Egypt to turbo charge its economy

Egypt is embracing the digital economy and bringing local accounting standards in line with the international ones, which means accounting firms are seeing a boom in trade as a result. Demand for professional accounting, auditing and tax services have increased drastically in the last few years as the government has introduced the ‘electronic invoice’ for nearly all commercial and non-commercial activities. All bank customers must now submit a complete set of audited financial statements signed by a credited public accountant at the end of their fiscal year. The Tax Department has increased the tax audit sample on all sectors of business in Egypt, so businesses are now clamouring for tax experts.

As well as digitising government services and increasing the need for professional advice through increased regulation, Egypt plans to position itself as a global outsourcing hub for digital and high-end services including engineering, R&D, embedded software and electronic design.  It is investing in technology to enhance local manufacturing of electronics, establishing technology parks and developing corporation programs with international companies and international organisations. Increasingly complex corporate transactions mean Egyptian auditors are in demand like never before, but there are growing pains.

Mohamed Mamdouh, partner at Kreston Egypt pointed out that Egyptian auditing standards have not been updated in line with their international counterparts. The lack of quality control when conducting corporate transactions, particularly for companies with operations in multiple countries, has put pressure on local auditors and the cracks have started to show.

“Recent lawsuits filed against a number of auditing firms for failing to discover numerous violations have underlined this issue,” said Mamdouh. “We believe that the auditing profession will grow significantly in Egypt in the coming years, especially now that Egypt has launched numerous incentive programmes for foreign direct investment and is encouraging closed companies to be listed on the stock exchange. We believe that the Egyptian government, including state-owned enterprises, will revitalise the mergers and acquisitions market in the near future as part of its efforts to encourage the private sector to contribute more to the national product.”

Egypt has also made significant changes to accounting regulation for local businesses. Recent fluctuations in exchange rates have led to a change in the treatment of currency exchanges under Egyptian Accounting Standard (EAS) No. 13, which is equivalent to International Accounting Standard (IAS) 21. Under the revised standard, companies in Egypt are now allowed to capitalise foreign exchange losses incurred when paying for fixed assets, intangible assets, right-to-use assets, and investment properties, and add them to the cost of these items. Additionally, EAS 50 has been introduced specifically for insurance companies, while regulatory bodies are placing more emphasis on EAS 47 (financial instruments), EAS 48 (revenue from customer contracts), and EAS 49 (lease). In terms of taxes, there is a heightened focus on transfer pricing.

While demand is high, the Egyptian accounting market remains a competitive one.  “The inflation and devaluation of the EGP against the USD/EUR has put pressure on supplies and imports coming into the country,” said Omar Shawki, partner at Mazars Egypt. “In turn, this has squeezed budgets for consulting and compliance services which adds more pressure onto the profession. This has opened up more opportunities for the mid-tier firms as their prices are lower than the Big 4. However, this puts additional emphasis on ensuring quality and assessing risk in the delivery of projects by the mid-tier firms. The inflation is also affecting retention and there has been aggressive recruitment by firms like Grant Thornton that are re-establishing practices. This has driven up salaries and is putting pressure on mid-tier companies, especially those with more local currency exposure, as the fees are not increasing fast enough to accommodate inflation and employee expectations.”

It is the SME accounting firms that are suffering the most with inflation and small fee increases. “Finding and hiring fresh graduates for the small and medium sized firms is still a big challenge,” said Rizk W. Rizkalla, partner at Wadid Rizkalla & Co, a PrimeGlobal member firm. “Consultancy services in just about every area are now in demand and mergers and acquisitions are on the rise as firms seek to ensure they have all the skills needed. SME firms tend to merge together to face the power of the big 4 here in Egypt.”

There was a bit of a shuffle amongst the international firms at the end of 2022 and the beginning of 2023, according to Shawki.  “The local Egyptian representative firms of Baker Tilly and Grant Thornton merged their activities under the Baker Tilly brand,” he said. “This left the Grant Thornton brand without a representative office for a little while. Meanwhile, Deloitte and its longtime local partner office decided to split ways. This allowed for the Deloitte brand to be better controlled from an international level – mostly from London and Dubai. This is significant as it will allow Deloitte to operate at a regional Middle East level and leverage the low-cost resources of Egypt when delivering services across the Middle East region. As Grant Thornton had no representative office, the former Deloitte firm is now representing Grant Thornton in Egypt.”

While many countries have been complaining that not only is it a struggle to recruit but also to attract students to accounting degrees, Egypt is fortunate that the younger generation is keen to work in the profession. “There is a growing interest among new generations in obtaining accounting certificates such as CPA, ACCA, CMA, CIA, and IFRS Diploma,” said Mohammed Fathalla, managing partner at Fathalla & Co, a Nexia member firm. “Additionally, there has been a recent increase in outsourcing accounting and auditing services, particularly to Gulf countries. Egypt has a large pool of qualified accountants, and it is relatively easy for businesses to recruit and retain these professionals. The demand for qualified accountants is expected to continue to grow in the coming years, as businesses in Egypt expand and the economy continues to develop.”

Everyone IAB talked to for this report is confident that, despite the global economic troubles, Egypt is on the right track for shaping its economy for decades. Shawki has seen a rise in in sustainability and ESG reporting since Egypt hosted COP27 – both on the requirements side and from an awareness side. “We are also seeing a keen push to enhance the governance and risk capabilities of both private and public sector clients,” he said. “This is a knock on effect of the reforms we are seeing to make Egypt a more attractive place for Foreign Direct Investment.”

Given the significant devaluation of the Egyptian currency, Shawki has seen a big push to establish Delivery Centres or Centres of Excellence for the Big 4 in Egypt. PwC opened its EITC to serve the European market and there are indications that Deloitte are looking to invest heavily in this area. These centres are mostly focused on tech and digitally led services. Fathalla has seen a big demand in outsourced accountancy services, as businesses grapple with the legal requirements of e-invoices and e-receipts. According to Fathalla, there is a big demand for accounting software that can manage both of them and link them to the accounting process.

“Despite the headwinds (inflation, currency depreciation, global economic uncertainty) Egypt will continue to focus on achieving sustainable private sector led economic growth to generate more job opportunities and bolster economic activity,” said Dr Mohamed Hegazy, executive partner, Crowe Dr A. M. Hegazy & Co. “One of the major developments in the pipeline is the recent government decision to float 32 state-owned companies which is expected to gather pace and attract foreign investment over the coming 12 months.  Water scarcity remains an existent threat to Egypt’s food and national security, so the country is pressing ahead with megaprojects to secure alternative water sources (man-made artificial rivers, wastewater management).”

Egypt is also looking to continue to modernise and upgrade its existing infrastructure with massive investments in port projects (the Ain Sokhna Port, and new container terminal in port of Alexandria), transport (new electric/ high-speed rail) and roads. The real estate sector is anticipated to continue to boom as the country presses ahead with the development of 20 new cities (including the new capital) while also redeveloping some of its existing stock.

Such ambitious projects will hopefully deliver the one million new jobs Egypt needs to create each year to accommodate its growing population and sustain economic growth, Minister of Finance Mohamed Maait said in June, during a panel discussion with the International Monetary Fund (IMF). Maait stressed that achieving 100 percent private-sector-led growth is crucial for Egypt, to meet the high demand for job opportunities. He highlighted Egypt's State Ownership Policy, which aims to increase the private sector's share in the local economy from 30 % to 65 % in the coming years. According to the policy, the government will exit 15 economic activities across seven sectors over the coming three years, including agriculture, water, sanitation, desalination, telecoms and IT, retail, food and beverages, as well as construction. The government will also exit a number of activities across the leather, timber, engineering, jewellery, chemical, textile, printing, and pharmaceutical industries.

As the government opens the country up to private investment, it should create a gold rush for accountants. A churn of M&A activity amongst local firms might be on the cards in the very near future as they seek to fend off the Big 4 and grab their fair share of the spoils.