Economic and Social ReformA New Chapter in Egypt’s History

A Popular Leader with an Entrepreneurial VisionA Technocrat Prime Minister to Execute the Vision

Egypt, pre & post‐revolution … then what’s next!

2

REAL GDP GROWTH

FY09

FY144.7%

2.1%

FY20

6% FY09

FY1416.5%

10.7%

FY20

8% FY09

FY1421.6%

24%

FY20below20%

FY09

FY14

9.2%

13.3%

FY20

9%

INFLATION POVERTY UNEMPLOYMENT

FDI (USD BN)

FY09

FY148.1

4.1

FY20

14‐15

NEWLY ESTABLISHED CO.

FY09

FY146292

8246

FY20

Xxxx

IMPLEMENTED INVS. (EGP BN) PS SHARE(%)

FY09

FY1419758%

26562%

FY20Xxx75%

FISCAL DEFICIT/GDP

FY09

FY146.4%

12.2%

FY20Below 10%

Aggressive targets, yet achievable with Egypt’s new formula…

3

Location

SOLIDFUNDAMENTALS

Inherit sizable demand

High youth contribution

Diversified economy

Moves towards stability

“NEW EGYPT”CATALYST

Structural adjustment

Investment Stimulus plan

Clear Governance

Growing investor Confidence

Rising Investment

STRONG & SUSTAINABLE GROWTH

Legislative reform

… especially as Egypt already kicked‐off with its checklist

Commitment to Political RoadmapConstitution referendumPresidential electionParliamentary election kicking‐off March 2015

Consensus building, moves toward stability and improved securityStructural Adjustment 

Taxation reformPhasing out oil subsidies

Investment stimulus planLegislative reform

New regulations and amendmentssettling investors disputes Payment of dues to oil companiesFull coverage of FX backlog

Social welfare program

4

Commitment to political timeline with a more inclusive scene ‐a conductive investment climate

High turn out ratio confirms consensus building…

• With recent announcement of running parliamentary electionby March 2015, commitment to political roadmap is confirmedensuring a full‐fledged political system by 1Q15.

• With President‐elect Abdel Fatah El‐Sisi gaining 97% of voteswith a considerably high turnout ratio of 47.1% suggestsconsensus building, a key factor in achieving stability – alreadyevident in the reduced number of strikes.

• A recent poll, conducted by Baseera, assessing President El‐Sisi100‐day performance shows that 82% approves hisperformance which further confirms public consensus.

Source:  Supreme committee for elections

5

…which reduced strikes, helping  reinstate stability

41.2%

58.7%

46.4%51.9%

32.9%38.9%

47.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Ref M

ar‐11

Parliam

entary

Elec 2011

Presiden

tial

Elec ‐1

st ro

und

2012

Presiden

tial

Elec ‐2

ndroun

d 2012

Constitution

Ref 2

012

Constitution

Ref 2

014

Presiden

tial

Elec 2014

Source:  ECESR

Commitment to political roadmap

Source:  Official sources and Ministry of Investment database

01002003004005006007008009001000

Jan‐13

Feb‐13

Mar‐13

Apr‐13

May‐13

Jun‐13

Jul‐1

3

Aug‐13

Sep‐13

Oct‐13

Nov‐13

Dec‐13

Jan‐14

Feb‐14

Mar‐14

Apr‐14

May‐14

Feb‐14

May‐14

Jun‐14

Jun‐14

Jul‐1

4

Mar‐15

Apr‐15

May‐15

Constitution ReferendumPM Mehleb appointment

Presidential electionPresident Elect El Sisi took office

Cabinet reshuffleParliamentary election

Long‐standing cabinet

Adoption of long‐standing policies to restore confidence…

PHASING OUT OIL SUBSIDIES

The massive increase in energy prices in July 2014 – a 73%increase in transport cost; a 26% hike in electricity prices;and a 59% rise in petroleum products extended to theindustrial sector ‐ confirms the government commitmentto reform.

A move that show serious steps towards fundamentalbudget restructuring; which is reflected in the targetedEGP30.1bn slash in oil subsidies in FY15 budget, bringingdown the fiscal deficit to 10% of GDP.

It is worth highlighting that the drop in international oilprices should reflect favorably on the state budget.

Targets a reduced oil subsidies bill…

New oil prices

Source: Ministry of Finance

6

Source: Ministry of Finance

Source:  Official sources

…and a narrowed fiscal deficit

Gasoline Old tariff (EGP/Liter) New tariff (EGP/Liter) % increase

Octane 95 5.85 6.25 6.84%

Octane 92 1.85 2.60 40.54%

Octane 80 0.90 1.60 77.78%Diesel 1.1 1.8 64%NG for Vehicles 0.4 1.1 175%

Av. gasoline Price increase, 41.7%

17.8% 18.2%16.8%

20.3% 20.4%17.9%

15.9%

0%

5%

10%

15%

20%

25%

0

20

40

60

80

100

120

140

FY09

FY10

FY11

FY12

FY13

FY14

FY15

B

EGP bnOil subsidies Oil subsidies/expenditure

6.4%

8.1%

9.8%10.8%

13.7%12.8%

10.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

50

100

150

200

250

300

FY09

FY10

FY11

FY12

FY13

FY14

FY15

B

EGP bnFiscal deficit Fiscal Deficit % GDP

…more of long‐standing policies to restore confidence 

EXPANDING THE POOL OF REVENUES

With Egypt’s budget revenues/GDP 22.9% falling farbelow its regional peers average of 39%, expanding thecountry’s taxation pool (averaging 67% of total budgetrevenues over the past five years) remains key toreduce the high fiscal deficit.Imposing cash dividend and capital gain tax (CGT); thereal estate tax law; and an additional 5% temporary taxon wealthy individuals with annual income aboveEGP1mn are vivid examples – which are expected toadd EGP13.5bn to revenues.

Source: Ministry of Finance

7

Source: Official Sources

New tax reform

Low tax revenue/GDP

New tax Tax Rate Details

Capital gain & Dividends taxation

10% *10% capital gain tax on realized profit at theend of each year; while losses will be carriedover for 3 years.* Investors with a minimum of 25% stake willbe charged 5%.* Cash dividend tax of 10%; while thoseinvestors below EGP15k are exempted.* Foreign investors are charged 10% for thetransaction with 6% to be taxed instantly.* CGT will be calculated based on thedifference between exit price and the higher ofeither; historic buying price or price at time oflaw implementation.* Bonus shares are tax‐exempt.

Additional Income tax Increment of 5% ‐ for 3 years 

*30% on individuals with annual incomeexceeding EGP1mn.*25% for corporate income below EGP10mn.*30% for corporate income at EGP10mn andabove.

Real Estate 10% * Residential units with market value up toEGP2mn will be exempted; while tax will beapplicable above this threshold.* Non‐residential units will be tax‐exempt if netannual rental value is below EGP1.2k, afterdeducting 32% maintenance expense.

14.0% 13.9%13.4%

14.3%

13.0%

15.1%

10%

11%

12%

13%

14%

15%

16%

100

150

200

250

300

350

400

FY10

FY11

FY12

FY13

FY14

FY15

B

EGPbn Tax revenues Tax revenues/GDP

…more of long‐standing policies to restore confidence

Legislative reform involves Investment Law; Bankruptcy Chapter 11; Labor Law; Title Registration; Industrial Law; Commercial Law; andremoving red tape. It is worth noting that a law has been issued that prohibits a third party to file an appeal to contracts between thegovernment and investors, as it restricts it to the parties involved only.

Settling investor’s disputes; which increased 22% since last committee meeting – reaching 411 resolution.

With the Egyptian Tax Authority’s (ETA) independent appeals committee ruling in favor of OCI N.V.’s subsidiary — Orascom ConstructionIndustries (OCI S.A.E.) — in the tax dispute dating back to 2012 (EGP7.1bn paid on installments until 2017), this confirms the governmentpositive stance to support investments. It is worth highlighting that following that statement, Sawiris announced a commitment tomaintain the company's presence in Egypt through construction services and large‐scale investments in infrastructure.

Settling dues to international oil and gas companies to boost investors’ confidence – as already Egypt settled USD2.1bn (40% of its dues tooil companies). Likewise, settling dues with contractors.

CBE covered the backlog of FX owed to foreign investors seeking to repatriate funds through the repatriation scheme which started inMarch 2013.

Contracts reconciliation committee  Ministerial dispute settlement committee 

Source: Ministry of Investment

8

9

14 3

1 2 3

23

3 3 31 0 0 0

10

0

5

10

15

20

25

Real‐estate & con

st

Tourism

Agric

ulture

Oil, Gas &

Petroche

mcials

logistics

Mining & Fert

othe

rs

Total

ContractsNo of disputes solved

Source: Ministry of Investment

Authority Resolution

Governorates and affiliates 198

Ministry of Finance and affiliates 126

New Urban Communities Authority  56

General Authority for Reconstruction Projects and Agricultural Development  17

Tourism Development Authority 8

Others 6

Total Settlement 411

Investment stimulus plan to support growth

First stimulus package ‐ EGP29.7bn

The government already allocated EGP50bn in Investments – 47% YoY increase.

The government allocated an investment stimulus of EGP29.7bn in 2013, mainly targeting the labor‐intensiveinfrastructure projects (c56%). An off‐balance sheet spending should help alleviate high unemployment and achieve thetargeted GDP growth of 2% in FY13/14.

Another stimulus of EGP34bn was introduced in early 2014.

This is beside the huge flow of Mega projects.

Source: Ministry of Planning & Ministry of Finance

Second stimulus package – EGP34bn

9

Projects EGP bn

Construction of 50 k housing units 10.40 

Government investments 5.60 Government contribution in Suez Canal corridor project 2.00 

Others  4.60 Investment stimulus 22.60

Minimum wage implementation 10.00 

Allocation to subsidies and social grants 1.40 

Social justice stimulus 11.40 Total  34.00

Projects EGP bn Upgrading roads and transportation network 6.74Supporting and developing national industry program 4.35Upgrading water, sanitation, and natural gas networks 4.06Social housing program 3.05Supporting power networks  2.92Settling contractors’ arrears with the government 2.2Upgrading health services network 0.63National land reclamation program 0.52Investment stimulus 24.48Social justice stimulus 5.26Total  29.74

Source: Ministry of Planning & Ministry of Finance

Mega Projects– EGP401bn

Source: Ministry of Planning & Ministry of Finance

Projects EGP bn

1 million housing unit  280

New Suez Canal 60

3600 KM of roads infrastructure  36

1 million Feddan project  25Total  401

Social welfare program to ensure sustainable growth

The government embarked upon several social measures including: A one‐time hike in the minimum wage for public sector workers starting January 2014; the launch of labor‐intensive projects to address unemployment ushering for stability; the government plans to allocate cash transfers to the needy – which was raised from EGP450/month/household to EGP300/individual with around 2‐3 mn families benefiting from such distribution;expanding the contribution of health, education and social support spending to an aggregate of 35% of total budget expenditure in FY15 up from 32% a year earlier; and a housing program to fill the supply gap of 2.5mn apartments, costing EGP250bn over 10 years.

Source: Ministry of Investment Source:  CAPMAS & Ministry of Planning

10.0%10.5%11.0%11.5%12.0%12.5%13.0%13.5%14.0%

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

High unemployment rate High poverty rate

0%

5%

10%

15%

20%

25%

30%

FY05 FY07 FY09 FY11 FY13 FY14e

10

Signs of improved investment indicators started to show

Newly established companies

FDI inflows recorded USD4.1bn in FY14 up from USD3.8bn a year earlier, driven by the rise in the net inflow for oil sectorinvestments from USD1bn to USD1.6bn. 1QFY15 saw 138%YoY increase driven by the rise in the net inflow for oil sectorinvestments from USD377.6mn to USD948.1mn. Net inflow for greenfield investments also picked up to USD734.9mn (fromUSD339.5mn).Recent figures show monthly average number of established companies picking up to 808 companies over August andSeptember compared to 2014 monthly average of 730 companies .Loans continued to increase – growing at an average of 8.4% since July compared to 5.2% since the beginning of 2014.

Source: Central Bank of Egypt

11

Loans growthNet portfolio investment and FDIs

Source: GAFI Source: Central Bank of Egypt

0%

2%

4%

6%

8%

10%

12%

Jul‐1

2Au

g‐12

Sep‐12

Oct‐12

Nov

‐12

Dec‐12

Jan‐13

Feb‐13

Mar‐13

Apr‐13

May‐13

Jun‐13

Jul‐1

3Au

g‐13

Sep‐13

Oct‐13

Nov

‐13

Dec‐13

Jan‐14

Feb‐14

Mar‐14

Apr‐14

May‐14

Jun‐14

Jul‐1

4Au

g‐14

Sep‐14

Oct‐14

YoY

0

100

200

300

400

500

600

700

800

900

1000

Jul‐1

2Sep‐12

Nov‐12

Jan‐13

Mar‐13

May‐13

Jul‐1

3Sep‐13

Nov‐13

Jan‐14

Mar‐14

May‐14

Jul‐1

4Sep‐14

Nov‐14

‐10,000

‐7,500

‐5,000

‐2,500

0

2,500

5,000

7,500

10,000

12,500

15,000

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

1QFY14

1QFY15

USD mn FDI Net Portfolio investments

Announced FDI include,

Source: Official sources

Sector  Company Country of Origin Project  Targeted Investment (USD)

Food/Infrastructure/financial services EBRD EU Development projects EUR1.25bn

Food & Beverages

Almarai KSA Beverage Facilities 345mn

Aujan KSA Beverage Facilities 100mn

Beyti KSA Beverage Facilities 4bn

Pepsi Co  USA Beverage Facilities 34mn

Coca Cola USA Beverage Facilities 500mn

Oil & Gas

Trans Energy Corp Canada Oil and Gas 115.5mn

Snopec China Exploration 8bn

Gaz de France France Exploration 300mn

Dana Gas UAE Exploration 270mnBritish 

Petroluem UK Gas Fields 10bn

Real EstateArabtec Holding UAE Housing Projects 39.83bn

Retail Al Futtaim UAE Carrefour 2.3bn

Shipping DP World UAE Logisitics Zone 500mn

12

External sector showed some improvement, stabilizing FX

Thanks to GCC support (USD10.6bn in FY14), which managedto maintain net international reserves at above the 3Mimports coverage. With the recent USD1bn grant from Kuwaitand the pledged USD5bn from UAE should further supportreserves – especially with USD2.5bn payment of Qatarideposit this month.Improved security resulted in 28 countries lifting their travelban; which raised monthly ITA to cross 1mn in October, alevel that was not reached since May 2013. ITR increasedmore than 2x over 1QFY15 to USD2.1bn compared toUSD0.9bn in 1QFY14.A stable NIR supports FX market.

Source: Central Bank of Egypt and CAPMAS

International tourist arrivals

13

A stable NIR supports FX market

Net international reserves stabilized

Source: Central Bank of Egypt

Source: Bloomberg and Central Bank of Egypt

 ‐ 200 400 600 800

 1,000 1,200 1,400 1,600 1,800

Jan‐10

Mar‐10

May‐10

Jul‐1

0Sep‐10

Nov

‐10

Jan‐11

Mar‐11

May‐11

Jul‐1

1Sep‐11

Nov

‐11

Jan‐12

Mar‐12

May‐12

Jul‐1

2Sep‐12

Nov

‐12

Jan‐13

Mar‐13

May‐13

Jul‐1

3Sep‐13

Nov

‐13

Jan‐14

Mar‐14

May‐14

Jul‐1

4Sep‐14

k arrivals

5.0

5.5

6.0

6.5

7.0

7.5

8.0

0

5

10

15

20

25

30

35

Jul-1

2Au

g-12

Sep-

12O

ct-1

2N

ov-1

2D

ec-1

2Ja

n-13

Feb-

13M

ar-1

3Ap

r-13

May

-13

Jun-

13Ju

l-13

Aug-

13Se

p-13

Oct

-13

Nov

-13

Dec

-13

Jan-

14Fe

b-14

Mar

-14

Apr-1

4M

ay-1

4Ju

n-14

Jul-1

4Au

g-14

Sep-

14O

ct-1

4N

ov-1

4D

ec-1

4

EGP

USD

bn

NIR EGP/USD

 1.0

 1.5

 2.0

 2.5

 3.0

 3.5

 4.0

 0 5

 10 15 20 25 30 35

Jul‐1

2Au

g‐12

Sep‐12

Oct‐12

Nov

‐12

Dec‐12

Jan‐13

Feb‐13

Mar‐13

Apr‐13

May‐13

Jun‐13

Jul‐1

3Au

g‐13

Sep‐13

Oct‐13

Nov

‐13

Dec‐13

Jan‐14

Feb‐14

Mar‐14

Apr‐14

May‐14

Jun‐14

Jul‐1

4Au

g‐14

Sep‐14

Oct‐14

Nov

‐14

Dec‐14

MonthsUSDbn NIR Imports coverage

…and default risk subsided

USD 5‐year CDS has reached its 46‐month low of 266.4 on 29 October 2014 and relatively stabilized aroundthat level since then.

Fitch upgraded Egypt’s credit rating one rank to “B” with a “stable” outlook; which supports a positive fiscaland macro outlook.

With Moody’s seeing a better credit prospects for Egypt as parliamentary elections approach following itsupgrade of Egypt’s outlook to stable from negative, affirming Caa1 rating, reflects Moody's expectations ofan improving fiscal and economic environment.

Source: Bloomberg

14

USD 5‐year CDS 

0

100

200

300

400

500

600

700

800

11‐Jun

‐12

1‐Jul‐1

2

21‐Jul‐12

10‐Aug

‐12

30‐Aug

‐12

19‐Sep

‐12

9‐Oct‐12

29‐Oct‐12

18‐Nov

‐12

8‐De

c‐12

28‐Dec‐12

17‐Jan

‐13

6‐Feb‐13

26‐Feb

‐13

18‐M

ar‐13

7‐Ap

r‐13

27‐Apr‐13

17‐M

ay‐13

6‐Jun‐13

26‐Jun

‐13

16‐Jul‐13

5‐Au

g‐13

25‐Aug

‐13

14‐Sep

‐13

4‐Oct‐13

24‐Oct‐13

13‐Nov

‐13

3‐De

c‐13

23‐Dec‐13

12‐Jan

‐14

1‐Feb‐14

21‐Feb

‐14

13‐M

ar‐14

2‐Ap

r‐14

22‐Apr‐14

12‐M

ay‐14

1‐Jun‐14

21‐Jun

‐14

11‐Jul‐14

31‐Jul‐14

20‐ Aug

‐14

9‐Sep‐14

29‐Sep

‐14

19‐Oct‐14

8‐Nov

‐14

28‐Nov

‐14

18‐Dec‐14

7‐Jan‐15

Yet, stagflation remains a major risk – however subsiding

Over 2H14, monthly CPI reading reached an aggregate of 5.9%; which is 74% of the total increase in FY14. This comes on theback of the first and second round effects of energy hikes that took place in July 2014. Since the beginning of FY15 annualheadline CPI registered an average of 10.8% compared to 10.9% over the same period last year.Unless FDI starts to flow into the country, given the low saving to GDP ratio, the risk of stagflation will escalate.Energy is a key target sector to invest in, especially with aggravated power cuts during the summer season. It is worthmentioning that power cuts, risks a smooth business operation further adding to inflationary pressure ‐ given disruptedproduction ‐ and restricting potential investment from being materialized. A risk that is subsiding given the recent agreementsigned with Algeria for six LNG cargoes in late December in addition to the UAE announcement of extending petroleum supportto Egypt for 12 months, in addition to the energy mix strategy and the new 4.3 GW that was announced by the government inrenewable energy.

Source: Ministry of Investment, Central Bank of Egypt and CAPMAS

Stagflation risk subsides

2.6%2.2% 2.2%

1.5%1.0%

1.4%

2.4%

3.7%

6.8%

6.4%

5.2%

7.4%

8.7%

10.1%

11.7%

10.3%

8.4%

11.20%

12.5%13.0% 13.2% 13.3% 13.4% 13.4% 13.4% 13.3% 13.1%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

-0.2%

0.8%

1.8%

2.8%

3.8%

4.8%

5.8%

6.8%

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

GDP YoY growth Annual headline CPI Unemployment

15

16