, of Cairo’s new infrastructure and real estate is being directed to the New Administrative Capital, a megaproject launched six years at a cost of $45bn. The new city, raised from the sands, is set to house 6.5 million residents.
However, critics argue that the Egyptian army’s extremely high level of involvement is crowding out the private sector and spooking foreign investors, according to the Financial Times. This is a synecdoche for a wider problem across the whole country.
Since the rise to power of President Abdel Fattah Al-Sisi in 2013, Egypt has become evermore of a military-led state – and a state with huge stakes across the country’s construction, utilities and other key sectors. Through major construction works, Sisi has managed to keep unemployment levels down, but the state can only keep building things for so long.
The Covid-19 pandemic has rehashed these structural issues, as well as other imbalances such as the country’s lagging economic diversification. For example, Egypt’s tourism sector, which comprises as much as 15% of the country’s GDP, has been walloped by the pandemic.
Meanwhile, for decades, FDI has been driven by the oil and gas industry, which absorbs about two-thirds of total foreign investment in Egypt. The rest finds its way to communications, financial services, real estate (including tourism) and consumer goods. Similarly, foreign investment to Egypt is skewed very heavily towards the Cairo region, with some 60% of greenfield FDI to Egypt going to the capital and its surroundings.
A World Bank review in April 2021 stated: “The adverse repercussions of the pandemic have [shed] light on long-standing challenges: sluggish private sector activity and job creation, especially in the formal sector, underperforming non-oil exports and FDI, an elevated government debt-to-GDP ratio (despite its significant reduction in recent years), below-potential revenue mobilisation, and an unfavourable budget structure, with limited allocations to key sectors, such as health and education.
“Key sectors such as tourism, manufacturing, the Suez Canal and oil and gas extractives continue to be severely impacted by restrictions on international travel, the slump in demand, and disruptions to supply chains and trade, both domestically and abroad.”
An upside for the tech and health sector
Long underappreciated, Cairo is fast becoming a tech hub in Africa and the Middle East. The capital’s huge, well-educated and young population means there is no shortage of tech talent – leading to internationally successful start-ups such as Instabug and Yaoota and foreign companies seeking out remote tech workers in Egypt.
Little wonder, therefore, that Cairo took the top spot for FDI strategy in this year’s African Tech Ecosystems ranking, while also standing out in Startup Genome’s 2020 Global Startup Ecosystem Report. Large global tech players such as Dell and Microsoft have already opened shop in the country, while Google recently announced it would open an office in Cairo in light of Egypt’s growth potential, especially in e-commerce.
The 2011 revolution and now the pandemic have accelerated the country’s digital shift. Unlike tourism and many other parts of the formal economy, Cairo’s tech companies and start-ups have fared well, comparatively. This has been especially true for those in the health space.
Egypt’s healthcare system has been under severe strain from Covid-19, which has led the country’s 100 healthcare start-ups to step up. One of them has been 7keema, a company running an app that provides home-based nursing care. Meanwhile, O7 Therapy, launched in mid-2020, was propelled by the pandemic to provide online therapy to Egyptians suffering from mental health issues.
Even before the pandemic, the country was preparing for huge investments in its medical system, in a bid to roll out universal healthcare coverage within the next decade. For new hospital beds alone, Egypt will be investing $10bn, according to a recent report from the International Finance Corporation and the World Bank. Covid-19 has only accelerated this reform, and the digitalisation of public services. For local start-ups such as Bypa-ss, a company digitising health information exchange in Egypt, these shifts are excellent news.
In short, the opportunities for Egypt’s private healthcare sector, especially in healthtech, are far and wide. The pandemic has highlighted the tech scene's competence, rejuvenating Cairo’s potential as a tech hub in (and for) the Middle East, Africa and beyond.
This article is part of Investment Monitor’s Future of Middle Eastern Cities series. Other articles in the series are: