Business Dynamics Review of Egypt

1. Assessments and recommendations

Abstract

This chapter summarises the main assessments and recommendations to foster business dynamics, employment and entrepreneurship in Egypt. The chapter first provides an assessment of Egyptian micro-data to study business dynamics, comparing them to international standards and proposing specific actions to enhance them. It then provides facts related to young firms, small and medium-sized enterprises and their contribution to employment, as well as entrepreneurship in Egypt, providing recommendations to foster them.

Introduction

The Egyptian National Structural Reforms Programme of 2021 and government programmes aimed to enhance the private sector’s role in the economy and improve job creation and, more generally, the business environment, among others. This report supports ongoing initiatives with a new, cutting-edge analysis of young firms, small and medium-sized enterprises (SMEs), and entrepreneurship in Egypt, supporting policy recommendations to foster business and job creation. This report also reviews data available in Egypt to study business dynamics and proposes recommendations to enhance them to better support evidence-based policy making.

The analysis in this report is mainly based on the inclusion of Egypt in the OECD DynEmp Database, which allows a comparison of business dynamics across countries, sectors and time. Egypt has been included in a cross-sectional version of the project using the Economic Census 2022/2023. The analysis is conducted only on firms in manufacturing (ISIC Rev.4 Section C) and non-financial private services (Section G-N excluding K) to allow cross-country comparisons.1 Given the nature of the Egyptian cross-sectional data, standard business dynamics indicators (such as firm entry/exit rate, job creation and destruction) could not be examined. Instead, the analysis focuses on static firm and employment distributions (e.g. by firm size and age), average size at entry, and business ownership.

In a constrained fiscal environment, the government must carefully assess all spending decisions, with a view to retaining budget neutrality and identifying crucial areas for investment to foster firm creation, employment growth and innovation. The following sub-sections provide recommendations on the prioritisation of expenditures for policy reforms in key areas.

This report focuses on two key aspects: 1) the data infrastructure for business dynamics analysis (Chapter 2); and 2) evidence on firm birth, employment and entrepreneurship (Chapter 3). The remainder of this chapter details the report’s main findings and actionable policy recommendations.

Invest in data for business dynamics to align with international standards

Fact 1: Egypt does not have a statistical business register and the available data for business dynamics analysis can be improved

Egypt does not have a statistical business register (SBR), which is the primary data source that other countries use to examine business dynamics and provide official structural business statistics. An SBR is a structured database of all economic units (legal-administrative units and statistical units) in a territorial area, which is regularly updated and maintained by a national statistical office (United Nations, 2024[1]). SBRs are used to provide a frame for business surveys, link data sources, produce regular business statistics and conduct in-depth business dynamics analyses. They are primarily based on administrative sources.

Egypt has other available firm-level data, such as surveys and administrative data, but they all have limitations for analysing business dynamics.

First, the Economic Census does not contain a full panel structure, restricting its potential for examining the dynamics of firms’ entry, exit and growth, and for conducting robust economic analysis with the most recent quantitative techniques. The Economic Census is a large representative survey of Egyptian establishments which measures their economic performance and characteristics. It is conducted by the national statistical office, the Central Agency for Public Mobilization and Statistics (CAPMAS) with a low frequency (every five years), preventing timely examination of business dynamics.

Second, the administrative data best suited to study business dynamics do not yet capture time-varying employment information at the firm-level. Egypt can use General Authority for Investment and Free Zones’ (GAFI) records, the commercial register (administered by the Commercial Registry Authority), the tax records (from the Egyptian Tax Authority) and MSMEDA data to study business dynamics. However, they do not yet measure employment at the firm (or establishment) level, which is essential for studying job creation and destruction. For example, GAFI records only the expected employment at the time of a firm’s registration, without precisely specifying the timeframe in which the firm is expected to reach that employment size. The addition of an employment variable is common in other countries and is usually derived from social security records. However, social security data is not yet used for such purposes in Egypt. Linking firm-level administrative data with social security records in Egypt can thus enable a richer job-flow analysis.

More generally, administrative datasets use different classification systems (industry/governorate) and business identifiers, which can complicate integration; ongoing harmonisation and alignment efforts are trying to address this. For example, some sources (such as tax records) follow the International Standard Industrial Classification (ISIC Rev.4), while other data (such as GAFI’s business records) use a different Egyptian-specific classification. The same inconsistency is recorded for governorate codes and the use of different business identifiers across sources, which limits data integration. To address the latter issue, GAFI is currently in the process of updating its database with firms’ commercial and tax identification numbers and aligning with the industrial ISIC classification (see below for details). More generally, the government is committed to introducing a Unified Business Identifier (UBI) that will be issued at the time of establishment. This identifier will be mandatory for commercial registration, tax registration, social insurance, customs activities and financial services.

Finally, data sharing across agencies rely on bilateral protocols. The recent Egyptian government to government (G2G) initiative has been set to facilitate data sharing across public institutions on a bilateral agreement basis (see Chapter 2 for more details). The G2G was not intended for sharing administrative data for statistical purposes or analysis, but it could be a starting point for facilitating the sharing of micro-data among institutions and with CAPMAS.

The government is committed to improving business data and it has already started designing reforms to address these challenges. A recent reform, backed by Presidential directives, empowers MIFT and GAFI to lead the construction of an Economic Entities Platform (with technical co-leadership from the Ministry of Communication and Information Technology (MCIT)). The platform is expected to be completed by the end of 2026. Its goal is to introduce a unified, digital-first government interface that collects information on business establishment, licensing, operation, expansion and exit procedures under a single integrated system (following the “only-once” principle for data collection). This platform is expected to reduce administrative burdens and avoid duplication of information. At the heart of this transformation is the introduction of the UBI. Implementing these reforms is crucial to move from a fragmented system of business data to a unified, digital model aligned with OECD and global best practices.

Recommendations to enhance Egyptian data capacity to improve business dynamics analysis and create a statistical business register

To properly examine business dynamics over time, Egypt needs to pursue several investments in data capacity. Notably, it can consider enhancing the quality and use of administrative data, achieving a common business identifier among data sources, and facilitating administrative data sharing across institutions and with CAPMAS. Other improvements in the shorter term may include enhancing the quantity of micro-data available for research to increase the supply of evidence on business dynamics. In the medium term, the goal will be to establish an SBR within CAPMAS to be used for producing business demography and other statistics, designing business surveys, and improving data linkages. The development of the Economic Entities Platform would be a crucial step toward creating a single database of administrative sources. This database will support the analysis of business dynamics and can serve as the backbone of the SBR.

This sub-section is organised around three main recommendations:

• Recommendation 1: Enhance the quality and use of administrative data, improve their use for statistical purposes, and facilitate the integration and sharing of these data across institutions.

• Recommendation 2: Create an SBR within CAPMAS and produce regular business statistics.

• Recommendation 3: Improve the quantity of micro-data available for research to enhance the supply of evidence on business dynamics.

Each recommendation is articulated around a set of specific actions that Egypt could follow to achieve the recommendation. While Recommendations 1 and 3 could be achieved in the short- to medium-term, Recommendation 2 may require more time as the full implementation of Recommendation 1 is a pre-condition for the effective development of the SBR. For each recommendation, Table 1.1 provides an overview of the main actions, institutions involved and time horizon for its implementation.

By following practices from other countries, Egypt could establish an SBR by:2

• Action 1.1: Defining common classifications and data standards for all public institutions.

• Action 1.2: Defining the national unique business identification system for companies (legal units) and their branches (local units).

• Action 1.3: Facilitating inter-administrative data sharing and legitimising CAPMAS to access administrative data for statistical purposes, specifying the condition for preserving the confidentiality of information.

• Action 2.1 and 2.2: Entrusting CAPMAS with the creation of a SBR, its update and management and to produce regular business statistics.

High political willingness to enhance the current data infrastructure would facilitate the enforcement of these actions. The creation of a dedicated committee that brings all relevant stakeholders together could also facilitate their enforcement and ensure that all public administrations follow them. Key stakeholders that could be involved in such a preparatory process include GAFI; the Commercial Registry Authority; the Egyptian Tax Authority; MSMEDA; the Financial Regulatory Authority (FRA); the Suez Canal Economic Zone (SCZone); the National Organization for Social Insurance; the Egyptian Industrial Development Authority (IDA); the General Organisation for Export and Import Control (GOEIC); CAPMAS; and other relevant agencies.

Table 1.1. Overview of the recommendations for enhancing data capacity in Egypt

Recommendation	Actions	Institutions	Time horizon
Recommendation 1: Enhance the quality and use of administrative data, improve their use for statistical purposes, and facilitate the integration and sharing of these data	Action 1.1: Define common classifications and standards in administrative data and ensure effective implementation among Egyptian institutions	Public institutions collecting data on businesses (including GAFI, the Commercial Registry Authority, the Egyptian Tax Authority, the National Organization for Social Insurance, GOEIC, IDA, MSMEDA, FRA, SCZone) in collaboration with CAPMAS	Short to medium term
	Action 1.2: Define a unified national identification system for companies (legal units) and their branches (local units) and ensure it is used by all public administrations		Short to medium term
	Action 1.3: Facilitate administrative data sharing across institutions and with CAPMAS to enhance the use of administrative data		Short term
Recommendation 2: Create a statistical business register (SBR) within CAPMAS and produce annual business statistics	Action 2.1: Create an SBR within CAPMAS and harmonise the business data collection around it	CAPMAS	Medium term
	Action 2.2: Produce regular business statistics	CAPMAS	Medium term
Recommendation 3: Improve the quantity of micro-data available for research to enhance the supply of evidence on business dynamics	Action 3.1: Improve the quantity of micro-data available for research	Economic Research Forum, in collaboration with relevant stakeholders (CAPMAS, GOEIC, etc.)	Short term
	Action 3.2: Develop micro-data access facilities at CAPMAS	CAPMAS	Medium term

Note: CAPMAS: Central Agency for Public Mobilization and Statistics; GAFI: General Authority for Investments and Free Zones; GOEIC: General Organisation for Export and Import Control; IDA: Industrial Development Authority; MSMEDA: Micro, Small and Medium Enterprises Development Agency; FRA: Financial Regulatory Authority; SCZone: Suez Canal Economic Zone.

Recommendation 1: Enhance the quality and use of administrative data, improve their use for statistical purposes, and facilitate the integration and sharing of these data

Action 1.1 (short to medium term): Define common classifications and standards in administrative data and ensure effective implementation among Egyptian institutions

Egypt should ensure all administrative sources follow a consistent classification for industries and governorates. Ideally, the industry classification should align with the most updated international classification (currently the ISIC Rev.4) to facilitate cross-country comparisons. For governorates, Egypt could define a unified classification to be followed by all public administrations. This harmonisation concerns all public entities collecting data on businesses, including GAFI, the Egyptian Tax Authority, the FRA, the SCZone, the Commercial Registry Authority, the National Organization for Social Insurance, MSMEDA and CAPMAS.

The national nomenclatures of economic activities and the governorates code could even be codified in the legislation. Following practices from other countries (e.g. Tunisia), the law could define the time frame within which all public administrations must adopt them and identify an entity responsible for evaluating the degree of use of these common nomenclatures over time (e.g. CAPMAS).3

In addition, Egypt could establish data protocols to ensure consistency in data standards, formats, structures and definitions across different data to allow for better data interoperability. Ideally, Egypt should aim to base its business data collection on the principle that individuals should provide information only once to government agencies (“once-only” principle) and create a system of administrative data. For example, Estonia was one of the fist countries to achieve effective interoperability of data collected by several institutions. In 2000, the “Public Information Act” prohibited the establishment of separate databases for collecting the same data and enhanced the connected and consistent use of available information (OECD, 2023[2]). Such a principle could reduce administrative burdens and costs, and directly contribute to increasing the quality of administrative data.

Action 1.2 (short to medium term): Define a unified national identification system for companies (legal units) and their branches (local units) and ensure it is used by all public administrations

The development of a single business identifier can enhance data integration, but it can also have other advantages, including increasing the number of registered firms and tax compliance and reducing administrative burdens on businesses (World Bank, 2016[3]), thus facilitating business registration and formalisation (see Recommendations 4-6).

Egypt should develop and implement the UBI, as a national business identifier for companies (legal units) and their branches (local units) and enforce its use by all public entities. The development of a new number can ensure full coverage of the business population. Currently, the Tax Identification Number – a unique number assigned to individuals and businesses by the Egyptian Tax Authority for tax purposes – serves as a national identification for companies in Egypt, but it does not cover the full business population and it is not widely used outside the Tax Authority. For example, GAFI is currently in the process of updating its database to match GAFI firm-identifiers with commercial and tax numbers, but the process is still ongoing.4 Moreover, no unified national number for branches currently exists in Egypt. The Commercial Registry Authority has recently developed a unique identifier for establishments alongside the commercial identifier for firms to identify branches located in different governorates. Following the example of other countries, the branch number can be based on the legal company number, adding a specific digit code for each establishment. For example, Morocco has established a Common Enterprise Identifier, which is a unique number that identifies companies and their branches. It has nine positions for the company, four for its establishments and two for control characters.5 The process of defining the UBI may be challenging, and Egypt could also rely, as other countries have, on bringing together a group of relevant entities to discuss the current challenges and find solutions to develop a unique identifier (see the case of Denmark for example).6 Egypt could develop an adequate legal framework which specifies the national identification system and oblige all public entities collecting data on businesses to use it.

The Economic Census should provide a unique and longitudinal identifier for businesses to ensure that the data contain a full panel component across census waves. This allows the computation of within-firm employment changes over time. Egypt should ensure that external researchers to CAPMAS have access to this longitudinal identifier. If confidentiality protections prevent this, the data can be shared with an anonymised identifier, which prevents the disclosure of confidential information.7 For current waves of the census, if a unique identifier is already available, this should be made accessible for research and policy analysis. If, instead, each wave has a different identifier that cannot be linked over time, other techniques can be exploited to match businesses at different points in time.8 For the collection of future waves of the Economic Census, a unique identifier should be provided to each unit at the beginning of the data collection process. It is strongly advisable (both for statistics and policy analysis purposes) that the identifier can be matched to the UBI. CAPMAS has already collected tax and commercial identifiers in the latest wave of the Census (2022/23) for some (larger) firms. It should ensure it collects them for all businesses in the future. Each establishment should also provide information on the enterprise (firm-id) and the business group (group-id) they belong to.

Action 1.3 (short term): Facilitate administrative data sharing across institutions, including with CAPMAS to enhance the use of administrative data

The recent G2G initiative may be the building block to further enhance data sharing among public institutions. The initiative should be enhanced by improving the G2G search functionality as a first step (i.e. searching firms by governorates or industry rather than by their identifiers) and by allowing access to the entire database in a second step.9 Ensuring data are shared across institutions is also important in collecting information on employment, as this is missing in most business registers in Egypt (including GAFI, the commercial register and tax records). GAFI and other entities could, for example, retrieve the information on registered employees from the National Social and Insurance Authority. Ensuring smooth data sharing among public entities will be key to creating the Economic Entities Platform.

To establish an SBR, CAPMAS needs to have access to administrative data. This can be achieved through legislation, which could allow CAPMAS to access administrative data for statistical purposes while ensuring data confidentiality. Several countries have changed their statistical laws for this purpose (United Nations, 2024[1]). In Tunisia, for example, Article 6 of Decree No. 94-780 of 4 April 1994, which establishes the SBR, obliges public administrations to regularly transfer their data on firms to the national statistical office.10 Establishing the legal framework may not be sufficient, hence, a relational framework with partners needs to be established as well. Bilateral agreements (i.e. memorandum of understanding) could be signed between CAPMAS and the relevant administrations, detailing the confidentiality rules to be applied and potentially leveraging on the G2G initiative.

Key administrative data for the construction of a business register include the commercial register, tax records, social security data and business registration (GAFI, FRA and SCZone). The register can also leverage data from MSMEDA and the industrial and operating registers of IDA and GOEIC’s import/export registers. While CAPMAS already has access to some of these data, others remain inaccessible (for example the commercial register and tax records). Additionally, CAPMAS could benefit from more systematic access to these data for statistical purposes.

Enhancing the use of administrative data does not only improve data analysis and decision making, but it also increases transparency for both lawmakers and citizens. Moreover, strengthening capacity for administrative data will allow Egypt to take advantage of future developments in data analysis, including the integration of artificial intelligence.

Recommendation 2: Create a statistical business register within CAPMAS and produce annual business statistics

SBRs are up-to-date and comprehensive databases containing information on all businesses registered in a country. Such information is used for statistical and analytical purposes (as opposed to an administrative business register that serves administrative purposes). This entails conducting economic surveys, producing annual business statistics and examining business dynamics indicators. SBRs are maintained by national statistical offices, but creating and updating them requires co-ordination and regular interactions with relevant public institutions collecting data on businesses. Egypt should initiate this reform process following a phased approach to avoid a sudden transition from zero to full implementation. A key pre-requisite for effectively accomplishing such a longer-term goal is the achievement of Recommendation 1. This gradual process allows for effective planning and implementation while ensuring successful long-term outcomes. Egypt could benefit from international guidelines (Eurostat, 2021[4]; UNECE, 2018[5]; United Nations, 2024[1]) and could also request help and advice from national statistical offices in developed and peer countries that have already established an SBR.11

Action 2.1 (medium term): Create a statistical business register within CAPMAS and harmonise the business data collection around it

To construct an SBR, the main data source should be identified. In Egypt this should be the commercial register, since it contains the registered businesses in Egypt. Then, a combination of several administrative sources can enhance the information in the register. A well-defined, reliability-based “hierarchy” of sources may be established in relation to specific data that may be included in multiple sources. The effective implementation of Action 1.3 is a pre-condition for CAPMAS to regularly access relevant administrative data, while the achievement of Actions 1.1 and 1.2 could also facilitate data integration.

The integration of different data could serve three purposes:

1. Improve the coverage and characteristics of registered firms. CAPMAS can combine several administrative data sets on businesses (e.g. from the GAFI, the FRA, the SCZone, the tax register, GOEIC and the IDA) to ensure full coverage of the business population in the SBR. This practice is used worldwide by other countries. Once the Economic Entities Platform is created within MIFT and GAFI, it can merge several administrative sources and serve as the backbone of the SBR.

2. Include missing variables. Given that most of the Egyptian data mentioned above, including the commercial register, do not have information on employment, such data can be retrieved from the National Organization for Social Insurance. Employment data can be integrated into the register via social security records, similar to practices from developed and peer economies (such as Tunisia, see Box 2.1).12 This would allow examining the employment dynamics of formal employment.

3. Better derive statistical units from administrative units. The construction of an SBR entails defining statistical units (business groups, enterprises, establishments) from legal units (the unit defined by law) and administrative units (units defined for the purposes of conforming with administrative regulations, for example taxation). Several guidelines exist internationally to provide standardised and comparable measures and Egypt could rely on them to construct statistical units (Eurostat and OECD, 2008[6]; United Nations, 2024[1]). To do so, CAPMAS may need to integrate several administrative sources. For example, Statistics Netherlands uses tax or social security data to supplement its primary source of the SBR (the trade register) and derive correct statistical units that fit the reality.

Importantly, the SBR should assign a specific identifier for each level of aggregation of statistical units: local unit (establishment-id), enterprise (firm-id) and business group (group-id):

• Each establishment should have a unique identifier (id).

• Establishments belonging to the same enterprise should have the same firm identifier (firm-id)

• Enterprises belonging to the same business group should have the same group identifier (group-id).13

Following international recommendations (African Development Bank Group, 2014[7]; Eurostat, 2021[4]; UNECE, 2018[5]), Egypt can cover formal enterprises in the SBR and complement it with regular surveys for the informal sector.

Additionally, CAPMAS needs to regularly maintain and update the SBR, including reviewing and expanding the sources and the quality of data used over time. The Economic Census could also be an important source to complement and update the SBR. Units that do not match between the SBR and the Census can be added to the SBR to have a comprehensive list of all business operating in Egypt. 14

Finally, Egypt should ensure that all data collection of businesses is harmonised around the SBR. This means guaranteeing that all business surveys on registered firms are designed around the SBR. Standardised data collection methods based on the SBR should be developed across all institutions involved in the collection of business data. Such an objective requires a commitment from all Egyptian entities involved in business data collection to ensure that data are integrable around the same register and identification of units. The commitment not only involves CAPMAS, but all other governmental agencies and institutions collecting data on businesses.

Action 2.2 (medium term): Produce regular business statistics

Following practices from both developing and developed economies, the creation of an SBR can allow Egypt to regularly produce business demography statistics and/or indicators on SMEs (Eurostat and OECD, 2008[6]). For instance, the Turkish Statistical Institute publishes regular official statistics on business demography (including birth, death and survival rates), as well as indicators on SMEs.15 Meanwhile, Morocco established an SMEs’ Observatory to examine key indicators on SMEs (such as the number of enterprises by location and industry, their characteristics and performance), and has been publishing them in annual reports (see Box 2.3).16

Once a comprehensive business database is created (Economic Entities Platform and/or SBR), Egypt can produce annual statistics and reports with key demographic indicators on enterprises. This is usually performed by the national statistical office, but ultimately, the responsibility depends on the entity in charge of the construction and management of this database. GAFI has already started publishing information on businesses registered at GAFI on its website and plans to do so regularly. Building a single database of all registered businesses in Egypt will allow for further examination of these statistics across the universe of businesses, providing crucial input for policymakers.

Recommendation 3: Improve the quantity of micro-data available for research to enhance the supply of evidence on business dynamics

Action 3.1 (shorter term): Improve the number of micro-data available for research

To enhance the use of micro-data for policy analysis, Egypt can build on existing efforts to share micro-data for research. The non-governmental Open Access Micro-data Initiative of the Economic Research Forum (the OAMDI-ERF) already contains a rich set of national micro-data easily accessible by researchers with a simple online request (for example, the Economic Census). However, some of these datasets are not frequently updated (e.g. GOEIC data series end at 2016) and several other data remain unexploited and are not shared with researchers, including GAFI data and other administrative sources (such as tax records). Egypt can ensure an adequate quantity of micro-data available for external researchers through the Economic Research Forum and ensure that the series are always up to date with the most recent data collection wave. GAFI and other public agencies can also consider sharing their data (in an anonymised way) through the Economic Research Forum portal or alternatively via their own website. This may increase the supply of evidence on business dynamics by exploiting the technical skills of external experts. Following the example of South Africa’s National Treasury Secure Data Facility, Egypt can allow anonymised tax records and other administrative data for external researchers to use for policy analysis and evaluation (see Box 2.7).17 Once operational, the Economic Entities Platform will enable secure, structured and tiered access to enterprise-level information for policymakers, researchers and international partners. Enhancing the uptake of micro-data for research and ensuring that external experts can access anonymised longitudinal micro-data is crucial to support business dynamics analysis and attract the interest of evaluators inside and outside of Egypt. At the same time, external experts accessing these data can provide feedback to help the entity responsible for the official statistical information to keep enhancing both the quality and the scope of business statistics.

Action 3.2 (medium term): Develop micro-data access facilities at CAPMAS

CAPMAS could consider establishing physical and/or remote access solutions to allow experts to access its own micro-data, adequately anonymised if needed. Several developed and developing countries have established physical rooms within the national statistical office with dedicated computers where researchers can access micro-data in a secure space (see Chapter 2). To enhance security, these rooms are under video surveillance and computers do not have access to the Internet. More recently, countries are also setting up remote access solutions to allow researchers to avoid travelling to access the data. Remote access solutions entail, for example, developing VPN connections – or other end-to-end access mechanisms – through which researchers can safely access remotely the data from their own computer. Alternatively, countries are also allowing for remote execution solutions where researchers do not directly see the data, but just write the codes, which are then executed by officials from the national statistical office, returning only aggregate results to the researchers. Both physical and remote external access can be established in a way that ensures confidentiality, which is of paramount importance to maintain trust in and the integrity of the statistical system.

Facilitate business creation and enhance business formalisation

Fact 2: Young firms account for a high share of Egyptian firms and employment, but most originate in the informal sector

In Egypt, young firms represent a large share of establishments (Figure 1.1).18 In both developed and emerging economies, young firms significantly contribute to bringing innovation to the market, creating jobs and increasing productivity. In Egypt, 15% of firms in manufacturing were aged between 0 and 2 years (young firms) in 2022/23, while in non-financial market services, they made up 18% of total firms (Figure 1.1). These shares are similar to the OECD benchmarks (14% and 19%, respectively), but they are lower than other emerging economies included in the analysis.19

The share of young firms varies greatly across industries.20 It ranges from 27% of total firms in Other professional, scientific and technical activities [ ISIC Rev. 4, Section MC , see Table 3.A.2], 26% in IT and other information services [JC], 2% in Transport equipment [CL] and 3% in Basic pharmaceutical products and pharmaceutical preparations [CF]. Most industries have a higher share of young firms than the OECD average. However, Telecommunications [JB], Publishing, audiovisual and broadcasting activities [JA], Basic pharmaceutical products and pharmaceutical preparations [CF], Computer and electronics [CI] and Transport equipment [CL] have a lower share of young firms.

Young firms are also key contributors to employment in Egypt, more than in OECD countries. In manufacturing, young firms employed 8% of workers in 2022/23, compared to 13% in non‑financial market services. In OECD countries, the shares were 5% and 10%, respectively (see Figure 3.5). Some industries appear to underperform compared to the OECD average in terms of their contribution to total industry employment, particularly in Basic pharmaceutical products and pharmaceutical preparations [CF], Computer, electronic and optical products [CI] and Transport equipment [CL].

Although the firm and employment contribution of young firms is high, Egyptian young firms are on average smaller than young firms in OECD countries. Additionally, the gap with OECD countries is wider for older firms. Egyptian young firms (aged 0-2) employ on average 50% as many workers compared to OECD firms in non-financial market services and 40% in manufacturing. Meanwhile, old firms (aged six and above) are around 30% the size of their OECD counterparts (see Figure 3.7). This suggests that firms may face difficulties in scaling up as they age. Such results are also in line with evidence for developing countries showing that firms grow more slowly as they age compared to the United States (see, for example, Hsieh and Klenow (2014[8]) and Eslava et al. (2019[9])).

Most young firms (around 70% in manufacturing and 58% in non-financial market services) come from the informal sector. These firms are not registered nor do they hold the necessary licences, which may limit their ability to grow, hire, innovate and adopt more advanced technologies (Figure 1.1). The following industries have the largest shares of young firms originating in the informal sector: Rubber and plastics products, and other non-metallic mineral products [CG], Textiles, wearing apparel, leather and related products [CB] (respectively 81% and 77% of total young businesses in the industry). On the contrary, in industries like Basic pharmaceutical products and pharmaceutical preparations [CF], Computer and electronics [CI], IT and other information services [JC], Legal and accounting activities; activities of head offices; management consultancy activities; architecture and engineering activities; technical testing and analysis [MA], Publishing, audiovisual and broadcasting activities [JA] and Telecommunications [JB], all young firms are formal (see Figure 3.6).

Informality is high among young firms (aged 0-2), but it is low in older firms. Indeed, the share of informal businesses drops below 30% for firms more than 15 years old in manufacturing and non-financial market services (see Figure 3.3). This is consistent with previous evidence for Egypt, showing that older firms are more likely to be formal (Krafft et al., 2020[10]). The strong relationship between formality and firm age may be explained by the fact that firms formalise later in the life cycle and that informal firms are less likely to survive (Krafft et al., 2020[10]).21

In most industries, formalisation increased as businesses got older. However, in other industries, informality persisted even for older firms (see Annex Figure B.4). Certain industries continue to have large shares of informal businesses (around 40%), even for firms aged 10 years or more. These industries include Textiles, wearing apparel, leather and related products [CB], Wood and paper products, and printing [CC], Basic metals and fabricated metal products, except machinery and equipment [CH], Furniture; other manufacturing; repair and installation of machinery and equipment [CM] and Accommodation and food service activities [I].22

Figure 1.1. Young firms account for a large share of firms in Egypt, but most are informal

Percentage of young firms (aged 0-2) by sector, 2022/23

Notes: The graph reports the percentages of young firms compared to the total number of firms in each macro-sector (manufacturing [ISIC Rev.4 Section C] or non-financial market services [G-N, excluding K]). OECD countries included are Austria, Belgium, Canada, Costa Rica, Croatia, Denmark, Finland, Germany, Italy, Japan, Latvia, New Zealand, Portugal, Slovenia, Spain, Sweden and Türkiye. Emerging economies include Brazil, Cambodia, Indonesia, Tunisia and Viet Nam. Percentages are the unweighted average over the two latest available years and across OECD and emerging economies. Units with zero employees are excluded. Data for Egypt are for 2022/23; OECD and emerging economies are unweighted means over three or five years depending on data availability (see Table E.1). See Annex D for the methodology of the DynEmp analysis.

Source: CAPMAS (n.d.[11]), Economic Census 2022/23 (database), https://censusinfo.capmas.gov.eg/Metadata-en-v4.2/index.php/catalog/Economic_Census; and OECD (n.d.[12]), DynEmp XS, V3, V3_2 (database), https://www.oecd.org/en/about/projects/measuring-job-creation-by-start-ups-and-young-firms.html.

Recommendations to incentivise business formalisation and support firm creation and scale-up

The following recommendations aim to increase the share of formal young firms, and more generally to incentivise both new firms and existing, previously unregistered firms to register. This section discusses three recommendations to achieve this goal:

• Recommendation 4: Accelerate the process for obtaining approvals, permits and licenses to facilitate business creation.

• Recommendation 5: Address informality by raising awareness of the available formalisation incentives and designing sectoral and regional policies.

• Recommendation 6: Foster young firms by targeting industries lagging OECD countries in their contribution to employment as well as the most innovative young firms.

Table 1.2 provides an overview of the main actions, institutions involved and the time horizon for the proposed recommendations.

Table 1.2. Overview of the recommendations for incentivising business formalisation and supporting young firms’ creation and scaling-up in Egypt

Recommendation	Specific actions	Institutions	Time horizon
Recommendation 4: Accelerate the process of providing licenses, approvals and permits	Action 4.1: Assess current licences, approvals and permits and evaluate solutions to reduce their issuing time	GAFI, FRA, SCZone, IDA, MSMEDA, in co-operation with other relevant institutions	Short term
	Action 4.2: Build on the existing monitor of the number of newly created firms and the effectiveness of one-stop shops	GAFI, FRA, SCZone, Commercial Registry Authority, and MSMEDA	Short term
Recommendation 5: Address informality by raising awareness of the available formalisation incentives and designing sectoral and regional policies	Action 5.1: Raise awareness of the current incentives, evaluate their effectiveness, and focus on sectors and areas with the highest rates of informality	MSMEDA in co-operation with relevant institutions (such as the IDA and Ministry of Finance)	Short to medium term
Recommendation 6: Foster young firms by targeting industries lagging OECD countries in their contribution to employment as well as the most innovative young firms	Action 6.1: Support firm creation and scaling up and focus on industries that are lagging OECD countries in their contribution to employment	GAFI and MSMEDA in co‑operation with relevant institutions	Short to medium term
	Action 6.2: Support the most innovative young firms (start-ups)	GAFI and MSMEDA in co‑operation with relevant institutions	Short to medium term

Note: GAFI: General Authority for Investments and Free Zones; FRA: Financial Regulatory Authority; SCZone: Suez Canal Economic Zone; IDA: Industrial Development Authority; MSMEDA: Micro, Small and Medium Enterprises Development Agency.

Recommendation 4: Accelerate the process of providing licenses, approvals and permits

Licensing and approvals can remain a procedural bottleneck in some sectors, despite improvements in business registration. Depending on the activity and location, an investment project may require multiple approvals from different authorities. Recent reforms, such as Investor Service Centers, the Golden License, and the Unified Investment Licensing Platform, are reducing time and increasing transparency.

Business registrations involve four entities (GAFI, the FRA, the SCZone, the courts), but procedures for licenses, permits and approvals tend to be slow and are completed only after involving several entities. Generally, one investment project needs 5-13 licenses or permits before entering the market. Enacted policies aim to speed up these processes, including the Law for Simplification of Industrial Licensing Procedures No. 15 of 2017 and the “Golden License” for Investment Projects.23 Investor Service Centers (ISCs) now issue licenses, approvals and permits within 60 days. More recently, Egypt has launched a Unified Investment Licensing Platform, which integrates 43 authorities and offers 470 fully digitised services, including online submission, payment, e-signature, tracking and digital issuance.24 By 2026, the platform will integrate all relevant national authorities to ensure full digital coverage of investment licensing and approvals. It will include standardised procedures, unified timelines, automated verification and real-time performance monitoring. This will enable investors to obtain all required licenses digitally through a single unified government interface, replacing manual submissions.

Action 4.1 (short term): Assess current licences, approvals and permits and evaluate solutions to reduce their issuing time

The Egyptian government plans to implement a nationwide licensing re-engineering programme to align with international best practices and the World Bank’s B-READY framework by simplifying procedures to address current challenges while building on recent simplification efforts and ongoing digitalisation. To advance this goal, Egyptian stakeholders responsible for facilitating business registrations (GAFI, the FRA, the SCZone, the IDA, the MSMEDA and others) can perform an assessment of all licences, approvals and permits required for businesses operations and evaluate solutions to reduce their issuing time. This assessment is key to understanding the complexity of the current system and to develop a roadmap to simplify it (see, for example, similar OECD work to streamline licenses in Romania (OECD, 2022[13]) or the Online Business Licensing Service project in Singapore (OECD, 2025[14])). With this aim, some procedures could be merged together or allowed to proceed in parallel. As recommended by the OECD’s 2024 Economic Survey of Egypt (OECD, 2024[15]), adopting a tacit approval (i.e. “silence is consent” principle) – as done by many OECD countries – could help accelerate the whole process. Moreover, an assessment could be carried out of the most pressing licences discouraging the informal sector to formalise. Policies could be designed to decrease or cancel some procedures to incentivise formalisation, such as what has been done recently by the IDA, which has temporarily cancelled the documentations on environmental and civil protection to attract informal businesses (see Recommendation 5).

Action 4.2 (short term): Build on the existing monitoring of the number of newly created firms and the effectiveness of one-stop shops

Egypt can build on the regular monitoring of the number of newly created firms and the average time needed to issue licences, approvals and permits. GAFI is already monitoring company establishment volume by sector and legal form. Aggregate figures from GAFI, used in Chapter 3, show that this has contributed to an increase in the number of new firms registered by GAFI, mainly driven by the service sector and limited liability companies. Yet, GAFI can consider expanding the monitoring framework to include disaggregate information by gender (for example about managers or directors and shareholders). Additionally, GAFI should regularly publishing the information on the number of new firms (e.g. disaggregated by governorate, economic sector, legal form and gender) to increase transparency and enhance evidence-based policies. Finally, monitoring should also cover licensing and approvals across relevant entities. The construction of the Unified Investment Licensing Platform, as well as the UBI, will be instrumental to support this increased scope. Other entities, such as MSMEDA and the Commercial Registry Authority, can perform a similar exercise.

Recommendation 5: Address informality by raising awareness of the available formalisation incentives and designing sectoral and regional policies

Egyptian informal firms tend to be small (less than ten workers), and they may have an incentive to remain small to avoid detection. They may also be unattractive to talents and capital, therefore facing difficulties to grow. A business’ decision to formalise is at least partially related to the high and continuing cost of being formal (e.g. high taxes and regulations once registered) more than the initial cost firms need to pay to enter the formal sector (i.e. registration costs). Policies aimed at reducing the cost of being formal – e.g. by tax exemption – and increasing the benefit of formalisation – e.g. by providing better access to credit and the financial market – have been found to be effective in increasing the number of registered firms (Rocha, Ulyssea and Rachter, 2016[16]).

Egypt has implemented and designed several policies to incentivise formalisation and should continue to strengthen current efforts. The Law No. 152 of 2020 for the Development of Micro, Small and Medium Enterprises (MSMEs) provides temporary five-year licenses to informal enterprises that are applying to formalise, which in turn grant them a range of benefits, including exemptions from the payment of, inter alia, stamp duties, notarisation fees and any registration fees required for the registration of the land for informal firms that apply to regularise their situation. During the validity of the license, lawsuits and penalties against informal enterprises are also placed on hold. Additionally, Law No. 19 of 2023 grants IDA the possibility of delivering temporary three-year operating permits to unlicensed industrial firms, provided that they commit to adhering to environmental requirements, civil procedures and related inspections (OECD, 2024[15]). These two measures aim at reducing the cost of becoming and remaining formal. Finally, the Central Bank of Egypt (CBE) Financial Inclusion Strategy (2022-2025) facilitates MSMEs’ and young firms’ access to financial services, which can further increase the benefit of formalisation and encourage their integration into the formal sector.25

The Egyptian MSMEDA in co-operation with the International Labour Organization is currently preparing a national strategy for the formalisation of the informal sector in Egypt. Moreover, Project 5.5 of the OECD Egypt Country Programme will provide recommendations to support the implementation of the National Strategy on Formalisation in Egypt.

Action 5.1 (short to medium term): Raise awareness of the current incentives, evaluate their effectiveness, and focus on sectors and areas with the highest rates of informality

In the short term, Egypt should continue its current efforts to reduce informality, fully implement all new measures and raise awareness among firms on the currently available incentives (provided by the MSMEDA and the Ministry of Finance and other agencies). This could go hand in hand with an awareness-raising campaign on the benefit of formalisation (such as access to finance, incentives, etc.) to help businesses (and workers) understand the benefit of complying with registrations and labour and tax obligations (see, for example, Argentina’s 2013 strategy within the Integrated Plan to Reduce Non-registered Employment (ILO, 2014[17])).26

Additionally, since these incentives have not been fully monitored or evaluated, Egypt may consider introducing evaluation frameworks in the short to medium term to assess how effectively the incentives boost the number of registered firms. Following the case of Cambodia, which recently launched a Monitoring and Evaluation Framework for the National Strategy on the Development of the Informal Economy 2023-28 (see Box 3.7) it can include key performance indicators and assign responsibilities across relevant ministries and sub-national authorities. Evaluations can be conducted within institutions providing the incentives, such as the MSMEDA, in collaboration with academics, or it could be performed by the newly created Egypt Impact Lab under the Ministry of Planning and Economic Development and International Cooperation.27 In the case of external evaluators, (anonymised) data on beneficiary firms need to be shared with the relevant entity performing the evaluation.

In the short to medium term, Egypt could also focus on regions and sectors with the highest rates of informality. Since informality is not evenly distributed across sectors or governorates, developing policies at the local (particularly in more rural areas) and sectoral level can be effective in targeting the areas that need incentives to formalise (see Box 3.6 for the case of India).28 To do so, Egypt can take into account the insights from Chapter 3 of this report (e.g., Figure 3.6 and Annex Figure B.4) and conduct more in-depth studies at the local level to identify gaps and areas for intervention. The MSMEDA and other entities like the IDA and the Ministry of Finance can collaborate to provide co-ordinated policies.

Recommendation 6: Foster young firms by targeting industries lagging OECD countries in their contribution to employment as well as the most innovative young firms

Action 6.1 (short to medium term): Support firm creation and scaling up and focus on industries that are lagging OECD countries in their contribution to employment

Egypt has undertaken several initiatives to promote young firms and entrepreneurship, and these efforts could be further strengthened. One key step is Prime Ministerial Decree No. 2878 of 2024, which established the Ministerial Group for Entrepreneurship in September 2024, chaired by the MPED. The group supports the start-up ecosystem on multiple fronts, including enhancing the regulatory environment, easing access to markets, coordinating government efforts, expanding access to finance, retaining talent to curb brain drain and promoting international expansion (see Chapter 3 for more details).

Egypt can also focus on fostering young firms in industries that trail OECD countries in their contribution to employment, such as Basic pharmaceutical products and pharmaceutical preparations [CF], Computer, electronic and optical products [CI], Transport equipment [CL], Publishing, audiovisual and broadcasting activities [JA] and Telecommunications [JB]. In some of these industries, employment is dominated by large firms (250+ employees), which account for a larger share of employment than in OECD countries (see Fact 2) and young firms may face barriers to enter the market and grow. Ensuring a level playing field in such industries will also be key to ensure the entry and scaling up of young firms (see Action 8.1).

Action 6.2 (short to medium term): Support innovative young firms (start-ups)

While Egypt should provide policies to support all young firms, it can also specifically target the most innovative ones (start-ups). Even if young firms are key for job creation, only a small proportion of them survive and grow across countries (Calvino, Criscuolo and Menon, 2015[18]). However, these are the companies that are often very innovative. The literature has shown that fostering the creation of young firms without scrutiny of their innovativeness could be inefficient (Colombelli, Krafft and Vivarelli, 2016[19]; Shane, 2009[20]).

In this regard, the MSMEDA has introduced some measures targeting innovative enterprises operating for less than seven years. Additional initiatives have been in place (see Chapter 3 for more details), including the Innovator Support Fund – established under Law No. 1 of 2019 and affiliated with the Ministry of Higher Education and Scientific Research – which supports early-stage start-ups and promotes technological advancements among innovators and entrepreneurs.29 Building on practices from other countries – including the United States, European and Asian countries (Audretsch et al., 2020[21]) – Egypt can strengthen these policies to support more innovative young firms, for example by simplifying laws and regulations, reducing the cost of incorporation, implementing tax incentives, and strengthening support for university spin-offs. The definition of innovative start-ups varies across countries, and can be based on observable indicators (such as the share of investment in research and development [R&D], the registration of patents, their workers’ level of education or other factors) or upon verification of self-declarations (e.g. of the possession of intellectual property rights).30 MSMEDA is currently developing a new definition of start-ups to guide access to incentives.

In addition, supporting innovative young firms is a long-term endeavour which entails co-operation and commitment from various entities and, more generally, the development of an innovation ecosystem. Egypt can continue building an action plan to achieve strong collaboration between universities and private companies (see Chapter 5 of OECD (2026[22])). The development of such research ecosystems would facilitate knowledge exchange and promote joint research projects, which ultimately drive technological advancement and foster a culture of entrepreneurship.

Foster the role of small and medium-sized enterprises and support their growth

Fact 3: Egyptian SMEs contribute less to firm and employment shares than SMEs in OECD and other emerging economies

In manufacturing and non-financial (private) services, Egyptian SMEs lagged the OECD and other emerging economies in both the number of firms and their contribution to total employment in 2022/23 (Figure 1.2). In manufacturing, 93% of firms are micro (<10 workers). However, employment is not only concentrated in micro firms, but also in large firms (250+). The number of workers in micro and large firms accounts for over 70% of manufacturing employment (compared to 51% in the OECD benchmark). This phenomenon – employment concentrated in micro and large firms – is identified in the literature as the missing middle (Tybout, 2000[23]). This is mainly driven by the fact that in the OECD benchmark, micro firms contribute significantly less to total employment (10%) compared to Egypt (43%). In non-financial services, not only are SMEs absent, so are large firms compared to the OECD and other emerging economies (Figure 1.3). In fact, micro firms account for 97% of firms and 72% of employment in non-financial services (concentration of micro firms (Tybout, 2014[24])).

Across industries, there is large variation in SMEs’ contribution to employment. For example, some industries are particularly concentrated in large firms (250+), which account for a higher share of an industry’s employment than in OECD countries, including Basic pharmaceutical products and pharmaceutical preparations [CF], IT and other information services [JC], Publishing, audiovisual and broadcasting activities [JA], and Electrical equipment [CJ] (see Figure 3.16).

Figure 1.2. The missing middle phenomenon is prevalent in Egypt’s manufacturing sector

Firm and employment distribution by size class (employment), manufacturing 2022/23

Notes: The left panel shows the percentage of firms by size class over the total number of firms in manufacturing. The right panel shows the percentage of employment by each size class over the total employment in manufacturing. Micro firms have 2-9 workers, small firms have 10-49 workers, medium-sized firms have 50-249 workers and large firms have 250+ workers. OECD countries include Austria, Belgium, Canada, Costa Rica, Croatia, Denmark, Finland, Germany, Italy, Japan, Latvia, New Zealand, Portugal, Slovenia, Spain, Sweden and Türkiye. Emerging economies include Brazil, Cambodia, Indonesia, Tunisia and Viet Nam. Percentages are the unweighted average over the two latest available years and across OECD and emerging economies. Note that Indonesia and Japan are only included in manufacturing. The x-axis represents a firm’s size class based on employment. Category size 0-1 is excluded to improve cross-country comparability due to data limitations for some countries. “Egypt all’ includes both formal and informal establishments; “Egypt only formal” includes only formal establishments. Data for Egypt refer to 2022/23, while for OECD countries the percentages are unweighted means over three or five years depending on data availability (see Annex Table E.1).

Source: OECD (n.d.[12]), DynEmp XS, V3, V3_2 (database), https://www.oecd.org/en/about/projects/measuring-job-creation-by-start-ups-and-young-firms.html, based on Economic Census 2022/2023 (database), https://censusinfo.capmas.gov.eg/Metadata-en-v4.2/index.php/catalog/Economic_Census.

Figure 1.3. Egypt has a relatively high share of micro firms in non-financial market services

Firm and employment distribution by size class (employment), non-financial market services 2022/23

Notes: The left panel shows the percentage of firms by size class over the total number of firms in non-financial market services. The right panel shows the percentage of employment by size class over the total employment in non-financial market services. Micro firms have 2‑9 workers, small firms have 10-49 workers, medium-sized firms have 50-249 workers and large firms have 250+ workers. OECD countries include: Austria, Belgium, Canada, Costa Rica, Croatia, Denmark, Finland, Germany, Italy, Japan, Latvia, New Zealand, Portugal, Slovenia, Spain, Sweden, and Türkiye. Emerging economies include Brazil, Cambodia, Indonesia, Tunisia and Viet Nam. Percentages are the unweighted average over the two latest available years and across OECD and emerging economies. Category size 0-1 is excluded to improve cross-country comparability due to data limitation for some countries. Non-financial market services include sectors G-N excluding K. “Egypt all” includes both formal and informal establishments, “Egypt only formal” includes only formal establishments. Egypt refers to 2022/23, while for OECD countries the percentages are unweighted mean over three or five years depending on data availability (see Annex Table E.1).

Source: OECD (n.d.[12]), DynEmp XS, V3, V3_2 (database), https://www.oecd.org/en/about/projects/measuring-job-creation-by-start-ups-and-young-firms.html, based on Economic Census 2022/2023 (database), https://censusinfo.capmas.gov.eg/Metadata-en-v4.2/index.php/catalog/Economic_Census.

This report provides explanations (discussed below) for the relatively low contribution of SMEs to employment, including high informality, taxation and constraints to access to finance. The government has taken significant actions to alleviate these constraints.

Although informality is likely to play an important role in explaining the high share of micro firms in Egypt, it is unlikely to be the only force explaining the low share of SMEs. Figure 1.2 and Figure 1.3 show that even when restricting to formal firms only (“Egypt only formal” bars), the gap with OECD and emerging economies narrows; however, SMEs still contribute less to the total number of firms and to total employment in Egypt.

Another reason for the missing middle may be taxation. Evidence from the 2020 World Bank Enterprise Survey – the latest available wave for Egypt – shows that around one in four MSMEs identifies tax rates as a major constraint for its operations (24% of micro and 27% of small firms). Between 5% and 8% of MSMEs also report being hampered by tax administration (see Figure 3.17). A higher proportion of firms in Egypt identify tax rates as their greatest constraint compared to other economies in the Middle East and North Africa (OECD, 2026[22]). To alleviate tax constraints, the Egyptian Parliament enacted Law No. 6 of 2025, effective March 2025, as part of a comprehensive package. The law introduced tax incentives for small enterprises with annual turnover not exceeding EGP 20 million. These include exemptions (e.g. from state development fees and stamp tax), reduced tax rates (from 0.4% to 1.5%) and simplified tax procedures (EY, 2025[25]). The law replaced earlier incentives set by MSMEDA under the MSMEs Law No. 152 of 2020, which applied to firms with turnover below EGP 10 million.31 The 2020 MSMEs Law established a unified definition of MSMEs in Egypt and harmonised the various definitions used by public institutions. This unified definition now determines eligibility for incentives provided by MSMEDA and other public entities. Furthermore, the Ministry of Finance more recently announced a new tax facilitation package for small businesses, start-ups and freelancers. This package is expected to be approved soon (State Information Service, 2024[26]).

Challenges in access to finance may also affect the prevalence of SMEs. In the 2020 World Bank Enterprise Survey, 8 out of 100 establishments faced financial constraints, and this number reached 15 for medium-sized firms (with 50-249 workers) (see Figure 3.17).32 Additionally, access to finance seems to be more challenging for Egyptian establishments in the manufacturing sector than for those in the services sector. This is also confirmed by the fact that the average product of capital (log value added over capital) decreases with firm size, which in the literature has been identified as a sign of financial frictions (Hsieh and Olken, 2014[27]) (see Chapter 3, Figure 3.19). To facilitate access to finance and SMEs’ growth, the CBE launched numerous initiatives to financially support SMEs. In particular, it increased the percentage of banks’ obligations to finance small and medium projects (20-25% of the total credit facilities portfolio). The CBE targeted SMEs based on their business revenue.33 However, evidence in this report from the 2022/23 Economic Census shows that the revenue-based definition of SMEs used by the CBE also includes some large firms when they are defined by employment (see Table 3.2).

Recommendations to enhance the role of small and medium-sized firms

This section discusses two recommendations Egypt may consider in enhancing the role of SMEs:

• Recommendation 7: Better target incentives to MSMEs.

• Recommendation 8: Promote competition and reduce barriers to entry into the export market.

Table 1.3 provides an overview of the main actions, institutions and the time horizon for the proposed recommendations in this area.

Table 1.3. Overview of the recommendations to foster the role of small and medium-sized enterprises in Egypt

Recommendation	Specific actions	Institutions	Time horizon
Recommendation 7: Better target tax and non‑tax incentives to MSMEs	Action 7.1: Review the definition of micro, small and medium firms to better target policy	MSMEDA in co-operation with relevant stakeholders (including Ministry of Finance and Ministry of Planning and Economic Development and International Cooperation)	Short to medium term
Recommendation 8: Promote competition and reduce barriers to entry into the export market	Action 8.1: Continue efforts in promoting a level playing field and assess the existence of undue barriers to SMEs’ entry and growth in industries dominated by large firms	GAFI in co-operation with relevant stakeholders including the Ministry of Planning and Economic Development and International Cooperation	Short term
	Action 8.2: Reduce barriers to trade and help new businesses enter the international market	Ministry of Investment and Foreign Trade, Egyptian Export Development Authority, Ministry of Industry, GAFI, in collaboration with other stakeholders (such as the United Nations Industrial Development Agency, etc.)	Short to medium term

Note: MSMEDA: Micro, Small and Medium Enterprise Development Agency; GAFI: General Authority for Investments and Free Zones;

Recommendation 7: Better target tax and non-tax incentives to MSMEs

Action 7.1 (short to medium term): Review the definition of micro, small and medium-sized firms to better target true micro, small and medium-sized enterprises

Reviewing the definition of MSMEs is important to ensure policies are well targeted by the MSMEDA, the CBE, the Ministry of Finance and other stakeholders. A rigorous definition of MSMEs prevents policies targeting small firms from accidently leaking to larger firms.

Although Egypt has recently made significant efforts toward adopting a single definition of MSMEs, further improvements in the medium term can be devoted to including employment criteria alongside revenue and capital. Currently, only capital and revenue are used for defining thresholds for MSMEs. This report suggests that employment should be considered as well, following international practices (e.g. the EU definition and other peer countries’ practice, such as Türkiye).34

Given the difficulties in collecting employment information, only workers with a formal contract could be included in the definition of SMEs.35 One reason why the current definition of MSMEs in Egypt does not consider employment is due to the difficulties in collecting such information. This is mainly attributable to companies’ reluctance to report workers because of their informal status. Including only employees with a formal contract in the new definition of MSMEs, would likely approximate the number of total workers in larger firms (100+ workers), where almost 80% of workers had formal contracts in 2023 (evidence from the Egypt Labour Market Panel Survey).36 This could also help to enhance workforce registration in social insurance and improve the reliability and efficiency of national data. The MSMEDA and other entities could retrieve such information from social security data.

Overall, the definition of MSMEs should reflect Egypt’s economic characteristics, based on the latest data (e.g. from the Economic Census), and should be reviewed regularly to account for any structural changes. It can also account for differences in the size distribution between sectors (e.g. as in Colombia, which distinguishes among firms operating in manufacturing, services and commerce (OECD, 2021[28]); see Box 3.11).

Recommendation 8: Promote competition and reduce barriers to entry into the export market

Action 8.1 (short term): Continue efforts to promote a level playing field and assess the existence of undue barriers to SMEs contesting industries dominated by large firms

Egypt should continue its efforts to promote a level playing field for the private sector and to reduce the role of the state in the Egyptian economy. Recent government reforms to boost competition are a step in the right direction, including measures to increase the share of private investments in the economy and a recent decree that abolishes preferential tax treatment for state-owned enterprises (Law No. 159 of 2023 abolishes tax and fee exemptions granted to state entities in investment and economic activities) (OECD, 2024[15]). Egypt could also assess the current undue barriers to entry in industries where employment is dominated by large firms (250+ workers) more than in OECD countries and implement necessary policies to facilitate business creation and ensure a competitive environment. Those industries include Basic pharmaceutical products and pharmaceutical preparations [CF], Computer, electronic and optical products [CI], Transport equipment [CL] and Telecommunications [JB].

Action 8.2 (short to medium term): Reduce barriers to trade and help new businesses enter international markets

Egypt has taken significant steps in reducing barriers to trade, including developing a single window system (Nafeza) for submitting trade documents, and introducing export support programmes such as the Export Rebate Program (see Chapter 3 and OECD (2026[22]). Nevertheless, further actions could help SMEs participate more actively in international markets.

First, non-tariff measures could be made more transparent, and SMEs could be better informed on how to comply with them. Egypt could also streamline registration and documentation rules, including import license procedures. Recent initiatives under the National Structural Reform Program seeks to streamline licencing and prior approvals for imports, enhancing transparency and predictability for investors (MPED, 2024[29]). These efforts are crucial to help SMEs overcome the fixed cost of entering the export market and create a competitive environment that encourages experimentation, growth and innovation, thereby boosting the competitiveness of the Egyptian economy.

To this aim, Egypt should ensure that the Nafeza system effectively automates customs administration, simplifies procedures and reduces clearance time by constantly monitoring consumers’ satisfaction (OECD, 2026[22]). Its effectiveness is critical for reducing administrative barriers to trade, which remain relatively higher in Egypt than other countries (e.g., the time to export and import is significantly higher in Egypt than peer economies (OECD, 2026[22])).

Third, Egypt could also further reduce tariffs, particularly on imports needed to export, which can have positive effects on productivity (Martínez Zarzoso, Said and Zaki, 2021[30]).

Finally, Egypt could combine volume-based measures, such as the Export Rebates Program, with SME-specific export support policies. Other countries have successfully implemented export policies targeted at small businesses, including the Export Promotion Grants in Türkiye (OECD, 2016[31]) and the PROGER in Brazil (OECD, 2020[32]).

Foster the role of female entrepreneurship

Fact 4: Egypt has a low share of female-owned businesses

Female-owned firms (firms where more than 50% of the owners of a given firm are female) represent a small share of Egyptian businesses (Figure 1.4). They account for only 4% of firms in manufacturing sectors. By comparison, in Indonesia and Cambodia – the only other countries that provide comparable information in DynEmp – female-owned firms represent 26% and 39% of total firms, respectively. While cultural differences may partly explain these gaps, the data underscore the limited role of women-owned businesses in Egypt. In non-financial market services, the share of female-owned firms accounts for 10%, slightly higher than in manufacturing but still well below Cambodia’s share.37 One caveat is that not all business owners are entrepreneurs, but all entrepreneurs are (at some point) business owners. The low number of female business owners in Egypt likely signals a similarly low number of female entrepreneurs. This evidence exists in a context where female labour market participation in Egypt remains relatively lower compared to OECD countries (see Annex Figure B.8) and neighbouring economies (Jin and Hofer, 2024[33]) – see also (OECD, 2026[34]). Nevertheless, Egypt is committed to fostering women’s participation in the labour market and empowering female entrepreneurs (see below).

Moreover, the average share of female workers employed by Egyptian firms is lower in male-owned businesses than in female-owned ones, with a significantly lower share of female workers compared to Cambodia, for example (see Figure 3.21). Indeed, in manufacturing industries, male-owned businesses have, on average, only 3% of female workers, compared to 11% of female workers in non-financial market services (in Cambodia the percentages are 35% and 38%, respectively).

Female ownership is also low among household enterprises, but it is rising. Similarly, education level among female owners increased. Non-agricultural household enterprises are identified in the Egypt Labour Market Panel Survey as enterprises owned by the household.38 Household enterprises in Egypt are predominantly male-owned, but the share of enterprises owned by women has gradually increased, passing from 15% in 2006 to 19% in 2023 (see Figure 3.22).39 Egyptian women running family businesses have also rapidly increased their education level over time: in 2023, only 34% were illiterate compared to 65% in 2006. The share of illiterate female owners is however higher than for men, where less than 20% of male owners were illiterate in 2023 (see Figure 3.23).

Figure 1.4. Compared to other selected developing countries, a small share of firms is owned by women in Egypt

Distribution of establishments by gender of the owners, 2022/23

Note: The graph plots the distribution of firms by ownership gender, country and macro sector, excluding establishments with 0 employees. Egypt includes both formal and informal establishments. Indonesia is only available for the manufacturing sector, and for size category 2-19 workers. Results are robust when considering only those categories for Egypt and Cambodia as well. Female ownership is defined as having at least 50% of female owners. Data for Egypt are for 2022/23, data for Cambodia are for 2011 and Indonesia is the unweighted average for 2013-14 (due to limited data availability). See Annex D for the methodology of the DynEmp analysis.

Source: OECD (n.d.[12]), DynEmp XS, V3, V3_2 (database), https://www.oecd.org/en/about/projects/measuring-job-creation-by-start-ups-and-young-firms.html, based on Economic Census 2022/2023 (database), https://censusinfo.capmas.gov.eg/Metadata-en-v4.2/index.php/catalog/Economic_Census.

Recommendations to increase the share of women entrepreneurs

The proposed recommendation and its respective actions are intended to increase the role of women entrepreneurs in Egypt (Table 1.4).

Table 1.4. Overview of the recommendation to foster female entrepreneurship in Egypt

Recommendation	Specific actions	Institutions	Time horizon
Recommendation 9: Continue supporting women-owned businesses, strengthen and evaluate existing programmes	Action 9.1: Continue and strengthen entrepreneurship training, coaching and mentoring, and facilitate access to finance opportunities for women-owned businesses	National Council of Women (NCW), MSMEDA and GAFI	Short term

Recommendation 9: Continue supporting women-owned businesses, strengthen and evaluate existing programmes

Action 9.1 (short term): Continue and strengthen entrepreneurship training, coaching and mentoring, and access to finance opportunities for women-owned businesses

There are initiatives to foster female entrepreneurship in Egypt, including providing trainings and facilitating access to finance. The main actors involved are: the NCW, which in 2017 developed a National Strategy for the Empowerment of Egyptian Women 2030 (NCW, 2017[35]) and has implemented entrepreneurship training for women;40 the CBE through its Financial Inclusion Strategy and several other financial initiatives (see Chapter 3 for details); and the MSMEDA via the four-year “Women-Owned Business Support Programme”.41 Finally, in the ICT sector, the Technology Innovation and Entrepreneurship Centre created the Women Entrepreneurship Programme to support early-stage women entrepreneurs (see Chapter 3 for more details). A well-defined strategy and concrete actions have already been implemented to address low female entrepreneurship. More specific recommendations for fostering female entrepreneurship will be provided within the framework of Project 1.5 of the OECD Egypt Country Programme (OECD, 2026[36]).

The NCW should continue to offer entrepreneurship training, coaching, mentoring and access to finance for women entrepreneurs across all governorates. Egypt should evaluate these programmes to assess their effectiveness in supporting women-owned businesses and strengthen them based on identified needs. Publishing annual progress reports that include the number of beneficiaries and survey results is essential to track progress and identify areas for improvement. Egypt’s National Observatory for Women created in 2017 – which already monitors women’s indicators – can play an instrumental role as well. More generally, enhancing the monitoring of gender-disaggregated indicators, in line with the World Bank’s B-READY framework, will be critical for improving Egypt’s business environment through greater data transparency and public access to business statistics.

Egypt can draw inspiration from Canada, which regularly publishes progress reports on its Women Entrepreneurship Strategy and recently launched a survey to evaluate its impact (see Box 3.12).42 Following this example, the NCW could include programmes to support women-owned businesses export and enter international markets. It could also organise networking events to improve access to business networks. Such events may be particularly valuable for women operating in more remote areas, who often face greater challenges in accessing these opportunities. This is relevant given that limited networks and professional contacts remain a barrier for Egyptian women entrepreneurs (OECD, 2026[36]).

References

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[1] United Nations (2024), Guidelines on Statistical Business Registers, United Nations, New York, NY, https://unstats.un.org/unsd/business-stat/SBR/Documents/UN_Guidelines_on_SBR.pdf.

[3] World Bank (2016), Implementing a Unique Business Identifier in Government: Guidance Note for Practitioners and Nine Country Case Studies, World Bank, Washington, DC, https://documents.banquemondiale.org/fr/publication/documents-reports/documentdetail/471531468196759403/implementing-a-unique-business-identifier-in-government-guidance-note-for-practitioners-and-nine-country-case-studies.

Notes

← 1.  The analysis also excludes firms without employees to enhance cross-country comparison, as they are not well covered in some OECD countries in the DynEmp database. The analysis for Egypt covers informal companies as long as they have more than one person engaged, regardless of whether or not they have a formal contract.

← 2.  A dedicated law(s) for legitimising the development of an SBR could facilitate the implementation of the suggested recommendations.

← 3.  Article 9 of Decree 2017-390 of 9 March 2017 establishes the national nomenclature of economic activities in Tunisia. The public administration was called upon to take all the necessary means and tools for the adoption of the Tunisian activity nomenclature as the single nomenclature for their activities and to take the necessary measures for the revision of the data concerning them in accordance with the nomenclature within a maximum period of two years from the date of publication of the government decree. The National Institute of Statistics was set as the responsible entity for evaluating the degree of use of the Tunisian activity nomenclature by the public bodies concerned. See: www.finances.gov.tn/sites/default/files/reglementaire_fr/decret_2017_390francais.pdf.

← 4.  This ongoing process is nearing completion, and marks a significant milestone in enhancing the efficiency of GAFI data and opens the possibility of linking other data. Additionally, the transition to a fully digitalised registration system at GAFI represents a pivotal advancement. This new system not only streamlines the registration process but also facilitates the automatic registration of firms with tax and commercial registers. This automation ensures that the link between GAFI-identifier and commercial or tax numbers is established directly and accurately. It is crucial to ensure the smooth operation of this process in the future.

← 5.  A Common Enterprise Identifier (ICE) was established in 2011. The decree instituting it was adopted and applied to all enterprises from July 2016 (Feddouli, 2019[37]). This identification system, which includes a number that identifies companies and their branches, is used by all administrations and businesses to facilitate the inter-administrative exchange of micro-data on companies and simplify the administrative procedures applied to enterprises. The identification number is generated in the early stages of the creation of the company. The creation of a unified business identifier has also contributed to the development of the construction of a single database on formal enterprises and to the Observatory of MSMEs, which publishes annual reports; see: https://omtpme.ma/en.

← 6.  In Denmark, the establishment of a group of relevant ministries and other organisations proved instrumental in overcoming challenges related to developing a unique national identification number (United Nations, 2024[1]).

← 7.  De-identification of data is not often necessary to prevent the identification of businesses. Instead, some other key variables allowing identification can be deleted (location, name, etc.).

← 8.  String matching techniques use information on firms, such as their name, location, address, etc., to match the same units across different databases. This methodology would allow assigning ex post a unique longitudinal ID to each unit of the Economic Census. Given confidentiality concerns, this matching would have to be conducted by CAPMAS and used to link the Economic Census with other databases from administrative sources and surveys. Moreover, manual checks should be performed for the largest companies in each sector.

← 9.  Note that harmonising administrative sources by industry and governorate codes should be the first step.

← 10.  See https://www.unescwa.org/sites/default/files/event/materials/Session_3_Pres_F_Tunisia_Using_Administrative_Data.pdf.

← 11.  See, for example, Georgia, which has been benefiting from the advice of Statistics Sweden and Indonesia with advice from the Australian Bureau of Statistics (United Nations, 2024[1]).

← 12.  Tunisia is constructing its SBR by merging tax records with social security data on employment. See: https://www.ins.tn/en/methode/statistical-business-register.

← 13.  Enterprises belonging to the same business group are connected by control and ownership links. This often involves complex inter-corporate ownership and control situations across businesses. Control situations across businesses arise because administrative data usually contain information on ownership but not on controls. Clusters of controls need to be created to define the enterprise groups and the unit “enterprise group” needs to be incorporated into the SBR. Due to its complexity, this can be done in a second stage, once the SBR is created and each establishment and enterprise has a unique identifier. To identify business groups, Egypt may pursue improvements in the quality of ownership data.

← 14.  Indonesia, for example, has used the Census to update its SBR, meaning that the units that were not found to be matched between the Census (of 2016) and the SBR were added to the SBR as new units (United Nations, 2024[1]).

← 15.  Business demography indicators can be found at: https://data.tuik.gov.tr/Bulten/Index?p=Entrepreneurship-and-Business-Demography-2022-49391 and SME statistics at: https://data.tuik.gov.tr/Bulten/Index?p=49438&dil=2.

← 16.  Morocco created an SMEs’ Observatory in 2013 to centralise business data across institutions in Morocco to obtain statistics and analysis on SMEs. Since then, the observatory has engaged in data-sharing with partners, as the General Directorate for Taxes and the Moroccan Office of Industrial and Commercial Property, among others. In 2017, the fusion with data from several organisations enabled the construction of the country’s first centralised database on formal enterprises. See https://omtpme.ma/en/qui-sommes-nous for more information.

← 17.  For more information see: https://sa-tied.wider.unu.edu/about.

← 18.  In this report, young firms are defined as firms aged between 0 and 2 years. This reflects the standard DynEmp definition, which looks at business demography; it does not distinguish between innovative (start‑ups) and non-innovative young firms.

← 19. OECD countries included are Austria, Belgium, Canada, Costa Rica, Croatia, Denmark, Finland, Germany, Italy, Japan, Latvia, New Zealand, Portugal, Slovenia, Spain, Sweden and Türkiye. Emerging economies include Brazil, Cambodia, Indonesia, Tunisia and Viet Nam. Croatia has been included in the OECD countries as it is under the accession process (on 25 January 2022, the OECD Council decided to open accession discussions with Croatia). Comparisons with emerging economies in this analysis should be taken with caution because, due to limited data availability, they refer to less recent periods (see Annex 3.A for details).

← 20.  Industries are defined based on A*38 aggregation of ISIC Rev.4 classification, see Table 3.A.2.

← 21.  Unfortunately, in the absence of panel data, it is not possible to disentangle these two effects.

← 22.  In other industries, instead, informal entry seems to be a stepping stone for formalisation. Indeed, in industries such as food products [CA] and machinery [CK] the shares of informal businesses drop to around 10% for firms aged 10 years or above, while it was more than 32% and 52% respectively among young firms.

← 23.  The Law for Simplification of Industrial Licensing Procedures No. 15 for 2017 significantly reduced the time needed to issue industrial licences, to 7 days for low-risk projects and 30 days for high-risk ones (which represents 20% of total industries). Through this law, the number of procedures decreased from 19 basic steps to 7. In late 2022, the government introduced the “Golden License” for Investment Projects, which is a comprehensive approval on the set up, operation and management of a project, including building licenses and the allocation of the real property required thereof.

← 24.  See https://tracklicence.gafi.gov.eg/ for more details.

← 25.  The financial incentives are now under the Ministry of Finance.

← 26.  In 2013, an Integrated Plan to Reduce Non-registered Employment, led by the Ministry of Labour, Employment and Social Security, was launched in Argentina. This plan fits in the broader strategies to tackle informality since 2003. It defines new policies and instruments to make further progress on the subject of employment formalisation. Social campaigns on informality issues were part of the strategy, through massive media, on the advantages of complying with labour and tax obligations and the resulting social protection. Through the Corporate Social Responsibility Plan, leading businesses raise awareness among their clients and suppliers about the need and obligation of complying with labour regulations.

← 27.  The Egypt Impact Lab (EIL) works to build a culture of evidence-informed decision-making across government by strengthening partners’ capacity to use evidence in programme design and delivery and by leveraging administrative data to facilitate evidence generation. It works in close collaboration with key strategic partners, including the Ministry of Education and Technical Education (MoETE), the Ministry of Social Solidarity (MoSS), the Micro, Small, and Medium Enterprises Development Agency (MSMEDA), the National Council for Women (NCW) and the Universal Health Insurance Authority (UHIA).

← 28.  For example, North Sinai has most of its young firms born in the informal sector (around 80% of them), followed by Matrouh and Kalyoubia.

← 29.  See http://102.223.94.66/demo/isf/index.php/en/pages/about-us.

← 30.  One single criterion may not be sufficient, a combination may be needed. See, for example, the case of Italy. Italy has introduced a comprehensive package of incentives called the Italian "Start-up Act”, which has been effective in sustaining innovative start-ups (Menon et al., 2018[40]). Innovative start-ups must meet at least one of the following criteria: an R&D expenditure ratio of at least 15%; one-third of employees are PhD students, graduates or researchers and/or two-thirds hold a Master’s degree; and hold, deposit or license a patent, or own registered software.

← 31.  MSMEs are defined based on their revenue, or capital in case revenue is missing. Microenterprises: annual turnover of less than EGP 1 million, or any newly incorporated enterprise with capital less than EGP 50 000; small enterprises: annual turnover between EGP 1 million and EGP 50 million, any newly incorporated industrial enterprise with capital between EGP 50 000 and EGP 5 million, or any newly incorporated non-industrial enterprise with capital between EGP 50 000 and EGP 3 million; medium-sized enterprises: annual turnover of EGP 50 million or more and does not exceed EGP 200 million, any newly incorporated industrial enterprise with capital between EGP 5 million and EGP 15 million, or any newly incorporated non-industrial enterprise with capital between EGP 3 million and EGP 5 million.

← 32.  Yet, access to finance is reported to be the highest constraint for a lower percentage of firms compared to other Middle East and North African economies (OECD, 2026[22]).

← 33.  Microenterprises are identified as those with annual revenues less than EGP 1 million, small enterprises as those with revenues between EGP 1 million and EGP 50 million, medium-sized enterprises as those with revenues between EGP 50 million and EGP 200 million, and large enterprises as those with revenues above EGP 200 million.

← 34.  The European Union’s definition of SMEs is based on both staff headcount and turnover or balance sheet total. See https://single-market-economy.ec.europa.eu/smes/sme-fundamentals/sme-definition_en for more information. The definition used in Türkiye also uses both employees (only those with an employment contract) and annual net sales or financial balance sheet.

← 35.  However, note that if firms lose their benefits by reporting a larger number of formal employees, this may discourage firms to hire formal workers. At the same time, this can incentivise small firms to report their number of formal employees to access the benefit.

← 36.  It is worth noting that this is not the case in the agriculture, forestry and fishing sector (ISIC Rev.4 Section A), where the percentage of formal workers was below 25% in large firms in 2023.

← 37.  The percentage of firms excludes firms without employees to increase comparability across countries. In Egypt, including firms without employees only slightly increases the share to 4.2% in manufacturing and 12.2% in non-financial market services. A large share of household-owned businesses is composed of firms with one worker, especially in non-financial market services. Within Egypt’s manufacturing, female-owned businesses range from 10% of establishments in Food products, beverages and tobacco[CI], while they account for just 1% in Furniture [CM].In non-financial market services, female-owned businesses represent 12% in Administrative and support service activities [N] and only 0.2% in Telecommunications [JB].

← 38.  The survey covers the years 1998, 2006, 2012, 2018 and 2023. It includes a question on whether the household has family enterprises.

← 39.  The analysis identifies the owner of the household enterprise as the individual working the most in the enterprise following the previous literature (Krafft et al., 2020[10]; Rashed and Sieverding, 2014[38]). A more recent paper (El-Haddad and Zaki, 2023[39]) shows that when restricting the definition of owners to those that are also the household head, the share of female-owned enterprises reduces substantially to around 8% in 2023, but it still shows an increasing trend over time.

← 40.  The NCW provided training on planning, marketing, financial awareness and basic concepts of innovation and entrepreneurship across several governorates. See https://ncw.gov.eg/Tag/%D8%B1%D9%8A%D8%A7%D8%AF%D8%A9-%D8%A7%D9%84%D8%A3%D8%B9%D9%85%D8%A7%D9%84/165/1.

← 41.  The Women-Owned Business Support Programme was financed by the French Development Agency (2019-22). The programme financed over 24 000 women-led micro and small businesses across the country, creating more than 60 000 job opportunities. See https://www.sis.gov.eg/Story/209654/MSMEDA-finances-24%2c000-women's-projects-in-cooperation-with-AFD?lang=en-us and https://top50women.com/msmedas-2024-milestones-and-vision-for-womens-empowerment-and-economic-growth-in-egypt/.

← 42.  The Women Entrepreneurship Strategy also aims to increase women-owned businesses’ access to finance, networks and expertise to help them start, scale and access new markets.