Productivity Review of Egypt

Focusing on the Manufacturing Sector

Report

4 May 2026

2. Boosting the productivity performance of the Egyptian manufacturing sector

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Abstract

This chapter provides an in-depth examination of productivity in the Egyptian manufacturing sector. It first uses aggregate data to examine labour productivity trends over time, comparing Egypt with OECD and peer economies. It then capitalises on the inclusion of Egypt in the OECD MultiProd project to investigate firm-level productivity and heterogeneity across firm size, age, different percentiles of the productivity distribution and the link between productivity and wages. The chapter distinguishes among Egyptian top-half and bottom-half productive manufacturing industries based on their average firm-level productivity. It provides recommendations to foster diffusion of productivity gains from most to least productive firms in Egyptian top‑half productive industries and to increase productivity in bottom-half productive industries.

Introduction

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Productivity is the main driver of growth and higher living standards in the long run. Fostering the growth of the Egyptian manufacturing sector is a key policy priority in Egypt, given its significant role in the overall economy.

The Ministry of Industry (MoIND) therefore set a target of increasing the annual industrial growth rate to 8% in its 2017 industrial strategy (MTI, 2017[1]) and aimed to increase the share of industrial production in gross domestic product (GDP) to 20% by fiscal year 2026/27. MoIND is finalising its new Industrial Development Strategy (2026-30), aimed at positioning Egypt as a regional hub for sustainable and flexible manufacturing and international trade. By 2030, the strategy targets USD 145 billion in non-petroleum exports of goods and services, a 20% contribution of value added to GDP, 7 million direct and indirect jobs in the industrial sector, and a 5% contribution of green industries to GDP (see Chapter 3).

The chapter first explores aggregate productivity trends by analysing national accounts data and comparing Egypt’s performance with peer and OECD economies. It then examines firm-level data to identify potential reasons for the slowdown in Egypt’s manufacturing productivity, assessing how resources are allocated to more productive firms and whether efficiency gains emerge based on firm age and size.

Next, the chapter categorises manufacturing industries into top-half and bottom-half productive industries, based on their average firm-level productivity, highlighting their key characteristics. It also investigates the relationship between wages and productivity. Additionally, it explores the main constraints faced by Egyptian manufacturing firms – such as taxes, corruption, informal sector practices, access to finance and competition – that may limit firms’ productivity growth. The chapter concludes by outlining key policy measures the Egyptian government represented in the Ministerial Group for Industrial Development could adopt to address existing bottlenecks to productivity growth in the manufacturing sector.

This chapter is based on the inclusion of Egypt in the OECD Multifactor Productivity (MultiProd) project (Box 2.1), which enables cross-country productivity comparisons using firm-level data. This initiative represents a significant improvement in data collection, unveiling new evidence that can support evidence-based policy making in Egypt. Analyses in this report use data from Egypt’s Economic Census for the year 2022/23.

Rising aggregate labour productivity in Egypt has been accompanied by a challenging performance in the manufacturing sector, pointing to potential for targeted policy support

Copy link to Rising aggregate labour productivity in Egypt has been accompanied by a challenging performance in the manufacturing sector, pointing to potential for targeted policy support

This section presents aggregate trends in Egypt’s labour productivity over time, comparing Egypt with peer economies and OECD countries. It first identifies the drivers of productivity growth in Egypt’s total economy through an aggregate labour productivity decomposition, then focuses on the Egyptian manufacturing sector.

Aggregate labour productivity in Egypt has increased

Labour productivity of Egypt’s total economy has been on an upward trend over the past decade, outpacing that of OECD countries, but lower than some peer economies like Türkiye and Indonesia (Figure 2.1, Panel A). Over the period 2010-23, Egypt achieved a strong cumulative growth in labour productivity. In 2023, Egyptian labour productivity grew by 24% from the 2010 level. Such strong growth has allowed Egypt to catch up with the OECD average (Figure 2.1, Panel B). In 2010, Egypt’s labour productivity stood at 52% of the OECD average; by 2020, it exceeded 70%. However, the speed of catch up has slowed recently, and labour productivity has remained at a similar (slightly lower) level of the OECD average over the 2021-23 period.1

The productivity growth has been coupled with large increases in public investments (see Annex Figure C.1), driven by the National Program for Economic and Social Reforms, which was initiated in 2016 (see Box 5.3 in for more details on the programme).2

Figure 2.1. Aggregate labour productivity has risen in the Egyptian total economy and is catching up with the OECD average
Copy link to Figure 2.1. Aggregate labour productivity has risen in the Egyptian total economy and is catching up with the OECD average

Labour productivity in total economy, 2010-23

Before the Coronavirus disease 2019 (COVID-19) crisis, Egypt’s labour productivity growth was driven by improvements in labour productivity within sectors. Post-crisis, it was driven by growth across-sector.3 A productivity decomposition shows that the within-sector productivity component explains most of the labour productivity growth observed over the 2015-19 period and part of the growth observed over 2010-14 period (Figure 2.2). During and after the COVID-19, instead, the across-sector component accounted for most of Egypt’s aggregate productivity growth. This is consistent with evidence from other countries, where resource reallocation across sections drove productivity gains during the crisis brought by the shut-down of less-productive sectors involving face-to-face interactions (European Central Bank, 2021[6]).4The sectors that recorded the highest labour productivity growth in Egypt over the period examined were information and communication, public administration and agriculture (Figure 2.3). These sectors respectively recorded average annual growth rates of 13%, 11% and 5% over the 2020-23 period. They are also sectors that experienced strong growth in the previous period (2010-19).

Figure 2.2. Before COVID-19, aggregate labour productivity gains came from within sectors, whereas during the crisis, they stemmed from shifts across sectors.
Copy link to Figure 2.2. Before COVID-19, aggregate labour productivity gains came from within sectors, whereas during the crisis, they stemmed from shifts across sectors.

Shift-share decomposition of changes in aggregate productivity, Egypt total percentage

Figure 2.3. Information and communication, public administration and agriculture experienced the highest increase in labour productivity.
Copy link to Figure 2.3. Information and communication, public administration and agriculture experienced the highest increase in labour productivity.

Average annual labour productivity growth rates by industry, Egypt

Despite resurgent growth in the total economy, productivity in Egypt’s manufacturing sector faces challenges

Against this backdrop, the manufacturing sector displayed sluggish performance amid a challenging environment, with labour productivity trending downwards over the past decade, particularly from 2014 (Figure 1.3 and Figure 2.4). After growth in the 2010-14 period, labour productivity in the manufacturing sector has been falling, reaching in 2023 a lower level than 2010 (Figure 2.4).

As seen in Figure 2.4 Panel A, trends in manufacturing labour productivity in Egypt contrast with those of peer economies. Over the past decade, Türkiye registered high growth. Although limited, based on latest available data, countries like Indonesia and South Africa, as well as the OECD average grew, too.

This subdued performance of the manufacturing sector has contributed to a widened productivity gap with the OECD average (Figure 2.4 Panel B). Between 2010-16, the Egyptian manufacturing productivity was almost at the level of the OECD average (96%), but dropped substantially after 2016, reaching 66% of the OECD in 2023. This decline in productivity relative to the OECD is attributable to the fact that labour productivity in OECD countries grew at a faster pace, on average, compared to Egypt after 2016. The COVID-19 pandemic has also triggered a more severe drop in labour productivity.

While most manufacturing industries experienced a reduction in labour productivity, a few industries demonstrated positive performances, including Basic metals (24), Chemicals and chemical products (20), Other non-metallic mineral products (23) and Other manufacturing (32) (see Figure 2.5).

Figure 2.4. Labour productivity in manufacturing has slowed and the gap in labour productivity compared to OECD countries is widening
Copy link to Figure 2.4. Labour productivity in manufacturing has slowed and the gap in labour productivity compared to OECD countries is widening

Manufacturing labour productivity, 2010-23

Figure 2.5. A few manufacturing industries exhibited growth in labour productivity, including basic metals, chemicals non-metallic mineral products and beverages
Copy link to Figure 2.5. A few manufacturing industries exhibited growth in labour productivity, including basic metals, chemicals non-metallic mineral products and beverages

Labour productivity growth rate by manufacturing industries, Egypt, 2010-21

Fostering productivity growth of the manufacturing sector is crucial to improving living standards in Egypt. The manufacturing sector is a key contributor to the Egyptian economy. It represented 15% of value added in 2023 (Annex Figure C.2). However, its relevance has reduced over time, once representing 20% of total value added in 2010. Moreover, the share is larger in some peer countries, such as Jordan and Türkiye. In Egypt, the larger shares of manufacturing value added (excluding coke and refined petroleum) are allocated to food products (18% of manufacturing value added), chemicals and chemical products (15%), basic metals (15%) and other non-metallic mineral products (11%) (see Annex Figure C.5).

Data from International Labour Organization (ILO) show that the manufacturing sector also accounted for 12% of employment in Egypt in 2024 (Annex Figure C.4). This share increased from 11% in 2014, reached 13% in 2020 and then declined slightly in subsequent years. In 2024 – the latest year for which comparable data are available – Egypt’s manufacturing employment share was higher than that of South Africa (9.7% in 2024), Morocco (11% in 2022) and Jordan (8.4% in 2023). However, it remained lower than in several Association of Southeast Asian Nations (ASEAN) countries, including Indonesia (13.7% in 2023), Thailand (15.8% in 2024), Malaysia (16.8% in 2022) and Viet Nam (21.9% in 2024), as well as Türkiye (19.1% in 2024) (see Annex Figure C.4).

The productivity-size link is similar to OECD countries in manufacturing, but strengthening the productivity-age link could support stronger sector performance

Copy link to The productivity-size link is similar to OECD countries in manufacturing, but strengthening the productivity-age link could support stronger sector performance

Aggregate productivity is determined by several factors (see Chapter 5 for a broader discussion on this), including how much firms increase their productivity (within-firms enhancements), the diffusion of innovation from the leaders (i.e. firms above 90^th percentile of firm log labour productivity distribution) to the rest of the economy and the extent to which resources are reallocated to the more productive businesses (between-firms enhancements) (see Pilat (2023[9]) and Albrizio and Nicoletti (2016[10])).

The analysis of this report identifies the main factors for the relatively slow labour productivity growth in the manufacturing sector by examining firm-level data. The relatively low productivity in Egypt could be explained by one or a combination of the above forces.

Most of the evidence presented in this report comes from the OECD MultiProd project, in which Egypt has been included (MultiProd Egypt) using the Egyptian Economic Census 2022/2023. The MultiProd project allows the study of productivity across countries, sectors and time, with a common data collection method that ensures compatibility across countries in productivity analyses (see Box 2.1 for more details and its adaptation to the Egyptian data).

Importantly, given the nature of cross-sectional Egyptian data, within-firm productivity growth cannot be observed. Thus, the report conducts the analysis using static indicators, for example, the allocation of resources to the most productive firms, or how firms reach productivity improvements along age and size dimensions. The next section further breaks down productivity by manufacturing industries to identify top‑half and bottom-half productive manufacturing industries.

The analysis focuses on the manufacturing sector (ISIC Rev.4 Section C) benchmarked against non‑financial market services (G-N excluding K). Within manufacturing, the analysis excludes Coke and refined petroleum products (19).5 The OECD countries included in the analysis are Belgium, Canada, Croatia, Estonia, Finland, France, Hungary, Italy, Lithuania, Portugal, Slovenia and Spain (hereafter referred to as the “OECD benchmark”). To improve cross-country comparability, firms with no more than one person engaged have been excluded from the analysis (for more details on the methodology of the following analysis, see Annex A).6

Box 2.1. The OECD MultiProd project and its adaptation to Egypt

Copy link to Box 2.1. The OECD MultiProd project and its adaptation to Egypt

The MultiProd project

Firm-level data allow to identify and study the determinants of productivity and are therefore a prerequisite for productivity policy analysis. However, microdata are not always accessible for research and policy analysis purposes mainly due to confidentiality protocols. Additionally, differences in data collection methods and estimation methodologies may affect the comparability of the results across countries.

To overcome these limitations, the OECD has developed the MultiProd project, which creates harmonised cross-country micro-aggregated data for the study of firm-level productivity across countries, sectors and time, supporting evidence-based policy making. 7 The project uses a distributed microdata approach, where the code is implemented via a standardised STATA® routine on firm-level data that are run in a decentralised manner by national experts from statistical agencies, ministries or other institutions who have direct access to the national data. The micro-aggregated statistics generated by the code are then sent back to the OECD for cross-country comparative analysis. This method ensures comparability across countries and means confidentiality constraints linked sharing sensitive data can be overcome. It also reduces the burden on individual national statistical agencies through the development of a common code, which is reproducible at low cost.

MultiProd data contain information on both the levels and growth rates of several variables including value added, employment, productivity (both labour and multifactor), as well as wages and labour share. Statistics are collected by Structural Analysis (STAN) A38 industry and further broken down by firm size and age, as well as different percentiles of the productivity distribution. In addition, the data contain measures of productivity decomposition, concentration and transition matrices that track the dynamics of productivity growth over time. Annex B discusses the ideal data for MultiProd.

Adaptation of MultiProd to Egyptian data

Egypt has been included in a cross-sectional version of MultiProd (MultiProd Egypt). Due to the lack of a panel component, the MultiProd code was adapted to run on Egyptian cross-sectional data. The adapted version only includes static statistics of productivity measures (labour and multifactor productivity), concentration, labour share and wages.8 The more straightforward implication of the absence of panel dimension in the data is that within-firm productivity growth cannot be observed. Instead, productivity can only be examined in its cross-sectional nature, showing Egyptian performance in a single point in time across and within manufacturing industries. For more details on the adaptation of the MultiProd code to the Egyptian case, see Annex B.

MultiProd-supported evidence-based policy making with cross-countries and country-level studies

The MultiProd project supported several cross-country analyses, including studying productivity growth and productivity divergence (Berlingieri, Blanchenay and Criscuolo, 2017[11]), the role of laggard firms and their potential for productivity growth (Berlingieri et al., 2020[12]) the nexus between productivity and employment (Calligaris et al., 2023[13]), examining employment dynamics across firms during COVID-19 (Calligaris et al., 2023[14]) and the nexus between productivity and labour shares (Cho, Manaresi and Reinhard, 2025[15]).

The project has supported evidence-based policy making through several in-depth country-level analyses, such as the Productivity Review of Belgium (OECD, 2019[16]) an in-depth examination of the slowdown in Finnish productivity growth (Calligaris et al., 2023[17]); a participation in the 2023 edition of the country-level analysis of Croatia’s productivity and business dynamics (OECD, 2023[18]); and a productivity analysis supporting the OECD Review of Inclusive Growth of Korea (2021[19]).

Whenever firm-level data are directly accessible, they can enhance the extensive cross-country comparisons in MultiProd – where statistics are collected in a homogenised way across countries – by allowing for a more in-depth examination of the specific country considered, such as in the case of Egypt. Examples of such analyses include the study of production networks in Estonia (Criscuolo et al., 2024[20]) and an in-depth analysis of the human side of productivity (i.e. management, skills and diversity) (Criscuolo et al., 2021[21]).

Sources: Berlingieri, G., P. Blanchenay and C. Criscuolo (2017[11]), “The great divergence(s)”, https://doi.org/10.1787/953f3853-en; Berlingieri, G. et al. (2020[12]), “Laggard firms, technology diffusion and its structural and policy determinants”, https://doi.org/10.1787/281bd7a9-en; Calligaris, S. et al. (2023[13]), “Is there a trade-off between productivity and employment?: A cross-country micro-to-macro study”, https://doi.org/10.1787/99bede51-en; Calligaris, S. et al. (2023[14]), “Employment dynamics across firms during COVID-19: The role of job retention schemes”, https://doi.org/10.1787/33388537-en; Cho, W., F. Manaresi and M. Reinhard (2025[15]), “Superstars, shooting stars, and the labour share: Cross-country evidence”, https://doi.org/10.1787/ecb32e77-en; Calligaris, S. et al. (2023[17]), “The slowdown in Finnish productivity growth: Causes and consequences”, https://doi.org/10.1787/c1fad5b3-en; OECD (2023[18]), “OECD Economic Surveys: Thailand 2023”, OECD Publishing, Paris, https://doi.org/10.1787/4815cb4b-en; OECD (2019[16]), In-Depth Productivity Review of Belgium, https://doi.org/10.1787/88aefcd5-en; OECD (2021[19]), “Inclusive Growth Review of Korea: Creating Opportunities for All”, https://doi.org/10.1787/4f713390-en; Criscuolo, C. et al. (2024[20]), “Estonia’s firm-level production network: Lessons for industrial policy”; and Criscuolo, C. et al. (2021[21]), “The human side of productivity. Uncovering the role of skills and diversity for firm productivity”, https://doi.org/10.1787/5f391ba9-en.

Allocative efficiency in Egypt’s manufacturing sector aligns with OECD levels

One explanation influencing the performance of the manufacturing sector is how resources are allocated to the most productive firms. Figure 2.6 shows that (static) allocative efficiency in the Egyptian manufacturing sector – based on the Olley & Pakes (1996[22]) productivity decomposition method – contributes significantly to aggregate labour productivity and is broadly comparable to the OECD benchmark in 2022/23.9

Allocative efficiency in the Egyptian manufacturing sector is 27% of aggregate labour productivity compared to 28% in the OECD benchmark (while it is 15% in non-financial market services compared to 16% in the OECD). Allocative efficiency measures the extent to which resources (in this case, labour) are allocated in an efficient way towards more productive firms (Figure 2.6).

Figure 2.6. Allocative efficiency contributes similarly to aggregate productivity in Egypt and OECD manufacturing industries
Copy link to Figure 2.6. Allocative efficiency contributes similarly to aggregate productivity in Egypt and OECD manufacturing industries

Static allocative efficiency as a share of aggregate productivity, 2022/23

Productivity is increasing in firm size

Consistent with evidence from OECD countries, Egyptian labour productivity is increasing with firm size. Figure 2.7 shows the difference in productivity between micro firms (1-9 employees) and larger ones, controlling for industry characteristics in manufacturing and non-financial services.

Large firms in Egypt tend to be relatively more productive than smaller firms, and this difference is larger than in the OECD benchmark. In manufacturing, the productivity difference between micro and large firms is not driven by informal businesses, which are, on average, smaller and less productive (see Annex Table C.1 and Annex Table C.2).10 Labour productivity is even higher when all firms are included (“Egypt” series in Figure 2.7) than when only formal businesses are considered (“Egypt only formal” series in Figure 2.7). A similar pattern appears in non‑financial market services, where the increase in productivity by firm size reduced when restricting to only formal businesses.11

In Egypt, the difference between small and large firms can largely be explained by capital, as opposed to innovation or new technologies in OECD countries. A back-of-the-envelope calculation using MultiProd data reveals that when controlling for the average capital-labour ratio in each industry, productivity rises less strongly in size compared to the OECD benchmark.12

Figure 2.7. Labour productivity is increasing in firm size
Copy link to Figure 2.7. Labour productivity is increasing in firm size

Log labour productivity by size classes conditional on sectoral characteristics, Egypt and OECD, 2022/23

However, older firms are not much more productive than young firms, suggesting that there is scope to enhance efficiency improvements

While productivity increased with firm size in Egypt’s manufacturing sector, its link with firm age is weaker than in OECD countries. Older firms (age above six years) in manufacturing are more productive than younger firms, but their productivity advantage compared to young firms is smaller than in OECD countries (Figure 2.8, Panel A).13 In contrast, older firms in Egypt’s non-financial market services outperform younger ones by an even larger margin than the OECD average.

Panel B of Figure 2.8 shows that this result is mainly driven by Egyptian firms aged 30 years or older, for which the average productivity is lower (or not statistically higher) than the average productivity of firms aged 0-5 years. This contrasts with the experience of the non‑financial market services, for which older firms have higher log labour productivity on average than firms aged 0-5 years (see Annex Figure C.6).

Such evidence may point to possible challenges in the manufacturing sector. For instance, older firms have typically higher productivity levels compared to younger firms due to accumulated experience, access to resources and economies of scale. However, if firms – especially SMEs – face barriers to growth, they are likely to operate below their efficiency level as they become older. Figure 2.8 thus suggests that Egyptian manufacturing firms may struggle in obtaining efficiency improvements and scaling up when growing older, and that the manufacturing sector may have a weaker productivity-enhancing selection mechanism.14

Figure 2.8. In Egypt’s manufacturing sector, older firms (age 6 or more) are more productive than younger firms, but less compared to OECD countries
Copy link to Figure 2.8. In Egypt’s manufacturing sector, older firms (age 6 or more) are more productive than younger firms, but less compared to OECD countries

Log labour productivity by firms’ age conditional on sectoral characteristics, 2022/23

Higher productivity industries have lower shares of firms, employment and value added in manufacturing compared to OECD countries, highlighting opportunities to further expand the role of these industries

Copy link to Higher productivity industries have lower shares of firms, employment and value added in manufacturing compared to OECD countries, highlighting opportunities to further expand the role of these industries

This section goes beyond aggregate trends by examining heterogeneity in productivity outcomes across manufacturing industries.

Manufacturing industries are below the OECD benchmark, but some exhibit higher levels of labour productivity

In 2022/23, Egyptian labour productivity lags the OECD average across all manufacturing industries. However, within Egypt, some industries are more productive than others (Figure 2.9).

The analysis in this section divides manufacturing industries into two groups based on their average firm‑level log labour productivity. For industries that registered an average firm-level productivity above (below) the median level across Egyptian manufacturing industries, they are classified as top-half (bottom‑half) productive industries:

Top-half productive industries: Electrical equipment (27), Pharmaceutical products (21), Chemicals products (20), Computers (26), Machinery and equipment (28) and Transportation and equipment (29-30).
Bottom-half productive industries: Food products (10-12), Rubber and plastic products (22-23), Basic and fabricated metals (24-25), Wood and papers (16-18), Furniture and other manufacturing (31-33), and Textile and leather products (13-15).

As seen in Figure 2.9, this classification is also somehow consistent with the most and least productive industries across the OECD benchmark.

Figure 2.9. All manufacturing industries lag the OECD benchmark
Copy link to Figure 2.9. All manufacturing industries lag the OECD benchmark

Labour productivity by manufacturing industries, 2022/23

Top-half productive industries within manufacturing capture a lower share of firms, employment, and value added compared to OECD countries.

Top-half productive industries within manufacturing capture a lower share of firms, employment, and value added compared to the OECD benchmark. Egyptian firms in the top-half productive industries represent only 2.4% of total manufacturing firms, compared to 13.5% on average across the OECD countries considered (Figure 2.10). The share of total value added accounted for by the top-half productive industries is 26.8% in Egypt against 40.6% in OECD countries. In terms of employment, top-half productive industries account for 14.4% of manufacturing total employment in Egypt versus 30.3% in OECD (Figure 2.10).15

Among the top-half productive industries, the larger shares of workers and value added are accounted by few industries. These include Electrical equipment (ISIC Rev. 4 Division 27, accounting for 4% of employment and 8% of value added), Chemicals and chemical products (Division 20, 4% and 10%) and Basic pharmaceutical products and pharmaceutical preparations (Division 21, 2.5% and 3%). Across OECD countries, a larger share of employment and value added is, instead, allocated to Transport equipment (29-30), Computer, electronic and optical products (26) and Machinery and equipment n.e.c. (28) (Figure 2.11).

These features have implications for the aggregate productivity of the manufacturing sector. The productivity in the manufacturing sector as a whole is a result of aggregating the average productivity in each industry weighted by its share of manufacturing employment. The small size, in terms of both employment and output of high productivity sectors in Egypt compared to OECD countries, therefore, translates to a lower aggregate manufacturing productivity.

Figure 2.10. Top-half productive industries make up significantly lower shares of firms, value added, and employment compared to OECD countries
Copy link to Figure 2.10. Top-half productive industries make up significantly lower shares of firms, value added, and employment compared to OECD countries

Distribution of firms, value added, and employment by top-half and bottom-half productive industries over total manufacturing, 2022/23

Figure 2.11. Chemicals, pharmaceuticals, and electrical equipment account for the larger shares of workers and value added among top-half productive industries
Copy link to Figure 2.11. Chemicals, pharmaceuticals, and electrical equipment account for the larger shares of workers and value added among top-half productive industries

Distribution of value added and workers in top-half productive manufacturing industries in Egypt and OECD, 2022/23

Top-half productive industries exhibit higher productivity dispersion than in OECD countries and are more capital-intensive

Top-half productive industries in manufacturing exhibit higher dispersion in labour productivity, measured as the ratio between top-10 (leaders) and bottom-10 (laggards) percentiles of the log labour productivity distribution (Figure 2.12). In these industries, the dispersion is higher than the ones recorded in the OECD benchmark and is more pronounced than in the bottom-half productive manufacturing industries. Industries in the bottom-half productivity group are instead closer to the OECD benchmark. Electrical equipment is the industry with the highest productivity dispersion and the highest gap in dispersion with the OECD benchmark.

Productivity dispersion is not a problem per se. However, it may pose concerns that technologies and innovations developed by leaders do not diffuse to the other firms within an industry. In this regard, a large body of evidence has shown that the slowdown in productivity growth observed across OECD countries over the last decade has been accompanied by an increased divergence in productivity between leaders and laggards (Andrews, Criscuolo and Gal, 2016[25]; 2015[26]). One possible explanation for this rising productivity gap between the leaders and other firms is that technologies and knowledge developed at the frontier do not diffuse to all firms rapidly enough (Berlingieri et al., 2020[12]). This means that new technologies developed at the global frontier may spread at a slower pace to non-frontier firms, and many existing technologies may remain unexploited by a large share of firms in the economy (Comin and Mestieri, 2018[27]).

Additionally, the top-half productive industries in terms of labour productivity – in particular pharmaceutical products, chemical products and computers and electrical equipment – are also the industries that are most capital-intensive, showing higher capital-labour ratios than the Egyptian manufacturing average (Figure 2.13). In some industries, this is consistent with OECD evidence (e.g. pharmaceutical and chemicals). On the contrary, industries like electrical equipment are more labour intensive in OECD countries. It is worth noting that the capital variable is calculated following different methodologies for Egypt and for OECD countries (see Annex B for details).16

Figure 2.12. Productivity dispersion is high in top-half productive industries
Copy link to Figure 2.12. Productivity dispersion is high in top-half productive industries

Labour productivity dispersion by manufacturing industry, 2022/23

Figure 2.13. Top-half productive industries are more capital-intensive
Copy link to Figure 2.13. Top-half productive industries are more capital-intensive

Capital over labour ratio with respect to the sectoral mean, 2022/23

Bottom-half productive industries are dominated by smaller and informal firms, suggesting potential to bolster SMEs’ contribution to employment

Copy link to Bottom-half productive industries are dominated by smaller and informal firms, suggesting potential to bolster SMEs’ contribution to employment

In bottom-half productive industries, firms are smaller than in the OECD

In contrast to top-half productive industries, bottom-half productive industries represent a large share of firms, employment and value added in Egypt. They account for 98% of firms, 73% of value added and 86% of employment. Industries that largely contribute to employment and value added are Food products, beverages and tobacco (10-12, accounting for 26% of employment and 29% of value added in manufacturing), Basic metals (24-25, 9% and 14%) and Textile and leather (16-18, 16% and 7%) (Annex Figure C.7).

Firms in bottom-half productive industries are not only less productive, but also tend to be smaller than OECD counterparts on average, which may challenge their productivity potentials. They have on average 7 workers in Egypt, against 23 workers in the OECD benchmark (Figure 2.14).17 Additionally, the difference in size between the larger (75^th percentile of labour distribution) and smaller businesses (25^th percentile), i.e. the interquartile range, is only 3 workers in Egypt, with 13 workers in the OECD average (Figure 2.14). This contrasts with the experience in top-half productive industries, where average employment is much higher with 48 workers in Egypt compared to 57 workers in OECD countries.

Figure 2.14. Firms in bottom-half productive industries are smaller than the OECD counterparts
Copy link to Figure 2.14. Firms in bottom-half productive industries are smaller than the OECD counterparts

Average number of workers and interquartile range in Egypt and OECD, 2022/23

In bottom-half productive industries, SMEs contribute little to employment

In bottom-half productive manufacturing industries, most of the employment is concentrated in micro and large firms. Consequently, SMEs employ a low share of workers with the exception of the rubber and plastics products industry (Figure 2.15). The particularly low employment in SMEs is true especially in Food products beverages and tobacco (10-12), Textiles, wearing apparel, leather and related products (13-15), Wood and paper products, and printing (16-18), and Basic metals and fabricated metal products (24-25).

The OECD Business Dynamics Review of Egypt (OECD, 2026[28]) shows that the manufacturing sector displays a “missing middle” phenomenon (Tybout, 2000[29]), as SMEs contribute relatively little to employment compared to OECD countries (OECD, 2026[28]).18 Several factors may play a role in explaining this phenomenon. The high share of informal businesses, which tend to be smaller in scale, plays a non‑negligible role. However, evidence has shown that informality is not the sole explanation for the observed skewness of the employment distribution (OECD, 2026[28]). Other factors such as taxes and constraints to access to finance may explain this (see also section on manufacturing firms face challenges related to tax rates, access to finance and low competition).

In top-half productive industries, larger firms (250 or more workers) account for a higher proportion of employment than in OECD countries. This is true especially in Pharmaceuticals (21), where the bulk of employment is generated by large firms. In this industry, firms with less than 250 workers contribute only to 12% of the total workforce, highlighting a significant difference with the OECD average where SMEs represent more than 45% of employment.

Figure 2.15. SMEs are contributing little to employment, especially in bottom-half productive industries
Copy link to Figure 2.15. SMEs are contributing little to employment, especially in bottom-half productive industries

Distribution of employment by size class in Egypt and OECD, 2022/23

Bottom-half productive industries are characterised by a high share of informal businesses

Informality is widespread in bottom-half productive manufacturing industries, where only 40-50% of establishments are formal. The lowest shares of formal businesses are recorded in Textile and leather (13-15) and in Furniture and other manufacturing (31-33), where formal firms respectively account for 36% and 35% of total firms.

On the contrary, the top-half productive industries in manufacturing are the ones that exhibit the highest share of formal establishments (Figure 2.16). In particular, in Pharmaceutical products (21) and Computers (26) all businesses are formal in 2022/23.

More generally, Egyptian informal businesses are concentrated in micro firms (fewer than 10 workers) (Annex Table C.1) and are on average less productive than formal firms, even in the same size class (Annex Table C.2). Additionally, older firms are more likely to be formal (Krafft et al., 2020[31]; OECD, 2026[28]).19 This may be largely driven by the fact that formalisation imposes certain fixed costs and administrative hurdles that younger and smaller firms are not able to afford. The strong relationship between formality and firm age may be explained by the fact that firms formalise later in the life cycle or that informal firms are less likely to survive (Krafft et al., 2020[31]).20 This is consistent with evidence from other developing countries, which showed that informal firms are on average smaller, pay lower wages, are managed by less educated individuals, hire less educated workers and earn lower profits than formal firms (Perry et al., 2007[32]; Ulyssea, 2020[33]; La Porta and Shleifer, 2014[34]) (see Box 2.2).

Figure 2.16. Industry productivity is positively related to its formality intensity
Copy link to Figure 2.16. Industry productivity is positively related to its formality intensity

Average firm-level productivity and formality status of manufacturing industries in Egypt, 2022/23

Box 2.2. Characteristics of informal firms: Evidence from the literature

Copy link to Box 2.2. Characteristics of informal firms: Evidence from the literature

A large informal sector is a defining characteristic of developing and emerging economies. Informality is an endogenous outcome that emerges from the behaviour of workers and firms based on their characteristics, as well as the environment in which they operate, including institutions, government policies and the economic cycle. Informal firms are usually defined as firms that do not comply with laws and regulations (Figure 2.17). At the extensive margin, these are firms that are not registered with relevant authorities. At the intensive margin, these are firms that, even if formally registered, hire workers without formal contracts (Ulyssea, 2020[33]). Given that informal firms are those that are not officially registered, measuring the informal sector is challenging.

Figure 2.17. Definition of formal firms from the literature
Copy link to Figure 2.17. Definition of formal firms from the literature

The literature shows that informal firms are on average smaller (in terms of both employment and revenues), pay lower wages, are managed by less educated individuals, hire less educated workers and earn lower profits than formal firms (Perry et al., 2007[32]; Ulyssea, 2020[33]; La Porta and Shleifer, 2014[34]). Additionally, both formal and informal firms seem to coexist even within the same narrowly defined industries, suggesting that they do not use completely different technologies or produce different products. Informal firms tend to be smaller, and informality rapidly reduces as firms grow, suggesting that the costs of operating in the informal sector might increase in firm size (Perry et al., 2007[32]; De Paula and Scheinkman, 2011[35]). Using data from Brazil, Ulyssea (2019[36]) shows that in the informal sector, there is a weaker dynamic selection mechanism compared to the formal sector. Hence, the mechanism wherein less productive firms exit the market while the more productive firms survive is weaker.

Sources: Ulyssea, G. (2020[33]), “Informality: Causes and consequences for development”, https://www.annualreviews.org/content/journals/10.1146/annurev-economics-082119-121914; Perry, G. et al. (2007[32]), Informality: Exit or Exclusion, https://openknowledge.worldbank.org/entities/publication/9f3adf12-2264-5ce5-a8c0-886bc9d41632; La Porta, R. and A. Shleifer (2014[34]), “Informality and development”, https://doi.org/10.1257/jep.28.3.109; De Paula, A. and J. Scheinkman (2011[35]), “The informal sector: An equilibrium model and some empirical evidence”, https://www.ucl.ac.uk/~uctpand/RIW_2011.pdf; Ulyssea, G. (2019[36]), “Formal and informal firm dynamics”, Unpublished manuscript, University of Oxford.

Productivity leaders are more likely to be closer to the OECD leaders in top-half productive manufacturing industries, pointing to opportunities for developing productivity leaders in bottom-half industries

Copy link to Productivity leaders are more likely to be closer to the OECD leaders in top-half productive manufacturing industries, pointing to opportunities for developing productivity leaders in bottom-half industries

In some industries, mostly the top-half productive ones, the Egyptian productivity frontier is closer to the OECD frontier, while laggards face significant gaps across all industries

In top-half productive industries, Egypt’s most productive firms are closer to the average productivity of the most productive firms of the OECD benchmark (Figure 2.18). This is particularly true in Electrical equipment (27) where the frontier of the labour productivity distribution (95^th and 90^th percentile of the log distribution) is even slightly more productive as the OECD average frontier. In other top-half productive industries – except Computers (26) – the frontier reaches over 40% of the OECD frontier, peaking at 60% in Chemical products (20). On the contrary, the lower percentiles of the distribution (especially below the 75^th percentile) are far from the same percentiles in the OECD benchmark. For example, the 5^th percentile is only around 20% as productive as the same percentile in the OECD benchmark.

In bottom-half productive manufacturing industries, instead, the whole productivity distribution falls below the OECD average, including the frontier without showing significant increase in productivity percentiles. In Textiles (13-15) and Wood products (16‑18), the frontier is even farther from the OECD frontier, compared to the bottom quantiles (5^th and 10^th percentiles).

Figure 2.18. Egyptian productivity frontier is closer to the OECD ones in top-half-productive industries but less so in bottom-half industries
Copy link to Figure 2.18. Egyptian productivity frontier is closer to the OECD ones in top-half-productive industries but less so in bottom-half industries

Productivity ratio with respect to the OECD average in each labour productivity percentile in manufacturing industries, 2022/23

Leader firms are concentrated in the Greater Cairo region, are more likely to be formal and employ a larger number of managers and educated workers

Leader firms (those above the 90^th percentile of the log labour productivity distribution) in manufacturing are concentrated in the Greater Cairo region, followed by the Delta region (Figure 2.19).21 In top-half productive manufacturing industries, 55% of leaders are located in Greater Cairo region, compared to 43% of other firms. Moreover, leaders are older on average (Annex Figure C.8) and more likely to be formal, especially in top-half productive industries (Figure 2.20).22

Finally, on average, leaders are characterised by a higher share of educated workers (i.e. with above intermediate education, including university and above) and a higher share of managers (Figure 2.21). This is particularly true in top-half productive industries, where leaders have 36% of educated workers compared to 21% in the rest of the firms. Furthermore, leader firms in top-half productive industries have 7% of total workers who are managers, as compared to 4% in the rest of the firms.

Figure 2.19. Most productive firms (leaders) are concentrated in the Greater Cairo region
Copy link to Figure 2.19. Most productive firms (leaders) are concentrated in the Greater Cairo region

Shares of leaders (90^th-100^th percentiles) by regions and by top-half and bottom-half productive industries in manufacturing sector, Egypt, 2022/23

Figure 2.20. Leaders are more likely to be formal, especially in top-half productive industries
Copy link to Figure 2.20. Leaders are more likely to be formal, especially in top-half productive industries

Distributions of productivity leaders (90^th-100^th percentiles) versus the rest of firms by formality status and by top-half and bottom-half productive industries in manufacturing, Egypt, 2022/23

Figure 2.21. Leaders have a higher share of managers and educated workers on average, especially in top-half productive industries
Copy link to Figure 2.21. Leaders have a higher share of managers and educated workers on average, especially in top-half productive industries

Percentage of managers and educated workers (among total workers) in leaders (90^th-100^th percentiles) and the rest of the firms, manufacturing, Egypt, 2022/23

More productive firms pay higher wages, but there remains scope to strengthen the productivity-wage link compared with OECD countries

Copy link to More productive firms pay higher wages, but there remains scope to strengthen the productivity-wage link compared with OECD countries

The productivity-wage link in Egypt is comparatively less pronounced than in OECD countries

In general, firm productivity is correlated with wages in manufacturing sectors. More productive firms pay on average higher wages than firms at the bottom of the productivity distribution (bottom decile, 0‑10^th percentile) both in manufacturing and non-financial market services (Figure 2.22). This evidence is aligning with previous OECD findings (Berlingieri, Calligaris and Criscuolo, 2018[37]) and other Egyptian studies (Krafft and Assaad, 2018[38]).

However, the productivity-wage relationship is significantly weaker in Egypt than in the OECD benchmark. Egypt’s wage gap with respect to the OECD is larger in the top half of the labour productivity distribution (above the median and particularly for leader firms) – see Figure 2.22. The weak productivity-wage link suggests that the productivity gains of the top performers are less likely to translate into less wage gains for their workers than in OECD countries.

Figure 2.22. The productivity-wage link is weaker in Egypt
Copy link to Figure 2.22. The productivity-wage link is weaker in Egypt

Log average wages by labour productivity quantiles (base =1^st (0-10) quantile), Egypt and OECD, 2022/23

Wage inequalities exist between informal and formal workers, as well as by sex

The manufacturing sector is also characterised by earning inequalities among workers. Indeed, gaps exist in the monthly wages of formal and informal workers and of men and women.

Informal workers in Egypt’s manufacturing sector earned, on average, around 63% of formal workers’ monthly wage in 2023, a slight improvement from 66% in 1998 (Figure 2.23, Panel A). A similar gap exists across other sectors.

Wage disparities between women and men also exist and are more prevalent in the manufacturing sector compared to the Egyptian total economy. Considering the total economy, females earned around 90% of male’s wages on average in 2023, while in manufacturing, they only earned 81% (Figure 2.23, Panel B). In the manufacturing sector, this gap has exacerbated in the 2006-18 period. In fact, women were earning 65% of male wages in 2018; the gap then closed again in 2023.

In the manufacturing sector, education plays a key role in explaining higher monthly wages. In 2023, workers with university degrees (or higher) earned, on average, 1.51 times the wage of less educated workers in manufacturing and 1.46 times in the total economy (Annex Figure C.9). However, the relative wage of highly educated workers in manufacturing declined more significantly over time, compared to the total economy. Before the 2000s, highly educated workers in manufacturing earned, on average, more than twice the wage of workers without a university degree, but this ratio dropped to 1.5 by 2023. In the total economy, the ratio declined from 1.65 in 1998 to 1.46 in 2023 (Annex Figure C.9).

Figure 2.23. Wage disparities exist in the manufacturing sector
Copy link to Figure 2.23. Wage disparities exist in the manufacturing sector

Wages disparities in the status of workers (formal/informal) and gender, Egypt’s manufacturing versus total economy

Manufacturing firms face challenges related to tax rates, access to finance and low competition, presenting scope to further improve the business environment

Copy link to Manufacturing firms face challenges related to tax rates, access to finance and low competition, presenting scope to further improve the business environment

The low productivity of Egyptian manufacturing firms may be driven by various constraints faced by firms, including high taxes, limited access to finance and low market competition. According to the World Bank Enterprise Surveys (WBES), tax rates were the biggest constraint for Egyptian manufacturing firms in early 2020, more than in other Middle East and North Africa (MENA) economies. Around 24% of manufacturing establishments reported tax rates as a major constraint for their operations, as opposed to 8% in the MENA region on average (Figure 2.24). Furthermore, tax rates and tax administration represent significant impediments for micro and small establishments, relative to large establishments (Annex Table C.5).23

To address persisting challenges, Egypt has been introducing some measures to reduce the tax burden on small enterprises. In February 2025, the Egyptian Parliament enacted Law No. 6 of 2025 as part of a comprehensive tax reform package (EY, 2025[40]). Effective from March 2025, this law introduced tax incentives to small enterprises with annual turnover not exceeding EGP 20 million. These include exemptions (e.g. state development fees, stamp tax), reduced tax rates (from 0.4% to 1.5%) and simplified tax procedures. Law No. 6 of 2025 replaces previous simplified tax regime implemented by MSMEDA, which targeted firms with a turnover less than EGP 10 million (OECD, 2026[28]).24 The initiative covered micro and some small firms as defined by MSMEs Development Law No. 152 of 2020.25 This law established a unified definition for MSMEs in Egypt and has harmonised different definitions previously used by public institutions. Importantly, it also represents the criteria for allocating incentives to MSMEs as used by MSMEDA and other public entities.

Furthermore, the Ministry of Finance announced a new tax facilitation package to support small businesses, start-ups and freelancers (State Information Service, 2024[41]). The new framework aims to simplify the tax filing process and ease compliance. The system would benefit SMEs, entrepreneurs and professionals with an annual income of up to EGP 15 million (Egyptian Ministry of Finance, 2025[42]). This simplified package is yet to be approved. In parallel, MSMEDA is currently developing the Strategy for Formalisation of Businesses, which includes measures to streamline tax procedures and encourage SMEs to formalise across sectors.

Figure 2.24. Manufacturing firms encounter difficulties stemming from tax burdens and access to finance
Copy link to Figure 2.24. Manufacturing firms encounter difficulties stemming from tax burdens and access to finance

Constraints faced by manufacturing firms, WBES, 2020

Corruption is also increasingly challenging firms’ growth in Egypt, similar to other MENA economies (see also Annex Table C.4 and Annex Table C.5). Around 14% of businesses in the manufacturing sector identified corruption as a major constraint for their operation in 2020. It should be noted that the data reflect the situation in the country as it stood six years ago and the current situation may have changed. In Egypt, concerns about corruption have increased over the past decade, posing challenges to SME growth (OECD, 2024[44]). This underscores the need for anti‑corruption measures and transparency reforms. Consequently, reducing corruption is high on Egypt’s political agenda. To combat this perpetual issue, the government has indeed implemented initiatives to promote awareness, education and training in the field of anti-corruption, mainly through the Administrative Control Authority (OECD, 2024[44]).26

As discussed in the previous section, informality is widespread in manufacturing. Competition from the informal sector largely hampers formal manufacturing firms, where 12% of manufacturing establishments report this as their biggest obstacle, as opposed to only 6% in MENA (Figure 1.24). Additionally, this share is higher than the one recorded in the Egyptian service sector (6.5%) (Annex Table C.6). This finding is in line with evidence from other countries, which shows a negative relationship between labour productivity of formal firms and informal sector competition (Zouiri, 2023[45]), with a stronger relationship in the manufacturing sector (Beltrán, 2019[46]). To combat challenges arising from the large presence of informal firms, Egyptian governmental and non-governmental institutions have implemented and planned relevant policies to address the large share of informal businesses, mainly under the 2020 MSMEs Development Law, IDA and Central Bank of Egypt (CBE) (see Box 2.5 for details).

Access to finance also represents a constraint for Egyptian manufacturing firms, but less than in other MENA economies. Despite a decrease in the proportion of businesses identifying access to finance as a constraint in 2020 compared to 2016 and 2013 (Annex Table C.6), 12 out of 100 manufacturing establishments were still facing such a constraint in 2020 (Figure 1.24), compared to 6 in services (Annex Table C.6). Moreover, access to finance represents a larger constraint for SMEs than larger firms (Annex Table C.5). Evidence also showed that smaller firms in the manufacturing sector are exhibiting higher average product of capital (value added over capital) compared to larger firms, which – following the Hsieh and Olken (2014[47]) framework – implies higher capital constraints (OECD, 2026[28]).27

To facilitate access to finance and SME growth, the CBE and other actors launched numerous initiatives to financially support SMEs (see Box 2.3 for more details). In particular, the CBE increased the percentage of banks’ obligations to finance small and medium-sized projects (between 20% and 25% of the total credit facilities portfolio). The CBE targeted SMEs based on their business revenue.28

However, evidence from the Egyptian Economic Census 2022/2023 shows that the definition of SMEs used by the CBE also captures some large firms when defined by employment instead of revenue (OECD, 2026[28]). Approximately 10% of manufacturing firms that are defined as middle-sized firms based on the CBE definition are actually classified as large firms based on employment (with employment higher than 250 workers).

Improving access to finance is also crucial to boost export performance of Egyptian SMEs. El-Said, Al‑Said and Zaki (2015[48]) found that engaging with banks and benefitting from banking facilities significantly increased both the likelihood of exporting and the probability of exporting to more than one destination. Such evidence supports the need for more efficient financial services that streamline lending processes and reduce the excessive documentation requirements imposed on SMEs.

Box 2.3. Egyptian policies to facilitate financing opportunities for SMEs

Copy link to Box 2.3. Egyptian policies to facilitate financing opportunities for SMEs

Access to finance remains difficult for Egyptian SMEs, a typical challenge in developing countries (El-Said, Al-Said and Zaki, 2015[48]; OECD, 2025[49]). In an attempt to address this bottleneck, the government established the Micro, Small and Medium Enterprises Development Agency (MSMEDA) in 2017 to give special attention to MSMEs.29 Egyptian SMEs may face a relative disadvantage partially due to government borrowing that has crowded out the private sector in recent periods (OECD, 2024[44]). To combat this constraint, the Egyptian government has tried to impose a target for MSME lending on commercial banks, raising the target from 10% to 25% of total bank lending (CBE, 2023[50]).

The Central Bank of Egypt (CBE) has taken significant steps to support and facilitate financing opportunities for SMEs, especially those in the manufacturing sector.

In 2016, the CBE mandated national banks to allocate at least 20% of their total loan portfolio to SME financing, and capped rates for SME lending to 5% and 12% for small and medium‑sized firms respectively (OECD/European Union/ETF, 2018[51]; Oxford Business Group, 2019[52]).
In 2017, the CBE injected EGP 30 billion into the banking sector to promote funding for micro enterprises at a competitive interest rate of 5%, with 10 million customers expected to benefit from this initiative (Enterprise, 2017[53]; OECD/European Union/ETF, 2018[51]).
In 2018, the CBE implemented a 4-year financial scheme amounting to EGP 200 billion to fund SME projects through short-term facilities for working capital, and exempting banks from reserve requirements for specific credit facilities aimed at SME financing (OECD/European Union/ETF, 2018[51]).
In December 2019, the CBE allocated EGP 100 billion for loans targeting medium-sized manufacturing firms, with an interest rate of 10%. In response to the economic challenges posed by the COVID-19 crisis, the interest rate was reduced to 8% in March 2020 (Egypt Today, 2020[54]).
More recently, the CBE also implemented the Financial Inclusion Strategy 2022-2025. The strategy involves improving financial literacy, increasing the financial capabilities of consumers and MSMEs, and building capacity of bank staff, including other banks and financial institutions, as well as “train-the-trainer” programmes.

The Ministry of Industry (MoIND), in co‑ordination with the CBE, has developed a financing policy with a concessional return rate of 15% to finance the purchase of production lines, equipment and raw materials for some targeted industrial sectors. In 2025, the first phase provided EGP 30 billion in credit.

In addition to the CBE initiatives, MSMEDA has also provided financial and non-financial services to SMEs. MSMEDA provides different packages to finance SMEs (e.g. leasing, factoring, Islamic venture capital). The agency also launched a portal that provides MSMEs with all information and services available in the ecosystem that supports new businesses and develops existing ones.

The MSMEs Development Law No.152 of 2020 also includes provisions aimed at protecting funding institutions, which incentivise institutions to provide funds to MSMEs. Under this law, guarantees are offered to funding institutions, allowing them to recover their funds in case MSMEs fail to comply with the terms of agreements.

Sources: El-Said, H., M. Al-Said and C. Zaki (2015[48]), “Trade and access to finance of SMEs: Is there a nexus?”, https://doi.org/10.1080/00036846.2015.1026583; OECD (2024[44]), OECD Economic Surveys: Egypt 2024, https://doi.org/10.1787/af900de2-en; CBE (2023[50]), Facilitating Access to Finance, https://www.cbe.org.eg/en/msmes-entrepreneurship/msmes/facilitating-access-to-finance; Oxford Business Group (2019[52]), “New lending initiatives increase access to finance for Egypt’s SMEs”, https://oxfordbusinessgroup.com/reports/egypt/2019-report/economy/opening-doors-lending-initiatives-are-increasing-access-to-finance-for-small-and-medium-sized-enterprises; Enterprise (2017[53]), “CBE Microfinance to push out EGP 30 bn in subsidized financing to as many as 10 mn borrowers within four years”, https://enterprise.press/stories/2017/05/24/cbe-microfinance-to-push-out-egp-30-bn-in-subsidized-financing-to-as-many-as-10-mn-borrowers-within-four-years/; OECD/European Union/ETF (2018[51]), The Mediterranean Middle East and North Africa 2018: Interim Assessment of Key SME Reforms, https://doi.org/10.1787/9789264304161-en; Egypt Today (2020[54]), “Central Bank of Egypt issues loan guarantees worth LE100B for banks to fund investors”, https://www.egypttoday.com/Article/3/87880/Central-Bank-of-Egypt-issues-loan-guarantees-worth-LE100B-for.

Finally, the presence of the state in the economy continues to influence the level of competition and the environment for new firm entry. While the private sector’s weight has increased in the total economy (the share of output from public firms declined from 35-40% of GDP in early 2000 to 25% in 2022), the public sector’s share of value added in manufacturing (excluding coke and petroleum) has remained stable at around 11‑10% of GDP for over 20 years (Figure 2.25). Additionally, public firms still represent a non-negligible share of GDP in several upstream sectors, including electricity, water, financial intermediation and insurance, which can affect the competitiveness of downstream sectors, including manufacturing (Bourlès et al., 2010[55]).

The Egyptian government is undergoing several reforms to reduce the role of the state in the economy and incentivise competition. A recent measure intended to increase the share of private investments in the economy includes Law No. 159 of 2023, a decree that abolishes preferential tax treatment for state-owned enterprises. Furthermore, the Egyptian government published the State Ownership Policy in 2022, which was created to reduce the state’s involvement in the economy (see Box 2.4).

Figure 2.25. The role of the public sector has not changed in the (non-petroleum) manufacturing sector over the past decade
Copy link to Figure 2.25. The role of the public sector has not changed in the (non-petroleum) manufacturing sector over the past decade

Share of gross value added originated from public sector firms in Egypt

Box 2.4. Egyptian interventions to reduce the role of state-owned enterprises

Copy link to Box 2.4. Egyptian interventions to reduce the role of state-owned enterprises

In late December 2022, the Egyptian government published a State Ownership Policy document, the sole guiding principle of the divestment programme in the country, which was updated in August 2023. The policy document mentioned initial public offering or strategic sales as some of the preferred ways of divestment, typically with the government retaining a stake in the company (OECD, 2024[44]). The document outlines three main scenarios for future state involvement, namely: i) remain in sector, maintaining or reducing public investments; ii) remain in sector, maintaining or increasing public investments; and iii) exit sector within three to five years. However, some elements remain vague, such as: the final number of firms to be divested; the full extent of the government’s withdrawal; the legal framework that will institute the divestment for each asset class, as well as the relationship with the private sector; and the ownership structure of current state-owned enterprises (OECD, 2024[44]).

The government elaborates several models for divestment:

1. Full privatisation or sale of a majority stake to a strategic investor or in the stock market (initial public offering).

2. Offering a minority stake up to 45% of the company to a strategic investor or in the stock market.

3. Capital increase offered to the private sector to dilute public sector ownership.

4. Self-financed improvement of the company without involving an investor, for an interim phase as preparation for partnership with the private sector.

5. Establishing new companies (special purpose vehicles) to manage the execution of improvement or development projects.

6. Merging with sister companies.

7. Executing projects with the private sector that do not include a direct sale, e.g. revenue share agreements or management contracts.

8. Liquidation as a last resort if other options fail or are not possible.

Among the divestment strategies, the government prefers a partnership with a private actor, with the goal of maintaining government control. In this process, some firms will offer their shares on the local stock market, but most will likely be sold to strategic investors. For more information on competition policies, see OECD Economic Survey: Egypt 2024 (2024[44]).

According to the Ministry of Planning and Economic Development (MPED), 7 out of the 32 companies have already been offered, including Paints and Chemical Industries (PACHIN), Telecom Egypt, Egyptian General Company for Tourism and Hotels (EGOTH), the Egyptian Ethylene and Derivatives Company (ETHYDCO), the Egyptian Drilling Company (EDC) and the Egyptian Linear Alkyl Benzene Company (ELAB). By July 2023, seven deals were secured (IDSC, 2023[56]):

The United Arab Emirates’ National Paints company acquired more than 80% in state-owned PACHIN for EGP 770.5 million (approximately USD 25 million).
A 9.5% of state-owned shares in Telecom Egypt was offered in May 2023 for EGP 3.75 billion (approximately USD 121.3 million).
Icon Investments, a Talaat Moustafa Group Holding subsidiary, collaborated with a foreign partner to increase the capital of state-owned EGOTH by around 37%, worth USD 700 million.
The Egyptian government offered stakes ranging from 25% to 30% in EDC, ELAB and ETHYDCO for USD 800 million to the Abu Dhabi Fund for Development.
The Egyptian government divested its entire 31% stake in Ezz Steel subsidiary Al Ezz Dekheila Steel Co. for USD 241 million, of which 60% was raised in USD and 40% in EGP.

The latest follow-up report published by the Information and Decision Support Center (IDSC) confirms steady progress in implementing the State Ownership Policy (IDSC, 2024[57]). The Egyptian government has launched an ambitious Initial Public Offering (IPO) Program for 2025 as a key component of the State Ownership Policy, facilitating a gradual withdrawal from selected state-owned enterprises to expand private sector participation. Between March 2022 and June 2024, the programme generated nearly USD 30 billion in revenues. The divestment mechanisms included full or partial sales to domestic or foreign investors, sales on the Egyptian Stock Exchange, and capital increases for some state‑owned enterprises. In addition to the IPO Program, the government has implemented a wide range of measures to strengthen partnerships with the private sector. Between May 2022 and June 2024, approximately 293 reform measures were introduced to boost investment, improve the business environment and support industrial growth (IDSC, 2025[58]).

Sources: OECD (2024[44]), OECD Economic Surveys: Egypt 2024, https://doi.org/10.1787/af900de2-en; IDSC (2023[56]), Egypt: Fostering Economic Resilience amid Consecutive Global Crisis, https://idsc.gov.eg/upload/DocumentLibrary/AttachmentA/; IDSC (2024[57]), Second Follow-Up Report on the Implementation of the State Ownership Policy for Assets, https://idsc.gov.eg/upload/DocumentLibrary/AttachmentA/10443/2.pdf; IDSC (2025[58]), Unlocking Potential: A Comprehensive Review of Egypt’s Economic Development, https://idsc.gov.eg/upload/DocumentLibrary/AttachmentA/10799/,

Opportunities for further development: Promote diffusion in top-half productive industries and boost productivity in bottom-half productive ones

Copy link to Opportunities for further development: Promote diffusion in top-half productive industries and boost productivity in bottom-half productive ones

Promote knowledge diffusion and innovation in top-half productive industries to foster productivity growth among laggards

In top-productive industries, leaders are highly productive and closer to OECD levels. Meanwhile, laggards are far from the OECD benchmark. Thus, ensuring the diffusion of knowledge, innovation and technology from leaders to the rest of the firms is key to help laggards catch up with national leaders and with their OECD counterparts. This is true especially for industries in which productivity dispersion is more pronounced and higher than in OECD countries (e.g. electrical equipment).

Policies carefully designed to ensure an adequate supply of skills (e.g. through training) and to provide more favourable conditions for SME financing are key elements to foster diffusion (Berlingieri et al., 2020[12]). The former is relevant as Egyptian leaders are found to be characterised by a larger share of educated workers especially in top-half productive industries, relative to the rest of the firms.

Ensure an adequate supply of skills through training

Policies that encourage training can be effective in equipping workers with relevant skills that are sought by firms (Berlingieri et al., 2020[12]). Egypt can leverage the Technical and Vocational Education and Training Reform (TVET) programme and the Productivity and Vocational Training Department (PVTD) to provide effective training to workers.30 In fact, OECD experience suggests that VET speeds up school-to-work transitions (OECD, 2023[59]; 2024[44]). This is important as most manufactured goods exported in Egypt are intensive in middle-skill rather than high-skill tasks. Since new methods of production will require specific skills for middle-skilled workers, shortcomings in education and skills can significantly affect the growth potential of the manufacturing sector (Aboushady and Zaki, 2021[60]). Stronger VET systems also increase firms’ absorption capacity by ensuring a steady pipeline of workers with the right skills, which helps firms adapt to technological change, adopt new processes and expand production.

As a first step, Egypt can evaluate and review existing initiatives that provide specialised skills, namely, the TVET and PVTD.31 The recently established Egyptian National Authority for Quality Assurance and Accreditation in Technical and Vocational Education and Training (ETQAAN) can lead in identifying educational gaps and ensuring training aligns with industry demands (e.g. skills sought after).32 This could involve integrating tools like the OECD Skills for Jobs database to assess skill shortages and establishing a robust review system with inputs from stakeholders such as MoIND, the Ministry of Education (MoE), the Ministry of Communications and Information Technology (MCIT), the Ministry of Labour and MSMEDA.33^,34 Egypt can collaborate with the newly created Sectoral Skills Council (SSC) to reduce skill mismatches and improve employability.35

After identifying gaps, Egypt can strengthen its VET system. First, it can improve the quality and practical relevance of existing programmes to better align with industry needs. Second, it can further foster international collaborations by establishing partnerships with schools in OECD countries for double-degree programmes and providing internships with firms in developed countries.36 These initiatives can help the workforce acquire valuable knowledge and learn best practices from participating entities. In this front, Egypt can leverage Applied Technology Schools in fostering strategic partnerships.37

Additionally, Egypt could enhance the reputation of VET systems to increase uptake and meet skill demand. This can be achieved by promoting programme quality, collaborating with OECD countries in offering in-demand training, and regularly monitoring and updating TVET offerings to ensure relevance and effectiveness.

Facilitate SME financing conditions by reviewing the definition of SMEs

To facilitate access to finance for SMEs and better target existing policies, Egypt could review the current definition of SMEs. The country may consider accounting both revenue and employment in the definition of SMEs, following international practices. While MSMEs Development Law No. 152 of 2020 established a unified definition for MSMEs in Egypt – and harmonised different definitions used by public institutions – such definitions use revenue and capital, but not employment (see OECD Business Dynamics Review of Egypt (2026[28]) for more details).

Apart from redefining the definition of SMEs, in the shorter term, the Egyptian government could raise awareness of currently available incentives for firms and evaluate their effectiveness. In fact, Egypt already has numerous ongoing initiatives to improve financing conditions for SMEs (see Box 1.3). Increasing knowledge among firms of the available governmental and non-governmental initiatives may improve the number of beneficiaries. Egypt should also regularly evaluate these policies (see Chapter 5) and ensure that resources are being effectively directed toward smaller and more financially constrained businesses.

Increase productivity in bottom-half productive industries by reducing informality, supporting the emergence of leading firms, and leveraging connections with foreign firms

Bottom-half productive manufacturing industries are characterised by a higher share of informal, smaller and low-productivity businesses across the whole productivity distribution (see Figure 1.9). Yet, bottom-half productive manufacturing industries contribute to most of employment (86%) and value added (73%) in Egypt’s manufacturing sector and are key to sustaining job creation. In such industries, SMEs (10-249 workers) are lower in their contribution to employment, which is instead concentrated in micro (<10) and large (250+) firms, more than in OECD countries (see OECD Business Dynamics Review of Egypt (2026[28])).

To increase productivity in bottom-half productive industries, Egypt could focus on addressing the high share of informality. It is crucial to address informality, as it can contribute to limiting firms’ scaling up and reaching efficiency improvements. In parallel, policies can support the emergence of leading firms and better leverage connections with foreign firms.

Address informality

Egypt implemented and designed several policies to incentivise formalisation (see Box 2.5). Egypt should continue its current efforts to reduce informality, fully implement all new measures and raise awareness among firms on the current available incentives (provided by MSMEDA, the Ministry of Finance and other relevant agencies). Policies should focus not only on reducing the cost of becoming formal but also on increasing the benefit of formalisation (see Box 2.5). This could go hand in hand with an awareness campaign on the benefit of formalisation (such as having 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 FORLAC, 2014[61])).38

Furthermore, Egypt could devote resources to address regional disparities by specifically targeting governorates with high informality and low productivity to ensure inclusive growth (Annex Figure C.10).39 Policies could be devoted to attracting firms in these regions and investing in both physical (infrastructure) and human capital (labour skills) inputs. In this regard, Project 5.5. of the OECD Egypt Country Programme will provide recommendations to support the National Strategy for Formalisation in Egypt.

Box 2.5. Policy levers to incentivise formalisation

Copy link to Box 2.5. Policy levers to incentivise formalisation

Policy levers

Reducing informality and incentivising the formalisation of businesses are key policy targets in many developing and emerging economies. Policy makers have several avenues to reduce informality among firms:

Reduce the cost of formalisation, by reducing the cost of entering the formal sector (e.g. registration fees) and, importantly, reducing the cost of remining formal (e.g. tax exemptions).
Increase the benefits of formality, by providing better access to credit and financial markets.
Increase the costs of informality, by a stricter enforcement of laws and regulations (e.g. tax compliance, business registration, formal employment).

Existing evidence shows that reducing the costs of formalisation has strong formalisation effects, but not enough to make these policies cost-effective (Ulyssea, 2020[33]). Lowering entry costs is not enough to ensure higher formalisation, as evidence points that the cost of formalisation might be much higher than the initial cost of registration that firms need to pay.

The most effective way to reduce informality seems to be through a multi-pronged approach (Ulyssea, 2020[33]), by increasing the benefit of formality, reducing the cost of staying formal and intensifying law enforcement (e.g. by increasing the intensity of government inspections). Among enforcement practices, it is crucial to differentiate between enforcement on the extensive and on the intensive margin (Ulyssea, 2020[33]). Higher enforcement on the extensive margin can produce large positive effects on aggregate total factor productivity and output, with a net effect on employment. On the contrary, higher enforcement on the intensive margin, such as enforcement of labour regulations, can have negative effects on employment and worsen aggregate effects on output (Ulyssea, 2020[33]).

Policies implemented in Egypt

Laws No. 152/2020 and 19/2023 aim at reducing firms’ cost of becoming formal and remaining formal:

The 2020 MSMEs Development Law No. 152 provides temporary five-year licences to informal enterprises applying to formalise, which in turn grant them a range of benefits including exemptions from the payment of, among other things, stamp duties, notarisation fees and any fees required for the registration of land for informal firms that apply to formalise their situation. During the licence period, lawsuits and penalties against informal enterprises are also placed on hold.
A recent law (19/2023) grants the IDA the possibility of delivering temporary three-year operating permits to unlicenced industrial firms, provided that they commit to adhering to environmental requirements, civil procedures and related inspections (OECD, 2024[44]).

The CBE Financial Inclusion Strategy (2022-2025) facilitates MSME and start-up access to financial services, which can enhance the benefit of formalisation and encourage integration into the formal sector (see Box 4.4).

MSMEDA in co‑operation with the International Labour Organization is currently preparing a national strategy for the formalisation of Egypt’s informal sector.

Sources: Ulyssea, G. (Ulyssea, 2020[33]), “Formal and informal firm dynamics”, Unpublished manuscript, University of Oxford; OECD (2024[44]), OECD Economic Surveys: Egypt 2024, https://doi.org/10.1787/af900de2-en.

Support the emergence of leading firms and better leverage connections with foreign firms

Simultaneously, Egypt can favour the emergence of leading firms in low-productivity industries. Some of these industries can better leverage connections with foreign firms and benefit from knowledge spillovers from FDI.

First, Egypt can further improve firm-level productivity. To support greater technology adoption, Egypt should continuously invest in improving the quality of digital infrastructure and digital skills (see Chapter 4). Egypt should also ensure to build managerial skills as firms grow bigger. Indeed, only a few managers are employed by bottom-half productive industries as opposed to top-half productive industries (see Chapter 3). Furthermore, Egypt should attract and retain skilled workers, for instance, by counting on return migration (e.g. Balik Scientist Program of the Philippines). Once these firms gain domestic competitiveness over time, Egypt could facilitate access to international markets. Ideally, Egypt should be able to identify firms with high growth potential, then scale them up.

Second, Egypt can leverage the role of multinational enterprises which can have positive spillovers on local enterprises. Evidence for other countries have indeed shown that FDI can enable the transfer of knowledge through interactions with international customers, suppliers and competitors (Crespi, Criscuolo and Haskel, 2008[62]) and can lead to an increase in the size and productivity of domestic firms (Alfaro-Ureña, Manelici and Vasquez, 2022[63]; OECD, 2019[16]). In Egypt, Food products and beverage (10-12), Metals (24-25) and Textiles and apparel (13-15) account for a non-negligible share of FDI in manufacturing (see the OECD FDI Qualities Review of Egypt (2025[64])).40 FDI in these sectors can thus be better leveraged to provide positive spillovers to local firms. This strategy could also be relevant for high-productive industries in Egypt.

A key initiative in this direction is the National Supplier Development Programme, developed by the Industrial Modernisation Centre (IMC) in Egypt, to upgrade and modernise local suppliers for major multinational (e.g. Nestlé Egypt) and local companies operating in Egypt. The programme aims to increase the competitiveness of local suppliers so they can be listed in international value chains and become accredited suppliers to international companies. To achieve this, the programme assesses import needs, conducts gap analyses and provides support such as consultancy and certification to meet investor standards (OECD, 2025[64]). As suggested by the 2025 OECD FDI Qualities Review of Egypt (2025[64]), the IMC could expand this project and assist local producers in other key sectors. This could be particularly relevant for certain manufacturing industries, such as textiles and apparels and metals, which record high shares of FDI within the sector. Ultimately, this could lead to an increase in business productivity and size. Costa Rica’s Encadenados programme is a key example in this direction, serving as a strategic platform that facilitates connections and exchange of knowledge among local firms and multinationals.41

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Notes

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← 1. The increase in Egypt’s labour productivity relative to the OECD average reflects a period of rapid catch-up followed by a recent slowdown. Between 2010 and 2020, productivity in Egypt rose from around half of the OECD level to more than 70%. This period of strong gains narrowed the productivity gap substantially. However, since 2021, the pace of convergence has levelled off. Although productivity remains high compared with a decade earlier, it has stabilised slightly below the OECD average during 2021-23, falling slightly from the 2020 peak and indicating that the earlier momentum of catch-up has weakened.

← 2. The first phase of the programme started in 2016 and was developed in co‑operation with the International Monetary Fund, focused on monetary and financial policies. In 2021, the Egyptian government launched the National Structural Reform Program under the auspices of the Ministry of Planning and Economic Development (MPED), as the second phase of the National Program for Economic and Social Reforms to improve private sector development, human capital and competitiveness, and resilience of the economy. In 2024, the government announced the first phase of the Egyptian Government Program 2024-2027. In 2025, it introduced the New Egyptian Economic Narrative.

← 3. Within-sector growth captures the contribution of labour productivity improvements of individual sectors to aggregate productivity growth. In contrast, across-sector growth captures the contribution of labour reallocation toward more productive sectors.

← 4. Egypt did not experience a full lockdown as many other countries did, but many factories reduced working hours (MPED, 2020[73]).

← 5. This choice reflects MoIND’s recent strategy to diversify manufacturing productivity, and the fact that the coke and petroleum industry often shows outlier values in OECD countries.

← 6. Most of the OECD countries included in the benchmark has a sampling threshold of one employee in the data. “Persons engaged” refers to all persons involved in the production process, while “employees” refers only to salaried workers. The analysis has been replicated in its entirety including all businesses, as well as firms with one person engaged. Results remain virtually unchanged.

← 7. The first version of MultiProd was released in September 2015 and the project is now in its third roll‑out (MultiProd v2.1, data collection started in May 2024). Currently, MultiProd collects detailed information for 17 OECD and non-OECD countries from 1995 to the latest available year in each country. These include Australia, Belgium, Canada, Costa Rica, Croatia, Estonia, Finland, France, Germany, Hungary, Italy, Lithuania, the Netherlands, Portugal, Slovenia, Spain and the United Kingdom.

← 8. The MultiProd code extracts aggregate statistics based on micro-level data. Indicators calculated at the establishment-level are then aggregated at the level of industry, establishment size, age and/or productivity group cells.

← 9. For description of the Olley and Pakes (1996[22]) decomposition, see Annex B. This dynamic decomposition, which also accounts for the contribution of entering and exiting firms to aggregate productivity growth (like the ones proposed by Melitz and Polanec (2015[71]), Petrin and Levinsohn (2012[72]), Foster, Haltiwanger and Krizan (2001[70]), Diewert and Fox (2010[66])), cannot be calculated for Egypt due to the lack of the longitudinal dimension to the data.

← 10. Informal businesses are defined as businesses not registered or holding the necessary licences. CAPMAS constructs this indicator from the Economic Census using a combination of several variables, including having a tax card number, commercial registration number, license or advertisement number and industrial registration number.

← 11. According to MultiProd data, no matter how one measures productivity, this increases with firm size, including multifactor productivity (MFP) and value added MFP based on Solow residuals. Unfortunately, a full comparison of Egypt with OECD countries in MFP is not possible due to different methodologies adopted in estimating MFP (see Annex B).

← 12. Note that capital in Egypt is retrieved from book value, while OECD countries use the perpetual inventory method (PIM). Different methodologies may also partly explain the varying results (see Box 4.3).

← 13. Results shown in Figure 2.8 include both formal and informal firms. When restricting to formal firms only, the coefficient of Panel A for older firms (6 years or more) in manufacturing becomes lower. This indicates that the result for the whole population of firms is driven by informal businesses, which are less productive and younger on average. Panel B shows similar qualitative results when including and excluding formal businesses.

← 14. However, note that Egyptian data are cross-sectional, and it is not possible to examine firms’ life cycles to properly assess the productivity-enhancing selection mechanism.

← 15. Note that when examining national accounts data from MPED (which are available for more recent years), the chemical sector significantly increases its relevance in the manufacturing value added from 2011 to 2021. The chemical sector represented 11% of total value added in 2011 and 15% in 2021 (Annex Figure C.5).

← 16. The analysis so far has included both formal and informal firms. However, results presented above are not driven by the presence of informal firms. The same qualitative evidence is obtained when restricting the Egyptian sample to formal firms only.

← 17. Note that the shares are calculated excluding firms with only one worker.

← 18. The analysis relies on the OECD DynEmp dynamics of employment project, which examines business dynamics’ indicators across countries, sectors and time.

← 19. The authors focus on private non-agricultural firms with fewer than 25 employees, as public enterprises and government establishments have low risks of being informal. Formality is usually irrelevant for most agricultural activities, and informality among firms of 25 employees or more is rare (Krafft et al., 2020[31]). The restricted sample represents approximately one-fifth of employment in Egypt’s economy.

← 20. Firms with a more educated owner have a significantly greater chance of being formal, having 3.5 to 4 times greater odds of formalising their firms than illiterate owners (Krafft et al., 2020[31]). A more educated owner may be more at ease with the bureaucracy of formalisation.

← 21. Leaders are defined as firms at the 90^th and 100^th percentile of the log labour productivity distribution in each industry within the manufacturing sector.

← 22. Same conclusions can be drawn if one examines leaders (90^th and 100^th percentile) in non-financial market services.

← 23. It should be noted that the data reflect the situation in the country as it stood six years ago and the current situation may have changed.

← 24. Firms with a turnover of less than EGP 250 000 only paid EGP 1 000 as tax. Firms with EGP 250 000 to EGP 500 000 paid EGP 2 500. Firms with EGP 500 000 to EGP 1 million paid EGP 5 000. Firms with EGP 1 million to EGP 2 million paid 0.50% of their turnover. Firms with EGP 2 million to EGP 3 million paid 0.75% of their turnover. Firms with EGP 3 million to EGP 10 million paid 1% of their turnover. Based on the Egyptian Economic Census 2017/2018, this upper limit of revenue at EGP 10 million covers more than 80% of small businesses (10-49 workers).

← 25. MSMEs are defined based on their revenue, or capital if revenue data are missing. Micro enterprises: 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 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.

← 26. The Administrative Control Authority (ACA), created in 1964, has jurisdiction over state administrative bodies, state-owned enterprises, public associations and institutions, private companies undertaking public work, and organisations to which the state contributes in any form (OECD, 2024[44]).

← 27. Average product of capital in the presence of Cobb-Douglas production function with constant markups and zero fixed costs is proportional to the marginal product of capital. Evidence suggests that the marginal cost of capital is lower in large firms relative to small firms, which implies that small firms are financially constrained in manufacturing (Hsieh and Olken, 2014[47]).

← 28. Micro enterprises are identified as those with annual revenue of less than EGP 1 million, small enterprises with revenue between EGP 1 million and EGP 50 million, medium-sized enterprises with revenue between EGP 50 million and EGP 200 million and large enterprises with revenue above EGP 200 million.

← 29. Similar initiatives existed before, but under a different name. Prior to establishing the new entity MSMEDA in April 2017 as per Prime Ministers’ Decree No. 947, the Social Fund for Development programme has been supporting microcredit since its establishment in 1991 (Abou-Ali et al., 2009[69]; UNDP, n.d.[68]).

← 30. The PVTD, affiliated with the MoIND, provides education and training for students for three years after general or Al-Azhar preparatory school at its affiliated training centres. Upon completion, students receive an Industrial Apprenticeship Diploma, equivalent to the diploma issued by the Ministry of Education and Technical Education for technical industrial schools. This diploma qualifies them to work as skilled workers in factories and companies. Consequently, the PVTD plays a pivotal role in advancing technical education and vocational training in Egypt through a comprehensive package of efforts and policies, most notably the development of the technical training and education system.

← 31. Currently, under the PVTD, there are 83 vocational training centres (38 fixed centres, 35 mobile training units, 10 fixed training units) affiliated with the Egyptian Ministry of Labour. The ministry is also involved in the accreditation of curricula and trainers.

← 32. In October 2022, President Abdel Fattah El‑Sisi signed Law No. 160 of 2022 to establish the Egyptian National Authority for Quality Assurance and Accreditation of Education (ETQAAN) for technical and vocational education and training (SIS, 2022[67]). German development agencies GIZ and KfW, as well as the European Union, are supporting the establishment of ETQAAN. The authority aims to evaluate whether VET programmes are established in response to labour market needs and the private sector participates in the identification of competencies and assessment of students (OECD, 2024[44]).

← 33. The OECD Skills for Jobs database offers detailed performance indicators by occupation and a taxonomy of skill requirements by occupation (OECD, 2019[65]). As a first step, the degree of “labour market pressure” for each occupation in each country is assessed by five performance measures, namely, wages, working time, employment, underemployment and under-qualification with the country average, where the five relative performance measures are standardised, then aggregated into a single index of occupational imbalance for each occupation (OECD, 2019[65]). As a second step, the occupational imbalance index is mapped to the underlying skills requirements associated with each occupation based on a widely used taxonomy (O*NET) and aggregated to the country level (OECD, 2019[65]). A well-established review system, which entails collecting quantifiable measures, may be beneficial and useful in the long run.

← 34. In this regard, inputs from MSMEDA may be particularly valuable in supporting smaller firms to thrive in the market. Meanwhile, the role of the MCIT may be prominent in meeting demands in digital skills.

← 35. The government has prioritised the creation of Sectoral Skills Councils (SSC), specialised entities designed to align technical education and vocational training with the specific labour needs of each sector. These councils institutionalise collaboration between private sector employers and education providers to reduce skill mismatches and improve employability. The councils also promote knowledge exchange among workers, trainers and students, while fostering mentoring and training capabilities within the private sector. To ensure the sustainability of these efforts, a decree established a sectoral skills umbrella under the leadership of the MPED to oversee and support the councils and further develop Egypt’s labour market.

← 36. Institutions like Cairo University provide numerous academic programmes with international universities (e.g. France, Germany, Spain, the United Kingdom). Moreover, the Egypt University of Informatics (EUI), established by the MCIT, aims to develop world-class education and scientific research to develop human capabilities in modern ICT-related fields. EUI provides dual degree agreements, where successful candidates spend their final year at partner universities abroad (e.g. Canada, United States). Such partnerships and programmes can be extended to upskilling and reskilling technical workers. For more information on EUI, see https://eui.e.du.eg/.

← 37. Egypt is prioritising the improvement of technical and vocational education as a key pillar of its strategy for comprehensive economic and social development. By 2025, the number of Applied Technology Schools had reached 90 across various governorates, with a strong presence in Cairo, Giza and Sharqia – areas with high population density and robust industrial infrastructure. These schools integrate theoretical learning with hands-on training in real work environments through strategic partnerships with leading companies such as B.TECH, El Sewedy and Volkswagen. This model has yielded tangible results: over 80% of graduates secure direct employment opportunities with these partner companies and receive accredited experience certificates.

← 38. 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 strategy to tackle informality, which has been rampant since 2003. It defines new policies and instruments to make further progress on the subject of employment formalisation. Conducting social awareness campaigns via mass media on informality issues, the advantages of complying with labour and tax obligations and the resulting social protection were part of the strategy. Through the Corporate Social Responsibility Plan, leading businesses raised their clients’ and suppliers’ awareness of the need and obligation to comply with labour regulations.

← 39. Labour productivity varies greatly across Egyptian governorates within manufacturing industries (Annex Figure C.10). Alexandria, Cairo, Dakahlia, Damietta and South of Sinai governorates show the highest levels of labour productivity, conditional on industry characteristics. In contrast, governorates such as Bani Sweif, New Valley, North Sinai and Qena exhibit the lowest labour productivity. Across governates, there is also wide variation in the share of informal firms in manufacturing. Bani Sweif and Quena also show high informality intensity, with 65% and 49% of informal establishments within the manufacturing sector respectively. Matrouh governorate presents labour productivity which is closer to the average level across governorates but a very high level of informality, with 77% of informal establishments with manufacturing businesses.

← 40. Note that the larger share of FDI in the manufacturing sector are linked to the Chemicals and chemical products (20) industry (OECD FDI Qualities Review of Egypt (2025[64])). However, this industry is not discussed in this section, as it is identified as a high-productive industry in this report.

← 41. See https://procomer.com/encadenados/ for more information.

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