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Invest in the MEDA
region, why, how ?
Algeria Egypt / Israel / Jordan / Lebanon /
Libya / Morocco / Palestinian Authority/ Syria
/ Tunisia / Turkey
PAPERS & STUDIES n°22
A p r i l 2 0 0 7
Collective work driven by Sonia Bessamra
and Bénédict de Saint-Laurent

References
3
Invest in the MEDA region, why how ?
This document has been produced within the context of a mission
entrusted by the European Commission to the Invest in France Agency
(AFII), assisted by the Istituto Nazionale per il Commercio Estero, ICE
(Italy) and the Direction des Investissements, DI (Morocco), to develop a
Euro‐Mediterranean Network of Mediterranean Investment Promotion
Agencies (« ANIMA»). The n°of the contract is: ME8/B7‐4100/IB/99/0304.
ISBN: 2‐915719‐28‐4 EAN 9782915719284
© AFII‐ANIMA 2007. Reproduction prohibited without the authorisation
of the AFII. All rights reserved
Authors
This work is the second edition of a synopsis guide realised with
contributions from various experts working under the ANIMA
programme, especially for the writing of the project web site pages.
The following authors have participated in the two editions:
� In 2006, Sonia Bessamra (free‐lance consultant) and Bénédict de Saint‐
Laurent (AFII) have fully updated the content, assisted by Pierre
Henry, Amar Kaddouri, Emmanuel Noutary and Elsa Vachez
(ANIMA team, translation, revisions);
� The former 2004 edition, which provides the guide frame, was
directed by Bénédict de Saint‐Laurent (ANIMA, co‐ordination,
synopsis, rewriting, data), Stéphane Jaffrin (ANIMA, on line
implementation, some updates) and Christian Apothéloz (free‐lance
consultant, co‐ordination), assisted by Alexandre Arditti, Delphine
Bréant, Jean‐François Eyraud, Jean‐Louis Marcos, Laurent Mauron,
Stéphanie Paicheler, Samar Smati, Nicolas Sridi et Jihad Yazigi
(various thematic or country articles).
The country pages have been read and amended by the investment
promotion agencies of MEDA countries. ANIMA declines any
responsibility on possible errors or inaccuracies.

Contents
Invest in the MEDA region, why how ?
Recent change in MEDA countries’ economic situation.................10
Overview..............................................................................................10
An appreciable growth.............................................................................. 10
Capital flows increase significantly......................................................... 13
Reforms and privatisation breakthrough ............................................... 15
Foreign investment growth ...................................................................... 16
Mid‐term macroeconomic review per country...............................19
The Euro‐Mediterranean partnership and the new
neighbourhood policy ...........................................................................24
The Euro‐Mediterranean partnership and the MEDA
programme ..........................................................................................24
The MEDA and FEMIP financial instruments and the
institutional twinning.........................................................................28
The South‐South co‐operation...........................................................33
Business opportunities in MEDA countries......................................36
Algeria ..................................................................................................36
Overview..................................................................................................... 36
The National Investment Development Agency (ANDI)..................... 42
How to invest in Algeria........................................................................... 44
Finance & banking in Algeria................................................................... 48
Telecommunications & internet in Algeria............................................. 49
Business opportunities in Algeria............................................................ 51
Success Story: Orascom, 10 million subscribers in Algeria .................. 67
Egypt.....................................................................................................69
Overview..................................................................................................... 69
How to invest in Egypt?............................................................................ 78
Finance & banking in Egypt ..................................................................... 81
Telecommunications & internet in Egypt ............................................... 83
Business and investment opportunities in Egypt .................................. 87
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Invest in the MEDA region, why how ?
Success Story: The Dutch Heineken company brews 100 million
litres of malted drinks every year............................................................ 97
Israel......................................................................................................99
Overview..................................................................................................... 99
Israel’s Investment Promotion Centre (IPC) ........................................ 103
How to invest in Israel ............................................................................ 104
Finance & banking in Israel .................................................................... 106
Telecommunications & internet in Israel.............................................. 108
Business and investment opportunities in Israel................................. 110
Success story: global high tech alliance Tel Aviv ‐ Grenoble............. 124
Jordan .................................................................................................126
General overview..................................................................................... 126
The Jordan Investment Board (JIB)........................................................ 132
How to invest in Jordan? ........................................................................ 134
Finance & banking in Jordan.................................................................. 137
Telecom & internet in Jordan ................................................................. 138
Business and investment opportunities in Jordan............................... 141
Success story: Land Rover makes a strategic all‐weather
investment................................................................................................. 151
Lebanon..............................................................................................153
Overview................................................................................................... 153
The Investment Development Authority for Lebanon (IDAL).......... 162
How to invest in Lebanon....................................................................... 163
Finance & banking in Lebanon............................................................... 170
Telecom & internet in Lebanon.............................................................. 172
Business and investment opportunities in Lebanon ........................... 173
Success story: Ipsos polls the Middle East from Beirut ...................... 178
Libya ...................................................................................................180
Overview................................................................................................... 180
How to invest in Libya? .......................................................................... 188
The Libyan Foreign Investment Board (LFIB)...................................... 196
Financial & banking sector in Libya ...................................................... 198

Invest in the MEDA region, why how ?
Telecommunication & Internet in Libya ............................................... 200
Business and Investment Opportunities in Libya ............................... 203
Morocco..............................................................................................221
Overview................................................................................................... 221
The Department of Investments (DI)..................................................... 227
How to invest in Morocco....................................................................... 229
Finance & banking in Morocco .............................................................. 233
Telecom & internet in Morocco.............................................................. 236
Business and investment opportunities in Morocco ........................... 238
Success story: Telefonica invades the Moroccan telecom market ..... 254
Palestinian Authority (West Bank and Gaza) ...............................256
Overview................................................................................................... 256
Palestine Investment Promotion Agency (PIPA)................................. 262
How to invest in the Palestinian Territories......................................... 264
Finance & banking in Palestine.............................................................. 266
Telecommunications & internet in Palestine........................................ 267
Business and investment opportunities in Palestine........................... 269
Success story: Watanyia Telecom believes in the power of
communication......................................................................................... 283
Syria ....................................................................................................284
Overview................................................................................................... 284
A Syrian Investment Promotion Agency to be set up soon................ 289
How to invest in Syria............................................................................. 289
Finance & banking in Syria..................................................................... 292
Telecom & internet in Syria .................................................................... 295
Business opportunities in Syria.............................................................. 296
Success story: the Spanish company Aceites del Sur has faith in
the Syrian olive oil ................................................................................... 299
Tunisia ................................................................................................301
Overview................................................................................................... 301
The Foreign Investment Promotion Agency (FIPA)............................ 310
How to invest in Tunisia......................................................................... 310
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Invest in the MEDA region, why how ?
Finance & banking in Tunisia................................................................. 313
Telecom & internet in Tunisia ................................................................ 315
Business & investment opportunities in Tunisia ................................. 317
Tunisia: The Spanish group Uniland invests in the Enfidha
cement plants............................................................................................ 324
Turkey.................................................................................................326
Overview................................................................................................... 326
The Directorate General for Foreign Investments (GDFI) .................. 334
How to invest in Turkey ......................................................................... 336
Finance & banking in Turkey ................................................................. 339
Telecommunications & internet in Turkey........................................... 343
Business opportunities in Turkey .......................................................... 345
Success story: Schneider has created a network of 100 partners
and exports out of Turkey....................................................................... 366

Acronyms
Invest in the MEDA region, why how ?
� AA: Association Agreement
� CSP: Country Strategy Paper
� EC: European Commission
� EIB: European Investment Bank
� EU: European Union
� FTA: Free Trade Area
� GDP: Gross Domestic Product
� IMF: International Monetary Fund
� IPA: Investment Promotion Agency
� MEDA: Mediterranean Partner Countries
� MENA: Region of the Middle‐East and North Africa (Middle East and
North Africa) = MEDA + Gulf countries + Iran and Irak
� MEPP: Middle East Peace Process
� MIGA: Multilateral investment guarantee agency (World Bank group)
� MDG: Millenium Development Goals
� MIPO: Mediterranean Investment Project Observatory (ANIMA)
� NGO: Non Governmental Organisation
� NIP: National Indicative Programme
� OECD: Organisation for Economic Co‐operation and Development
� PIM: Program of Industrial Modernisation
� RSP: Regional Strategy Paper
� SME: Small and Medium‐sised Enterprise
� UNCTAD: United Nations Conference on Trade and Development
� UNDP: United Nations for Development Programme
� US$: United States Dollar
� WB: The World Bank
� WTO: World Trade Organisation
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Invest in the MEDA region, why how ?

Recent change in MEDA
countries’ economic
situation
Overview
Currently an observer in the Euro‐Mediterranean partnership,
Libya, which could play an important part in this partnership in the
medium term, was included among the MEDA set in this 2007
edition.
An appreciable growth
In 2005, the total population of the Mediterranean partner countries
(or MEDA countries) was estimated at 265 million inhabitants and
the regional GDP amounted to US$ 864 billion (including Libya
and excluding the Palestinian Authority). The MEDA GDP should
overpass US$ 1,000 bn for the first time in 2007 (for comparison
purpose, it reached US$2,200 bn in China in 2005).
Gross national income per capita expressed in purchasing power
parity (ppp.) was however very disparate, ranging from US$ 3,847
in Syria to US$ 23,416 for Israel.
Macroeconomic stability and a sustained pace concerning economic
reforms allowed per capita income levels in the MEDA countries to
rise substantially. Above all, the main source of these achievements
is to be found in the crescent openness of the region and, in
particular, in its increased economic integration vis‐à‐vis the
European Union. The association agreements concluded between
the MEDA countries and the EU came into effect in all those
countries except for Syria (and of course Libya).

11
Economic overview
.Figure 1. Change in GDP of MEDA countries (US$ billion, current
prices). Source WDI 2006
Algeria
Egypt
Israel
Jordan
Lebanon
Libya
Morocco2
Syria
Tunisia
Turkey
2003 2005 2007
0 100 200 300 400
Growth in MEDA countries has been following, over the past few
years, an ascending curve and this upward trend was confirmed in
2005 and 2006, with notable exceptions for Lebanon, Palestinian
Territories and, to a lesser extent, Syria (2.9% in 2006 after 3.8% in
2005). The other countries enjoyed an average growth rate close to
5%, based on a favourable global environment, with flourishing
energy markets, a new dynamism regarding tourism, an increase in
FDI and emigrants’ remittances:
� In Algeria, the marked recovery of the energy sector reflected
on the economic growth and the growth rate reached 5.1% in
2005 and 4.4% (average of various estimates) in 2006.

Invest in the MEDA region, why how ?
� In Egypt, growth is accelerating (4.8% in 2005, average of 6.2%
in 2006).
� In Israel, GDP growth rate improved in 2006 at 6.2% after a
good 2005 score around 5.2%.
� Thanks to foreign investments and migrants’ remittances,
Jordan kept a relatively high growth rate (7.2% in 2005, 4.6% in
2006) in a troubled environment.
� The growth of Lebanon remained volatile (4,9% in 2003, 6,3%
in 2004, between 0 and 1% in 2005, negative in 2006) and
principally fuelled by private consumption figures which
exceeded interior production, thanks to massive transfers by
the Diaspora.
� Figures regarding Libyan growth rate are controversial.
According to the World Bank, the country’s economy grew
modestly in 2005 (3.5%); compared to 4.8% in 2004. The
estimates for 2006 indicate that 2006 will be clearly better.
� The victim of a bad performance of the agricultural sector ‐the
added value falling by 12 to 15%‐ and of a sharp increase in the
energy bill, Morocco ranked poorly in 2005 (1.8%, but 4,6%
without agriculture), but recovered a high rate (6.7%) in 2006.
� Tunisia performed fairly well in 2005 (4.2%) and 2006 (average
of 4.5%).
� Turkey’s real GDP increased by 5.2% in 2006, after robust rates
in 2005 (7.4%) and 2004 (8.9%).
� As regards the Palestinian Authority, the ongoing political and
economic crisis makes its macroeconomic situation difficult to
comment on.
12

13
Economic overview
Figure 2. Growth in MEDA countries in 2005 (source: World
Development Indicators, World Bank)
8.0%
4.0%
0.0%
Lebanon
1.0% 1.8%
Morocco
Libya
3.5% 3.8%
Syria
Tunisia
4.2%
Egypt
4.8% 5.1% 5.2%
Algeria
Israel
Figure 3. Real growth rate of 2006 GDP (civil year estimates)
Jordan
7.2% 7.4%
Turkey
Country CIA World Fact Book Economist Intelligence Unit
Algeria 5.6% 3.1%
Egypt 5.7% 6.8%
Israel 1 4.8% 4.8%
Jordan 4.6% 4.6%
Lebanon ‐5.0% ‐7.8%
Libya 8.1% 8.1%
Morocco 2 6.7% 6.7%
Palestinian Authority 3 n.a. ‐18.5%
Syria 2.9% 2.9%
Tunisia 4.0% 5.1%
Turkey 5.2% 5.2%
1. According to Israelʹs Central Bureau of Statistics: 5%
2. According to Bank Al‐Maghrib (Banque Centrale du Maroc): 7.3%
3. Controversial figures for obvious reasons
Capital flows increase significantly
Although capital outflows remain substantial (according to the IE‐
Med, placements abroad coming from the central Maghreb are
estimated to around US$ 8 billion per year, with an accumulated
stock over US$ 100 billion; dividends repatriated by the foreign

Invest in the MEDA region, why how ?
firms represented about US$ 1.5 billion in Tunisia only for
instance), capital inflows of different sort have been continuously
increasing over the past years. This is thanks to foreign direct
investment ‐up to nearly US$ 30 billion in 2005 from less than 10
billion in 2002 according to UNCTAD data‐, receipts from tourism,
which more than doubled in ten years, up to US$ 28 billion in 2004,
from US$ 12.5 bn in 1995‐ and emigrant remittances (close to US$
20 bn in 2004). In the MEDA region, made of intermediate‐income
countries, public aid tends to diminish (Figure 4).
Figure 4. Order of magnitude of capital inflows into the MEDA region
in million Foreign direct Tourism Emigrants’ Public Total *
USS investment revenues remittances development aid
Year 2005 2004 200 4 2004
Source UNCTAD OMT World Bank World Bank
Algeria 1 081 105 2 460 313 3 959
Egypt 5 376 4 924 3 341 1 458 11 758
Israel 5 587 1 918 398 479 8 382
Jordan 1 532 664 2 288 581 5 065
Lebanon 2 573 1 027 5 723 265 9 588
Morocco 2 933 3 152 4 221 706 11 012
Palest. A. ‐ ‐ 692 1 136 1 828
Syria 500 1 785 855 110 3 250
Tunisia 782 1 536 804 328 3 450
Turkey 9 681 12 773 692 257 23 403
MEDA‐10 30 045 27 884 18 133 5 633 81 694
% 37% 34% 22% 7% 100%
* Total to be considered with caution, since data relate to different years (latest
figures obtained by ANIMA). The receipts of privatisation are included in FDI.
Oil and gas producers such as Libya and Algeria, and to a lesser
extent Egypt or Tunisia (gas), improved their incomes thanks to the
worldwide surge in energy prices (oil barrel jumping from US$ 39
in 2004 up to 70 dollars in 2006. The cautious management of oil
revenues made it possible to reduce the public debt ratios while
raising foreign exchange reserves. On the contrary, non‐oil
producing countries suffered from oil price increase and could only
14

15
Economic overview
mitigate this thanks to the incomes drawn from financial transfers‐
remittances, tourism and capital inflows originated, among other
sources, in the roaring Gulf economies:
� According to the latest World Bank report, Lebanon is the
largest recipient of worker remittances among the Arab
countries with an estimated 2006 amount of US$5.2 billion,
followed by Morocco (US$5.1 billion), Egypt (US$3.3 billion)
and Jordan (US$2.8 billion). For most specialists, the non‐
recorded transfers would double these amounts.
� The amount of petrodollars available for investments abroad
was estimated at US$ 620 billion by the IMF in 2006, of which a
growing part is injected into the MEDA region.
Reforms and privatisation breakthrough
Structural reforms aimed at improving the general business and
investment environment are being implemented in most MEDA
countries.
� Several countries of the region fostered budgetary reforms: e. g.
Algeria which improved its budgetary transparency and
created reserve funds fed by oil revenues.
� In Jordan, the budgetary measures passed by the government
in order to increase fiscal incomes and to curb public spending
improved notably the state of public finances.
� Morocco started restructuring its specialised public banks and
developed a strategy aiming at reducing its structural budget
deficit in co‐operation with the World Bank and the IMF.
� Egypt launched a thorough tax and customs reform along with
a structural adjustment programme.
� Algeria recently took measures to strengthen the systems of
payment and improve the financial regulation system as well

Invest in the MEDA region, why how ?
as enforce the stricter prudence norms. Khalifa Bank, the
Commercial and Industrial Bank of Algeria (BCIA) and two
other private banks saw their licences cancelled. The State
announced the privatisation of many public banks for the
benefit of future strategic foreign investors.
The impact of privatisations in the region is mixed. Many profitable
privatisations have been carried out, or are in progress (banks,
mobile telephone, container ports, air transport etc.). Even if good
opportunities remain available, the countries must now address the
more difficult sectors (“social” services such as water, passenger
transport, privatisation of industrial companies). Some
programmes are sleeping, while others provide positive results, in
particular in Morocco, in Jordan, in Tunisia and Turkey (significant
mobile phone operations in 2005).
In many of the MEDA countries, private initiative is more
encouraged than ever through various public incentives, foreign
firms see their access to local markets greatly broadened, while the
paperwork to start a local business is being constantly reduced.
In Algeria, the new energy sector law, which aims at opening it to
private investors, offers promising prospects. In the same way, in
Morocco, the labour market reforms, the rationalisation of the
investment regulations and the implementation of judiciary
reforms are to be considered as bold steps, representative of a more
general business‐friendly movement in the whole region. Tariff
dismantling and the abolition of administrative import licences are
under scrutiny or being implemented in a majority of the countries
concerned by the agreements of association with the EU.
Foreign investment growth
Though the will of governments to stick to reforms ‐designed to
address the deep causes of regional underperformance‐ remain
16

17
Economic overview
variable, the measures already passed greatly contributed to
change foreign investor perceptions and decisions regarding Euro‐
Mediterranean business opportunities.
Figure 5. Change in FDI inflows into the MEDA region
(in million US$, UNCTAD for 1997‐2005 & various sources for 2006)
FDI flows 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Algeria 260 501 507 438 1 196 1 065 634 882 1 081 3 0001 Cyprus 491 264 685 804 652 297 891 1 079 1 166 n. a
Egypt 887 1 065 2 919 1 235 510 647 237 2 157 5 376 5 3002 Israel 1 628 1 760 2 889 4 392 3 044 1 648 3 745 1 619 5 587 13200 3
Jordan 361 310 158 787 100 56 436 651 1 532 1 500 4
Lebanon 150 200 250 298 249 257 2 860 1 899 2 573 1 000 1
Malta 81 267 822 652 314 ‐375 958 309 562 n. a
Morocco 1 188 417 1 376 423 2 808 428 2 429 1 070 2 933 2 3002 Palestine A. 149 58 19 76 51 41 n. a. 3 n. a. n. a.
Syria 80 82 263 270 205 225 180 275 500 2 0001 Tunisia 365 668 368 779 486 821 584 639 782 3 312 5
Turkey 805 940 783 982 3 266 1 037 1 752 2 837 9 681 17 100 2
Total
MEDA‐12
6 445 6 532 11 039 11 136 12 881 6 147 14 706 13 420 31 773 48 712
MEDA‐10 5 873 6 001 9 532 9 680 11 915 6 225 12 857 12 032 30 045 48 712
MEDA‐9
excl. Israel
4 245 4 241 6 643 5 288 8 871 4 577 9 112 10 413 24 458 35 512
1 ANIMA estimates according to the extrapolated official data
2 UNCTAD estimates published on January 10, 2007
3 Israel Trade figures published in January 2007
4 EDC Estimate
5 Figure from Banque Centrale de Tunisie
Since 2001, the region has been attracting increasing inflows of
private capital through M&As, bonds and foreign direct
investments (Figure 5). The determinants of FDI in the MEDA
region are both resource‐seeking and market‐seeking: growing
demand, demography, competitive production costs and access to
the EU /US markets through many free trade agreements.

Invest in the MEDA region, why how ?
Services (banks, telecoms, offshoring, and tourism) and real estate
are booming. Major infrastructure projects are offered to interested
global companies. Close to EU, the MEDA region also serves more
and more as a re‐export platform, finding its specific function in the
global economic integration process of industrial supply chains (e
g. automotive or aeronautical contractors in North Africa and
Turkey, technology‐driven acquisitions in Israel).
� In Egypt, new records were set in 2005 and 2006 regarding FDI
amounts (more than US$ 5 billion each year, against an average
of 1.2 billion per annum between 1997 and 2004). The portfolio
is mainly composed of heavy industry (energy, chemistry,
fertilizers), construction (real estate, tourism) and acquisition of
bank networks.
� The volume of the FDI into Turkey has surged in recent years.
The country has attracted US$ 17 billion in 2006 (estimates), vs.
US$ 9.7 bn in 2005, US$ 2.8 bn in 2004 and an average of US$
1.3 bn per annum between 1997 and 2003. The country counted
11,685 foreign companies in January 2006, of which 2,825
created in 2005.
� Foreign investments in Israel were supported by many M&As,
in particular in technologies. FDI inflows reached US$ 5.6
billion in 2005 (UNCTAD). In 2006, this amount rose to US$
13.2 billion according to Israel Trade.
� In Jordan, foreign investment demonstrated a significant
recovery, reaching or exceeding the US$ 1.5 billion threshold in
2005 and 2006 (vs. an average of 357 million only between 1997
and 2004). The operations are mainly portfolio investments and
real estate projects.
� After the major deals of previous years (acquisition of Maroc
Telecom by Vivendi), FDI stagnated somehow in Morocco in
2006 (US$ 2.3 billion vs. 2.9 in 2005; the 1997‐2004 average was
US$ 1.27 bn). However, the announced projects (MIPO‐ANIMA
18

19
Economic overview
observatory), in particular in the real estate and tourism fields,
reached an impressive amount in 2006 (5.3 billion).
� In Tunisia, privatisations, in particular in the telecoms sector,
boosted 2006 FDI (US$ 3,312 bn), exceeding for the first time in
history the threshold of one billion US$, vs. an average of 610
million only between 1997 and 2005. At the beginning of 2006,
the sale of 35% of the capital of Tunisia Telecom to TeCom DIG
(Dubai) generated DT 3.052 billion of receipts (US$2.3 billion),
exceeding the sum of privatisation receipts since 1987.
� In Lebanon, foreign investments were on a very promising
trend (US$ 2.5 billion in 2005, with many Gulf investors coming
back), but the attacks against political leaders and journalists,
the 2006 Summer conflict with Israel and the crisis which
followed have affected confidence. The majority of the FDI is
directed towards banking activities, real estate and tourism.
� Syria seems to open up to globalisation and is said to have
recorded approximately 2 billion dollars in FDI during 2006
(majority of projects coming from the Gulf), vs. 500 million in
2005 and much lower flows before (average of 200 million only
between 1997 and 2004). Domestic investments also increased a
lot (6.3 billion dollars vs. 3.7 billion in 2004).
� Finally, the Palestinian territories continue to suffer from the
interminable crisis affecting their economy and attractiveness,
in spite of undeniable human assets. ANIMA however detected
in 2006 a €289 million FDI project (mobile phone licence for the
Kuwaiti group Watanya).
Mid-term macroeconomic review per country
� Structural reforms carried out in Algeria produced their effects,
facilitating the return to sound macroeconomic equilibrium,
improved GDP growth and the development of a more

Invest in the MEDA region, why how ?
dynamic private sector, involving a greater inflow of foreign
direct investments. GDP real growth rate passed from 4.1% in
2002 to 6.8% in 2003 and eventually stabilised around 5% since
then (5.2% in 2004, 5.4% in 2005 and 4.4% in 2006), thanks to
rising hydrocarbons production levels and prices. This
reinforced the already appreciable surpluses of the current‐
account balance (the hydrocarbons –based external income
represented 97% of the export earnings from final goods and
services). Multiannual projections revealed by the 2005 budget
counted on an average rate of 5.3% a year over the period 2005‐
2009. The expansionist budget policy implemented since 2001
achieved some results: this sustained public spending
guaranteed a certain demand at the benefit of non‐energy
sectors. The added value in services increased by more than
60% in 5 years, while the building and public works sector
recorded a 40% growth in added value. Inflation dropped to
1.6% in 2005 vs. 2.7% in 2004, following the fall in foodstuffs
prices. The foreign‐exchange reserves exceeded the forecasts,
reaching US$ 56.2 billion at the end of 2005 (equivalent of 22
months of imports of goods and services). Finally, external
public debt has been entirely paid by anticipation, while
another part of the oil and gas revenues is being saved for
future generations through the constitution of reserve funds.
� In Egypt, the new team resulting from the cabinet reshuffle of
July 2004 endeavoured to take new steps regarding commercial
and financial liberalisation as well as the program of economic
and structural reforms. Between 2000 and 2003, the country
recorded an average growth rate of 3.5%, affected by
exogenous shocks such as the 9/11 events and the war in Iraq.
However, benefiting from the worldwide recovery and the
depreciation of the national currency, GDP real growth rates
passed from 4.1% in 2004 to 4.5% in 2005 and 6.2% in 2006. This
upward trend is fuelled by tourism (US$ 6.4 billion in 2004‐
20

21
Economic overview
2005), the migrant workers’ remittances (US$ 4.3 billion), the
Suez Canal revenues (US$ 3.3 billion) and oil exports (US$ 1.2
billion).
� In Israel, whereas growth rates had fallen to ‐0.9% in 2002 and
1.5% in 2003 (a 2001‐2003 average of 1.3%) because of the
strong crisis related to the second Intifada in the Palestinian
territories and the worldwide bursting of the technological
bubble in 2000, a significant recovery started with GDP growth
rates of 4.8%, 5.2% and 4.8% respectively in 2004, 2005 and
2006. The major sources of this growth were exports (+15%),
private consumption, as well as the rapid expansion of the
advanced technology industries – where the Israeli economy
finds its strength‐ and of tourism.
� Jordan was the most exposed country to the collateral damages
of the war in Iraq, which represented its main export market.
After a spectacular real GDP growth rate of 7.7% in 2004 up
from 4.1% in 2003, the economic situation worsened in 2005
because of the increase in the prices of imported hydrocarbons
and an unexpected fall of the international aid, which
represented approximately US$ 700 million in 2005, compared
to 1.3 billion in 2004. Moreover, tensions in the region
contributed to the deterioration of the tourism incomes.
Fortunately, they did not cause any significant loss of
attractiveness for foreign investors. Growth in 2005 remained
strong therefore, close to 7.2%, with 2006 estimates at 4.6%.
� Lebanon enjoyed a sustained growth rate between 1992 and
1997, close to an average 6 to 7%, based on the rebuilding of the
country after 15 years of civil war and on the performances of
the financial sector. However, public debt had been constantly
increasing meanwhile. The Paris II and III conferences in 2002
and 2007 showed a strong mobilisation of the international
community in an attempt to alleviate the burden. The 2005

Invest in the MEDA region, why how ?
attacks against politicians and the 2006 conflict with Israel blew
out this fragile recovery and dragged the country back into
troubles. At the end of 2006, official figures revealed a public
debt over GDP ratio above 200%. Real GDP was expected to
contract by approximately 7% in 2006. A strong recovery is
expected in 2007, provided that the current political uncertainty
does not affect too severely the macroeconomic environment.
� The lifting of the UN sanctions which had struck Libya since
1992 and the lifting of the subsequent embargo greatly
contributed to bring the country’s international economic and
financial relations with the rest of the world closer to
normality. Libyan economic achievements are impressive, due
to the increase of oil production, the resumption of oil exports
and the rise in oil barrel prices since 2003. This favourable
international economic situation made it possible for the GDP
to grow by 4.6% in 2004 and 3.5% in 2005 while the latest
estimates concerning 2006 turn around 8.1%.
� Morocco achieved significant results regarding public life
democratisation, education and health, or the reinforcement of
basic infrastructure. However GDP growth remains volatile:
4.2% in 2004, modest 1.7% of 2005 (impact of bad agricultural
performances), good 2006 performance (6.7%). The textile
industry began to recover in 2006 and so did the phosphate
exports. The services surplus combined with the growth in
tourism earnings did the rest.
� The Syrian economic landscape, which depends largely on the
public sector, is changing thanks to a programme of structural
reforms which aims at creating a more private business‐
friendly economic environment, without neglecting at the same
time social concerns. Growth rates however have been
stagnating between 2 and 3% over the pas few years (2% in
2004, 3.8% in 2005, 2.9% estimates in 2006). The main
22

23
Economic overview
contributors to growth are the agriculture, the building and
public works sector and services.
� Tunisia chose very early the development of a market
economy and a progressive integration in the world economy.
Between 1992 and 2004, the GDP increased by a yearly average
of 4.1%. After the 2004 peak at 5.8%, real GDP growth rates fell
to 4.2% in 2005 and 4.6% in 2006. In spite of the intensification
of international competition and the strong increase in oil
prices, the achievements of 2005 are generally positive and this,
because of the favourable development of services such as
tourism (6.4 million tourists and earnings amounting to 2,563
million DT, that is 12.5% of the current‐account receipts), air
transport, telecommunications and new technologies.
� A candidate since 1999, Turkey is officially in negotiations to
become a full member since October 3, 2005 and is committed
to implement a long list of reforms based on 35 points in
conformity with the Copenhagen criteria. Turkey recovers little
by little from the economic crisis of 2001 thanks to its sound
macroeconomic policy. Supported by a dynamic domestic
demand, the economy experienced a spectacular growth of the
GDP (8.9% in 2004 and 7.4% in 2005). Recent obstacles affecting
the outcome of Turkey’s EU accession negotiations combined
their effects with those of a sharp tightening in monetary policy
to lower down to 5.2% the 2006 estimated growth rate.

The Euro-Mediterranean
partnership and the new
neighbourhood policy
The Euro-Mediterranean partnership and the
MEDA programme
The Euro‐Mediterranean Conference of Ministers of Foreign Affairs
held in Barcelona on 27‐28 November 1995 marked the starting
point of the Euro‐Mediterranean Partnership. The thus‐named
Barcelona Process represents a wide framework of political,
economic and social cohesion between the 15 Member States of the
European Union and their 12 Southern Mediterranean Partners
(Algeria, Cyprus, Egypt, Israel, Jordan, Lebanon, Malta, Morocco,
Palestinian Authority, Syria, Tunisia, and Turkey).
The Barcelona Process is a unique and ambitious initiative, which
lays the foundations of a new regional relationship. The three main
objectives of the Partnership are:
� The definition of a common area of peace and stability through
the reinforcement of dialogue concerning politics and security
(Political and Security Chapter).
� The construction of a zone of shared prosperity through an
economic and financial partnership and the gradual
establishment of a free trade zone (Economic and Financial
Chapter).
� The bringing together of different peoples through a social,
cultural and human partnership aimed at encouraging cultural

25
The Euro-Mediterranean partnership
understanding and exchange (Social, Cultural and Human
Chapter).
The economic objective is the creation of a free trade area which
must be implemented through the Euro‐Mediterranean agreements
as well as free trade agreements to be concluded between the
MEDA countries themselves (South‐South co‐operation). The year
2010 was chosen as the official deadline by which the region should
be organised as a free trade zone in conformity with the WTO
principles. Therefore, tariff and non‐tariff obstacles to the
exchanges of manufactured goods will be gradually eliminated
according to timetables to be negotiated between the partners. A
staged liberalisation of agriculture and services trade is also
considered, under the terms of article V of the General Agreement
on Trade in Services (GATS).
Anticipating the enlargement, the European Commission initiated,
on March 11, 2003, the definition of a new European
neighbourhood policy (ENP) in order to strengthen relationships
with EU‐27 neighbours (Eastern and Mediterranean countries). It
offers them new opportunities toward economic integration, as a
reward for real progress in the respect of common values and in the
effective implementation of political, economic and institutional
reforms (harmonisation of their legislation vis‐à‐vis the ʹacquis
communautaireʹ).
The EU thus offers to its Eastern and Mediterranean neighbours a
chance to gain access to the European domestic market and to
benefit from the correlative freedom of movement for goods,
services, capital and people.
The European Council of June 2004 approved the principle of the
adoption, through a dialogue with each country having enforced
the agreement with the EU, of individual roadmaps for the
implementation and follow‐up of this agreement. Seven triennial
action plans were adopted by the end of 2004 (5 MEDA countries,

Invest in the MEDA region, why how ?
Israel, Jordan, Morocco, Tunisia and Palestinian Authority, plus
two Eastern countries, Ukraine and Moldavia) while discussions
are in progress with Egypt and Lebanon. As operational tools co‐
designed with the Mediterranean partners, the action plans identify
priorities regarding political and economic reform, and reinforced
cooperation. The MEDA and TACIS financial instruments were
used to support the implementation of the action plans until the
end of 2006.
With respect to MEDA, 45 million Euros were dedicated to the
European neighbourhood policy (ENP) over the period 2004‐2006:
18.5 million Euros for energy infrastructures, 24 million for
transport, 2 million for the co‐operation between Morocco and
Spain, and Spain and Gibraltar (0.4 million Euros).
From 2007, the Commission foresees the creation of a single
European Neighbourhood and Partnership Instrument (ENPI)
covering at the same time the EU support for the ENP countries
and their cross‐border co‐operation with the Member States. The
amounts dedicated to the ENPI, as well as the distribution between
its components, will depend on the next financial negotiations for
2007‐2013.
Other political processes have to be taken into account concerning
regional integration: the progress made in the Doha Round, justice
and home affairs’ matters, the promotion of a better governance,
humans right and democratisation in the MEDA region, and finally
environmental initiatives connected to the conclusions of the
Johannesburg summit on sustainable development.
The latest WTO round, the so‐called Doha Agenda, deals with both
new markets’ opening and the definition of additional rules. It
offers in turn the commitment to strengthen material assistance for
the benefit of developing countries. The main objective of the new
round is to facilitate the integration of developing countries into the
world trade system in order to fight poverty.
26

27
The Euro-Mediterranean partnership
The conclusions of the Tampere (1999), Santa Maria Da Feira (2000)
and Seville councils (2002) laid down a common policy concerning
the integration of justice and home affairs matters into the EU
external policy. The action plan adopted in Valencia (2002), in
addition to the statement of Barcelona, provides additional
guidelines for a reinforced co‐operation in the MEDA region and
this, in three principal fields: migration, judiciary reform and fight
against criminality. A better governance, the promotion of
democracy and the respect of human right constitute fundamental
objectives for the EU foreign policy.
In line with the conclusions from the UNDP report on human
development in the Arab world, the Commission made public a
communication entitled ʺReinvigorating EU actions on human
rights and democratisation with Mediterranean partners. Strategic
guidelinesʺ [COM(2003) 294 final] aiming at maximising the
effectiveness of the instruments at the disposal of the EU and its
Mediterranean partners in the field of humans right and
democracy. The communication lays down operational guidelines
in order to promote humans right and fundamental freedom in co‐
operation with the Mediterranean partners. It includes ten concrete
recommendations to improve political dialogue between the EU
and its Mediterranean partners, including the use of financial co‐
operation on the questions of human rights. The 2003 World Bank
report on governance in the MENA region also constitutes a
significant reference. The EU programmes over 2005‐2006 took into
account these essential questions, through the economic
management programmes ONG II, Police II and Rural Proximity
for instance.
A global commitment to the cause of sustainable development was
reiterated at the Johannesburg summit in the form of a pragmatic
and ambitious programme demonstrating the increasing
importance of environmental questions in the achievement of the
ʺMillenium Development Goalsʺ. With respect to the EU, the key

Invest in the MEDA region, why how ?
sectors concerned by this commitment are water and energy. In
Johannesburg, the EU launched therefore two partnerships. The
European initiative ʺWater for Lifeʺ articulates the existing financial
mechanisms with specific emphasis on three parameters: water
supply, hygiene and integrated resource management. At the
present time, the concrete follow‐up concerning the Mediterranean
countries is on its way within the framework of the MEDA funding
instrument.
For more information, refer to the Euro‐Med Partnership document
at the following address:
http://ec.europa.eu/comm/external_relations/euromed/rsp/meda_ni
p05_06_fr.pdf
The MEDA and FEMIP financial instruments
and the institutional twinning
The Euro‐Mediterranean Partnership also provides financial co‐
operation instruments to support economic change in the
Mediterranean partners’ countries: MEDA and FEMIP.
Created by the Cannes Council in June 1995, the MEDA
programme constitutes the main financial framework for the
implementation of the Euro‐Mediterranean Partnership. The
European Commission, in close co‐operation with each of its
Mediterranean partners and while taking account their diversity,
launched assistance programmes for economic transition, following
a bottom‐up approach and financed under the MEDA programme.
These assistance programmes deal with promoting reforms and
developing the private sector (through supporting more
specifically SMEs and industrial sectors, modernising the financial
sector, facilitating trade, contributing to fruitful privatisations and
supporting private participation into the much‐needed
infrastructure investments, etc..). Within the framework of MEDA
28

29
The Euro-Mediterranean partnership
II, local management of the MEDA programmes by the EU
delegations in the benefiting countries was given more importance.
The funds engaged over the period 1995‐2006 amounted to
approximately 8.8 billion Euros, benefiting the official authorities
(national and local) as well as the private sector and the civil
society.
Managed by the European Investment Bank of (EIB), the Facility
for Euro‐Mediterranean Investment and Partnership (FEMIP), had
injected a total of Euro 7.2 billion by the end of 2005 into 77
operations in favour of economic modernisation, the establishment
of a business‐friendly environment, the development of the private
sector and the creation of jobs in the recipient countries.
FEMIP’s existence was confirmed by various Ecofin ministerial
conferences (in particular, in June 2006 in Tunis). It currently
intervenes in several priority fields: the construction of
infrastructures supportive to the development of the private sector,
local private projects, environmental projects, and the development
of capital markets.
Since its creation in October 2002, the FEMIP was gradually
strengthened, without however becoming a full Euro‐
Mediterranean development bank, given that its capital is
exclusively held by European countries, while its expertise remain
essentially focused on infrastructure and major public projects.
Only a few countries support the emblematic constitution of a
generalist Euro‐Mediterranean bank. Even a modest start, such as
launching a subsidiary controlled by the EIB, would still demand a
significant capital base given the current loan and equity portfolio
in the region. The creation of such an institution would also cause a
rise in the interest rates (lower rating, higher operational costs) and
would require co‐decision with the new shareholders.
The EIB tries to address the challenge by consolidating the existing
assets, by improving the integration of the many actors involved in

Invest in the MEDA region, why how ?
managing the FEMIP (this deeper integration could mean creating
local offices, transform the experts committee into a steering
committee associating Southern countries), by considering new
tools (guarantee scheme, for example) and finally by directing more
and more its activities towards the difficult market of SMEs and
private investment. For this reason, the FEMIP accentuates its
efforts towards the productive sector, not only by opening credit
lines managed by commercial banks for the financing of industry,
but also as a shareholder in capital investment funds.
In the future, it could play a role even more effective if it could lend
in local currency and rely on a more comprehensive expert team,
closer to the Mediterranean customers (the EIB is, by far, the
development bank whose ratio of staff over capital invested is the
lowest, a difficult situation when dealing with mid‐size projects
and SMEs..
The volume of loans granted for the benefit of the Mediterranean
partners (MEDA) reached 1.8 billion Euros in 2003, 2.1 billion in
2004 and 2.2 billion in 2005. During this 2005 year, 51 % of the
resources were dedicated to support the private sector. Nearly 35 %
of these operations were carried out in partnership with the local
banking sector, in order to strengthen its capacity in financing SME
productive investments.
The FEMIP also gave its support to basic infrastructure in the
transport and environment sectors (Turkey, Lebanon, Morocco), in
energy (Egypt, Gaza‐West Bank, Syria), and communication (Syria,
Lebanon, Morocco and Turkey).
In addition, the year 2005 is to be remembered as the year during
which funding operations in the Gaza Strip and West Bank
resumed, with the granting of two loans for concrete improvements
in the living conditions of the Palestinians: one regarding power
supply, and the other to set up a guarantee fund to support SMEs.
30

31
The Euro-Mediterranean partnership
Figure 6. Distribution of FEMIP loans by country in 2005 (in million
Euros)
Turkey
930
Algeria
10
Tunisia
260
Egypt
309
Syria
300
Palestine
55
Lebanon
170
Morocco
160
As regards the geographical distribution of FEMIP loans (figure 6),
42% of them relate to projects in Turkey (including 6 projects
amounting to 930 million Euros), 38% in the Middle East (10
projects for a total amount of 834 million Euros) and 20% in
Maghreb (7 projects for 430 million Euros).
The FEMIP’s versatile set of instruments makes it able to meet the
needs of local economies. It includes various financial products
such as long‐term loans, risk capital etc., under favourable financial
conditions. Its technical assistance fund launched in 2004, signed
during its first year of existence, 20 contracts for a total of 13.8
million Euros (gifts). Lastly, FEMIP’s fiduciary fund, operational
since the beginning of 2005 (thanks to Member States ‘contributions
amounting to 30 M€), further broadened the range of financial
instruments at its disposal.

Invest in the MEDA region, why how ?
More means will be also devoted to technical aid, in order to
facilitate the preparation of social and anti‐poverty projects in the
recipient countries. In addition, to mark its physical presence on
the southern bank of the Mediterranean, the EIB made the choice to
establish offices in three capitals (Cairo, Tunis and Rabat). Lastly, it
is worth mentioning that an overall evaluation of FEMIP operations
was carried out in December 2006, making room for coming
changes regarding the future of this instrument.
In order to identify new manners of developing the financial co‐
operation on the basis of comparative advantage and to leverage its
operational capacity, the FEMIP strengthened its co‐operation with
other lenders present in the region by signing agreements with the
European development funding institutions (EDFI). This will
amplify the support which the EU brings to the economic of its
Mediterranean partners, avoid redundancies and maximise the
impact of the activities of EU Member States in the region.
Apart from its funding operations, the FEMIP made a study of the
national debt markets in the Mediterranean countries (which was
published in December 2005) and defined an ambitious programme
on the companies’ access to credit. It also published the first
detailed analysis on remittances sent by workers of Mediterranean
countries emigrated in Europe. On March 13, 2006, the FEMIP
signed a partnership agreement with the Euro‐mediterranean
network of economic institutes (FEMISE), providing a framework
for co‐operation on macro‐economic analysis of the MEDA
countries and the financial policy evaluation.
Institutional twinning
The twinning mechanism, familiar since 1998 to the PHARE
countries (Central and Eastern Europe), was extended to MEDA in
2004, within the framework of the support programmes to the
association agreements, primarily with a view to reforming the
32

33
The Euro-Mediterranean partnership
administrative structures of the Mediterranean partners. The
amounts range from 5 to 20 million Euros over three years,
depending on the countries. The Commission views this
instrument as a precursor of the new neighbourhood policy in
terms of reinforcement and modernisation of the administrations in
the Mediterranean countries. The programme could, in the long
term, be open to private operators.
The South-South co-operation
Intra‐regional trade is encouraged within the framework of the
Agadir agreement, of the Great Arab Free Trade Area (GAFTA)
and of the customs union of the Gulf Co‐operation Council (GCC).
The signature of the Agadir Agreement on February 25, 2004
represented a strategic step towards South‐South integration. The
Agadir process, launched in Agadir in May 2001 as an intra‐
regional South‐South initiative gathering Morocco, Tunisia, Egypt
and Jordan, constitutes a bold move by these four partners in order
to establish between them a free trade area, in a staged way. The
transitional stage was supposed to end by 01/01/2005. This
agreement is supposed to stimulate trade, to strengthen the
regional industrial basis, to boost economic activity and
employment, to increase productivity and to improve the standards
of living in the signatory countries.
Similarly, it should foster macro‐economic and sector policy
coordination, in particular regarding foreign trade, agriculture,
industry, taxation, finances, services and customs. Its contribution
to harmonising the economic legislation of the signatory countries
should also be important. Concerning the provisions relating to
foreign trade liberalisation, the contracting countries adopted a
calendar envisaging a total tariff exemption for industrial products
by 01/01/2005.

Invest in the MEDA region, why how ?
It was also agreed to liberalise agrofood products in accordance
with the implementation programme of the Great Arab Zone of
Free Trade (GAFTA). Trade in services will be liberalised in
accordance with the terms of the General Agreement on Trade in
Services (GATS) of the World Trade Organisation (WTO). The
terms of the agreement also give details concerning the application
of the Arab‐Mediterranean rules of origin which will have to be put
in conformity with the Euro‐mediterranean rules of origin.
The Agadir agreement aims at creating a market of more than 100
million inhabitants. It would involve more efficiency, more pay‐off,
and would make the region more attractive for foreign investors.
Any Member State of the Arab League and the Great Arab Free
Trade Area, also bound by an agreement of association or free
trade with the European Union, can adhere to the Agadir
agreement after having received the assent of all current Member
States.
The EU has pledged to support the Agadir Process from both a
financial and technical point of view. The programme “Helping the
Association Agreement signatories to develop free trade among
themselves and with the EU” was therefore launched in 2003. This
4 million Euros programme, funded under MEDA, aims at
encouraging South‐South trade and integration, starting on a sub‐
regional basis and at introducing pan Euro‐Mediterranean
cumulating of origin. The programme works for the creation of a
pool of technical assistance to help progress towards South‐South
free trade.
The table hereafter (figure 7) recapitulates the trade agreements
signed between MEDA countries and with their principal trade
partners.
34

35
The Euro-Mediterranean partnership
Figure 7. Main bilateral and regional free trade agreements in MEDA
AA
with
EU
Algeria S 4/02
E 9/05
Egypt S 6/01
E 6/04
Israel
S 11/95
E 6/00
Jordan S 11/97
E 05/02
Lebanon
Morocco
Syria
Palestin
e
Tunisia
S 06/02
E 04/06
S 2/96
E 3/00
Other
FTA
GAFTA
S
GAFTA
E 1/05
The
USA
The
USA
GAFTA
E 1/05
The
USA
10/00
GAFTA
E 1/05
The
USA
6/04
S 10/04 GAFTA
E 1/05
S 2/97
IA E
7/97
S 7/95
E 3/98
Turkey CU
S 96
E 96
GAFTA
E 1/05
GAFTA
E 1/05
Algeri
a
UMA
S2/89
UMA
S02/ 89
Egypt Israe
l
Agadir
S 2/04
S 9/98
E 2/99
Agadir
S 2/04
Agadir
S 02/04
FTA
S 03/98
FTA
S
12/04
S 94
EE 95
S 12/05 S
3/96
E 97
Jordan Lebanon Morocco Syria Pales
tine
Agadir
S 2/04
FTA
S 12/04
Agadir
S 2/04
Agadir
S 2/04
Neg.
UMA
S 2/89
Agadir
S 2/04
FTA
S 6/98
Agadir
S 2/04
Agadir
S 2/04
UMA
S 2/89
Neg S 4/04
E 1/06
S 12/
04
S 94
E 95
S
7/04
E6/0
5
Tunisi
a
UMA
S 2/89
Agadir
S 2/04
Agadir
S 2/04
FTA
S 98
E 6/99
Agadir
S 2/04
UMA
S 2/89
S 11/04
E 7/05
Source: The Euromed process in the trade area, update 03/06 and updated ANIMA, Déc. 2006.
Legend: AA: Association Agreement with the EU; IA: Interim agreement; S: Signed; E: Enforced; CU:
Customs Union; Neg.: In negotiation; The USA: agreement of free trade with the United States
GAFTA: Convention of facilitation and development of Pan‐Arab trade of 17/02/1981. Into force since
January 1, 2005. The 18 signatory countries are Saudi Arabia, Bahrain, Egypt, United Arab Emirates, Iraq,
Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Somalia, Syria and Yemen. Sudan and
Tunisia are in the course of ratification. Algeria, the Comoros, Djibouti and Mauritania did not approve the
agreement.
Turkey
S 12/05
S 3/96
E 5/97
Neg.
06
S 4/04
E 1/06
S 7/04
S11/04
V7/05

Business opportunities in
MEDA countries
Algeria
Overview
References
Capital Algiers
Surface area 2,382,000 km2
Population 2003 33.9 millions inhabitants (2005)
Languages Arabic, French, Berber
GNP (dollars) US$ US 102 bn (2005)
GNP/per capita (dollars) US$ US 3,085– 7,189 in ppp. (2005)
Currency (2005) Algerian Dinar (DZ).
1 Euro = 95,19 DZ – 1 US$ = 71,23 DZ
Religion Sunni Muslims (99 %)
National holiday 5th July (independence in 1962)
Association Agreement
with EU
Signed in2002, implemented on 1st
September 2005.
EU web site:
http://www.deldza.cec.eu.int
WTO membership Observer since 1985. Membership being
negotiated.
Sources: World Bank, FMI, World Development Indicators 2006 and IMF,
Article IV Consultation 2005, Country report.

Economic profile
37
Invest in Algeria
Contingent to Europe, Africa, and Arab nations, Algeria is the
largest of the five Maghreb countries (Mauritania, Morocco,
Algeria, Tunisia and Libya), the second largest country on the
African continent after Sudan and tenth largest in the world. This
strategic geographic location offers many advantages likely to
boost investment potential, in particular foreign investment in
export‐oriented activities. The hydrocarbons sector is the backbone
of the economy. At the beginning of the 90s, the Algerian
government started a process of transition from a centralised to a
market‐oriented economy by implementing stabilisation and
structural adjustment programmes with the technical assistance
and financial support of the IMF, the World Bank, and the
European Union.
A significant progress has been made in structural reforms thanks
to this programme, financial and economic indicators have been
successfully stabilised, and a more dynamic private sector is
emerging, attracting greater inflows of foreign direct investments
(FDI). Algeria’s economic growth has continued to be underpinned
by ongoing growth in oil and gas exports, (revenues from
hydrocarbons represent 97 percent of export earnings from goods
and non factor services), leading to a large increase in the trade
surplus (US$ 50 billion). Thus, GDP grew from around 3 percent in
2000‐02 to nearly 6 percent in 2003‐04 and 5.1 percent in 2005.
Thanks to taxes on oil, which represent more than 60 percent of
public revenue, this comfortable financial situation led authorities
to pursue an expansionist budgetary policy and launch the
Complementary Plan for Support to Growth (Programme
complémentaire de soutien à la croissance – PCSC), which earmarks
public expenditure for the period 2005‐09, and the National
Programme for Agricultural Development (PNDA).

Invest in the MEDA region, why how ?
Per capita GDP rose from US$ 1,783 in 2002 to US$ 3,100 in 2005,
with purchasing power parity estimated at US$ 7,189 in 2005,
fuelling an improvement in living standards throughout Algeria.
Multi‐year projections in the 2005 finance law show an average
growth rate of 5.3 percent a year over the period 2005‐2009.
Prudent management of oil income has enabled Algeria to reduce
debt while maintaining reserves. Thanks to the Central Bank of
Algeria’s restrictive monetary policy, inflation was kept down to
3.6 percent in 2004 and 1.5 percent in 2005. With public debt rolled
back to 24.7 percent, foreign‐exchange reserves equivalent to nearly
24 months of imports and a surplus in the overall budget, Algeria
has finally succeeded in attaining economic stability. The
unemployment rate fell from 23.7 percent in 2003 to 17 percent in
2004 and 13 percent in 2005.
The State continues to play a dominant role in managing the
economy, though its role is decreasing. The State continues to own
most arable lands and real estate and dominates investment,
concentrated in the hydrocarbons sector. Many sectors have been
opened to privatisation over the past two years:
telecommunications, maritime and air transport, agriculture,
tourism and mining as well as energy. Nearly 400 public entities
have been privatised or shut down since the beginning of the
privatisation process but there remain some 1200 to be privatised.
The government announced recently that all State‐owned
companies are eligible for privatisation except those working in
strategic sectors like Sonatrach (oil) and Sonelgaz (electricity).
Moreover, economic and institutional reforms launched in various
sectors testify to the authorities’ firm determination to integrate
Algeria into the global economy. The main social and economic
challenges facing the country are:
� Intensification of structural and institutional reforms;
� Ongoing liberalisation of foreign trade;
38

39
Invest in Algeria
� State disengagement from production, in a move to attract
private investment;
� Promotion of know‐how and transfer of expertise;
� Improved prospects for growth;
� Diversification of the production base and strengthening of the
non‐hydrocarbon industrial sector;
� Restructuring of financial services.
A capital expenditure programme was launched in 2001, called the
Support to Economic Recovery Programme (PSRE), endowed with
a US$ 7 billion budget that accounted for 8.5 percent of GDP in
2004 and covering the period 2001‐2004, which made it possible to
boost growth in the short run. This was then supplemented by a
complementary programme to support growth (PCSC) and another
targeting wilayas in the South and the high plateaus, with a
preliminary investment budget of US$ 65 billion (DZ8000 billion)
for the 2004‐2009 period.
The second PCSC focuses on six main priorities: improvement of
living conditions (US$ 25 billion), development of infrastructure
(US$ 22 billion), support for economic development (US$ 4 billion),
development of regions in the south and high plateaus (US$ 10
billion), modernisation of public utilities (US$ 3 billion), and
development of new communication technologies (nearly US$ 1
billion). Sector‐wise, the programme gives priority to major
infrastructure projects in transport, public works, and housing. The
list of projects is available at: http://www.cg.gov.dz
Algeria’s external position has improved. The trade balance surplus
rose to US$ 25.64 billion in 2005 (up 86 percent over the 2004
figure) thanks to a significant increase in income from exports (43.4
percent). The rate of coverage of imports by exports rose from 175
percent in 2004 to 226 percent in 2005.

Invest in the MEDA region, why how ?
Imports rose to US$ 20.35 billion in 2005, made up primarily of
capital goods (42.3 percent of total), especially transport
equipment, machinery, telecommunication equipment, and pumps.
Imported foodstuffs account for 17.6 percent of total, worth US$ 3.6
billion, made up of cereals, semolina and flour. Hydrocarbons
dominate exports, representing 98.0 percent of total volume in
2005. Soaring oil prices worldwide made it possible to record a 44.1
percent increase in revenues compared to the 2004 figure. Non‐
hydrocarbon exports remain marginal.
The European Union is Algeriaʹs largest trading partner, followed
by the US. Imports from the EU reached US$ 11.26 billion in 2005,
France being its number one supplier with a market share of 22
percent, followed by Italy (7.5 percent) and Germany (6.2 percent).
Exports to the EU came to US$ 25.6 billion, Italy being its primary
client (16 percent), followed by Spain (11 percent) and France (10
percent).
France is the third largest investor in the country, behind the US
and Egypt. Foreign direct investment (FDI) in the hydrocarbons
sector grew from US$ 671 million in 1999 to US$ 2.3 billion in 2003.
Over the period 1999/2003, foreign companies in partnership with
Sonatrach and its subsidiary companies in exploration and
development of existing oil fields invested a cumulative US$ 8.6
billion in projects. New legislation relating to hydrocarbons opens
up opportunities for foreign investment in Algeria’s oil sector,
including exploration, pipelines and transport as well as
downstream operations such as petrochemical processing.
In December 2001, Algeria and the EU concluded negotiation of the
Association Agreement, ratified in March 31, 2005 and effective
since September 1, 2005. The Association Agreement will commit
both parties to further liberalisation of bilateral trade and is
intended to have Algerian businesses and consumers share in the
benefits of enhanced trade and investment ties. The Agreement
40

41
Invest in Algeria
provides for the gradual removal of import duties on EU industrial
products over twelve years and eliminates duty on 2000 other
products. It also provides for an exchange of concessions regarding
trade in services. Negotiations for Algeriaʹs accession to the World
Trade Organisation are in the final stages.
Country risk
The main export‐credit insurers and international credit rating
agencies (Coface, Hermes, Sace, ECDG, CEFCE, Eximbank) revised
downward their evaluations on Algeria’s risk over the course of the
past two years. The country passed from the 5th to the 4th place on
OECD credit insurers’ risk scale. The French Coface reclassified in
January 2006 its notation up to A4 from B. This comes as an
encouraging confirmation of the improvement of the general
business climate in that country. During its 2005 consultations
under the terms of Article IV, the International Monetary Fund also
foresaw a bright macroeconomic prospect for the five years to
come, as a consequence of the energy prices but also of the real
efforts made in terms of structural reforms.
Key challenges
Renewed growth is being led mainly by oil resources, a particularly
vulnerable development model in the long run. With 48 percent
added value, the hydrocarbons sector is the main source of revenue
for the economy (95 percent of export earnings). This makes
Algeria’s external position particularly vulnerable, with Algerian
exports among the least diversified of all middle‐income countries.
Algeria must diversify its petroleum‐based economy, which has
yielded a large cash reserve but which has not been used to redress
Algeriaʹs many social and infrastructure problems, jeopardizing the
economy’s external competitiveness as it faces entry into force of
the Association Agreement with the EU and on‐going negotiations
on accession to WTO.

Invest in the MEDA region, why how ?
The relatively high unemployment rate (13 percent according to
ANDI official figures) is detrimental to social development and
unemployment among young people remains persistently high (45
percent).
Agricultural development faces multiple constraints, in particular a
shortage of agricultural land, insufficient output, and heavy
dependency on weather conditions.
Strong points
Algeria’s major assets and comparative advantages are as follows:
� Proximity and easy access to potential markets. Contingent to
Europe, Africa and Arab countries, Algeria’s strategic location
greatly boosts its investment potential, particularly attractive
for export‐oriented foreign investment;
� Large domestic market (33 million consumers);
� Important natural resources (oil, gas, etc.). Other mineral
resources remain greatly under exploited, particularly
phosphates and iron;
� Abundant human resources and flexible labour market, the
many universities, national;
� University level colleges specialised in professional training
(grandes écoles) and vocational training centres ensuring the
availability of skilled personnel.
The National Investment Development Agency
(ANDI)
The entity responsible for direct foreign investment in Algeria is
the National Investment Development Agency (ANDI). The
country’s first investment code was announced in 1993 and the
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Invest in Algeria
ANDI, following on from an initial agency (APSI), was created in
2001, with the adoption of the new law on investments.
The ANDI has the responsibility to accompany both national and
foreign investors, to facilitate administrative procedures, and grant
tax exemptions, rebates and other incentives. It is part of a national
network of one‐stop units respectively in charge of each of the
regions of the country (wilaya), so as to simplify and coordinate
investment procedures and the creation of businesses. A central
structure dealing with foreign investments has been created within
the Head Office of the Agency.
Administrative supervision
The ANDI is placed directly under the authority of the Head of
Government, and constitutes one of his services. However, the
Minister Responsible for the Promotion of Investment and
Participation has operational responsibility for the ANDI.
The ANDI’s missions are:
� To define actions to highlight the comparative competitive
advantages of the Algerian economy;
� To design mechanisms of support for the promotion of
investment and the follow up of their good execution;
� To suggest to the government all useful legal and economic
measures to improve investment and reduce the formalities for
the projects under way;
� To follow up the good operation of the decentralised one‐stops;
� To support the organisation, at both national and international
level, of forums, seminars and meetings for the promotion of
investment.
� http://www.andi.dz/

Invest in the MEDA region, why how ?
How to invest in Algeria
The opening of the Algerian economy has increased significantly in
recent years to a market‐oriented economy. Seeking to diversify
and modernise the economy, the Algerian government has
embarked on an aggressive liberalisation programme to attract
foreign direct investment.
The investment code was revised by Ordinance n°01‐03 of 20
August 2001 on investment promotion. It governs domestic and
foreign investment in the economy to produce goods and services
and provides a framework for concessions and licensing
regulations.
The Ordinance recognises the principle of freedom to invest in any
and all activities, including those covered by specific regulations
(hydrocarbons, financial institutions or insurance companies) and
there are no restrictions on the percentage of capital that can be
held by a foreign investor (except in hydrocarbons, where foreign
companies can own no more than 71 percent of capital).
In addition, all State‐owned companies are now open to
privatisation. Legislation provides an appropriate legislative
framework that harmonises rules and reaffirms requirements for
transparency and regularity in privatisation transactions under the
supervision of the Council of State Holdings (CPE).
It also provides incentives for investors and introduces new
measures to promote investment, such as creation of the National
Investment Council (CNI) chaired by the Head of State, created to
strengthen the legal and regulatory framework for investment. The
CNI is in charge of defining investment strategy and priorities,
approving special investment incentives by sector, and giving final
authorisation for special investment schemes.
Any initial founding, extension, rehabilitation or reorganisation
carried out by a legally constituted economic entity engaged in the
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Invest in Algeria
production of goods and services other than trade is eligible for the
incentives available under the Investment Code whether it is a
resident or non‐resident company.
A comprehensive tariff reform has been in effect since 2001,
reducing the average tariff rate from 26 percent to 19 percent. 2001–
05 temporary additional duty on certain imports is being phased
out as planned. Important steps have also been taken to liberalise
the hydrocarbons and telecommunications sectors.
Under the investment code, the generic incentive regime includes
exemption from VAT for goods and services directly related to the
investment as well as exemption from transfer taxes on real estate
related to the investment. A second category of incentives offered
on a case‐by‐case basis includes: exemption from corporate income
taxes, exemption from VAT for goods and services directly related
to the investment, and exemption from transfer taxes for real estate
related to the investment. In addition to the above‐mentioned
incentives, special incentives are also available for investment in
special development zones and investments that use environmental
or energy saving technologies. Additional incentives are available
to companies whose production and investments are export‐
oriented.
There are five free trade zones in Algeria where investments are
exempt from all customs, taxes and other fees. The law also grants
essential guarantees for investments, such as:
� Respecting international standards relating to foreign
investments: national treatment and most favoured nation
clauses
� Transfer policy: according to the 2001 investment code and the
2003 law on currency and credit, foreign investors are
authorised to repatriate profits, even if revenues exceed the
original amount invested, provided that the initial investment
was made in convertible currency. Foreign investors are also

Invest in the MEDA region, why how ?
free to repatriate dividends, profits, and real net income
resulting from transfer of assets or liquidation.
� Nationalisation and expropriation: The Constitution of 8
December 1996 provides legally‐binding guarantees against
expropriation and confers the right to equitable compensation.
The Constitution also guarantees private property and freedom
of trade and industry.
� Dispute settlement: Algeria has signed the convention of the
International Centre for the Settlement of Investment Disputes
(ICSID), ratified its accession to the New York Convention on
arbitration, and is a member of the Multilateral Investment
Guarantee Agency. The Code of Civil Procedures allows both
private and public sector companies full recourse to
international arbitration at ICSID or ad hoc arbitration at the
U.N. Commission on International Trade Law (UNCITRAL)
model for dispute settlement between the Algerian State and
private companies. Algeria has also signed several bilateral
investment agreements for the protection and promotion of
investments with 27 countries as well as 12 bilateral treaties to
prevent double taxation.
Investors wishing to enter the Algerian market can either open a
branch office or set up a company by creating a legal entity under
Algerian trade law, a joint venture with an Algerian resident
(private individual or corporate entity) by creating a mixed
investment Company (SEM), or securing shares in the capital of an
already existing company. A recent law (passed in 2005) requires
that all companies working in foreign trade increase capital stock
equity to a minimum of DZ20 million (about US$ 275,000) by 26
December 2005.
Possible legal forms for a new company are: joint stock company
(SPA), limited liability company (SARL), individual limited
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Invest in Algeria
company (EURL), joint venture (SNC), sleeping partnership (SCS),
holding company (SP), partnership limited by shares (SCA).
Customs tariff dismantling came into effect on 1 January 2002,
based on eight‐digit international HS nomenclature and comprising
four customs duty rates: 0 percent, 5 percent, 15 percent and 30
percent, according to the degree of transformation of imported
materials. The 5 percent rate is applied on raw materials and capital
goods, the average rate of 15 percent to semi‐finished and
intermediate products and the highest rate of 30 percent to
consumer products. Tax exemptions are also available in some
sectors and for the equipment needed for new investments.
Customs fees have been removed, but provisional additional duty
(DAP) of 12 percent is applied to protect goods produced locally, to
be abolished by January1, 2006.
The tax regime is being reformed to increase flexibility,
transparency, and simplification. Foreign investors benefit from tax
incentives, including five years of tax exemption for companies
investing in new projects. As for tax on income, trade companies
have to pay: corporate tax (IBS), value‐added tax (VAT), the
professional tax (TAP), property tax and water purification tax (taxe
dʹassainissement). For tax purposes, Algeria defines ‘foreign
company’ as a permanently established business.
The normal corporate tax rate is 30 percent, unless funds are
reinvested, in which case a more attractive rate of 15 percent is
applied. Income from loans, deposits, and guarantees is taxable at a
10 percent rate, a 20 percent rate is applied on income from
management contracts, and a 30 percent rate for anonymous cash
vouchers. A new hydrocarbons law was passed in 2005 governing
taxation for oil companies.

Invest in the MEDA region, why how ?
Finance & banking in Algeria
Financial infrastructure is the object of on‐going major reforms to
modernise the sector. A more stable macro‐economic framework
and financial balances have helped to effectively implement these
reforms. The 1990 law opened the banking environment to national
and foreign private capital. Thus, of the 22 banks authorised to do
business at the end of 2003, over 12 are foreign. Several foreign
banks, including French, Belgian and Spanish ones, set up
representational offices prior to future establishment. In addition to
the introduction of universal banks, the law introduced other
financial institutions such as investment banks and leasing
companies. A draft law on factoring is in preparation.
The financial sector includes 30 public and private banks and
government controlled companies. The bank ratio is around 30,000
inhabitants per agency, reflecting weak density and financial
intermediation. Public banks dominate the market, holding 94.4
percent of resources and accounting for 42 percent of GDP.
The State foresees the sale of certain public banks to strategic
foreign investors. A number of corrective measures have been
taken to restructure balance sheets at public banks and clear up
their debt portfolio, proceeding with recapitalisation prior to
privatisation, especially the Crédit Populaire d’Algérie (CPA) and
the Banque de Développement Local (BDL). Operating licences
have been withdrawn from Khalifa Bank, the Commercial and
Industrial Bank of Algeria (BCIA), and two other private banks.
The government has taken steps to modernise the financial sector
by overhauling outdated banking management methods (stricter
ratios and capital requirements, deposit guarantee premiums,
tighter performance contracts for public banks), improving service
and bank audit standards, modernising payment systems, and
computerising banking services to improve quality and data
transmission and facilitating banking supervision by the Central
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Invest in Algeria
Bank of Algeria. However, access to loans remains limited. Under‐
capitalisation at private banks limits loan capacity in light of
prudential standards. Although this situation is likely to continue,
Algerian authorities are encouraging banks to increase their capital.
Specialised private institutions are starting operations on the
money market such as Arab Leasing Corporate.
Movement of capital is free for foreign exchange, as is repatriation
of profits. The Algerian Dinar (DZ) is convertible for current
operations and commercial activities are eligible for foreign
currency accounts.
Telecommunications & internet in Algeria
The Government has been carrying out a comprehensive reform in
the telecommunications and postal sector since 2000 and a new
legal and regulatory framework for a multi‐operator
telecommunications system has now been established. The
Government published a telecommunications strategy in May 2000
and subsequently (in August 2000) enacted a new postal and
telecommunications law creating the Regulation Authority for
Postal Services and Telecommunications, the national fixed
telephony operation Algeria Telecom, Algeria Telecom Mobile that
has now become Mobilis, and the postal operator Algeria Post.
The Governmentʹs strategy in this area is to gradually liberalise all
telecommunications and postal service market segments.
According to the World Bank, Algeria’s telecommunications
market has become the most liberalised market in the MENA
region, with growing competition leading to significant investment,
the sale of several cellular telephone licences, VSAT, GMPCS and
fixed telephone licences. This should lead to the opening of capital
in the state owned Algeria Telecom and its subsidiary companies in
2006.

Invest in the MEDA region, why how ?
The first private mobile telecommunications operator, Orascom
Telecom Algeria (commercial name “Djezzy”) from Egypt started
business in 2001 and currently services 5 million subscribers,
followed by the Saudi Wataniya Telecom Algeria “Nedjma”
(500,000 subscribers) in 2004. Two VSAT licences were also
awarded in 2004 to Djezzy and a consortium of Monaco’s Divona
Telecom and Algeria’s Kpoint Com. A fixed telephony licence was
also granted in April 2005 to Orascom Telecom Holding in
partnership with Telecom Egypt.
Algeria Telecom, with turnover of DZ 130 billion (approximately
US$ 1.885 billion) in 2005, has defined new objectives targeting
capacity of almost 7 million fixed lines, 3 million ADSL subscribers
and 6 million mobile subscribers by 2008. It plans to invest some
US$ 2.5 billion by 2010.
Over 70 percent of the two million fixed telephone subscribers are
administrations, public utilities and trade and services companies,
while the household connection rate remains very low at less than
30 percent.
The French equipment supplier Alcatel has signed a contract for
deployment of a cellular network with Orascom, representing more
than 50 percent of infrastructure, the rest of equipment being
provided by the German company Siemens. Ericsson holds a
majority share in the infrastructure of the Mobilis GSM network.
Chinese suppliers like Huawei and ZTE are very active, mainly on
the telegraphic telephony market, administration PABXs, and
mobile and fixed telephony. The French ISP Wanadoo (a subsidiary
of France Telecom) has signed a technical assistance contract with
EEPAD, the leading internet service provider.
The internet, operational since 1997, is serviced by about fifteen
Internet Service Providers (ISP) for 700,000 users.
Market opportunities: the new fixed telephony licence sold to a
consortium made up of Orascom Telecom Holding and Egypt
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Invest in Algeria
Telecom in 2005 for US$ 65 million is a good business opportunity
for equipment suppliers, with planned investments of US$ 1 billion
over ten years. Several small alternative operators who have
launched public phone services also constitute an opportunity for
supply of equipment as well as services. All new ICT services
present market opportunities over the short‐medium term (call
centres, VoIP, SMS Gateway, contents).
The electronics industry has recorded fast growth these past few
years, up from 5 to 10 percent per annum. According to the
Ministry of Industry, turnover in the electrical and electronics
sector came to some US$ 33 billion in 2001. Algeria has a very
favourable tax system and low energy costs, both of which are
attractive incentives for investors. Although electronic industry
structure continues to be dominated by public companies (60
percent of the production), private companies like BYA Electronics
and Maghreb Vision are leaders on the local market. These
companies play an important role in imports and in manufacturing
electronic products under licence from international corporations.
Business opportunities in Algeria
After years of economic stagnation, Algeria is today confronted
with an important challenge: strengthening and diversifying its
economy. This challenge is analysed in development plans and
priority initiatives programmed. Algerian authorities are using
various tools to encourage and facilitate investments in strategic
sectors. Various supporting funds are also available.
To improve the external competitiveness of enterprises and prepare
them for a widespread privatisation programme, several upgrading
programmes for public and private enterprises have been
launched, including the Programme for Industrial Competitiveness
managed by the Ministry of Industry with assistance from the
United Nations Development Programme (UNDP), the United

Invest in the MEDA region, why how ?
Nations Industrial Development Organisation (UNIDO) and the
Euro‐Development Programme for Small and Medium‐sized
Enterprises (Programme Européen de Développement des PME –
EDPME), with support from the European Commission. In
addition to these co‐operative programmes, a new programme for
upgrading small and medium‐sized enterprises was announced in
June 2005 and entrusted to the national agency for the development
of small and medium‐sized companies (Agence Nationale de
Développement des PME), set up for this purpose. All this public
support will hopefully enable small businesses to stand up to the
increased competition resulting from the association agreement
with the European Union and application of WTO multilateral
rules.
Partnership between Algerian and foreign companies is advancing
by leaps and bounds. The Ministry of Industry lists projects
proposed for partnership and ensures wide diffusion. The process
for total or partial privatisation of public companies as well as
projects related to the conversion of foreign debt to investment has
been launched anew and this development creates very attractive
options for foreign operators.
Negotiations for WTO accession have reached an advanced stage.
Efforts continue to modernise the legal framework in line with
WTO rules, with revision of trade law and promulgation of new
legislation on international trade, free trade areas, protection of
intellectual property rights and competition.
According to a recent market study, the Algeria’s needs for
national and foreign direct investment (FDI) are estimated at DZ
570 billion by 2010. If the investment climate improves, Algeria
could attract between EUR 3.6 and 4.3 billion of FDI a year.
At the beginning of 2006, the Minister of Holdings and Investment
Promotion (MPPT) announced that the privatisation process would
be accelerated to reach at least 500 companies (out of 1,055
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Invest in Algeria
targeted) by the end of the year. The list of these companies is
available online at: http://www.mppi.dz/Annuaire/index.asp
Agriculture, fishing and food processing industries
The sector has considerable economic potential and agricultural
imports amount to the equivalent of US$ 3 billion per annum.
During the years of centralised economy, Algeria gave high
priority to heavy industry, neglecting the strategic value of
agriculture. In the National Plan for Agricultural and Rural
Development (PNDA), the Government has developed a new
vision for agricultural and rural development, outlined in the 2004
Sustainable Rural Development Strategy. These programmes seek
to reduce imports and provide food security by diversifying farm
production: cereal crops, tree cultivation (especially olive trees),
wine growing, market gardening and husbandry.
However, the question of foreign ownership of land is a burden
likely to act as an obstacle to investment in agriculture and
industry. This issue needs to be resolved soon.
Many opportunities exist in the fields of food processing,
conservation technologies, and marketing initiatives as well as in
transfer of expertise/capacity building and sharing of knowledge.
With 1,250 km of coastline on the Mediterranean, Algeria has major
potential for fishing, long underestimated and unexploited. Since
2003, several protocol agreements for fishing, conservation, and
supply of equipment have been signed by Algerian economic
operators and foreign companies. Thus an aquaculture project to
breed sea perch and sea bream has been launched, with investment
of EUR 8 million, under the supervision of the National Office for
Aquaculture Development with the support of the Arab
Organisation for Agricultural Development (AOAD). The private
“Union Bank” has set up a specialised subsidiary company to
develop industrial fishing.

Invest in the MEDA region, why how ?
The fisheries sector in Algeria has strong potential, but the need for
upstream and downstream support is considerable. Opportunities
exit for trawlers, equipment (electronic navigation), nets, and other
materials required for fishing. Similarly, there is considerable need
for technical support, training, and evaluation of fishery resources.
There are considerable prospects for processing industries,
especially canning facilities, transformation of sea products and
activities related to canning, freezing, cold storage and door‐to‐
door cold transportation, packaging, distribution, etc.
Water sector
Algeria suffers from a chronic water deficit, worsened by persistent
bad weather and high population growth in large urban centres.
The water resources strategy focuses on expanding storage facilities
by building new dams and desalination plants and better
rehabilitation/management of existing infrastructure. A new water
code was adopted in 2005, targeting reduction of the critical
supply‐demand gap, and the Government has earmarked public
investment for a 10 year integrated water resource management
initiative. A number of BOT and concession projects will be
launched over the short and medium terms.
The time frame has been stepped up for urgent investments and
alternative schemes launched for water production, such as
desalination plants under BOT schemes. An ambitious programme
has been initiated to attract the participation of private
international operators in water distribution in the largest cities
and World Bank assistance has been requested for this purpose.
Many opportunities have been identified in the various market
segments (infrastructure, processing, purification, distribution,
studies.). Currently, the main initiatives include:
� Ongoing construction of a hydraulic complex at Beni‐Haroun
in the region of Constantine, which counts several dams, the
second largest pumping station in Africa, and several water
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Invest in Algeria
purification units. At the end of 2001, the Alstom group was
awarded the contract for pumping operations, worth EUR 150
million;
� The contract for the Kourdate Acerdoune dam was awarded to
the RAZEL company, worth about EUR 110 million;
� The Bredeah wastewater demineralisation plant is being
implemented by the Ondeo‐Degremont company;
� Rehabilitation of the water purification networks of Algiers and
Oran was entrusted to SAUR for Oran and SEM for Algiers.
� Multilateral investors and donors also give priority to the water
sector, with US$ 4 billion in investment planned over the next
fifteen years. The majority of building sites will be
accompanied by studies and contracts for assistance to
supervise the work. Projects planned by the Algerian
government include the following:
� Finalisation of the Beni‐Haroun complex, expected to
encompass civil engineering works (dams, tanks, reservoirs,
tunnels) and hydroelectric equipment;
� Construction of the water supply network serving the city of
Algiers and settlements along the Tizi Ouzou‐Algiers corridor
that uses water resources based in Taksebt. This project,
estimated at a cost of some EUR 600 million, was allotted to the
French‐Canadian consortium SNC Lavalin‐Ondeo Degremont
Services;
� The MAO project for the water supply network serving
Mostaganem, Arzew and Oran includes the construction of
dams, water pipes, and pumping and treatment stations;
� A drinking water supply project for the corridor of Chlef,
Tenes, and El Guelta;

Invest in the MEDA region, why how ?
� Rehabilitation of distribution networks for Annaba,
Constantine and Jijel;
� Construction of desalination plants to supply the Arzew oil
terminal as well as the cities of Algiers, Oran and Skikda. The
main projects launched to date are at Arzew and Skikda, where
power stations will also be built.
Building and construction
According to the authorities, there is a housing shortage exceeding
one million units and high demographic growth means that this
figure will be increasing. At least 150,000 residences will have to be
built over each of the next ten years in order to keep up with
requirements. Over the period 2005‐09, the sector will absorb
almost half of the PCSC’s budget. To carry out these ambitious
goals for new housing and real estate, the government must secure
private sector involvement, from architects and promoters to
engineering and building companies as well as building material
and equipment suppliers.
Public works, transportation and infrastructure
A comprehensive roadmap for reforms throughout the sector is
under way. The Government’s strategy is to modernise, expand
transport infrastructure, and attract private foreign and local
investment. Large‐scale building, replacement, upgrading, and
enhancement efforts are needed in Algeria, from roads and
highways to railways, ports/airports, and civil engineering. The
objective for commercial services is to privatise the remaining
public enterprises and encourage competition in the market. For
public goods or services, private sector participation will be sought
under concession contracts.
A substantial budget of almost EUR 2 billion has been allocated to
upgrade overall transport infrastructure, which deteriorated over
the ten years of terrorism. Thus, it is expected that work on the
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Invest in Algeria
Algiers subway, launched more than 20 years ago, will be resumed,
with line 1 slated for start up at the end of 2005.
The 100,000 km network of roads remains insufficient to meet the
country’s development needs. Paved roads constitute 72 percent of
the national network, but a quarter of today’s road network is in
bad condition, much deteriorated. The Algerian road network also
counts 3350 civil engineering structures, half of which must be
rehabilitated. The highway network is no more than embryonic,
with only a few hundred kilometres.
The planned 1,216 km long Trans‐Maghreb East‐West motorway
launched in 1987 to link Tlemcen and Annaba to the Maghreb
motorway (7,000 km from Nouakchott to Tripoli) and recently
awarded to Chinese and Japanese BOT consortia, is the most
important in a series of large‐scale public works to be completed in
the coming years. In addition, a new southern bypass around the
capital is expected to break ground in 2005.
As for urban development, efforts to improve traffic flow in the
capital include large‐scale building sites to improve access to
upland areas. The city of Algiers has been equipped with seven
new underpasses, three of which were built by the French company
Razel at a cost of nearly EUR50 million. Soletanche‐Bachy, in
partnership with the Algerian company Hydrotechnique, is
building an underpass in association with a 300 car underground
parking lot at the Chevalley intersection. Upcoming work includes
a beltway around Wadi Ouchaiah, the Annasser access road, the
Oulmane Khelifa exchange and four underpasses at sensitive
intersections of the capital (in the districts of Ruisseau,
Chateauneuf, Hydra, and Bir Mourad Rais).
National airport infrastructure includes 53 fields, of which 12 are
international class airports, eight national class airports, and 14
regional class airports. Currently, capacity remains largely under‐
utilised. Major initiatives include airport expansion, notably at the

Invest in the MEDA region, why how ?
Algiers Airport (by the Chinese company CSCEC) as well as air
navigation and air terminal equipment. Medium‐term
development prospects focus on airports renovation and
upgrading, new initiatives to open up areas in the high plateaus
and the south, and construction of a second runway at the Oran
and Hassi Messaoud Airports. An international airport has been
built in the region of Chlef.
The harbour and maritime sector counts 11 ports: 8 general‐
purpose and 3 specialised in hydrocarbons (Arzew, Skikda and
Bethioua). Harbour capacity remains under‐utilised. There are
many opportunities for development, notably: maintenance work
(dredging of the ports of Bejaia, Algiers, Arzew, Annaba and
Tenes), modernisation of infrastructure to handle container traffic
(extension and upgrading of terminals in Oran, Tenes, Arzew and
Skikda) and creation of new harbour capacity in central coastal
Algeria, directed primarily at container traffic. Public Private
Partnerships (PPP) at port and airport facilities will be needed.
Equipment and public works material is also a very dynamic
market. Despite a local supplier (National Public Works Materials
Company, SNVI) and high tariff protection, imports are massive.
The main supplier of equipment and materials for civil works is
France followed by Germany and the US.
Hydrocarbons
The energy sector is the backbone of Algeria’s economy, accounting
for roughly 60 percent of budget revenues, 30 percent of GDP, and
over 95 percent of export earnings. With reserves of 16 billion cubic
meters of oil equivalent discovered in 1948, Algeria is the third
largest oil‐producing country in Africa and twelfth in the world.
Only 25 percent of initial proven oil reserves of approximately 10
billion barrels of liquid hydrocarbons are considered recoverable
with available processes. Half of these recoverable crude oil
reserves have already been pumped and current estimates of
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Invest in Algeria
probable remaining reserves stand at more than 400 MCM. The
Energy Information Administration reported that as of 2005
Algeria had 160 trillion cubic feet (Tcf) of proven natural gas
reserves, eighth largest in the world.
Algeria is a major exporter of oil and gas. It is the world’s 14th
largest oil exporter and it supplies some 20 percent of Europe’s
natural gas. Oil production reached 1.9 million barrels/day in 2004
(about 2.5 percent of world production) and marketed gas
production stood at 225 MCM/day (about 3 percent of world
production).
The hydrocarbons sector has been open to foreign participation for
almost 20 years. In 2004, foreign partners accounted for slightly less
than half of Algeria’s crude oil output, 14 percent for gas. However,
foreign investors are required to work in partnership with the
State‐owned hydrocarbon company Sonatrach. The complex
contractual arrangements imposed by law increasingly have
hampered financing of Algeria’s investment needs in the upstream
hydrocarbon sector, estimated at US$ 70 billion for the period 2005–
2015. In March 2005 Parliament adopted a new law, which
promotes a more liberal operating environment, including:
� Simplifying the contractual framework for upstream activities
(exploration, production) and introducing free entry for foreign
operators in transportation and downstream activities;
� Replacing the existing production‐sharing regime with a
system of taxes and royalties;
� Establishing investors’ rights and obligations, including
Sonatrach; and
� Creating a regulatory agency to tender upstream contracts, set
baseline gas prices, and collect royalties and taxes; and another
to issue permits for downstream activities.

Invest in the MEDA region, why how ?
This law should lead to more upstream investment, through
foreign investment and by freeing Sonatrach from the obligation of
owning and operating all oil and gas infrastructure, financing new
pipelines, and fulfilling non‐commercial roles such as regulation,
tendering, and taxes and royalty management.
An ambitious development policy in the field of hydrocarbons has
contributed to the creation of a solid economic base and major
petrochemical, chemical and plastic industries. The national
company SONATRACH maintains its monopoly on hydrocarbons
but has the possibility of entering into joint venture contracts for
upstream and downstream activities. Investment in the sector is
growing.
Two gas pipelines connect the Sahara to Europe. The first Trans
Tunisian Pipeline Company (TTPC) pipeline crosses the
Mediterranean from Algeria to Sicily through Tunisia and the
second goes through Morocco to Spain. Sonatrach’s network covers
some 13,000 km, involving 14 oil pipelines and 11 gas pipelines.
Transport capacity for Sonatrach’s pipeline network in North
Africa is about 101.32 billion m3 of gas, 12.52 million tons of LPG
and 79.44 million tons of oil (crude oil and condensate).
In 2005, the Italian oil company ENI and Sonatrach have reached
the agreement for the expansion of the Trans Tunisian Pipeline
Company. The agreement sets the increase up to 3.2 billion cubic
metres of annual transport capacity starting from 2008 and up to
further 3.3 annual billion cubic metres starting from 2012. The
investment for the expansion of the TTPC pipeline amounts to 330
million Euros and will be entirely financed by ENI.
Electricity
Reforms in the power sector are defined in the 2002 electricity law,
which allows private sector investment and competition,
unbundling of this national utility, creation of a separate company
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Invest in Algeria
for system operations and subsidiaries for generation/
transmission/ distribution of gas and electricity, and creation of a
regulatory agency the Electricity and Gas Regulatory Commission
(CREG) to oversee the newly‐opened industry and to ensure non‐
discriminatory access to the sector.
Electricity transmission remains a state monopoly, managed by
Sonelgaz. The new law enables initial initiatives by independent
power producers (IPP) and creation of the Algerian Energy
Company (AEC) in a 50/50 partnership between Sonatrach and
Sonelgaz. This subsidiary company manages energy and water
desalination projects by opening them to international private
investors. Algerian law requires that all foreign operators establish
joint ventures with AEC, and in return, AEC guarantees that it will
purchase all electricity generated by these plants.
Since the opening of the sector in 2002, there has been considerable
private investment in new electricity generating capacity. AEC
contracted with Anadarko and General Electric to build the
countryʹs first privately‐financed gas power plant at Hassi Berkine.
In August 2003, the French company Alstom agreed to build a 300‐
MW power plant at FʹKirina, 300 miles east of Algiers (US$ 5,7
billion). Canadaʹs SNC‐Lavalin won a contract to design and build
an 825‐MW combined cycle power plant in Skikda, expected to
begin operations in the third quarter of 2005. SNC‐Lavalin also
won a tender to build a 1200‐MW combined cycle power plant in
Tipasa, west of Algiers. In early 2005, Siemens announced that it
would build a 500‐MW, gas‐fired plant in Berrouaghia, which
should be operational by the end of 2006.The need to supply power
to desalination plants has driven a large part of foreign investment
in gas‐fired power plants in Algeria. The U.S.‐based Black and
Veatch began construction of a facility near the Arzew oil export
terminal, with a generating capacity of 310 MW and desalination
capacity of 3.1 million cubic feet per day (cf/d); and Japanʹs Mitsui
and U.S.‐based Ionics won a tender for a 7.1‐million‐cf/d

Invest in the MEDA region, why how ?
desalination plant near a 400‐MW power plant in Hamma, near
Algiers.
In spite of the interconnection of all power plants in Northern
Algeria (95 percent powered by gas), the current rate of capacity
reserves is only 10 percent, largely insufficient to meet the
country’s needs. The national operator Sonelgaz (which recently
became a joint stock company) has set the objective of reaching a
rate of reserve of some 15 to 20 percent. To face the growing
demand for electricity (+7 percent per year over the period 2002‐
2011), ten new power stations will be created by 2010. Sonelgaz has
worked out a US$ 12.2 billion programme, with US$ 5.4 billion
earmarked for production of electricity (power stations
construction), the remainder for transport and distribution.
In July 2002, Sonatrach and Sonelgaz formed a joint venture, New
Energy Algeria (NEAL), to pursue the development of alternative
electricity sources, including solar, wind, and biomass. One project
reportedly under consideration is a 120‐megawatt (MW), hybrid
gas/solar power plant near Timimoun. In January 2003, Algeria and
the International Energy Agency agreed on technological
cooperation in developing solar power. Overall, Algeria hopes to
increase the share of solar in the countryʹs electricity mix to 5
percent by 2010.
In the mining sector, Algeria has an excellent but untapped
geological potential. There is a wide range of underground
minerals such as phosphates, iron ore, zinc, uranium, gold,
tungsten, diamonds, and precious stones. Overall, more than thirty
resources can be extracted. Algeriaʹs major mining operations
include the 3 million ounce Tirek Amesmessa gold mine; the 2,400
million ton Djebel Onk phosphate mine; the 5,000 million ton
Quenza and Bou Khrada iron ore mines; plus several industrial
mineral mines producing salt, bentonite and barite.
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A new mining law, Law 01‐10 of 3 July 2001, has been adopted,
which encourages private investment. This law covers geological
infrastructure, research and exploitation of mineral and fossil
substances and provides for a special tax system for mining
companies.
Following an international tender, the majority of assets belonging
to the state owned gold exploration and mining company (ENOR)
were sold to the Australian‐based Gold Mine of Algeria (GMA).
The feasibility study is being finalised and gold exploration and
exploitation will start soon. The Australian company in turn will
provide transfer of technology and know‐how to its new partner
ENOR. The main gold producing facility is the Tirek Amesmessa
gold mine.
213 licences and 11 mining areas have been allotted to the private
sector since 2001. Indeed, the government’s willingness to develop
the mining industry makes Algeria a prospective target for the
international mining community and the new mining activity
opens up many prospects for international suppliers of equipment
in the fields of drilling, transport, handling, mechanical shovels,
pumps, power generating units, etc.
Health care and medical supplies & services
The Algerian health system continues to suffer from multiple
problems, is short of financing and needs to align to the country’s
changing circumstances (medical, epidemiological, demographic
and economic). The population’s medical needs are considerable.
National production is insufficient to meet needs and so Algeria is
a major importer of drugs. The market for pharmaceutical products
is estimated at more than EUR 700 million per year, of which 80
percent are imported.
Difficulties in the public health system have spawned private sector
involvement. State‐owned establishments are being

Invest in the MEDA region, why how ?
rehabilitated/built and private clinics, doctors’ offices and
radiology centres set up. Some 102 private clinics were operational
in 2002, 125 more private clinics are being built and 45 projects are
under study. New health mapping at the Ministry of Health is
determining plans to build three private 250 to 500‐bed hospitals
for the treatment of serious diseases.
In spite of the various measures taken by the Algerian government
(requirement to produce, suspension of imports, etc.), the level of
local pharmaceutical production is low, as is the number of
manufacturers (just 34 in 2003). Moreover, production concerns
mainly products with low technological content. However, local
production is likely to increase thanks to new private investment
initiatives.
Both the main international laboratories working in Algeria and
national authorities would like to develop a major national
pharmaceutical industry under partnership and licensing
arrangements. Partnership with foreign laboratories would allow
transfer of know‐how, guarantee quality, and save foreign currency
as well as create future prospects for exporting a portion of local
production.
In spite of certain legal obstacles, the Algerian market for
pharmaceutical products remains attractive to foreign laboratories
because of the country’s large population, high per‐capita
consumption of pharmaceuticals, progressive scaling down of
customs duties, and attractive incentives offered to foreign
investors, etc.
Tourism
Algeria has major but untapped potential for tourism:
� It is a large country (nearly 2.5 million km2);
� It has a unique geographical location;
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Invest in Algeria
� There is a 1,200 km coastline on the Mediterranean;
� There is an extensive network of airport and road
infrastructure;
� Desert covers nearly 80 percent of the country.
Nevertheless, this potential, largely unexploited except in the
South, suffers from a deficit in terms of accommodation capacity,
hotel structure, and quality of services/skilled labour.
Concerning hotel infrastructure, the country has 92,000 beds of
which 36,000 are owned by the public sector. There is a serious
deficit in terms of accommodation for international customers:
businessmen, conventions, tourists … There are only two foreign
investors in tourism, the Accor group with “Sofitel” and “Mercury”
hotels in Algiers and the American group “Starwood” with two
“Sheraton” hotels in Algiers and Oran.
The government has targeted 174 zones for expansion of tourism
throughout the country, providing national and foreign investors
with opportunities to launch initiatives in urban, rural, sea resort,
mountain or Saharan settings. Development strategy and
investment opportunities to be launched by 2013 target:
� 3 million tourists a year, of whom nearly 2 million would be
foreigners (up from 1.234 million tourists in 2004 including
369,000 foreigners);
� Investment of over DZ 232 billion;
� An increase in accommodation capacity from 92,000 to 187,000
beds;
� 230,000 new jobs.
The Ministry of Tourism has launched a long‐term development
strategy for the period up to 2013, aiming at developing the
potential of natural and cultural heritage sites, improving the
quality of services and Algeria’s image as a tourism destination,

Invest in the MEDA region, why how ?
and rehabilitating hotel and tourism establishments. In addition,
the government has launched privatisation procedures for a
number of hotels belonging to the Tourism and Hotel Company
“GESTOUR” and SGP “Société de Gestion des Participations de
l’Etat”. The list of hotels to be privatised can be found on the
Ministry of Holdings and Investment Promotion website:
www.mdppi.dz
Several international groups have announced their intention to
invest in this sector, such as:
� Starwood Hotels and Resorts, for the construction of a
“Westin” hotel in Algiers;
� Accor, in association with the Mehri group, for the construction
of 36 hotels;
� Marriott, for the construction of a hotel near the Sheraton in
Algiers;
� The Eddar‐Sidar Group, to set up tourist resorts in Algiers and
Boumerdes, at a total cost of US$ 300 million and capacity of
25,000 beds;
� The Al Hamed Group, for a tourism initiative budgeted at US$
90 million on the coast of Algiers;
� The US tourist group Panorama announced its intention to
invest US$ 500 million in the region of El Aouana near the city
of Jijel to build a tourist resort.
It should be noted that a new law regulating the development of
tourism was recently promulgated, granting incentives such as 10‐
year tax exemptions.
The improvement of security issues and the current economic
boom will help in developing national and international
investment in Algerian tourism over the medium and long term.
Growing tourism in southern Algeria, the return of international
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airlines (Air France, Eagle Azure, British Airways, Alitalia,
Lufthansa, Qatar Airways), the opening of a new international
airport in Algiers in 2006 and declaration of investment intentions
by major hotel groups indicate a healthy future for the sector.
Success Story: Orascom, 10 million subscribers in
Algeria
In July 2001 Orascom Telecom Holding (OTH) won for US$ 737
million the competition for the second mobile telephone licence in
Algeria after a tough battle with some of the biggest companies in
the world. OTH belongs to the Egyptian group Orascom, the
property of the Sawiris family. This holding claims to be the largest
GSM operator in Africa, the Middle East and the Indian
subcontinent. Alongside France Télécom (Orange) it co‐operates
MobiNil in Egypt. On 15 th February 2002, Orascom Algérie
officially launched its activities under the brand name Djezzy GSM.
The 48 main towns of the wilayas (Departments), the most distant
being Tindouf and Tamanrasset, were covered at the end of 2003.
After having reached the symbolic figure of one million subscribers
in September 2003, Djezzy’s growth accelerated, with two million
subscribers in July 2004, three in December 2004, 4 in March 2005
and 6 million at the end of September 2005. In only 5 years,
Orascom secured an outstanding leadership on the Algerian mobile
market, reaching the threshold of 10 million subscribers in
September 2006 (a 50% market share by the number of subscribers,
and 70% of the sector’s total sales figures), according to the
National Authority for the Regulation of the Post and
Telecommunications (ARPT in French).
As of June 2006, Djezzy represented 39% of OTH’s total sales
figures, making it Orascom Telecom’s most significant and
profitable subsidiary. As a consequence, the Egyptian parent

Invest in the MEDA region, why how ?
company increased its participation all along 2006 until owning
96.8% of the capital at the end of 2006. Cevital SPA, Algeria’s first
agro‐food company, holds the remaining shares.
This success has not, however, been achieved without hitches.
Since the opening of the market, a severe price war has raged
between Orascom and Algérie Télécom (AT), the historic operator,
through its mobile subsidiary Mobilis, while competition further
increased with the launching of Nedjma, a third operator, by
Kuwait’s Wataniya Telecom in August 2004. Orascom’s success
seems to be at present a cause of worry for the ARPT which, in
Decision n°11 on March 12, 2007, forced Djezzy to withdraw its
cheapest offers, in the name of preserving competition.
68

Egypt
Overview
References
Capital Cairo
Surface area 1,002,000 km2
Population 78,887 million inhabitants (July 2006)
Languages spoken Arabic is the official language, English is
widely spoken in business circles &
sometimes French
GNP (US$) US$ 109 bn (2005‐06)
GNP/per capita US$ 1,381 (4,200 in ppp.) in 2005‐06
(dollars)
Religion The Majority are Muslim, most of the
remainder are Copts
National days 25th April (Sinai liberation day)
18th June (Evacuation day)
23rd July (revolution of 1952 day)
6th October (Armed Forces day)
Currency (March 2007) Egyptian Pound (EGP)
1 Euro = 7.71 EGP ‐ 1US$ = 5.77 EGP
Association agreement
with EU
WTO membership Member since 1995
69
Signed on 25/06/2001; implemented since
1/06/2004
EU web site:
http://www.eu‐delegation.org.eg/
Sources: IMF, Article IV 2005, Country Report n°5/177 and World
Development Indicators 2006. Fiscal year starts 1st of July

Economic profile
Invest in the MEDA region, why how ?
Egyptʹs prominent role in geopolitics stems from its strategic
location, with the Suez Canal (“the vital route”) connecting the Red
Sea to the Mediterranean. Egypt has historically been a peacemaker
in the region, thanks to its undeniable influence in the Arab world
and the size of its population, the sixteenth most populous country
worldwide with almost 79 million people.
Egypt has embarked on major economic and structural reforms
since 1991 and is currently in an important phase of transition from
a centralised to a market‐oriented economy. After a government
reshuffle in July 2004, the new team has sought to accelerate trade
and financial liberalisation and broaden economic and structural
reforms. Substantial progress was made in 2005 in the areas of tax
reform, management of public finance, monetary policy,
privatisation, and restructuring of the financial sector.
Egyptʹs GDP growth rate slowed between 2000 and 2003, averaging
only around 3.5 percent per year, mainly because of external shocks
such as security‐related events, the aftermath of the September 11 th
attacks, and the war in Iraq. However, worldwide recovery and
devaluation of the Egyptian pound enabled the country to reach a
higher growth rate of 4.1 percent in 2004, 4.5 percent in 2005 and
estimates for 2006 close to 6 percent (according to the CIA/EIU),
stimulated by greater demand in the tourism sector and
resumption of investment. Egypt’s main revenues are generated by
tourist receipts (US$ 6.4 billion in 2004‐2005), remittances from
workers living abroad (US$ 4.3 billion), fees for using the Suez
Canal (US$ 3.3 billion), and oil exports (US$ 1.2 billion).
Agriculture is the main economic sector, employing over 30 percent
of the labour force and accounting for 14.7 percent of GDP. The oil
and gas sector accounts for approximately 9 percent of GDP and
over a third of Egyptʹs export of goods. The sector is very attractive
to foreign investors and periodic discoveries continue to feed
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reserves and production of natural gas in Egypt. The country is
working to enhance its ability to export natural gas by building gas
pipelines. Egypt could thus become the sixth world exporter in
2007.
The manufacturing sector has accounted for some 20 percent of
GDP in recent years, employing 14 percent of the labour force. It is
quite diversified, the most important sub sectors being metallurgy
and metallurgical products, food processing, chemical products,
and textiles. The construction sector is booming thanks to growing
regional demand and devaluation of the Egyptian pound.
The Government has launched an Industrial Modernisation
Programme to increase the competitiveness of private enterprises.
The specific objectives of the programme are to assist private
enterprises in their plans for development, to strengthen business
associations and the Ministry responsible for industry, and to
improve the industrial sector’s policy framework. The total budget
for this program is 430 million EUR, of which 250 million come
from the EU.
The services sector accounts for about half of GDP, with fees from
the Suez Canal and tourist receipts being the main components as
well as major generators of foreign exchange. Despite uncertain
conditions in the region, there were more than 6 million tourists in
2004 and tourism receipts remained strong at US$ 4.6 billion.
Foreign trade plays an important role in the Egyptian economy,
with exported goods and services leading the current wave of
economic recovery. The country has registered a strong increase in
proceeds from exported merchandise since the devaluation of the
national currency in 2003‐04.
Egyptʹs main exports of goods are fuel products, manufactured
goods, and agricultural products, mainly cotton. The share of
textile exports has declined progressively, from 16.6 percent in 1995
to 4.5 percent in 2003. Egypt imports the vast majority of its

Invest in the MEDA region, why how ?
consumer goods and capital equipment (machinery and transport
equipment) as well as chemicals. About 14 percent of imports are
purchased for activities at Egypt’s free trade zone.
The European Union is the main supplier (40 percent of total
imports), followed by the US, (14 percent). The EU’s main imports
from Egypt are energy (42 percent), textiles and clothing (16
percent), agricultural products (10 percent) and chemicals (6
percent). Trade with Arab countries has been growing, up from 10
to 13 percent of total.
Egypt is promoting preferential agreements with its trading
partners. The Association Agreement with the European Union (in
the framework of the Barcelona process), signed in June 2001, came
into effect on June 1 st 2004, the main objective being the
establishment of a Euro‐Mediterranean free trade area by 2010. The
first phase of this agreement provides Egyptian exporters with free
access to the European market for industrial and agricultural goods
that do not compete with European products. Inversely, customs
duty on imports originating from the EU is to be phased out over
15 years, according to four product lists annexed to the agreement.
Imports of raw materials and industrial products will be
completely liberalised by 2007, semi‐finished products by 2010,
consumer goods by 2013 and import of cars by 2016.
A free trade agreement has also been signed between Egypt and the
USA: the Trade and Investment Framework Agreement (TIFA),
providing for tax‐free and quota‐free trade of certain goods, in
particular textile products. Under the auspices of the US, Egypt
signed a trade protocol with Israel on the 14 th of December 2004,
establishing ʺqualified industrial zonesʺ (QIZ) in Egypt. Goods
from these zones will qualify for duty‐free access to the United
States, provided that 35 percent of their components are the
product of Israeli‐Egyptian cooperation and that 11.7 percent of
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Invest in Egypt
inputs come from Israel. In February 2005, 397 companies were
working in QIZ, including 300 in the textile and clothing sector.
In 1998, Egypt joined the 22 members of the Arab League in the
Greater Arab Free Trade Area (GAFTA). Egypt also signed a free
trade agreement with Jordan, Morocco, and Tunisia in February
2004, the “Agadir Agreement”, committing to eliminate customs
duty on reciprocal exchanges as of the 1 st of January 2005, the
intensification of economic co‐operation and the introduction of
standardised customs procedures. Egypt has been part of the
COMESA (Common Market for Eastern and Southern Africa) since
1998. Lastly, Egypt signed a free trade agreement with Turkey in
December 2005.
In September 2003, Prime Minister Ahmed Nazif launched a
comprehensive economic programme targeting macro‐economic
stability, a more conducive business climate, more foreign
investments and capital inflows, the development of the capital
market, enhanced exports, and the promotion of private sector
involvement.
The programme includes the resumption of the privatisation
programme (22 companies have already been privatised between
July 2004 and April 2005 generating receipts of 3.3 billion pounds, ‐
some 1.45 billion Euros) and the acceleration of structural reforms
(in particular in the banking environment). They include the
absorption of six small banks by their respective parent companies,
the opening of capital in joint venture banks’ capital to private
investors and the privatisation in 2006 of the “Bank of Alexandria”,
one of the four largest public banks that dominate the market (sold
for 2 billion USD to the Bank of Sao Paolo in October).
Restructuring of the banking portfolios to write off non‐performing
debt related to State‐owned enterprises is under way. In the
insurance sector, the plan is to increase the private sector
involvement by privatising one of the four state‐owned insurance

Invest in the MEDA region, why how ?
companies. Other measures are under way to develop the
mortgage market, to expand the capital market and to reinforce the
regulation and supervision of the financial markets.
Over the first nine months of 2005/06, 49 state assets were sold for a
total of US$2.5 billion, including 7 joint venture banks and 20
percent of the government’s stake in Egypt Telecom. As of March
2007, 99 entities were listed for sale by the government: 44
companies (or holdings in companies) and 55 joint ventures
(www.investment.gov.eg).
As part of an ongoing overhaul of the tax regime, a new customs
As part of an ongoing overhaul of the tax regime, a new customs
tariff was adopted in 2004 to conform to WTO rules simplifying
tariff structure and reducing the weighted average tariff rate from
14 to 9.1 percent. The majority of taxes on exports and imports have
been removed and customs formalities simplified. Several income
tax laws were passed in 2005, reducing the top marginal tax rates
on income and profits from 32 to 20 percent for individuals and
from 40 to 20 percent for corporations and partnerships. The reform
increased the exemption threshold, provided for more generous
depreciation allowances, broadened the tax base by eliminating
deductions, and provided for the phasing out of tax exemptions.
Moreover the country implemented procedures of automatic tax
collection.
Finally, Egypt introduced an interbank foreign exchange market in
2003, which has helped to scale down the parallel market.
Egypt has remained an important recipient of foreign direct
investment (FDI), with inflows rising sharply from US$400 million
to US$700 million. The European Union has been the major foreign
investor in Egypt, followed by the United States. Investor
confidence in economic policy remains high. In March 2007, the
country announced it intended to triple their industrial FDI within
the year, from 3 to 9 billion USD. The authorities hope indeed that
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progress on reform and improvement of the business environment
(such as the 2004 tariff cuts, tax reforms, and additional
privatisation) will continue to further boost foreign investment.
Country risk
� For Coface (January 2007), petrodollars benefit to major
hydrocarbon exporting countries, but also the others economies
of the region via foreign investments and workers’ remittances.
But the geopolitical instability of the region as well as
governance and business environment weaknesses negatively
affect the rating, e. g. in Egypt (rated B).
� For EIU, Egypt should be able to repay its debt, due to external
account surpluses and rising forex reserves but the high fiscal
deficit is a concern (more than inflation trend). EIU provided
the following estimate of the main country risks as of
September 2006 (AAA=least risky, D=most risky): Sovereign
risk, B; Currency risk, BBB; Banking sector risk, BB; Political
risk, B; Economic structure risk, B.
Key challenges
� In spite of the major reforms already under way, the challenges
involved in building a more dynamic private sector remain
considerable.
� Economic growth over the past few years has not been high
enough to reduce unemployment (estimated at 10 percent) and
absorb new job seekers (500, 000 to 700,000 each year).
� The overall government deficit continues to be high and total
domestic debt amounted to 98.7 percent of GDP in 2003‐04 and
82.9 percent of GDP as of the end of September 2005 (some US$
29.7 billion). This high level of internal debt is a constraint to
securing the funding required to build the infrastructure base
Egypt needs for future growth.

Invest in the MEDA region, why how ?
� The investment rate (16‐18 percent of GDP) remains weak in
comparison to the country’s development needs.
� Tourism brings in income that is crucial to the current balance
and economic activity, but the sector is endangered by the
threat of terrorism.
Strong points
� Egypt has an abundant, competitive labour force.
� It has diversified sources of income: fees from the Suez Canal,
tourism, private transfers, and remittances, gas and oil exports.
� Foreign‐exchange reserves are at a comfortable level and
foreign debt remains moderate.
� The country’s strategic location as a gateway to Africa and the
Middle East and as a regional mediator ensures the political
and financial support of Western countries.
� Structural reforms have been introduced aiming in particular at
streamlining bureaucratic procedures for investments and
tackling impediments to higher growth, promoting the
privatisation programme, improving the business climate, and
introducing numerous investment incentives targeting
upgrading of the business environment and modernisation of
the economy.
� New natural gas reserves were recently discovered in the
Mediterranean and this resource could become the “engine” of
the hydrocarbons sector in the next ten years. In 2003, Egypt
started to export its gas to Jordan through an underwater gas
pipeline connecting Taba to the Jordanian port of Aqaba.
� Egypt has become an important recipient of foreign direct
investment (FDI) in the last few years, with considerable
increases (almost US$ 10 bn in 2005‐2006, up from less than one
billion in early 2000s), according to Central Bank of Egypt
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statistics. FDI can be either direct or through joint ventures, in
the oil sector, cement industry, pharmaceuticals, automotive
engineering but also tourism, real estate and
telecommunications.
� The country’s international profile has improved thanks to
legislation encouraging foreign investments, the possibility of
repatriating invested capital and profits, tariff cuts, corporate
tax reform, promotion of exports, creation of special economic
free trade zones and protection of intellectual property. It is
hoped that further privatisation will lead to a further increase
in foreign investment in Egypt.
The General Authority for Free Zones and Investment (GAFI)
The investment in general, including in the free zones, be it of
national or foreign origin, is managed by the General Authority for
Free Zones and Investment (GAFI), which was gradually
transformed into an agency of investment promotion and
facilitation. The law 13‐2004, modifying the law 8‐1997, aims at
facilitating the establishment of new companies, by making the
GAFI a one stop shop for the investors. This law also entitles the
GAFI to grant temporary licences for the launching of a project and
to act on behalf of the investors and of the official organisations
throughout the life of an investment project.
The GAFI established a one‐stop‐shop including representatives
from the various government agencies in charge of administrative
procedures related to foreign investments. A new company can
thus be created within 72 hours.
The GAFI acts as a national focal point for the international
organisations, the business community and the international trade
poles, by disseminating information and investment opportunities
through its modernised centre of information. It is organising
national and international seminars on these questions.

Invest in the MEDA region, why how ?
Co‐operating with the Ministry of Investments, the GAFI
established a national cartography of the investment opportunities
to be promoted for each area and launched in September 2005 an
international campaign of promotion and communication with the
assistance Fleishman‐Hillard communication agency.
The GAFI plays an essential role in technology transfers and active
promotion of the Egyptian exports towards the rest of the world.
Web site: http://www.gafi.gov.eg/
How to invest in Egypt?
While Egypt has no specific legislation governing foreign direct
investment, most foreign investment takes place under the terms of
Investment Guarantees and Incentives Law n°8‐1997, which defines
incentives for investment in certain activities and by laws 162‐2000,
13‐2002 and 13‐2004, and law 83‐2002 on the special economic
zones. The incentives include tax breaks, reduced tariffs on
imported inputs, and guarantees against confiscation. Foreign
investment is managed by the General Authority for Foreign
Investment and Free Zones (GAFI), whose role has gradually
shifted from investment regulation to investment promotion and
facilitation. The government is currently working on a detailed
program for fast tracking and streamlining bureaucratic procedures
for investments, with the aim of upgrading the business
environment and introducing further deregulation
Foreign companies can invest either in the framework of corporate
law or legislation governing investment guarantees and incentives,
depending on the advantages they wish to obtain and the field of
activity.
Corporate law introduces a number of investment incentives,
including tax exemptions of up to 50 percent on income earned
from shares registered on the stock exchange. The Investment
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Guarantees and Incentives Law passed in May 1997 covers
investment through joint ventures, limited liability companies and
partnerships and governs ʺinland investmentsʺ, essentially
domestic investment projects and investment in free zones, which
are treated as being outside the domestic economy for purposes of
taxation, customs and trade.
Unlike corporate law, which applies to all categories of investment,
the Investment Guarantees and Incentives Law applies to
investment (domestic or foreign) in certain specified activities or
sectors, such as air transportation and related services, animal,
poultry and fish farming, financial leasing, hospital and medical
centres, hotels, tourist villages, tourist travel and transportation,
certain housing projects, industry and mining, infrastructure
relating to drinking water, sewage, electricity, roads, and
communications services, oil services in support of exploration and
the transport and delivery of natural gas, overseas maritime
transport, production of computer software and systems, venture
capital…
Investment incentives under the Investment Guarantees and
Incentives Law include tax exemptions on company profits,
personal income tax on dividends, and annual stamp duty on
capital. Tax exemptions are granted for five years for all
investments, up to ten years for companies established in new
industrial zones, new urban communities, or remote areas, and up
to 20 years from the date of establishment for investments outside
the Old Valley. In addition, all customs duty on import of capital
by companies registered under this law are reduced to 5 percent. In
addition to tax breaks, investors receive guarantees against
confiscation, immunity from administrative sequestration, and the
right to import and export inputs and final products without
having to use agents and export licenses.

Invest in the MEDA region, why how ?
The Government of Egypt has been promoting free trade zones
since 1974. Incentives for doing business in free zones are meant
primarily to attract investment, to provide employment for
Egyptians, and to encourage exports. Law 83/2002 provides for the
establishment of special economic zones. In particular, the law
provides for a special customs system with simple and efficient
procedures, tariff‐free import of inputs and equipment, a special
taxation system with lower rates, and a special regime for labour
relations. There are no restrictions on the type of investment
activities that are eligible. There are 7 public free zones and 39
private zones.
Foreign exchange controls were abolished in 1991 and there are no
restrictions on repatriation of funds by companies or rules
requiring foreign companies to hold foreign currency accounts.
In addition, Egypt has adopted a law on intellectual property rights
and new legislation on money laundering. A new law governing
competition is also in force.
Egypt has been very active in negotiating bilateral agreements,
signing more than 50 agreements with a number of countries
relating to investment protection, in particular most of the member
states of the European Union and the United States.
Egyptian corporate law is covered by law n°159‐1981 governing
companies and its application decree n°96‐82, by investment law n°
8‐97 and application decree n°1247‐2004. The most common legal
forms are joint stock and limited liability companies. Some
companies (insurance companies, banks, public companies, leasing
companies, etc.) are ruled by specific laws. The law also allows
foreign companies to set up representational, technical, and
scientific or other offices, but they cannot carry out a commercial
activity unless they have a local representative who is an Egyptian
national.
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Finance & banking in Egypt
A new banking law (law n°88‐2003 of 15 June 2003) has unified all
Egyptian banking regulations. It was enacted in accordance with
the international prudential standards of the Basle II agreements
and contributes to strengthening the Egyptian banking structure by
improving prudential ratios and governance rules.
The new law certainly catalysed mergers and acquisitions given
that it forced banks to meet new minimum capital requirements by
July 2005. Moreover, the new law abolished the distinction between
commercial, business, and specialised banks. Initial capital is now
EGP 500 million minimum for a bank and the capital adequacy
ratio is at least 10 percent. For foreign bank branches, the minimum
capital requirement is US$ 50 million or equivalent in a convertible
currency.
Also under way are a restructuring plan for liabilities (non
recoverable loans) and bank recapitalisation, with the financial and
technical assistance of international donors. Another recent
modernisation effort is the introduction of free flotation of the
national currency vis‐à‐vis the dollar.
The Central Bank of Egypt (CBE) is responsible for supervision,
control, and regulation of the banking sector and for issuing
licences. The country’s banking network is relatively dense and
currently counts 53 banks: 27 commercial banks (of which three are
State owned) with 1375 branches, 23 investment banks (including
12 foreign branch banks) and 3 specialised banks.
The banking system (excluding the CBE) is dominated by the three
state‐owned commercial banks, the Misr Bank, the National Bank
of Egypt (NBE), the Bank of Cairo, plus the recently privatised
Bank of Alexandria. These four banks accounted for some 60
percent of banking assets in 2003.

Invest in the MEDA region, why how ?
Foreign banks can open representational offices in Egypt, with
activity limited to market analysis and identification of investment
possibilities. There are 26 representational offices of foreign banks
currently operating in Egypt. Subsidiary companies of foreign
banks are mainly Arab and European (BARCLAYS, HSBC, Credit
Lyonnais, BNP and GP). And the Natexis Bank has a
representational office.
In November 2004, there were 21 insurance companies, 614 private
pension funds, 3 State‐owned insurance funds, and 5 insurance
consortia.
Gross premiums of Egyptʹs insurance companies amounted to EGP
4,036 million in 2003/04. The Government has sold its majority
shares in two companies to foreign investors. Four insurance
companies (three direct insurance companies and Egyptʹs only
reinsurance company) remain state‐owned, their combined market
share in 2003/04 exceeding 70 percent. Authorities had indicated
that privatisation was initially planned for mid 2006, following
valuation (completed) and restructuring.
The legal framework for Egyptʹs insurance sector is laid down in
legislation governing insurance activities (law 10/1981, amended by
law 156/1998), which allows up to 100 percent of foreign ownership
in Egyptian insurance companies. It also allows foreign companies
to establish representational offices to advertise and promote life
and other kinds of insurance. However, they may not sell their
services through representational offices. Minimum capital
required for incorporating an insurance company is EGP 30
million. State‐owned insurance companies are also being
restructured, with a view to privatisation.
The Cairo and Alexandria Stock Exchange (CASE) is Egyptʹs major
stock market, one of 2005’s top performers. After stabilisation of the
sector, more than 744 companies were listed in 2005 (vs. 1110 in
2001) but with higher market capitalisation (EGP 235 billion vs. 11.3
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billion in 2001), driven by privatisation of a number of banks, the
sale of public shares in some State owned companies, such as
Sidpec (petrochemicals) and Amoc, Egypt Telecom (20 percent of
shares) and the oil company MIDOR, which led the growth of the
Case 30 index. Foreign holdings increased from 16 percent in 2001
to 27.5 percent in 2004 and 30 percent in 2005.
The Government has taken various measures to bring Egyptʹs
capital market closer to international standards. Capital market
regulation is well advanced in adopting best practices and the stock
market is enforcing higher standards of corporate governance.
Companies listed on the CASE are required to conform to
international accounting and disclosure standards. New listing and
delisting rules have been issued to eliminate less reliable
companies. A new electronic trading system has been installed and
the clearing/settlement system upgraded.
Lastly, the Egyptian Stock Exchange has joined the International
Stock Exchange Union and signed an agreement in December 2005
with the Dow‐Jones Index in order to create the Dow‐Jones CASE
Egypt Titans Index, a blue‐chip index composed of Egypt’s largest
companies. This index is to be launched in 2006.
Telecommunications & internet in Egypt
Egyptʹs telecommunications services have expanded rapidly in
recent years, doubling the number of fixed lines (with 10.4 million
subscribers currently for a penetration rate of 13 percent) and
increasing 15‐fold the number of cellular subscribers (a 10 percent
density), increasing ten fold the number of internet users to 5
million subscribers with a penetration rate of some 6 percent. Major
investments have been made in telecom infrastructure (between
US$ 800 and US$ 1200 million per year from 2000 and 2004). These
performances are the fruit of liberalisation and deregulation policy

Invest in the MEDA region, why how ?
based on public‐private partnership as per the “Egypt Information
Society Initiative”.
This integrated project targets development of a local ICT industry
and better penetration thanks to original initiatives (free internet,
low‐cost computers and community technology centres…) and
development of four topics: e‐knowledge (training, education,
cultural heritage, and contents), e‐health, e‐business and e‐
government.
A new telecommunications law (law 10/2003) as well as a law
establishing the National Telecommunications Regulatory
Authority (NTRA) has been adopted. The NTRA has overall
responsibility for regulating telecommunications in Egypt and is
also responsible for regulation of television and radio bandwidths,
including frequency usage. Telecom Egypt is a State‐owned
monopoly, although the Government has announced that 44
percent of the company will be sold off to a strategic investor and
additional shares on the stock exchange will be introduced as soon
as market conditions are suitable. The Telecommunications Law
stipulates that Telecom Egypt is to relinquish its monopoly as
domestic and international fixed‐line operator by 31 December
2005 and thus basic services have been completely liberalised since
then in accordance with GATS commitments. Lastly, 20 percent of
shares in TE capital were opened to the public in December 2005.
Telecom Egypt has undertaken the subsidiarisation of its various
activities by specific companies, mainly:
� Egypt Telecom Data, a subsidiary of TE specialised in internet
services;
� TE IT/Masreya, the subsidiary company in charge of data‐
processing support to the national operator, implementing
software packages, customer relations management (CRM),
invoicing and a call centre “XCEED Contact Centre”;
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� Centra Technologies, which assembles PCs, especially those
distributed in the framework of the programme “A Computer
for All”;
� Watanya, which holds 51 percent of capital in the cellular
operator Vodafone Egypt.
In addition, Egypt launched a policy of regional expansion,
following awarding to Telecom Egypt and Orascom Telecom in
2005 of the second licence for Algerian fixed telephony, worth US$
65 million and running for 15 years. Orascom. President Naguib
Sawiris has also been the initiator of the Weather Holding, which
holds the majority of Orascom and purchased the Italian mobile
operator Wind at the end of 2005, in partnership with IPE
investment fund and Wilbur Ross.
There are currently over 14 million subscribers to Te‐Vodafone and
ECMS‐MobiNil, the two mobile phone operators compared to 4.3
million at the end of 2002.
A third GSM licence was cancelled but another tender is still in the
pipeline.
A 3G licence will be granted at the end of the period of exclusivity
granted to the two current operators (end 2007). To support its
continuous liberalisation of the Telecom Services market and
promote competition, Egypt by introduced a wide‐scale
unbundling of local loops for ADSL services as part of the
broadband initiative launched in May 2004.
There are plenty of internet shops, especially in Cairo. The country
counts nearly 160 internet service providers. A new law on
electronic signatures (law 15/2004) has been adopted, regulating
commercial transactions by internet. This law seeks to encourage
the use of information technologies and provides the same legal
recognition and protection to electronic contracts that already
apply to traditional contracts. It should be noted that Egypt has the

Invest in the MEDA region, why how ?
lowest rates in the Middle East, but only 3 percent of the
population had a computer in 2004. The data processing sector,
however, registered an average growth rate of between 15 and 20
percent per annum.
Development of infrastructure to support fixed and mobile
telecommunications presents many opportunities in terms of
equipment, for both companies and private individuals. Local
production of telecom equipment is carried out by two companies ‐
NTC and EGTI, subsidiaries of Siemens and Telecom Egypt ‐ that
assemble a number of licensed products (equipment for exchanges,
PABX, terminals…).
Local companies produce copper cables and there is a
manufacturer of optic fibre cables. However, production is not high
enough to meet local demand, 80 percent of which being therefore
be covered by imports.
There are several foreign companies working in Egyptian
telecommunications infrastructure: Alcatel, Siemens, Lucent,
Ericsson, Nortel Networks, Motorola, Nokia, Nec… Chinese
companies are also present, in particular Huawei and ZTE.
Egypt has launched the “SMART Village”, which provides a high
tech environment for IT and Telecom companies. This initiative
targets fields of technology in which Egypt is capable of becoming
a leader: the data‐processing industry, software development and
ICT research but also call centres with companies like Exceed or
Raya, already installed on the site. In addition to the many services
it offers, the SMART Village expects to convince investors thanks to
Egypt’s skilled, low cost workforce. ICT projects can move ahead
on site thanks to the business incubator Ideavelopers
(www.ideavelopers.com) and the tech trust fund Technology
Development Fund (http://www.techdevfund.com).
Aside from ICT companies, the SMART Village will soon
accommodate within a financial pole the Cairo Stock Exchange
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(CASE) and a number of banks and financial institutions. Several
ministries have also chosen to relocate there: the Ministry of
Information, Telecommunications and Technology, the Ministry of
Foreign Trade, and the Ministry of Tourism. Alcatel, Microsoft,
Vodaphone, Telecom Egypt, and Motorola are already installed at
the site and several others are in negotiations. Foreign companies
setting up at SMART Village are eligible for the incentives
provided for in investment law n°8, in particular a 10‐year
exemption from tax and the right to repatriate profits.
Business and investment opportunities in Egypt
Since launching of the privatisation programme in 1991, the
government has moved ahead with 196 sales out of the 314
originally slated for privatisation. The new Ministry of Investment,
responsible for managing State‐owned companies, announced an
initial list of companies to be privatised over the period 2004‐2007
in the following sectors: spinning mill and cotton weaving, trade,
metallurgical industries, chemical industries, food industries,
housing, tourism and cinemas, maritime and river transport, and
ten other companies in various sectors.
Thanks to its strategic location in the Middle East and investment
incentives available in particular for activities based in free zones
and special economic zones, Egypt is used as a platform for re‐
export to the Middle East, the Maghreb and African countries.
Moreover, the QIZ agreement makes the country attractive for
investors targeting the US. For exporters interested in the Egyptian
market, the main opportunities are in equipment, machinery and
environmental services, information technology and
telecommunications, pharmaceutical products and medical
equipment, equipment for oil exploration, hotel accommodation
and restaurants, food processing, plastic industries, architecture
and construction, agricultural machinery, packaging, franchising,

Invest in the MEDA region, why how ?
retailing, electrical power systems, building materials, components
and automotive spare parts…
In addition, Egypt wants to increase its exports of non‐traditional
products and to promote foreign investment in new branches like
furniture manufacturing, leather transformation, chemical
industries, glassmaking, paper mills and shipbuilding. It is also
expected that public‐private partnerships will be actively sought in
sectors such as transportation, telecommunications, tourism and
real estate development.
The Ministry of Investment in coordination with other ministries
has successfully created a dynamic database on investment
opportunities available in the various sectors of Egypt’s economy.
More details on these opportunities are available on the Ministry of
Investment’s portal: http://www.investment.gov.eg
Construction and public works
Policy promoting public works is a top priority, offering several
opportunities in many fields, e.g. activities relating to infrastructure
projects (a new channel in the Tochka Delta in the Sinai, new cities),
activities in the energy sector such as construction of power
stations, development of gas production (greater reserves, plants to
produce liquefied natural gas) as well as oil activities. Taking into
account the size of the country and its needs, Egypt is and will
remain an active consumer of infrastructure projects. Upstream, the
needs in consulting, engineering, market studies and modelling are
considerable. On the other hand, building contractors and experts
will be sought to manage equipment and supply added value
services during the implementation phase.
Transport
In the framework of a new global transport policy, a number of
major projects have been planned. Among the essential axes of this
policy, civil aviation is a most promising sector for foreign
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companies, with the government seeking to make Cairo the new A
major undertaking is the new regional airport of Alexandria/Borg
El Arab, along with rehabilitation/development/upgrading of the
country’s airport platforms, and divestment of 20 percent in the
national carrier Egyptair and its subsidiary companies in the stock
exchange at the beginning of 2006. Worsening traffic conditions in
the capital have led authorities to take up plans once again for
Cairo’s third subway line, which had been put aside because of its
cost. Work was scheduled to begin in October 2006.
Some 25 companies and 11 engineering departments are involved
in the implementation of five initiatives (road signs, civil
engineering, electromechanical works, railways and moving cargo
& equipment), along with two other procurement actions relating
to analysis of bids and project supervision.
Furthermore, rights to bus lines are being granted to private
operators. Given the sizeable financing requirements for harbour
infrastructure, authorities are increasingly resorting to public‐
private partnerships. To improve the performance of public
transport services, the government has transformed the department
in charge of development at the Egyptian railroad into a private
investment company, the Egyptian Railway Projects & Transport
Co. (ERPT), which can grant build‐operate‐transfer (BOT) contracts
for up to 25 years to encourage private investors to develop land.
Hydrocarbons
The oil and gas sector accounts for 8 percent of GDP and 40 percent
of Egyptian exports. Natural gas is by far the major element in
petrochemicals production and the abundance of Egyptʹs natural
gas reserves gives it a competitive advantage. Production has
increased by 75 percent over the past five years, reaching 3.3 billion
cubic feet per day by the end of 2003‐04, whereas proven natural
gas reserves have reached 62 trillion cubic feet (tcf), with probable
reserves estimated at 120 tcf. Two factories have been set up to

Invest in the MEDA region, why how ?
produce liquefied natural gas (LNG) and export of gas has grown
thanks to an expanded fleet of tankers to transport LNG,
decreasing transportation and infrastructure costs and thus
opening up developing markets. Initiatives include the Egyptian‐
Mediterranean project to export liquefied natural gas (LNG) to
Jordan, Syria and Lebanon through extended pipelines and
Damiettaʹs complex to ship LNG to Spain and Italy. Egypt has
recently become the worldʹs seventh largest exporter of liquefied
natural gas.
As a result, the natural gas sub sector has been expanding rapidly
and the government is trying to diversify gas consumption in
Egypt in order to maximise discovery potential and reduce reliance
on oil supplies. Indeed, oil production is falling, down to less than
620,000 barrels per day in 2004 from more than 920,000 barrels per
day in 1995. Proven oil reserves have remained stable since 2001
because of new discoveries, at a little less than 3 billion barrels.
The hydrocarbon sector is under the supervision of the Ministry of
Petroleum, responsible for all issues relating to exploration,
exploitation, and distribution of petroleum and natural gas in
Egypt. Several public institutions are also active in the sector: the
State‐owned Egyptian General Petroleum Corporation (EGPC), in
charge of supervising the oil industry, exploration and marketing;
the Egyptian Natural Gas Holding Company (EGAS), in charge of
the gas sector; the Egyptian Petrochemicals Holding Company
(ECHEM), in charge of the petrochemical industry; and Ganoub El
Wadi Petroleum Company Holding, which supervises and
promotes procurement procedures for concessions in southern
Egypt.
The main laws governing mining, petroleum and natural gas
industries are the Mining and Petroleum Law (law 66/1953), and
laws 151/1956 and 86/1965.
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Nearly 50 multinational companies work in Egypt, investing more
than US$ 2 billion a year: Apache, British Gas, LP‐Amoco,
Deminex, TotalFina‐Elf, ENI‐Agip, Exxon‐Mobil, Marathon, Norsk
Hydro, Novus, Repsol, Royal Dutch Shell, Samsung, Texaco…
Tenders were launched at the beginning of 2006 for concession of
20 new blocks of oil and gas exploration. The first section of the
Arab gas pipeline was inaugurated in July 2003, transporting
Egyptian natural gas across 245 kilometres of the Sinai Peninsula to
Aqaba in Jordan.
In January 2004, the Egyptian, Jordanian, Lebanese, and Syrian
governments signed an agreement for the construction of a second
393‐kilometre section connecting Aqaba to the power station of
Rihab near the border between Jordan and Syria. The gas pipeline
will be extended to the Syrian port of Banias where it will be
connected to the Syrian‐Lebanese gas pipeline (currently under
construction) and the power station of Zahrani in Lebanon.
Egypt has two strategic arteries for the transport of hydrocarbons:
the Sumed pipeline and the Suez Canal.
The Egyptian State has a total monopoly on the refining sector,
with nine refineries producing total output levels of some 726,250
b/d.
Following the launching of production at MIDOR (the Middle East
Oil Refinery) in 2001, total production capacity at Egyptian
refineries reached 727,000 b/d. The construction of a new refinery
in the area of Ain Sukhna is to begin in 2006, expected to turn out
130,000 barrels per day. In addition, the Red Sea harbour authority
has signed a contract for the construction of a new refinery, which
should produce 80,000 tons of organic gasoline.
Electricity and power generation
Over the past decade, coverage has been extended to all parts of the
country and virtually the entire population now has access to

Invest in the MEDA region, why how ?
electricity. Installed capacity was 18.1 GW in 2004. About 86
percent of Egyptʹs generating capacity is thermal, the remainder
hydroelectric. To keep up with growing demand, installation of an
additional 13.4 GW by 2012 is planned, mainly through additional
thermal power plants. The contribution of the electricity sector to
GDP was 1.5 percent in 2003/04.
The electricity grid is connected to Jordan, Libya, and Syria (via
Jordan). There are plans for a transmission line between Egypt and
the Congo, through which Egypt would have access to the excess
capacity generated by Congoʹs Inga Dam. Electricity supply enters
Egypt duty free. Egypt is a net exporter of electricity, with 2002/03
net exports amounting to 780 GWh.
Power policy is formulated by the Ministry of Electricity and
Energy. The State‐owned Egyptian Electrical Holding Company
(EEHC) is responsible for the generation, transmission, and
distribution of electrical energy. It also owns and operates Egyptʹs
electricity grid. The transport, distribution, and management of the
grid remain a monopoly controlled by the EEHC, while electricity
generation has been liberalised.
Law 100/1996 authorises the private sector to build, own, operate,
and transfer (BOOT) electrical power generation plants. Thus,
private companies will be selling electricity to EEHC for twenty
years and at the end of the operating period, they will transfer
assets to EEHC. Since adoption of this law, private investment in
the electricity sector has increased considerably, from EGP 120
million to EGP 5,030 million. The share of private generating
companies in total installed capacity was just under 8 percent in
2003.
Health and pharmaceutical products
The Egyptian medical sector is very complex, with multiple public
and private actors. The State budget devoted to health remains
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largely insufficient to ensure maintenance and renewal of the free
care network. Except for a few large hospitals, the whole of the
medical system suffers from a low level of equipment and quality.
To mitigate this problem, a global reform of the sector has been
launched by the government, implementing the “Family Health
Model”, a set of measures intended to improve quality and
establish pilot health facilities called family health units (FHUs) for
primary health care. The government’s approach is supported by
several donors (EU, the World Bank, ADB and USAID) and it has
been adopted in several pilot governorates.
The objectives of the five‐year plan 2002‐2007 are as follows:
construction of new hospitals and improvement of care in rural
areas; an increase in health personnel; supply of more sophisticated
equipment for dispensaries; increased budget for research allocated
to universities and scientific research centres; promotion of private
investment in health care facilities.
With more than 72 million inhabitants, Egypt is the number one
consumer and producer of pharmaceuticals in the Middle East, this
sector being one of the country’s oldest strategic industries. In 2004,
Egypt exported approximately US$ 43 million worth of
pharmaceutical products and an increasing number of private
sector companies have entered the market. The private sector
dominates over three‐quarters of the local market. Egypt has the
capacity to manufacture most of the drugs it needs, except for very
high technology products. More than 6000 references are registered
and 93 percent of needs are covered by the 74 local pharmaceutical
companies. Local production covers approximately 94 percent of
the domestic market and the government wants to reach self‐
sufficiency in pharmaceutical products, especially for the most
common products. The Egyptian market thus offers promising
prospects for foreign pharmaceutical companies, in particular for

Invest in the MEDA region, why how ?
local production. There are attractive investment opportunities in
therapeutic groups.
Tourism
As in other Mediterranean countries, tourism is a major contributor
to the GDP, employment and investment and the largest foreign
currency earner in Egypt. Along with related services, tourism
represents 11 percent of GDP, generates on average a quarter of
Egypt’s receipts in foreign currency and employs 2.2 million
people, some 12.6 percent of the labour force. International tourist
arrivals in 2004 amounted to 6 million, compared to 3.9 million in
1997, expected to reach 8 million in 2005.
Egypt offers a wide variety of attractions from its historical heritage
that spans several millennia. Landmarks and monuments from
Pharaonic, Nubian, Greek, Roman, Christian and Islamic
civilisations are easily accessible. In addition, beach and leisure
tourism on the coasts of the Red Sea and South Sinai have grown
considerably in recent years. To meet higher demand, tourism
accommodation capacity has also been growing, increasing at an
average annual rate of 7 percent over the period 2000–2003,
outpacing 4 percent growth in tourist demand.
The government’s objectives are to reach 18 million tourists over
the next ten years, to develop more than 500 km of coastline, to
build and rehabilitate several airports and to increase hotel capacity
(150,000 rooms in 2004). The planned expansion and development
of cultural and infrastructure facilities should further enhance
tourism performance in the coming year. Various plans for tourism
villages and hotels are under study or construction, in particular
south of the new airport of Marsa Alam. A cooperative agreement
was signed in September 2004 by the Minister of Tourism and the
TUI to develop the Mediterranean coast. It plans to build nine four‐
star hotels with some 4300 rooms over five years, at an estimated
cost of US$ 500 million.
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Investment opportunities for foreign companies involve in
particular improvement of tourist infrastructure (desalination of
water, water treatment and purification, electricity and
telecommunications networks, and transport), consulting services
for feasibility studies, hotel management, sports and entertainment
equipment, know how relating to museums, sound and light, spa
therapy, real estate management for residential tourism
programmes, etc.
Investors in the tourism industry, both domestic and foreign, are
eligible for the benefits provided by the Investment Guarantees and
Incentives Law, in particular tax exemption for five years and
exemption from customs duty on the products and goods needed
for tourism projects. Furthermore, land is granted on the basis of
US$ 1 per m², with the obligation to build within two years.
Tourism regulation and development are the responsibility of the
Ministry of Tourism and the Tourism Development Authority
(TDA), the main public authority in charge of investment
promotion in areas designated for development of tourism. It also
monitors individual tourism projects and ensures that they meet
minimum standards
Agriculture, fishing and food processing industry
Egypt is a major producer and consumer of agricultural products,
an exporter (primarily of oranges, potatoes and onions) but also a
net food importer (more than US$ 3 billion these past few years).
This strong dependency, particularly for the main basic food
products, is a major problem for the Egyptian government, which
targets food security and self‐sufficiency in basic commodities
while also increasing its export potential.
The main branches of the food processing industry include wheat
milling and bread making, edible oil production and production of
soft drinks and alcoholic beverages. Egyptʹs main exports in this

Invest in the MEDA region, why how ?
sector are milled grain products, canned vegetables and fruit, and
sugar products.
Local producers need capital goods and freezing technology as well
as value added services such as packing, packaging, and
marketing. The mechanisation market is estimated at EGP 5 billion
(EUR 650 million) for 2003 and is growing steadily.
Egyptian fishing and aquaculture production amounted to 800,000
tons worth US$ 1.5 billion, approximately 1.7 percent of GDP. The
sector employs 100,000 (licensed) fishermen and 100,000 people in
aquaculture. Although production has doubled in ten years, Egypt
is still unable to meet its needs, with imports representing a quarter
of marketed volume.
The General Authority for Fish Resource Development (GAFRD)
under the Ministry of Agriculture and Land Reclamation is the
state agency responsible for management and control of Egyptian
fisheries. The Government is becoming increasingly aware of the
fundamental role that fisheries and related activities can play in
Egyptʹs economy. Its main goals are to increase the annual catch to
1.5 million tons by 2017, to encourage export of fish and fishery
products, to expand fish farming at various inland lakes, and to
enlarge and modernise offshore fishing in the Egyptian economic
zone and international waters.
Since the 1 st of January 2004, Egypt has been authorised anew to
export fish to the European Union, but aquaculture and shellfish
products remain prohibited. Access to this new market has created
new opportunities.
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Success Story: The Dutch Heineken company
brews 100 million litres of malted drinks every
year
It was then the largest merger‐acquisition operation in the modern
financial history of Egypt. In September 2002, the Netherlands
group Heineken announced that it had just obtained the agreement
of the Egyptian market authorities to make a bid for 100 % of the
shares of the National brewer, the Al Ahram Beverage Company
(ABC). The offer, which valued ABC at 287 million dollars, was to
be successful.
Al Ahram Beverage, created in 1897 and privatised in 1997,
employed nearly 4,000 people and had a turnover of 105 million
dollars. It is still nowadays the market leader in beer (Al‐Ahram’s
Stella and Al Gouna’s Sakkara brands) and alcohol‐free malted
drinks. The group also commands strong positions on the wine
market, on distilled beverages and certain soft drinks. The
constitution of a serious challenger, EIBCO, by local investors, in
October 2005, with the ambition of offering a similar product under
its brand for each of ABC’s references, has quite stimulated
competition in a local market little fought for until then.
For the Netherlands group, this new acquisition completed its
development in the Arab world (a site in Lebanon with the Almaza
brewery and in Morocco), and marked its return to Egypt, forty
years after having pulled out of the country. The « Green Giant »
has acquired a new place as leader in the main Arab‐Muslim
market and would especially like to develop the Fayrouz brand
(alcohol‐free beer) in other countries in the region, as well as in
Africa.
Heineken is also counting upon this acquisition to substitute its
own brands for those produced locally by ABC for the account of
Carlsberg or Löwenbrau. The objective: to supply the tourist areas
of the country and the Western consumer.

Invest in the MEDA region, why how ?
For ABC, which kept its name, its brands and its directors, the
arrival of the international group provided it with new commercial
capabilities at a moment when the market is developing strongly
but when the sources of finance are rare, especially because of the
poor image of the alcohol sector in any Muslim country.
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Israel
Overview
References
Capital Jerusalem
Surface area 21,060 km2
Population 7,002,600 inhabitants (2006)
Languages spoken Hebrew, Arabic, (English, Russian)
GNP (dollars) US$ 123 bn (2005)
GNP/per capita (dollars) US$ 18,266 (23,416 in ppp.) in 2005
Religion Jews (80.1 %), Muslims (14.6 %),
Christians (2.1 %), others (3.2 %)
National holiday May 5 (Independence in 1948)
Currency (March 2007) Shekel (NIS)
1 Euro = 5.56 NIS – 1 US$ = 4.16 NIS
Association agreement
with EU
WTO membership Member since 1995
99
Signed on 20/10/1995; implemented on
1/06/2000
EU web site:
http://www.eu‐delegation.org.il
Sources: Annual Report 2005, Bank of Israel; IMF: Conclusions Article IV
2005, Country Report n°06/120, Mars 2006 and World Development
Indicators 2006; Central Bureau of Statistics (CBS).
Economic profile
Despite ongoing tension in the region, Israel has evolved in just 20
years from an emerging economy to an industrialised nation.
Today it is a regional economic power with GDP of US$ 123.5
billion (NIS 554 billion) recorded in 2005, the equivalent of US$ 158
billion in purchasing power parity according to IMF statistics.

Invest in the MEDA region, why how ?
After slower growth from 2001 to 2003 (1.3 percent) due to
conditions during the second intifada in the Palestinian Territories
and the global slump in technology stocks that slowed investment
in high‐tech companies, significant recovery took place, with GDP
growth 4.8 percent in 2004 and 5.2 percent in 2005. The main
motors for such strong growth were exports, private consumption,
and rapid expansion in high technology industries and tourism.
This new positive cycle was favoured by the interest shown by
foreign investors.
Services are the engine of Israeli growth, accounting for 77 percent
of GDP in 2004 and employing 76 percent of the labour force. These
trends are due primarily to a series of reforms and state
disengagement from certain activities. From 1986 to May 2005,
nearly 90 companies were privatised, notably the national carrier El
Al, the maritime company Zim Israel Navigation Co., the telecom
operator Bezeq, and the electricity operator Israel Electricity
Corporation (IEC). The manufacturing sector, which accounts for 14
percent of GDP and employs 16 percent of the working population,
is increasingly specialising on the production of goods with high
technological content.
Israel is an export‐oriented economy and foreign trade represents
nearly 90 percent of GDP. Commodity exports reached nearly US$
38.6 billion (US$ 25.5 billion if diamonds are excluded) in 2005 and
imports US$ 44.9 billion (US$ 35 billion excluding diamonds).
Israel exports mainly manufactured goods, in particular high
technology products (US$ 11.7 billion) but also US$ 6.9 billion
worth of low technology products according to the classification of
the Israeli Office of Statistics CBS. 80 percent of imports are made
up of raw materials (US$ 9.6 billion if raw diamonds are excluded
and US$ 6.7 billion if oil is also excluded) as well as capital goods
(US$ 6.2 billion).
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The United States is the main destination for Israeli exports (US$
16.8 billion in 2005), followed by the European Union with US$ 10.7
billion: Belgium, Great Britain, Germany, and the Netherlands. EU
countries are the main source of imports; with purchases from the
EU amounting to US$ 16.8 billion in 2005 (Belgium, Germany,
Netherlands, Great Britain) followed the US (US$ 9.7 billion).
The government is determined to pursue structural reforms, the
principal components being privatisation of companies operating
in key sectors such as oil refining, banking and armaments as well
as reorganisation of the electricity and water sectors. An ambitious
programme of infrastructure development (transport, energy, sea
water desalination, environment…) under BOT arrangements is
under way, funded by EUR 10 billion in investments over a period
of four to five years.
Israel has signed free trade agreements with its main trading
partners: the United States and the European Union, the European
Free Trade Association (EFTA), Canada, etc. Moreover, Israel has
launched regional trade initiatives, such as the “qualifying
industrial zones (QIZ)” aimed at reinforcing economic and trade
co‐operation with Jordan and Egypt.
Israel has signed investment protection agreements with 30
countries as well as agreements to rule out double taxation with 40
countries and it is a member of the Multilateral Investment
Guarantee Agency (MIGA).
Foreign investment amounted to US$ 9.66 billion in 2005, 67
percent growth compared to the US$ 5.8 billion recorded in 2004.
FDI came to US$ 5.71 billion, with foreigners investing more than
NIS 2 billion on the Tel Aviv Stock Exchange (TASE) in 2005.

Country risk
Invest in the MEDA region, why how ?
In terms of country risk ʺthe economic outlooks remain solidʺ
(conclusions from Standard and Poorʹ S Rating Service for 2006
which gave Israel an ʺA ‐ʺ rating for short term sovereign debt).
Moodyʹ S rating is A2.
Key challenges
Due to its lack of natural resources, the Israeli economy is heavily
dependent on foreign trade. Israel’s two largest trading partners
are the United States and the European Union. The global
economic downturn that began in 2001 heavily impacted
economies dependent on foreign trade and Israel was no
exception. However, with the first signs of recovery in the global
economy, Israel has reason to be confident that it will receive the
positive flow‐on effects.
The domestic security situation over the past three years has been
difficult as Israel seeks to sign and ratify peace agreements with
its neighbours. It should be noted however that the security
situation has not affected the day‐to‐day running of the industrial
and other economic‐related sectors.
Strong points
Apart from Silicon Valley, the highest concentration of high‐tech
companies in the world is to be found in Israel, with 4,000
businesses. The country has become a production centre for high
tech products, especially software. It is also a leader in the fields of
aeronautics, generic drugs, telecommunications and
biotechnologies. This phenomenon can be explained first and
foremost by the presence of a highly skilled and qualified
workforce. There are 135 scientists and engineers for every 100,000
workers, which is the highest proportion in the world. An
increasing number of Israeli companies are listed on Nasdaq and
in European stock markets. The sector still has real development
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potential. Many multinationals are long‐time investors in Israel
and to this day continue to expand their research, development
and manufacturing plants. They include: Motorola, Intel,
Microsoft and many more. Foreign firms have acquired many
Israeli start‐up firms. Many mergers have taken place, as well as
other joint projects that involve Israeli companies with their
foreign counterparts.
Israel’s Investment Promotion Centre (IPC)
Invest in Israel was established in 1993 as the investment
promotion centre of Israel’s Ministry of Industry, Trade and Labor,
Foreign Trade Administration. The centre serves as the marketing
agency for foreign investments in Israel and as a resource for
foreign based companies and individuals who are interested in
investigating direct investment and joint venture opportunities in
Israel. Invest in Israel works closely with potential and current
investors before, during and after investment, and serves as a
resource for investment related information about Israel. It is also
in charge of project approval and granting of incentives.
The Centre is positioned to capitalize on Israel’s unique advantages
and positive economic factors, and its main missions are:
� To position Israel as an attractive investment location
� To guide the investor in the decision making process
� To locate appropriate local partners
� To serve as a resource for economic information for potential
investors
� Provide customized pre‐visit briefing materials.

Invest in the MEDA region, why how ?
IPC is mainly in charge of organizing investment related visits,
providing necessary information and other assistances and
exchange activities concerning FDI.
The Investment Promotion Center also produces publications and
presentations, to keep investors and other players in the global
economy with an interest in Israel, up to date with the dynamic
Israeli economy as well as Israeli companies as they continue to
strengthen and succeed.
Web site: http://www.investinisrael.gov.il
How to invest in Israel
In recent years, the Government has introduced major structural
reforms to create an attractive environment for foreign investment.
An extensive legal framework of incentives in the form of financial
and tax breaks has been adopted. The investment incentive
package first appeared in the Law for the Encouragement of
Capital Investment (LECI), adopted in 1959 to attract private
investment and foster business initiatives, employment, and
exports.
Israel has a quite liberal investment regime, with most activities
open to private investors, both foreign and domestic.
There are no approval or registration requirements for investment
in Israel nor any restrictions on repatriation of profits or capital.
Both residents and non‐residents can buy securities traded on the
Israeli stock exchange as well as mutual fund certificates.
Companies with foreign capital can buy or lease land with prior
authorisation.
Israel encourages domestic and foreign investments by offering a
wide range of incentives and advantages. Companies with foreign
capital are also eligible for additional incentives. Investment
incentives are outlined in the Law for the Encouragement of
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Capital Investment. They include grants, tax incentives (rebate of
taxes on profits), support to research and development, financing
of wages, and support to training. The incentives offered depend
on the location of the company.
Israel is divided into three zones: zone A = Galilee, the Jordan
Valley, the Negev, and Jerusalem; zone B = lower Galilee and
northern Negev; zone C = the remainder of the country. They also
vary according to the amount invested or the degree of foreign
participation as well as the type of activity. Preference is given to
initiatives in industry, tourism, and agriculture. Special emphasis is
put on high‐tech companies and R&D activities.
More information on investment incentives is available on the
Invest in Israel website: www.investinisrael.gov.il
While the corporate tax rate is 25 percent for a registered company
owned by a local investor, the rate for foreign investors approved
in the framework of the 1959 law’s grant programme varies
between 10 percent and 20 percent, depending on the percentage of
foreign ownership. The standard rate is 31 percent for a company
whose investment initiative has not been approved. Tax breaks are
granted for a period of seven years.
The government has created a free trade zone and a free port in
Eilat. Companies established at this port are entitled to a number of
incentives, in particular exemption from income tax for seven years
and taxation at a maximum rate of 30 percent.
Legislation on industrial export parks is also in force but there is no
zone of this kind at this time. The Ministry of Industry and Trade
has also created a fund for assistance to exporters.

Invest in the MEDA region, why how ?
Finance & banking in Israel
Israel’s banking system is quite similar to that of the developed
countries of Europe or America, backed up by a relatively sound
public and private banking environment and independent financial
and monetary regulatory bodies.
There were 34 banking establishments operating in Israel at the end
of 2005, including 18 merchant banks, six mortgage financial
institutions, five investment banks, two joint service companies and
three foreign banks.
Five large bank holding companies ‐ Hapaolim, Leumi, Discount
Bank, Mizrahi and Bein Leumi (the First International Bank of
Israel) ‐ control 94 percent of the market and their net income is
estimated at 6.7 billion shekels (1.2 billion Euros), 30 percent more
than in 2004.
In accordance with Israeli commitments to the General Agreement
on Trade in Services (GATS), the right to enter the banking market
is free of restriction. Nevertheless, in practice, there are few foreign
banks in Israel and the few that exist are limited to representational
offices: Citibank, HSBC, the Standard Chartered Bank and (since
the beginning of 2006) BNP‐Paribas working through subsidiary
companies.
Privatisation and the move to mergers and acquisitions are other
major aspects of reform of banking structure. The State has sold
almost all its shares in the Hapoalim Ltd Bank and a portion of its
shares in Israel Discount Bank Ltd. The State holds just 28.3 percent
of capital in the Leumi Ltd Bank. In January 2005, the Mizrahi and
Tefahot banks merged, becoming the number one bank in Israel for
mortgage loans.
In addition to privatisation of State holdings, several reforms were
carried out in the nineties to bring Israeli banking up to
international standards and to avoid risks related to the formation
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of conglomerates. Banks must maintain the minimum ratio of
equity capital (9 percent) in accordance with the international
standards enacted in Basle II.
Liberalisation of the foreign exchange market was consolidated in
2003 and all transactions in foreign currency between private
individuals and resident or non‐resident companies are now
allowed.
Institutional investors and other financial services are well
developed. In August 2005, 627 reserve funds (for severance pay,
advanced study, and other purposes) were active, with total assets
of NIS 227 billion. The overall assets of pension funds amounted to
NIS 183.4 billion in August 2005 and the number of mutual funds
came to 860, managed by 41 mutual fund management firms.
Assets were worth NIS 133 billion in October 2005.
Money market profits on the modern Tel Aviv Stock Exchange
(TASE) ‐ a mature market of financial actors specialised in venture
capital (thanks in particular to the Yozma programme launched in
1996) and composed of 10 investments funds ‐ came to some US$
20 million, used as a catalyst for venture capital. The most
important indexes are the TA25 and the TA100 (canvassing the 25
and 100 most highly capitalised companies) as well as the Tel‐Tech
index for technology stocks.
The Israeli stock market registered several records in 2005 and it is
one of the least volatile emerging markets. In 2005, 584 companies
were traded, representing market capitalisation of US$ 122.6 billion
(stocks only). On 5 January 2006, the market hit record high
turnover of US$ 947 million and the TA‐25 index posted record
high trading volume of 790 thousand units. 1,185 securities were
traded on the TASE and securities indexes increased by 20 percent.
Foreign holdings reached a record US$ 2.1 billion in 2005 (11
percent of the market), according to the TASE 2005 annual report.

Invest in the MEDA region, why how ?
Telecommunications & internet in Israel
The telecommunications market increased by 7 percent per year
between 1998 and 2004, reaching total sales turnover of
approximately US$ 5.7 billion. Israel continued to implement
deregulation policy in 2005, in particular privatisation of Bezeq, in
operation since 1989, taken over in September 2005 by the Apax‐
Saban‐Arkin group with a controlling share in this previously
State‐owned telecommunications firm. Other challenges include
liberalisation of the fixed‐line domestic telephony market and
design of a regulatory framework that effectively promotes
competition.
The opening of the sector to competition has helped develop a wide
range of services as well as bring about lower prices, making the
most modern technologies like internet broadband, Wi‐Fi or multi‐
channel TV accessible to more people.
There are currently three million landlines in service. Since the end
of Bezeq’s monopoly of fixed telephony, Hot Telecom has become
the second largest operator. Currently, internet providers (ISP)
Netvison and Internet Gold Lines are testing telephony services
based on the VoIP protocol.
At the end of 2005, the cellular operator Golden Lines
Communications Services secured a new licence enabling him to
provide services on the fixed telephony market and VoBB (Voice
over Broad Band).
For international telephony, three operators compete with Bezeq
International: Barak (in association with Israeli companies Calcom
and Matav and foreign companies Sprint, Deutsche Telekom, and
France Telecom); Golden Lines (with Israeli companies Aurec and
Globscom and Italy’s Italia Telecom); and Internet Gold Lines
(Eurocom Communications) since June 2004. NetVision (supplier of
internet services) and Xfone Communication (a British‐Israeli
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company) entered the international communications market in
2004.
Four operators share the national cellular communications
network: Cellcom (BellSouth, Safra Group, Discount Investment
Corp.) with approximately 2.25 million subscribers; Partner
Communications‐Orange (Hutchinson, Elron Industries, Eurocom,
Matav and Polar) with nearly 2 million subscribers; Pelephone
(owned by Bezeq, operates with CDMA technology) with
approximately 1.95 million subscribers; and MIRS (Motorola Israel)
with 250,000 subscribers. There are approximately 6.5 million
mobile phones in service, a penetration rate of over 97 percent.
Total sales turnover for mobile telephony came to some US$ 3.1
billion in 2004.
There are some 60 internet providers, mainly Netvision, Internet
Gold, Bezeq International and Barak Online, Bezeq Zahav, Hot
Telecom, and Golden Delicious Lines, totalling 3.6 million
subscribers in 2005. Only 30 months after it was launched (i.e. at
the end of 2004), high‐speed internet access (by ADSL and cable)
recorded a 15 percent penetration rate (approximately 40 percent of
households). By the end of 2005, there were nearly 1.22 million
subscribers to ADSL access, a penetration rate of 65 percent of
households (South Korea alone ranks higher, with 75 percent). It
should be noted that only Bezeq offers ADSL services, with other
operators proposing cable broadband. Wireless internet is also
being developed, with more than 150 Wi‐Fi connexion points
throughout the country.
Israel is among the 30 best‐equipped countries in the world in
terms of computer equipment, with a majority of the households
having a computer. It is a fast‐growing market, with +16.4 percent
in volume recorded in 2004, turning out more than 612,000 units for
an amount of more than 1 billion dollars per quarter. Market
opportunities for companies are estimated at US$ 52.14 million,

Invest in the MEDA region, why how ?
while investment in IT services is expected to reach US$ 497 million
in 2006.
Three cable TV providers as well as a satellite TV provider have
been issued general licenses. The rate of penetration for household
cable TV has reached more than 55 percent. At the end of 2003, 77
percent of Israeli households (1.4 million) were subscribed to
digital multi‐channel TV. The rate of penetration for digital satellite
TV and cable TV is 70 percent. The range of services offered on
internet has grown considerably thanks to liberalisation,
particularly in the banking environment and government. For
example, the government has authorised use of electronic
signatures for identification purposes and monetary transactions;
and taxes or fines can be paid online.
In 2006, Israel had 3 million main telephone lines and 6.3 million
mobile customers on four networks. It is one of the few countries to
have adopted broadband Universal Service Obligation (USO) for
Broadband Regulation (100 percent population coverage in four
years). In 2004, The World Electronics Forum (WEF) ranked Israel
seventh in telephone infrastructure and cellular mobile
subscriptions and first for availability of cellular phones.
Business and investment opportunities in Israel
The country has many comparative advantages in a wide range of
activities, in particular the high technology sector, aeronautics, civil
and military electronics, electronic components, nanotechnologies,
telecommunications, data processing, safety, biotechnology,
medical instrumentation etc. and absolute comparative advantages
in certain growth industries like security on the internet (for
example encryption of online data), production of optical tools for
military use, innovative administration techniques for certain
drugs, etc.
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The Israeli market also offers opportunities in agriculture and
agrofood, environmental technologies and transport. The country is
committed to a long‐term programme for modernisation of its road
infrastructure, production and distribution of power stations, water
treatment units, and telecommunications networks.
In addition, the government intends to broaden its privatisation
programme in 2005‐2006, reforms relating mainly to: privatisation
of Bazan (oil refineries located at Ashdod and Haifa); privatisation
of the Leumi Bank (9.99 percent of State holdings having been
yielded in 2006 to the US funds Cerberus Capital Management LP
and Gabriel Capital Management for NIS 2.474 billion); merging of
certain components of Israel Military Industries IMI with Rafael
(the Armament Development Authority Ltd.) while carrying out
the second stage of the privatisation plan; completion of reforms in
the electricity sector; implementation of reforms in the real estate
sector, including the processes of planning and construction;
creation of a water control authority as well as distribution
companies.
The move to mergers and acquisitions continues to generate major
inflows of FDI, as testified by the purchase by Warren Buffet of 80
percent of the Israeli company Iscar for US$ 4 billion at the
beginning of 2006, one of the most important foreign investments
ever made in Israel after Intel.
Israel has a longstanding tradition in the diamond industry and it
is the world leader in polished diamonds with more than 1200
companies installed in Ramat Gan producing two thirds of the
world’s highest quality diamonds and the largest diamond
exchange. Investment incentives are also available in this sector.
Electronics and ICT sector
Development of Israel’s high‐tech sector is an impressive success
story. The excellence of its data‐processing industry, information

Invest in the MEDA region, why how ?
technologies, and telecommunications is a major asset for the
country today and it continues to present high potential. Israel’s
advanced national telecommunications infrastructure – a 100
percent digital network – has propelled Israel forward as a leading
global telecommunications supplier. Producing cutting‐edge,
innovative technologies, Israeli communications companies
continue to attract top‐tier institutional investors. Dozens of
telecommunication multinationals have established themselves in
Israel, including Motorola, Siemens, Qualcomm and Alcatel, all
benefiting from Israelʹs highly skilled workforce and increasingly
developed market.
Israel is active in many key areas, such as wireless technologies
(Wi‐Fi and Wi‐Max networks), satellite systems, broadband &
optical technology, internet security (Firewalls by Check Point),
microchips (Intel)… Israel also distinguishes itself in medical
imaging and devices, electro‐optics, cellular tissues, aeronautics
and nanotechnology. Niches and technologies for the future that
are very promising for Israel include the pills camera, instant data
transmission via internet and USB keys.
Software production is flourishing, employing more than 15,000
people. Electronic components constitute an economic and strategic
activity essential for the electronic industry in Israel. In 2004, Israel
produced nearly US$ 2.3 billion worth of electronic components (5
percent of the world market), of which 98 percent were exported.
The country’s academic research centres, the availability of funding
(in particular massive involvement of venture capital funds in start‐
up financing), and government‐supported programmes and
investments in research and development (technological
incubators, various Office of the Chief Scientist support
programmes, participation in international programmes such as
EUREKA, etc,) have contributed to the establishment of major
multinationals and leading international companies in this field.
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Israel has acquired highly developed expertise in the fields of
metrology and inspection systems. Applied Materials for example
is the world leader in this kind of equipment.
Deutsch Dagan is one of just a handful of connector manufacturers
in Israel and the exclusive representative of Deutsch, producing
high‐tech parts and assemblies for the automotive industry. It is a
major supplier of the Israeli military and electronic companies.
One of the main strong points of the Israeli semiconductors
industry is the many research laboratories in microelectronics. The
Braun Submicronic research centre at the Weizmann Institute of
Sciences is equipped with all the material needed to design,
manufacture and study electronic micro‐components.
The Technion Institute recently set up a sophisticated
nanoelectronics centre, the Russel Berrie Nanotechnology Institute.
About fifty research groups are currently focused on
nanotechnologies. Hebrew University of Jerusalem and the
University of Tel‐Aviv are also doing research in this field.
Life sciences
The life sciences sector has experienced considerable development
in Israel thanks to a favourable economic, technological, and
academic environment. Indeed, Israel has one of the highest
investment rates in the world in civil research and development,
estimated at 2.9 percent of GNP in 2004 according to OECD. Two
academic institutes, five universities, and the many local research
institutions receive funding from this funding. The sector covers
mainly medical instrumentation, pharmacology, and
biotechnologies, which include in particular therapeutics,
diagnosis, bio‐data processing, and agro‐technologies. There are
700 companies employing 2000 people. Exports brought in US$ 3.3
billion in 2005 mainly to the US (63 percent), Europe (27 percent)
and the Middle East and Asia.

Invest in the MEDA region, why how ?
This market represents sales turnover of US$ 3.5 billion, half of
which is carried out by Lumenis, Given Imaging, Healthcare
Techno and Philips Medical Systems. The industrial plant market,
evaluated in 2004 at US$ 2.4 billion (98 percent exports), is
concentrated on Elron Electronic Industries, the Elisra group and
HP Israel. The medical equipment market was estimated in 2004 at
nearly US$ 1.1 billion, 95 percent intended for export. Exports in
the sector grew by 35 percent in 2005 to reach US$ 3.3 billion. This
compares to overall Israeli exports (exclusive of diamonds) of US$
25.5 billion per annum.
The biotechnology sector has become a field of national excellence,
with more than 130 companies, of which about fifteen are traded on
the stock exchange. These companies work in a wide range of
activities, from genetic engineering to bio‐data processing and from
development of therapeutic substances to experimental products
based on cellular genes.
In the pharmaceutical industry, 74 laboratories are operational,
including TEVA Pharmaceutical Industries, a world leader in
generic drugs, which produces Copaxone to fight multiple
sclerosis.
A biotechnology park was created on the campus of the Hadassah
Medical Centre in Jerusalem, to be used as an incubator for start‐up
companies. It provides laboratory facilities for some 25 companies
(forecast for 2007) and is home to the Israeli Life Science Industry
(ILSI) dedicated to life sciences. In addition, among the 25
technological incubators created by the government, five are
devoted exclusively to life sciences. A consortium of bio‐
pharmaceuticals (Pharma Logica) was created in 2002 to establish
cooperation between the pharmaceutical industry and university
research centres. Thus, there are numerous prospects for
partnership and co‐operation in this field.
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Invest in Israel
Energy consumption, particularly electricity, is growing fast. Due
to its limited energy resources, Israel imports virtually all its oil
needs (US$ 6.8 billion in 2005 and US$ 4.5 billion in 2004) from
Egypt, Mexico, West Africa, the North Sea, and more recently from
Russia. Oil exploration in Israel has not been successful, but the
Israeli Oil Commission estimates that Israeli’s underground is
likely to contain 5 billion barrels. Israel Oil Refineries (IOR) runs
the two existing refinery facilities in Haifa and Ashdod.
The government decided at the beginning of 2000 to tap natural gas
to produce electricity. In 2003, the State created the Natural Gas
Authority (NGA) and the transport company Israel National Gas
Lines (INGL) under the Ministry of Infrastructure to elaborate a
plan of national interest, with natural gas accounting for 60 percent
of overall production of electricity in the long term.
Annual demand for gas is 1.6 billion m3 for electricity and industry
and the NGA forecasts requirements for the 20 years to come at 11
billion m3.
The two largest users are the Israel Electric Corporation (IEC) and
Oil Refineries Ltd (Bazan).
The Yam Thetis consortium will be the main natural gas supplier to
IEC for an 11‐year period starting 1 January 2004. Yam Thetis also
signed an agreement in 2004 for the provisioning of natural gas
from Ashqelon to the Ashdod refinery. This agreement covers a
period of 10 years, renewable if warranted by developments at the
Ashdod refinery.
A historical agreement was signed in July 2005 concerning export
of gas from Egypt to Israel. An Israeli‐Egyptian consortium
“Eastern Mediterranean Gas (EMG)” will import Egyptian gas for a
period of 20 years, part of this gas having to be sold in Israel, but
another portion being available for possible re‐export to Europe

Invest in the MEDA region, why how ?
and Turkey. In addition, EMG and IEC have signed a contract for
the supply of 1.7 billion m3/year for 15 years. EMG is also in charge
of building the pipeline from El Arish in the Sinai to Ashkelon.
A wide‐ranging plan for natural gas supply was launched to cover
Israel’s deficit, expected to reach 50 billion m3 by 2025. The
government is looking for suppliers and additional managers for
Yam Thetis and EMG.
Israel National Gas Lines (INGL) holds a monopoly on transport
that will last at least until 2007, the target date for privatisation. As
for the future distribution network, the NGA will grant regional
licences, five of which are already scheduled solely for
infrastructure.
These licences will be granted under BO (Build/Operate)
arrangements for low‐pressure systems. The grid systems on the
southern portion (Ashdod‐Ashkelon) already exist and the licence
should be granted end 2005 ‐ early 2006. Invitations to tender for
the distribution networks however are intended mainly for local
companies.
Israel has become a major actor in sustainable energies.
Developments in the field of alternative energies include flat solar
collectors for domestic use, solar ponds and a parabolic trough
technology. Regulations require that all new buildings equipped
with solar collectors for water heating. Household solar collectors
save some 3 percent of overall energy consumption and Israel
boasts one of the highest rates of domestic solar heating
worldwide, used in about 75 percent of households. Israeli
companies have pioneered solar technologies that are used
worldwide. Solel, for example, was the first to develop and install a
large‐scale solar‐powered electricity generating plant in southern
California’s Mojave Desert. Plans are now going ahead in Israel to
establish a 100 MW solar power plant in the northern part of the
Negev desert. The technology is available but the cost is still too
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high to compete with alternatives, particularly in light of the low
cost of natural gas. In recent years, Israel has taken important steps
towards advancing the use of alternative energy. A 2002
government decision called for introduction of renewable energy in
the electricity sector so that by 2007, at least 2 percent of electricity
consumption would be produced by renewable energy (beyond
that of domestic solar heaters) and by 2016 at least 5 percent should
be produced by renewable energy.
Transport sector
The Ministry of Transport (MoT) has launched a national master
plan for interurban and suburban transport infrastructure. Airport
infrastructure projects involve building of a new terminal for
private and business flights at the Ben Gourion International
Airport. The terminal operator would work under a franchise, with
no ties to service providers on the ground, paying royalties to the
Israel Airports Authority (IAA). Cost is estimated at NIS 4.3
million. Other projects include the transformation of Haifa Airport
into an international airport (at a cost of NIS 2 million) and
construction of the new Timna Airport near Eilat. The BOT tender
should be published in 2006 for start up in 2010.
In the field of rail transport, a five‐year plan called “Railways 2000”
was launched in 2002 to facilitate the country’s network. The
objective for 2010 is to reach 40 million passengers and 15 million
tons of goods.
The “Suburban Railway” project seeks to improve and modernise
the existing network and build new lines, to be integrated in a
network that would consist of 1,230 km of rails by 2010. There are
also important needs for railway equipment and electrification,
likely to require some 25 percent of investment.
As for roads, the Israel National Roads Company has a budget of
US$ 19 billion, to be used over the next five years for development

Invest in the MEDA region, why how ?
of new roads, renovation of existing roads and better road safety.
For road construction, the government generally provides land for
private consortia (local and foreign companies) to work under BOT
arrangements.
The 2004 Port Reform allowed the three principal Israeli ports of
Haifa, Ashdod and Eilat to accede to autonomous management
through the Israel Ports Development & Assets Company (IPC).
Overall, merchandise traffic at Israeli ports came to 37.5 million
tons of goods in 2005. The government’s objective is to reach 65
million tons by 2010, thanks to investment in modernisation,
especially at Haifa and Ashdod. The cost of this initiative is
estimated at US$ 2.1 billion over 10 years.
The Eitan terminal (Port of Jubilee) in Ashdod was officially
inaugurated on 2 August 2005. It is intended to increase capacity
for deep‐water cargo liners and to improve the transfer of goods, at
a cost estimated at US$ 638.32 million. Some 14.5 million tons of
goods (potash and all agricultural products) went through the port
of Jubilee in 2004. There are also plans to equip the port of Haifa
with a railway connecting it to inland areas and bordering
countries, often the final destination for commercial traffic entering
the port. An extension to the Palestinian Territories is envisaged
and a multimodal transport system is also planned between Carmel
and Haifa. Some NIS 3 billion is expected to be invested in the
development of the port of Haifa over the next five years, in
particular construction of the first part of the port of Carmel and
extension of the quays. Work began in August 2005 and should
continue until 2008. Beyond these two major undertakings, IPC
plans to inject US$ 1.06 million in other projects, mainly for the
development of already existing infrastructure, in particular
extension to the north of the Port of Eilat.
It should be noted that there is no local production of materials for
public works, which must therefore be secured entirely through
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imports. Expenditure for public works machinery and equipment
amounted to EUR 40 million in 2002 (mainly tractors, cranes,
winches, scaffolding, concrete mixers, bulldozers, excavators, lifts,
escalators, trailers, etc).
Chemical industries
Thanks to minerals occurring naturally in the Dead Sea (the
greatest source of bromine), Israel is one of the leading chemical
producers in the world and chemicals are a primary export,
growing at a rate of 24.5 percent in 2004, worth US$ US 6.43 billion
(including fuel). The sector is evolving toward new products such
as biotechnology drugs, products and manure. Nearly 40 percent
are intended for Europe and 30 percent for the US.
The sector counts 150 companies. The main Israeli chemicals
companies are Oil Refineries Ltd., Makteshim‐Agan Group, Haifa
Chemicals Ltd., Agis Industries Ltd., Teva Pharmaceuticals and
Israel Chemicals Ltd. The latter handles 11 percent of world potash
production and 13 percent of international trade in potash, as well
as 9 percent of worldwide supply of primary magnesium.
Agriculture and environmental technologies
Agriculture accounts for 2.4 percent of Israel’s GDP. Its importance
is declining largely because of ongoing negative growth. Thus,
while GDP has grown by 3.2 percent since 1986, agricultural
production decreased by almost 10 percent, employing 50,000
people. However, it continues to play an important role in certain
poor areas of Israel like the Jordan Valley or Arava.
Agricultural production rose in 2004 to US$ 3.9 billion, 23 percent
of which is exported. These figures vary from year to year
depending on weather and monetary fluctuations. Israeli
agricultural exports brought in US$ 1 billion in 2005, 4 percent of
total exports.

Invest in the MEDA region, why how ?
Israel produces 70 percent of its food needs, counting on imports
for sugar, coffee, cocoa and almost all its seeds, oilseeds, meat and
fish. Israel is 100 percent dependent on imports for cereals. Fish
and oilseeds are imported in large quantities to meet some 50
percent of consumption.
Israeli is well known for its know‐how in intensive agriculture.
Thanks in particular to the use of drip irrigation techniques, Israeli
agriculture posts record productivity levels. For example, nearly
200 tons of tomatoes can be produced in one year on just one
hectare. Israeli micro irrigation companies like Plastro Irrigation
Systems are world leaders in this sector.
Advances by the profession have had a crucial influence on
vegetable crops over the past decade. Innovations include:
improvement and control of climate conditions in protected
growing systems; use of substrata growing methods in regions
where the soil is unsuitable for growing crops; application of
Integrated Pest Management (IPM) methods for a wide range of
vegetable crops; use of post‐harvest methods, means and treatment
in order to lengthen shelf life and prevent rotting. Dairy‐product
and technology exports include advanced and computerised
milking and feeding systems, cow‐cooling systems (to reduce heat
stress on cows over the hot, dry summer) as well as milk
processing equipment, advisory services, and development of joint
international projects.
Although Israel is a major producer of agricultural machinery,
there are business opportunities for the import of certain
specialised machines.
Israel has developed its agricultural mechanisation industry,
leading to US$ 1.85 billion in export of agricultural raw materials
and equipment in 2005, an increase of 16 percent. Exports by this
sector have grown twice as quickly as the average for Israeli
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exports overall. Israeli agricultural equipment is especially strong
on the gardening or orchard markets.
Water
Like the other countries in the region, Israel is confronted with a
crucial water deficit and deterioration of the quality of its
resources. The projected increase in needs over the long term has
led the government to step up efforts to mobilise water.
Natural resources provide some 1,750 million m³ on average per
year, to which is added approximately 300 million m³ of recycled
water and 150 million m³ of rainwater and storm runoff.
The public company Mekorot is the main producer of water
resources. The company was restructured in 2004 and a new
holding company (Mekorot Holding) set up, entirely controlled by
the State and managing three subsidiary companies: “Mekorot
Water Supply” (in charge of the national water supply system),
“Mekorot Water Solution” (which handles project development, in
particular desalination of water, irrigation and water treatment),
and “Mekorot Assets” (in charge of managing the companyʹs
assets).
Mekorot provides more than 1.3 billion m³ of water per year, more
than 90 percent of drinking water consumption, and 70 percent of
the water produced in Israel, the remainder being produced by
agricultural communities and certain municipalities. The
engineering company Tahal is responsible for planning and
managing storage facilities.
Israel’s environmental industry counts some 250 small and
medium‐sized companies. A national program has been designed
to overcome the current water shortage within 10 years through
initiatives such as re‐inflating aquifers. The government will create
seawater desalination as well as water treatment and purification
plants. Two desalination facilities, at Ashkelon and Hadera, have

Invest in the MEDA region, why how ?
been launched, funded in part by private investment. The Ashkelon
seawater reverse osmosis (SWRO) plant started production in
August 2005. Initially running at around 30 percent to 40 percent
capacity, it will ultimately provide an annual 100 million m³ of
water, roughly 5 to 6 percent of Israelʹs total water needs or around
15 percent of domestic consumer demand. The tender for
construction of a desalination facility in Hadera was launched in
2006. It will involve a BOT (Build, Operate, and Transfer)
arrangement, meaning that the winner will plan, construct, operate
and maintain the facility, then return it to the State at the end of a
25‐year period. The desalination facility will produce 100 million
m³ of water annually. The cost for constructing the facility is
estimated at NIS 1 billion.
The French Development Agency (AFD) has approved a grant of 2
million Euros to finance feasibility studies for a water supply canal
connecting the Red Sea to the Dead Sea via Jordan. The planned
180 km conduit would carry 1.8 billion m³/year of seawater to
associated power desalination projects and provide 850 million
m³/year of fresh water to Jordan, Israel, and Palestine.
Mekorot has launched WaTech, a program that involves private
contractors in water exploration and project development, allowing
(for example) the start‐up company Atlantium to develop a system
of hydro‐optic disinfection of water.
A number of tenders will be published by 2010, in particular
treatment of groundwater and rehabilitation of polluted wells,
liquid waste processing, purification of drains and centralisation of
sewerage systems, and quality control of water.
Construction and public works
The construction sector has posted slower growth since 2002, with
capital formation of roughly NIS 38.3 billion in 2005 vs. an average
of NIS 44.5 billion between 2000 and 2003. It accounts for 8 percent
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of GDP, vs. 14 percent ten years earlier. Investment came to about
US$ 9.8 billion in 2005.
The State, which has been gradually disengaging from civil
engineering and public construction since 1995, will give the sector
a boost by launching an ambitious infrastructure programme over
the next five years. Future building sites in fact relate more to
industry and commerce than infrastructure, but there are also
prospects in the residential sector, particularly renovation and
restoration of old flats.
There are not many Israeli construction companies, but the few that
exist are rather powerful, of international dimensions. Local
production of equipment for public works is almost non‐existent
and the sector relies on massive imports. Equipment is very often
leased, and this too could be an attractive opportunity for foreign
companies.
Tourism
Tourism plays an important role in the services sector. Thanks to its
geographic location at the crossroads of the East and the West, the
diversity of its landscapes, and its historical, religious and cultural
heritage, Israel offers many tourist attractions year round. Tourism
was up by 23.4 percent in 2003, 41.6 percent in 2004, and 26 percent
in 2005 (to 1.9 million tourists).
A key sector of the Israeli economy, tourism is regarded as the
primary activity for generating economic growth. It accounts for 6
percent of GDP and employs 73,000 people (including 13,000 new
jobs in 2005). In 2005, revenue related to tourist activity rose to US$
1.9 billion (+30 percent). Tourism accounts for 11 percent of overall
export of services.
Development objectives were to reach 3 million tourists in 2006
(only 1.9 were achieved in 2005) and 5 million in 2008 for the 60th
anniversary of the creation of the State of Israel. The two largest

Invest in the MEDA region, why how ?
initiatives currently under way are a world evangelist centre on the
banks of Lake Tiberius in Galilee, in the setting of a biblical garden
(investment: US$ 50 to 70 million), serviced by three‐star hotels to
accommodate 750,000 pilgrims from everywhere in the world; and
a casino in Eilat which, according to estimates, should attract a
million tourists a year.
Success story: global high tech alliance Tel Aviv -
Grenoble
The acquisition of the company GalayOr (literally « wave guide »
in Hebrew) by Memscap, a high tech company based in Grenoble
in France, illustrates perfectly well the capacity of the Israeli
economy to give birth to start‐ups whose know‐how very quickly
surpasses its own national market.
The alliance between the two enterprises is firstly strategic, since it
is based on a partnership. The objective being to use the
developments made by GalayOr together with the encapsulating
and production expertise of Memscap. The two companies intend
to provide the market, and more especially the telecommunications
market, with a new generation of highly sophisticated optical
products such as a closed‐loop digital variable integrated optical
attenuator (« DVOA »).
The acquisition of GalayOr in the autumn of 2003 has provided
optimal scope for the partnership. Memscap, with a Stock
Exchange listing since 2001, offers the GalayOr directors the
opportunity of purchasing shares in the new mother company. The
R & D centre is to remain in Tel Aviv, whereas the sales and
distribution network and production is split between the different
Memscap sites in France, the United States and Egypt. « The
acquisition of GalayOr reinforces our technological advantage» stresses
Jean‐Michel Karam, The Chairman and Managing Director of
Memscap. « We share the same vision and the same values. Together, we
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shall provide the world market with the best optical products using
MEMS technology», declares Uri Geiger, Chairman and Managing
Director of GalayOr, who has become Chairman of the group’s
optical division boundaries.
Memscap (165 staff), is a specialist of the MEMS (Micro Electro
Mechanical System). It is a microscopic system (up to 50 times
smaller than the diameter of a hair) which links mechanical, optical,
electromagnetic and thermal elements. This technology is
developed on a semi‐conductor, giving it new functionalities at a
very competitive cost.
GalayOr, based in Tel Aviv, is a supplier of optical systems built on
a single chip made entirely of silicon. The company, which employs
16 people, created in 2000, is the fruit of the self placement process
(four years research at the University of Tel Aviv) and was
financed by venture capitalists

Jordan
General overview
References
Capital Amman
Surface area 89,210 km2
Population 5,800,000 inhabitants
Languages spoken Arab, English
GNP/per capita (dollars) US$ 2,206 (2005)
GNP (dollars) US$ 12.8 bn (2005)
GNP/per capita (dollars) US$ 2,219 (US$ 4,825 en ppp.) in 2005
Religion Sunni Muslims (92 %), Christians (6 %),
others (2 %)
National days
Currency (March 2007) Jordanian Dinar (JOD)
1 Euro = 0,95 JOD – 1 US$ = 0,71 JOD
Association agreement
with EU
Signed on 4/10/1997; implemented on
1/05/2002
EU web site:
http://www.deljor.cec.eu.int/
WTO membership Member since April 2000
Source: IMF, WDI 2006 and Article IV Consultations 2005.
Economic profile
Located at the junction of Asia, Europe and Africa, Jordan is
bordered by Syria to the north, Iraq to the northeast, Saudi Arabia
to the east and south, and Israel and the Israeli administered West
Bank Area C to the west. It shares the Dead Sea coastline with
Israel and the Gulf of Aqaba with Israel, Saudi Arabia, and Egypt.
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A small, middle‐income country, Jordan plays a pivotal role in
supporting stability and security in the Middle East.
Its open economy has to reconcile limited natural resources. Only 6
percent of the country is arable land and water resources are
among the scarcest in the world. However, there are sizeable
mining resources, primarily potash and phosphates, of which it is
the third largest world exporter.
Jordan was heavily impacted by the war in Iraq, disruption of trade
with Iraq (its main export market) having not only important
economic consequences for the economy but also having an
adverse impact on prospects for development. Moreover, tensions
in the region contributed to a significant drop in foreign investor
interest in Jordan, in addition to marked deterioration of income
from tourism.
After a spectacular GDP growth of 7.7 percent in 2004 (up from 4
percent in 2003) largely due to a surge in domestic demand,
Jordan’s economic situation worsened in 2005 because of higher
world oil prices and an unexpected drop in external grants (down
from US$ 1.3 billion in 2004 to US$ 700 million in 2005). These
external shocks contributed to a higher budget deficit (up by about
10 percent) and inflation rate (up from 3.4 to 5 percent). The
external current account deficit has also deteriorated, largely
because of a wider trade deficit; partially offset by private capital
inflows and transfers from Jordanians living abroad. However,
despite these shocks, real GDP growth came to 7.2 percent in 2005
according to the World Bank, reflecting the economy’s dynamic
activity.
The leading sector is services, which account for 70 percent of GDP
and the role it plays in supporting production is underlined in the
King’s new economic guidelines. While the agricultural and
construction sectors account for only a small portion of GDP, they
employ a significant percentage of the workforce. The main

Invest in the MEDA region, why how ?
manufacturing industries are textiles, mining (potash and
phosphates), fertilisers, pharmaceuticals, oil refining, and cement.
Trade increased by 22.2 percent in 2005. Overall, imports increased
in all sectors, while there was little diversification in exports, with
the trade deficit widening to US$ 6.169 billion (+43.6 percent).
Imports increased by 27.8 percent in 2005, to US$ 10.5 billion (CIF),
mainly due to higher prices for imported commodities and oil
prices and purchases of machinery and equipment for the
telecommunications and electricity sectors, development of the
local building sector, and an upsurge in semi‐manufactured goods
in special industrial zones (QIZ).
Saudi Arabia is the primary supplier of oil, with a market share of
23.7 percent (US$ 2.5 billion), followed by the EU with 22.9 percent
(US$ 2.4 billion), China (9.2 percent), Germany (8 percent), and the
USA (5.6 percent). Exports are also growing (+10.9 percent) with a
total amount of US$ 3.6 billion. The United States is Jordan’s
primary customer (30.8 percent), followed by Iraq (14.8 percent)
and India (9.5 percent). Exports to the EU account for only 3
percent of total (US$ 109 million).
Foreign investments have increased appreciably over the past few
years. After a very good year in 2000 (US$ 787 million in
investments), the aftermath of the September 11th attacks as well as
slowing economic growth and the war in Iraq reduced capital
inflows to US$ 120 million in 2001 and US$ 64 million in 2002
before recovery took hold (US$ 424 million in 2003 and US$ 620
million in 2004). Market expansion and the attractiveness of special
economic zones ‐ the Aqaba Special Economic Zone (ASEZA) and
the Qualifying Industrial Zones (QIZ) ‐ helped the country attract a
high level of FDI inflows in 2005, which according to the World
Bank amounted to US$ 1.7 billion (13 percent of GDP), roughly four
times the level recorded in the previous five years.
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The privatisation process continues, with 35 companies already
sold out of the 40 officially announced, mainly cement factories,
telecommunications, water distribution, and potash. Further
privatisation transactions are scheduled, for example the phosphate
companies JPMC “Jordan Phosphates Mining” and APC “Arab
Phosphate Company”, Jordan Telecom, the state owned Silos and
Mills, the Postal Service (currently being evaluated), the Queen
Alia Airport in Amman (likely to be transferred under a BOT
scheme in the framework of a rehabilitation‐extension program
worth US$ 700 million), and the refinery of Zarqa (which seeks a
strategic partner to meet the challenge of complete liberalisation of
the oil market in 2008).
Furthermore, the master plan for the Amman Development
Corridor, which aims to support Amman’s role as a regional centre
for trade and services, has finally been launched. It includes a ring
road between the suburb of Zarqa and Amman and a BOT scheme
is to be finalised. Privatisation of the national carrier Royal
Jordanian Airlines is slated for early 2006.
Jordan has signed a number of strategic trade agreements. It has
been a member of the Greater Arab Free Trade Area (GAFTA) since
1998 and signed bilateral free trade agreements with most of the
Arab League countries.
Jordan became a member of WTO in 2000 and signed bilateral free
trade agreements with EFTA in 2001, the US. in 2002, and
Singapore in 2003. The FTA with the US will eliminate duty and
trade barriers on goods and services traded between the two
countries.
Jordan also signed the Euro‐Mediterranean Association Agreement
on 24 November 1997, which entered into force on 1 May 2002,
governing gradual establishment of a free trade area over a period
of 12 years. Industrial products originating in Jordan are imported
into the EU free of customs duty and charges. Reciprocally, Jordan

Invest in the MEDA region, why how ?
has abolished customs duty and charges on a large number of
products originating in the Community and is liberalising the
remaining products in several stages, according to their impact on
Jordanian markets. It also signed the Agadir Agreement in January
2003, which envisages a free trade system between Jordan,
Morocco, Tunisia, and Egypt by 2006.
Jordan has further developed its export‐oriented policy, in
particular with the creation of special free trade zones (Qualifying
industrial zones or QIZ) and establishment of a special economic
zone in Aqaba (ASEZ). Jordan is also committed to progressive
liberalisation of the services sector, in the framework of
negotiations regarding the General Agreement on Trade in Services
(GATS).
Lastly, Jordan and Israel agreed in 2004 to widen the field of
application of their 1995 customs agreement to a new list of
products likely to benefit from lower tariffs, which also includes a
chapter on the rules of origin and a chapter on trilateral trade with
the EU. 2198 products from the two countries are taxed at only 3
and 5 percent, while medical products (the country’s major
industry) benefit from total exemption. A second list of 188
Jordanian products (notably agrofood, oils, cement, paintings,
textiles and related items, metal products…) will also profit from
total exemption when entering Israel. Another list of products
(phosphates, potash, tobacco, household appliances, plastic items,
furniture…) will be progressively dismantled by 2010. The
agreement was ratified on 20 May 2005 at the World Economic
Forum at the Dead Sea, in force since September 2005.
Over the last 10 years the government has launched important
political, economic, and social reforms aimed at transforming
Jordan from a small, lower middle income, vulnerable country into
a modern knowledge‐based economy. This is the core of King
Abdallah II’s vision for the country: “Jordan Vision 2020”.
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This vision has been captured in a strategic plan and operational
policies such as “Jordan First”, the “Social and Economic
Transformation Plan (SETP)” launched in 2002 and the “National
Social and Economic Plan (NSEP)” recently adopted for the period
2004‐2006, determining the principal objectives of the government’s
10‐year National Agenda. The eight key priorities are: human
resources development, poverty alleviation, investment promotion,
tourism, public sector reform, justice, health, and media and
culture. Investments listed in the 2006 finance law in support of the
National Agenda stand at US$ 1,188 billion (the total budget being
US$ 4,9 billion).
Country risk
Rating agencies have a rather diversified vision of Jordan risk,
according to the importance given to positive (growth, return of
aid) or negative factors (deficits, geopolitical context):
� Moodyʹ s changed its outlook on Jordanʹs sovereign ratings to
stable from negative in January 2007 (after a change in opposite
direction in early 2006). The agency estimates that the country
will be able to mobilise new external assistance, that energy
prices are down again and that the economy has been able to
develop in 2006 at a rate above 6 per cent.
� For Coface, the rating was downgraded to B‐ from B in July
2006. The agency estimates that in spite of a solid growth
pulled by Jordan’s role as a support base for Iraq and the flow
of regional capital, the rise in oil prices and the reduction of
foreign aid are worsening fiscal balance. However, since the
country may count on international assistance to avoid a major
crisis, the risk remains reasonable.
� EIU estimates that the regime is stable and that the way
Government manages the economy inspires confidence, with
one major concern (the imbalanced budget), but a robust

Invest in the MEDA region, why how ?
growth. EIU provided the following estimate of the main
country risks as of March 2007 (AAA=least risky, D=most
risky): Sovereign risk, B; Currency risk, BB; Banking sector risk,
BB; Political risk, CCC; Economic structure risk, Ccc.
Key challenges
Scarce natural resources and reliance on foreign energy sources are
some of the most important challenges that faces Jordan. The
agriculture sector suffers from a shortage of water and available
land.
The geopolitics of the country, at the centre of the Middle East,
makes it vulnerable to the perceptions about events in the region.
Unemployment remains an economic burden that has not been
helped by the fall in tourism receipts due to the Intifada and the
events in neighbouring Iraq.
Strong points
The human element remains Jordan’s source of national pride. The
country enjoys an educated, highly competitive, young and skilled
labour force of 1.4 million. In a turbulent region political, legal and
social stability remain priceless assets to the Kingdom.
The international trade agreements mentioned above are witness to
Jordan’s business friendly and secure environments and have been
a major source for attracting billions of dollars in foreign direct
investments.
The Jordan Investment Board (JIB)
The Investment Laws of 2003 and Investment Promotion Law of
1995 established the Jordan Investment Board as a governmental
body enjoying both financial and administrative independence.
Prior to that, investment procedures for exemption were conducted
by a department within the Ministry of Industry & Trade. The
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creation of this organization came about as a result of the
government’s realisation of the importance of increasing foreign
direct investment to Jordan, and enhancing local investment in a
bid to create new job opportunities, increase national exports, and
the need for the transfer of technology.
The Jordan Investment Board is a government institution
committed to working with the private sector, to promote Jordan’s
diverse investment opportunities. The JIB presents state of the art
services for facilitating registration and licensing procedures for
projects, and offers all possible simplified procedures to investors:
A one Stop Shop service: a full service assistance package for
investors; that consist of, licensing and registration services.
Through this service investor can register and license his/her
project in Jordan at one place within 14 days.
Dissemination of information, findings, reports, surveys and
business opportunities through JIB publications, Conferences,
Media Communication, and Public Relation Activities.
‐ Granting financial exemptions; mainly customs fees and sales
Taxes, duty exemptions and income tax reduction.
‐ Offering a wide range of business opportunities that consist of
eighty pre‐feasibility studies that cover the national strategic
sectors; that Jordan maintain a competitive and comparative
advantage (Information Technology, Pharmaceuticals, Dead Sea &
Mining, Food Sector, Tourism and Entertainment and the
Biotechnology sector which is under study),
‐ Carry on setting marketing themes for Jordanʹs image building;
that include: Advertising in Journals, Video Scripts, Exhibitions,
Conducting both Investment & Business Seminars, inviting senior
reporters and Direct mail/telemarketing campaigns.
‐ Policy Advocacy through surveying the private sectorʹs issues and
assisting by lobbying with government official channels

Invest in the MEDA region, why how ?
‐ SMEs support through Entrepreneurship Development Program
(EDP), UNIDO
Web site: http://www.jordaninvestment.com
How to invest in Jordan?
The Jordanian government has eliminated legal barriers to foreign
investment and ownership in most sectors. The three investment
laws of 2003 (replacing 1995 legislation) provide for equal
treatment of Jordanian and foreign investors. Moreover, the
privatisation programme and special‐status industrial zones are
essential assets for boosting the country’s attractiveness.
These laws offer incentives and exemptions, especially for
investment in industry, agriculture, hotels, hospitals, maritime
transport, railways, leisure and recreational compounds, (7)
convention and exhibition facilities, oil and gas production. Foreign
investors can hold total ownership in projects, minimum required
investment being approximately 63,000 Euros. However, foreign
ownership cannot exceed 50 percent for construction and
commercial services.
A new legal form for companies was created in 2002: the private
shareholding company. This is the equivalent of a limited
company, but with more flexible methods of creation and
management that are more suitable to foreign establishments.
The government can grant additional incentives to other sectors,
such as flying schools and the ICT sector.
Furthermore, the Investment Promotion Agency (Jordan
Investment Board ‐ JIB) offers a 10‐year tax exemption, depending
on the geographical location of the investment. The investment law
divides the country into three development areas: zones A, B and
C.
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Investments in the latter, the least developed areas of Jordan,
receive the highest level of exemptions. All agricultural, maritime
transport and railway investments are also classified as zone C
investments, irrespective of their location. Qualifying Industrial
Zones (QIZs) are treated as zone B projects unless they are located
in zone C.
Investment incentives in Jordan include exemption from customs
duty for a wide range of imported goods and exemption from
income tax for a ten‐year period, depending on the location of the
project: exemption of 25 percent for investments in zone A, 50
percent in zone B and 75 percent in zone C. The normal income tax
rate for the majority of sectors is 15 percent and net profits from
exports are fully exempt from income tax.
This investment law also provides guarantees to foreign investors,
prohibiting expropriation and ensuring the right of foreign
investors to repatriate in a fully convertible foreign currency 100
percent of profits and capital, including proceeds from the sale of
shares when a company is liquidated, providing for unrestricted
reinvestment of profits. The Jordanian Dinar (JD) is fully
convertible for all commercial and capital transactions.
In 2001, a special economic zone was created in Aqaba, in an effort
to halt declining activity at the port and facilitate implementation
of activities to make Aqaba a major redistribution centre between
the East, Europe and neighbouring countries. In order to attract
foreign investors to these zones, many administrative facilities and
tax incentives are granted to investors: customs duty and VAT
exemptions, simplified formalities for foreign workers allowing an
investor to recruit up to 70 percent of foreign labour, income taxes
limited to 5 percent (except for insurance companies, banks and
land transport), the possibility of acquiring land at reduced prices
for the construction of infrastructure (hotels, hospitals, schools,

Invest in the MEDA region, why how ?
housing), and the absence of restrictions on financial transactions
and investments.
Jordan joined the World Trade Organisation in 2000, signed the
Association Agreement with the European Union effective May
2002, and concluded a free trade agreement with the United States.
The FTA targets progressive dismantling of tariff and non‐tariff
barriers between the two countries. This agreement covers the
Qualifying Industrial Zones (QIZ), in operation since 1996. The
QIZs offer duty‐free and quota‐free access for all products and
services produced there, whereas in FTAs, customs duty is
gradually reduced but still exist and a minimum of 35 percent of
production must be of Jordanian origin.
These zones are of particular interest to textile and apparel
industries, which are confronted with very high tariff barriers and
import quotas in the United States. 13 public or private QIZs have
been created.
More information is available on the QIZ website at:
http://www.jiec.com
Export oriented companies can also set up business in the country’s
special economic zones. Four free trade zones have been set up in
Zarqa, Sahab, Queen Alia International Airport, and Kerak. In
addition, legislation allows companies not located in free trade
zones to benefit from the same incentives at the 23 “free zone
points”, currently in operation in Jordan. Investment in free trade
zones increased by 4 percent from 2002 to 2003, reaching US$ 721.9
million according to Free Zones Corporation (FZC) figures.
More detailed information on Jordan’s free trade zones is available
on: www.free‐zones.gov.jo
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Finance & banking in Jordan
Jordan is a middle‐income country with a financial sector that, by
regional standards, is well developed. Jordan has been
implementing various financial sector reforms over the past four
years to bring its financial sector in line with international
standards.
The Jordanian banking sector dominates the financial system, with
21 banks including eight foreign owned commercial banks (HSBC
Bank ME, Standard Chartered Bank, Egyptian Arab Land Bank,
City Group, Rafidain Bank, National Bank of Kuwait, Audi Bank
and BLOM of Lebanon), two Islamic banks, and five investment
banks specialised in lending to the agricultural, housing, rural,
urban, and industrial sectors. There is no state ownership in the
sector. The leading bank is the Arab Bank, which holds
approximately 60 percent of overall banking assets. The Jordan
Loan Guarantee Corporation guarantees bank loans granted to
small‐and‐medium enterprises. The entire sector is supervised by
the Central Bank of Jordan. In recent years, the Central Bank has
strengthened banking supervision, now considered to be of a
relatively high standard. It has been active in addressing issues
related to non‐performing loans and selected cases of
undercapitalised banks.
The Jordanian Dinar is fully convertible for all commercial
transactions and capital transfers.
Supervision has been strengthened and regulations clarified and
updated through banking reform. A new banking law was passed
in 2000 to improve the effectiveness of the sector. This new law
protects depositors’ interests, diminishes money market risk,
guards against concentration of lending, and governs new banking
practices (e‐commerce and e‐banking) and money laundering.
Jordanian capital markets are regulated by the Jordan Securities
Commission, created in 1997. The main stock exchange is the

Invest in the MEDA region, why how ?
Amman Stock Exchange, which lists over 201 companies for market
capitalisation of US$ 37.6 billion. Growth in foreign participation is
attributable mainly to Saudi Arabia, Kuwait, Lebanon and Qatar,
reaching US$ 15.9 billion in 2005 (42.3 percent of market
capitalisation) compared to just US$ 179 million in 2004 (1 percent
of market capitalisation). However, the sector is small and there are
a limited number of financial products on the market. Recent
developments include the requirement that all listed companies
apply international accounting standards.
In 2004, the Jordanian insurance sector counted 26 companies, 1 life
insurer, 7 general insurers, and 18 composite firms. The life
insurance market ‐ which is a small part of the overall sector (only
14 percent) ‐ is dominated by the American Life Insurance
Company (ALICO), which holds approximately 59 percent of all
policies. The Insurance Regulatory Commission, an independent
agency under the supervision of the Ministry of Trade and
Industry, was created in 1999 to regulate the sector.
Telecom & internet in Jordan
Reform in telecommunications and Information & Communication
Technologies (ICT) in Jordan has been actively pursued over the
past few years and it will continue to drive growth in the ICT
services sector. The 2004‐2007 National Strategic Plan for ICT and
postal sectors provides the basis for introduction in 2005 of full
liberalisation of fixed telephony, a fourth mobile phone operator,
and the successful privatisation of Jordan Telecom. These
developments create huge business and investment opportunities
to meet the increasing demands of the network.
Law n°13 of 1995 concerning telecommunications opened up the
sector as a whole (except for fixed telephony), providing for the
creation of two mobile phone networks, two public phone
companies, and ten internet providers.
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An independent regulatory authority, the “Telecommunication
Regulatory Commission (TRC)”, has been set up. It monitors
operators’ activities, the network, and awards new licences. The
government continues to liberalise telecommunications, following
opening of the fixed telephony market on 1 January 2005, and it
grants significant tax incentives in order to encourage investment
in ICT.
In addition to infrastructure (automatic commutation and
broadband networks), several public initiatives were launched,
such as REACH (a government‐business partnership) and the
national strategy to make Jordan a leader in export of ICT goods
and services. This program has received support from newly‐
launched start‐up incubators, an ambitious e‐administration
initiative, the promotion of electronic trade, the “Broadband
Learning and Educational Network project” linking eight public
universities, 3200 public schools, 23 community colleges and 75
knowledge stations.
The national operator Jordan Telecom Company (JTC) held a
monopoly on fixed telephony until December 2004, when the
government sold 58.5 percent of its holdings in Jordan Telecom
Company to the Joint Investment Telecommunications Consortium
(JITCO), 88 percent of which is held by France Telecom and 12
percent by the Arab Bank Ltd. Three subsidiary companies have
been set up by France Telecom: MobileCom for cellular telephony,
Wanadoo as internet provider, and E.dimension for online services.
The governmentʹs remaining shares, amounting to 41.5 percent of
JTC stock, will be sold by the end of 2006.
Since opening of the fixed telephony market, the
Telecommunications Regulatory Commission has approved nine
class licenses and one individual license. Some licensed companies
have started to establish their own international portals to facilitate

Invest in the MEDA region, why how ?
international calls service, thereby increasing competition on the
international calls market.
The Jordanian mobile telephony market is the most competitive in
the Middle East, with a competitiveness index of 84 percent as of
end 2004, 17 percent more than in 2003. Nearly 1.6 million
subscribers were registered in 2004, a penetration rate of 29
percent. Fastlink, originally a subsidiary of Orascom Telecom
Holding, was the first mobile operator in Jordan (1995). Orascom
sold its holdings to the Kuwaiti Mobile Telecommunications
Company (MTC) in 2003 for US$ 550 million. Today four operators
share the market: Jordan Mobile Telephones Services – Fastlink,
Mobile Petra Jordanian Telecommunications Company –
MobileCom, Xpress, and Mobile Umniah Company, which
inaugurated its GSM network in June 2005.
Market potential for mobile telephony is estimated at more than 2
million users, providing that new investments are made and new
products and services introduced.
As for internet, there are only eight providers (Access‐me,
Wanadoo, Te‐Dated, Next, Batelco Jordan, Cyberia, Link and
Middle East Communications) holding the 23 licences originally
granted by the government, due to low growth in the sector.
Indeed, the number of subscribers came to only 105,000 as of the
end of 2004 (compared to 85,000 in 2003), a penetration rate of 2
percent in spite of 23.5 percent higher volume. This low market
penetration is an opportunity for new investors to offer internet
services through wire and wireless networks. The market has
tended to stagnate because of the weak percentage of household
data processing equipment, i.e. only 30.8 percent of households
have a computer, and only 10.6 percent have an internet
connection. To mitigate this problem, a free subscription service
“Free Internet” has been made available by TE‐DATA and NEXT
since the beginning of 2005.
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Additional information on the ICT sector is available as follows:
� Ministry of Information Technologies:
http://www.moict.gov.jo/MoICT/communication
� ICT investment opportunities:
http://www.moict.gov.jo/moict/MoICT_investment_opportunities.asp
x
Business and investment opportunities in Jordan
In spite of instability in the region, FDI inflows to Jordan continue
to be considerable, and this trend is expected to continue in 2006‐
2007.
Although major inflows have gone mainly to banking, retailing,
mining, telecommunications and water treatment and desalination
(the US$ 125 million Zara Ma’in Water Supply project and a US$
167 million BOT contract for the construction of a wastewater
treatment plant at As‐Samra), even more promising opportunities
are in the pipeline, notably in the framework of the privatisation
agenda (postal services, electricity companies GEGCO, EDCO &
IDECO, the Zarqa oil refinery, Royal Jordanian Airlines) as well as
the BOO (future power station with combined cycle in Amman)
and BOT projects (Dead Sea and Red Sea channels, expansion of
the Queen Alia Airport, the Amman‐Zarqa Light Railway project).
Thanks to multiple bilateral agreements, Jordan has become one of
the most open economies. Setting up business in Jordan offers
prospects not only for expansion on the local market, but also to
neighbouring countries, thanks to re‐exporting platforms.
Jordanian authorities are also encouraging investments by
promoting special conditions for foreign investors at the 13 special
economic zones (QIZ). Launching of the QIZ has met with real
success despite suppression of textile quotas on 1 January 2005,
with more than US$ 82 million invested in 2005 compared to US$
54 million in 2004. Since 1997, there have been more than US$ 600

Invest in the MEDA region, why how ?
million in investments and nearly 30,000 new jobs, including some
10,000 expatriates.
Information technologies are considered one of the most promising
sectors in Jordan. The government has adopted a general policy
based on taking all the practical steps to guarantee development of
the sector in order to enable it to compete on an international level,
attract local and international investments, create exceptional job
opportunities and provide income from exports.
After liberalisation of telecommunications was launched in 1995,
the Kingdom started implementation of an ambitious national plan
to bridge the digital gap, REACH, which comprises actions in the
areas of regulatory framework, enabling environment
(infrastructure), advancement programmes, capital, and human
resource development. The government passed a law in 1999 that
provides for the establishment of general or specialised areas of
information technology. It also allows foreign investors to establish
technical centres or factories in these areas, opening the door to
investment inflows, including the opportunity to link electronic
tourism services, computer assembly, Arabisation of computer
programs and establishment of hubs for information technology
projects and e‐employment. An e‐government initiative was
announced, as were efforts to computerise government work and
use the most modern network systems in order to simplify
government procedures and make them more responsive to the
needs of citizens, the government and business as well as to save
time, especially for investors.
Mining and extraction industries
The mining and mineral sector gives Jordan a major role on the
world stage, representing considerable potential for growth. The
Kingdom is the fifth world producer and exporter of potash and
the fifth world producer/fourth world exporter of phosphates.
Fertilisers (made from phosphate rock and potash) are the second
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most important export commodity, and cement production is the
fourth largest industry. The mining sector is the country’s leading
industrial activity (representing 60 percent in terms of value) and
the third source of income. It contributed 10.8 percent to GDP in
2004 (up from 9.6 percent in 2003), generating total revenues of JD
876 million and representing 24.6 percent of the country’s exports.
Mining projects are governed by the investment promotion law of
1995.
The Natural Resources Authority responsible for supervising
exploration for minerals and for carrying out other mining related
activities in the country has made considerable effort to address the
potential of the mining/mineral sector. Jordan wants to foster
growth in Jordanʹs mining sector by attracting foreign investment
in the framework of this reform, expected to move ahead in 2006.
Practically all mining projects located in the three development
areas benefit from exemption from customs duty and tax
reductions, under certain conditions.
Although new companies have been set up recently, the sector
remains structured primarily around three venture companies: the
Arab Potash Company ‐ APC (potassium crude salts from the Dead
Sea), the Jordan Phosphates and Mines Company – JPMC, and the
Jordan Cement Factories Company ‐ JCFC.
The end of the monopoly on cement production and distribution in
December 2001, previously held by JCFC for 50 years, has involved
liberalisation of cement production and its distribution network
along with liberalised prices and opening of imports from foreign
cement manufacturers. JCFC declared gross profits of US$ 74
million in 2004, while the Jordanian‐Kuwaiti Holding Co. (JKHC)
announced the launching of a cement factory that forecasts US$ 200
million in potential exports of cement to the region, notably Iraq,
Saudi Arabia, the Palestinian Territories and Syria.

Invest in the MEDA region, why how ?
Construction and public works
Since 2003, the market for construction and public works has been
enjoying a remarkable boom. A buoyant real estate market,
expanding tourism sector, and pro‐business reforms are behind a
surge in investor confidence in Jordan that has triggered a wave of
major initiatives. Both domestic private sector investment and
foreign demand underpin this favourable development. The war in
Iraq in 2004 was behind the arrival of new Arab and foreign
investors and the World Economic Forum (WEF) held at the Dead
Sea in May 2005 ended with the signature of several agreements for
implementation of major building projects in Jordan. The country’s
political stability, existing infrastructure, strong services sector, and
lowered banking interest rates have supported this growth.
Housing is an important sector in Jordan and needs for 2004‐2008
have been estimated at 31,000 additional units/year. The private
sector is involved in the majority of these projects and the
remainders are handled by the Housing & Urban Development
Corporation (HUDC) that works under the Ministry of Public
Works and Housing (MPWH).
Infrastructure and transport
The many infrastructure projects in the pipeline and/or under
implementation include:
Real estate projects
A number of large‐scale real estate projects have been launched:
� The Al‐Abdali Urban Regeneration Project will convert a 34‐
hectare military campsite into an integrated real estate
development. The US$ 1.7 billion project will accommodate a
wide range of land uses, including offices and apartments, a
commercial centre and a variety of public amenities. The prime
project anchors will be an Information Communication
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Technology (ICT) District and the American University
campus.
� The Zarqa Urban Development project (2500 ha) will feature
construction of 7,000 residences, a shopping centre, a hospital,
a school, roads, a water network and related facilities.
Construction of this new city seeks to meet the need for
housing due to a growing population. The cost of this first
phase is estimated at US$ 930 million.
� The Royal Metropolis project has two components: Jordan Gate
and Royal Villages (construction of a Hilton hotel, offices, 400
villas, a school, a shopping centre, etc.) The total cost of the two
components is one billion dollars.
Rail network
The Ministry of Transport launched a call for tenders and pre‐
selected six candidates for construction of a railway network in the
framework of the long‐term (20‐25 years) “Master Plan for
Railways in Jordan”. Many initiatives are awaiting the results of
the study. Over the long term, the Jordanian government intends to
connect Jordan’s rail network to Europe via Syria and Turkey,
making freight traffic possible.
Construction of a tramway between Amman and Zarqa was
launched for US$ 85 million on a BOT basis, to be completed by
2008.
In order to encourage development of chemical industries at
mining sites as well as phosphate exports, the government recently
decided to proceed with privatisation in two stages of the Aqaba
Railway Corporation, to be transferred initially to a public
shareholding company fully owned by the government, for
restructuring. Then all or part of the government shares will be
sold to a qualified strategic partner, to be selected through

Invest in the MEDA region, why how ?
international bidding. The Canadian company CPCS Transcom is
the technical consultant.
The construction of two rail extensions to the Sheidiyya mines and
Wadi at Aqaba are also planned. Implementation of these
extensions is expected to take place through privatisation of the
Aqaba Railway.
Road network
� The “Amman Development Corridor” project, divided into
three phases and involving the construction of a 40‐kilometre
Amman Ring Road connecting the desert highway, the Zarqa
eastern bypass, and the Zarqa‐Syria border highway. It also
includes the relocation of the Amman Customs Depot as well
as infrastructure and utility services for an inland port. The cost
of this project is US$ 177 million, co‐financed by the EIB, the
World Bank, and the Arab Fund for Social and Economic
Development.
� The “Irbid Ring Road” project involves construction of 30 km
of roads and several bypasses at a cost of US$ 28 million.
� There are three civil airports in Jordan: Queen Alia
International Airport (Amman), Marka Civil Airport (Marka)
and King Hussein International Airport (Aqaba). To meet the
increasing volume of air traffic, a master plan has been
launched for modernisation of the main airports, including
expansion of Queen Alia International Airport. The US$ 700
million project will involve construction of new buildings and
the two passenger terminals will undergo a full overhaul. A
call for tenders on a BOT basis will be launched in 2006.
Textile and clothing industries
The textile and clothing industry is considered one of Jordan’s main
industrial sectors, accounting for more than 30 percent of Jordan’s
exports (US$ 708 million in 2004) and employing more than 55,000
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people. Jordan’s success story in the textile and apparel industry is
based on creation of new industrial zones, partnership agreements
with the European Union and the United States, the existence of a
qualified labour force and Jordan’s exceptional geographic location.
The Qualifying industrial zones agreement, signed in 1996 between
Jordan and the United States, has attracted much investment in
Jordan from various parts of the world. In 2005, Jordan’s exports of
apparel to the U.S. topped US$ 1.2 billion. Today, the majority of
textile and clothing industries are concentrated in the QIZ, where
101 companies work. Production of textiles and clothing represents
more than 90 percent of total production in the QIZ. In addition to
the QIZ, the Jordan‐US Free Trade Agreement, signed in 2001,
offers preferential duty‐free treatment for many apparel products
and the rest will qualify for zero duty by 2010. This gives Jordanian
manufacturers the flexibility to choose between FTAs or QIZs to
manufacture duty‐free products.
Currently, Jordanian manufacturers serve leading companies such
as Donna Karan, Gap, Ralph Lauren, Banana Republic, Hanes,
Macyʹs, Victoria’s Secret, etc.
Tourism
Jordan, with its exceptional historical and cultural heritage, sees the
potential of tourism in terms of its being a major source of foreign
currency earnings. Today, the tourism sector is one of the country’s
four largest sources of income (along with remittances from
Jordanian expatriates, international assistance and the mining
sector). It generated US$ 864 million in revenues in 2004 (7.5
percent of GDP) and US$ 1.5 billion in 2005 (10 percent of GDP).
Since signature of the peace agreements with Israel in 1994, the
Jordanian government has given priority to development of
tourism in order to exploit the resources of its archaeological and
tourist sites (Petra, Jerash, Madaba, Wadi Rum, the Red Sea, the
Dead Sea, etc.). Volume of investment in the sector has increased. A

Invest in the MEDA region, why how ?
national strategy for tourism was launched recently, targeting a
doubling of income from tourism to JD 1.3 billion by 2010, creating
over 51,000 new job opportunities.
The majority of international hotels, such as the Hyatt, Meridien,
Radisson SAS, Intercontinental, Days Inn, Holiday Inn, Sheraton,
Marriott, Movenpick, Four Seasons, or Kempinski, etc. are already
present in Jordan. The country is known for its calm and liberalism.
It maintains diplomatic relations with all its neighbours and thus is
affected by regional instability, but significant recovery took place
in 2005, with 14 percent growth in tourist arrivals.
Jordan offers several kinds of tourism: cultural (archaeological sites
such as Petra and Jerash), sports (diving), ecotourism (the Jordan
Valley), religious (Mount Nebo, the site of Christ’s Baptism), health
and well being (the thermal springs at Maïn and El Hemma and
spa therapy centres), boating …, which have strong potential for
development. Health tourism is a significant sub sector, generating
US$ 700 million a year. In 2004, public and private Jordanian
hospitals accommodated 120,000 patients from neighbouring
countries, making Jordan a regional medical centre for the Gulf
countries, with a health sector that provides high level services in
terms of quality care (cardiovascular medicine, kidney transplants)
at very competitive prices.
In terms of investment, foreign funds poured into tourist related
projects in the Kingdom in 2005, amounting to US$ 4 billion (US$
12 billion over the period 1996‐2003), including a new national
museum financed by the Japanese International Co‐operation
Agency (JICA) for US$ 10 million or hotel projects like Catholic
Student Bay (US$ 500 million), the Ayla Oasis project (US$ 750
million), the Saraya Aqaba project (US$ 362 million), the Sun Days
Water Park (US$ 60 million), the Aqaba Ishtar Kempinski Hotel
(US$ 60 million), the Royal Metropolis ‐ Jordan Gate and Royal
Villages of Amman (US$ 1 billion), the Dead Sea Holiday Inn Hotel
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(US$ 21 million), the Crowne Plaza hotel at the Dead Sea (US$ 49
million)…
In addition, there were a large number of investments in the
“Aqaba Special Economic Zone Authority”, thanks to the ease of
doing business and the quality of installations and infrastructures.
Aqaba’s only airport, the “King Hussein Airport”, signed an Open
Sky agreement last year with the EU under which several airlines
started operations in Aqaba. Moreover, development of the eastern
bank of the Dead Sea, entrusted to the Jordan Valley Authority, has
attracted many investments in tourism, for a total of US$ 605
million in 2004.
Pharmaceutical sector
Established some thirty years ago, the pharmaceutical industry
occupies a leading position in terms of production and exports,
second only to the garment industry. With capital investment of
over 400 million US dollars, the pharmaceutical industry has
become an important source of exports, with threefold growth in
overall sales, up from 68 million US dollars in 1991 to 226 million
US dollars in 2004. Some 18 laboratories employ 8,000 people and
the sector specialises and excels in producing branded generics in
various forms: solids, semi‐solids, liquids, aerosols etc. as well as
producing various products under license from multi‐national
companies.
Four companies (Hikma Pharmaceuticals, Dar Al Dawa, Arab
Pharmaceutical Manufacturing and Jordan Pharmaceutical
Manufacturing) hold a 90 percent share of the market. The country
is developing its role as a regional platform, thanks to its five
research centres and proven expertise (industrial know‐how,
highly qualified frameworks) in the production of specific medical
products. Law n°80 of 2001 and law n°31 of 2003 relating to
pharmacology and drugs provide for standardised recording of
drugs and alignment to the new intellectual property regime.

Invest in the MEDA region, why how ?
Jordan is also capitalising on its accession to WTO rules for
negotiating licensing agreements with foreign companies.
Several international laboratories have shown their interest by
seeking industrial partners in Jordan. For example, the Jordanian
company United Pharmaceutical Manufacturing Co recently signed
a five‐year production contract with seven German companies for a
value of approximately US$ 24 million. Dar Al Dawa, one of the
four largest pharmaceutical companies, signed a licensing
agreement with the Swiss world leader Novartis Pharma AG for
packaging of 11 products to be sold on the local market. Several
laboratories have received European Union and US Food and Drug
Administration approval to export their products to these markets.
Agriculture and agrofood
Despite limited local raw materials, the food industry is the second
most important sector in Jordan in terms of attracting FDI and,
according to the Jordan Investment Board, the second largest in
terms of national investment. The sector has experienced relatively
recent development, a high proportion of companies having been
created at the beginning of the Nineties. Even if today’s processes
are easily mastered thanks to the high training level of national
engineers and technicians, the food processing industry suffers
from weak research and development.
There are major opportunities for the food processing industry to
supply not only the local market but also regional and international
markets. Considerable needs for equipment need to be met if
agricultural production is to be developed and adapted to
international quality standards, a pre‐condition to competing on
export markets (especially the European Union), which have
stricter regulations and standards.
Opportunities also exist in the following areas: calibration services,
tinning and packaging, freezing and de‐hydration of dried fruits
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and vegetables, agricultural processing for the production of juice
and tomato paste, chips and mashed potatoes, products derived
from dates, asparagus drying and preserving, introduction of new
crops such as medicinal and aromatic plants, expansion of
floriculture production for the local and international market,
irrigation systems, and production of animal feed...
A list of agrofood projects is available on the website of the UNIDO
Investment Promotion Unit in Jordan:
http://exchange.unido.org/main2.asp?menu=MenuePopup5&ID=362&lan=
en
Success story: Land Rover makes a strategic allweather
investment
Land Rover, the leading British producer of off‐road vehicles, has
opened at Maan, Southern Jordan, the first factory for the assembly
of automobiles in the Hashemite Kingdom.
The US$ 100 million investment was made in partnership with the
Jordanian Shaheen Business and Investment Group. The
production unit is an assembly facility which imports the different
parts of the vehicles directly from the United Kingdom. Initially,
the annual production capacity was planned to be of 5,000 cars and
the Land Rover Defender constituted the only model assembled. In
a second stage, the capacity was to be increased to 10,000 vehicles
per annum and new models would be added to the catalogue,
including the Freelander and the Discovery. At least 500 new
employment opportunities, including 100 for engineering positions,
were expected from this investment.
The Jordanian partner, the Shaheen Business and Investment
Group, brought the majority of the capital, while Land Rover’s
contribution to the JV consists mainly in its know‐how and
managerial, technical and logistical support. Shaheen Business and
Investment Group is one of the large Jordanian conglomerates and,

Invest in the MEDA region, why how ?
through its subsidiary, the Ole Automotive Trading Company, it
was already the exclusive distributor for Land Rover vehicles in the
Kingdom.
Until then, Land Rover sold all its vehicles throughout the Middle
East region thanks to its local network of importers and distributors
who imported the vehicles direct from the group’s factory based in
Solihull in England. According to Bill Begg, Land Rover’s Regional
Director for Middle East‐Africa, the objective is to make Jordan a
strategic supply centre for the rest of the region.
152

Lebanon
Overview
References
Capital Beirut
Surface area 10,452 km2
Population 4,500,000 inhabitants
Languages spoken Arabic, French, English, Armenian
GNP (dollars) 22,3 milliards (WDI 2005)
GNP/per capita
(dollars)
US$ 6,033; (6,932 in ppp.) ‐WDI 2005
Religions Muslims (70 %), Christians (30 %)
National days
22 November (independence in 1943)
Currency (March 2007) Lebanese Pound (LBP).
1 Euro = 2.04LBP – 1 US$ = 1.53 LPB.
Association agreement
with EU
153
Signed on 17/06/2002; implemented on
1/03/2003
EU web site:
http://www.dellbn.cec.eu.int
WTO membership Observer since 1999
Economic profile
Located at a strategic geopolitical crossroads situated on the eastern
coast of the Mediterranean Sea, Lebanon has an area of 10,400 sq
km (4,015 sq mi), extending 217 km (135 mi) NE–SW and 56 km (35
mi) SE–NW. It is bordered bordered on the North and East by
Syria, on the South by Israel and on the West by the Mediterranean
Sea. Lebanon ‐ land of the Cedar ‐ has been on the fringes and at
times right at the heart of the Middle East conflict. After 15

Invest in the MEDA region, why how ?
devastating years of civil war (1975‐1990), Lebanon has had to
overcome difficult post‐conflict reconstruction challenges while
trying to reconcile economic revival and better macroeconomic
fundamentals. A comprehensive reform process in the areas of
economic policy, industrial and agricultural modernisation,
improved investment climate while the opening of the domestic
market is under way to help the country regain its past glory as a
leading financial power in the region, “the Switzerland of the
Middle‐East”.
The rebuilding of Lebanon was following a promising path when
the attack against Prime Minister Hariri (February 14, 2005)
destabilised the country, creating a regional crisis which widened
further with the Summer 2006 conflict launched by Israel. Investor
confidence now seems discouraged for long.
Before these dramatic developments, the Lebanese economy knew
a sustained growth, drew in particular by the rebuilding from the
country after 15 years of civil war. A strong and rehabilitated
financial sector supported substantial growth in production levels
and a fivefold increase in GDP in 15 years (US$ 22.3 billion in
2005).
However, cumulative public debt rose dramatically to a high US$
39 billion in June 2006. At the end of 2006, official figures revealed
a public debt over GDP ratio above 200%.. In an attempt to reduce
the ballooning national debt, the Rafiq Hariri government began an
austerity program, reining in government expenditures, increasing
revenue collection, and privatizing state enterprises, but economic
and financial reform initiatives stalled and public debt continued to
grow despite receipt of more than $2 billion in bilateral assistance
at the Paris II Donors Conference. The Israeli‐Hizballah conflict
caused an estimated $3.6 billion in infrastructure damage in July
and August 2006, and internal Lebanese political tension continues
to hamper economic activity., The international community,
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including several EU member states, agreed at the successful Paris
III donor conference to provide Lebanon with some relief from its
very high debt burden and other economic problems.
Consequently, Lebanon received financial assistance amounting to
$ 7.7 billion, 20 percent of total debt.
The services sector accounts for the highest share of GDP (72.3
percent), but agriculture and industry also play an important role.
Banking is an important part of the Lebanese economy, with added
value estimated at 4.5 percent of GDP in 2003. Tourism contributes
significantly to both GDP growth and employment. Agriculture
accounts for 6 percent of GDP and employs 10 percent of the labour
force and it is estimated that around 30 percent of the population
lives directly or indirectly from the jobs and activities it generates.
Industry counts for 20.8 percent of GDP.
With limited mineral resources and a small industrial sector, the
Lebanese economy greatly depends on imports. 90 percent of
consumer goods are imported and the foreign trade coverage rate
was 22 percent in 2005, with a structural deficit in the trade balance
(15 percent of GDP). In 2005, imports cost US$ 1.747 billion while
exports earned only US$ 189 million. The main imports are
agricultural and food products, fuels, mining products, mechanical/
electrical/ electronic equipment and chemicals. Lebanon exports
mainly jewellery, mechanical and electrical products, metals,
chemicals and agricultural/ food products.
The European Union is Lebanon’s primary trading partner (source
of 40 percent of imports and destination for 9 percent of exports in
2005). Lebanon’s main suppliers are Italy (9.4 percent), France (7.8
percent), Germany (7.8 percent), China (7.6 percent) and the United
States (5.9 percent). Its main customers are Arab countries, notably
Iraq (14.6 percent), United Arab Emirates (8.3 percent), Jordan (7.7
percent), Saudi Arabia (7.2 percent) and Turkey (7.3 percent).

Invest in the MEDA region, why how ?
Thanks to a long tradition of an open market, Lebanon has
maintained close links with the Arab world, the United States and
Europe. A member of the League of Arab States, Lebanon benefits
from massive financial transfers and capital inflows from the
Diaspora of 15 million Lebanese living abroad. Aside from large‐
scale infrastructure projects, the government has always taken care
not to intervene in the private sector, which accounts for 90 percent
of GDP.
An interim agreement on trade and trade‐related provisions signed
in July 2002 and in force since March 2003 governed trade relations
until the Association Agreement took effect on 1 April 2006. The
Association Agreement establishes the conditions required for
progressive and reciprocal liberalisation of trade in goods, with a
view to establishing a bilateral free trade area. It includes relevant
provisions on customs cooperation, competition, protection of
intellectual, industrial, and commercial property, and services. As a
result, since 1st March 2003, Lebanese industrial and most
agricultural products enjoy free access to the EU market (within the
limits of tariff quotas), while the progressive elimination of tariffs
on imports to Lebanon are scheduled to kick in between 2007 and
2015. These products include minerals, chemicals, wooden and
leather products, textiles, jewellery, low‐value metals, machinery
and electrical components and transport facilities. Imports of
certain agricultural and agrofood products (protocols 2 and 3) are
limited in terms of volume and weight in order to protect national
agriculture.
Lebanon’s exports of agricultural goods and fishery products
cannot freely enter European markets. Negotiations on the
liberalisation of agricultural, processed food and fishery products
will begin in due course in the context of the Rabat roadmap and
the Euromed liberalisation work programme, leading to
establishment of a free trade area in 2010. More specifically, the
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products included in chapters 1 to 24 of the Lebanese Tariff Charter
benefit from progressive tariff dismantling.
FDI is low compared to portfolio investments by the Diaspora and
Arab countries, attracted by high remuneration rates, whereas the
country fundamentally needs productive investments to support
the extension and modernisation of supply capacities (leading to
economic growth and job creation) and to prevent expatriation of
skilled labour.
According to UNCTAD’s World Investment Report, FDI in
Lebanon were on a virtuous path (US$ 2.5bn in 2005, vs. 250
million on average during the 1997‐2003 period) before the 2005‐
2006 events. Nearly 83.2 percent was invested in the services sector
(mostly real estate), 12.4 percent in industry, and 4.4 percent in
agriculture.
Saudi Arabia is the leading Arab investor in Lebanon (38.4 percent
of total), followed by Kuwait (22.5 percent) and the United Arab
Emirates (22.3 percent). Over the period 1995‐2004, Arab
investments in Lebanon amounted to US$ 4.7 billion, putting
Lebanon in first place on the list of Pan‐Arab investments (17.8
percent of total). French, Italian, German, British, Korean, and
Finnish companies have won most of the government contracts in
the fields of electricity, water, and telecommunications, and for the
Sports City Centre and Rafiq Hariri Airport (Beirut International
Airport BIA) projects. US companies have won contracts for
processing of solid waste and landfill as well as a number of
contracts in the power sector, air transport (radar equipment for
BIA), and media (equipment for the national broadcaster Radio
Lebanon).
As part of its strategy to integrate Lebanon into the global economy
and modernise the domestic economy, the government has been
working to revamp the policy governing competition to conform to

Invest in the MEDA region, why how ?
international practices. Hence, the government has developed a
five‐year action plan with a budget of US$ 7 million.
This plan calls for new modern legislation to govern competition,
the establishment of a competition authority, and the creation of a
new enabling environment by removing all obstacles to trade and
investment; elimination or reduction of corporate costs and
revision of subsidies to farmers; launching of micro‐credit
programmes for rural companies; improvement of guarantee
schemes for SME loans and development of clusters for companies
with growth potential, e.g. in tourism, jewellery and agricultural
processing industries.
The plan includes accompanying measures: structural reforms for
the improvement of the legal, administrative and regulatory
frameworks (promulgation of customs legislation, trade law, social
security requirements, competition law, and legislation governing
State accounting) and reduction of bureaucratic red tape.
A comprehensive restructuring programme for companies has been
launched in the framework of the EU’s “Euro Lebanese Programme
for Industrial Modernisation”, seeking to improve the performance
of Lebanon’s manufacturing companies. Thanks to the encouraging
results of the first phase (2001‐2004), a second phase began in
August 2005 with the main tasks of establishing ELCIM as a
business support organisation providing ongoing advice and
assistance to manufacturers to improve their performance on both
national and international markets and facilitating access to long‐
term financial resources.
The outgoing governmentʹs structural reform gave priority to
privatising a number of utility companies, including
telecommunications, electricity, water and transport. The 2000
Privatisation Law sets the framework for privatisation of State‐
owned enterprises. Proceeds from privatisation are slated to bring
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in US$ 10 billion over the period 2003‐2007, to be assigned entirely
to debt repayment.
In conclusion, according to the World Bank (2006 CAS Report),
“the country has strong comparative advantages that should allow
much faster longer‐term real GDP growth of more than 5 percent
per annum. These advantages include: strong entrepreneurial
skills, skilled human resources, an open economy, a favourable
geographic position, and a modern financial sector able to attract a
high level of foreign investment, all of which will help provide
Lebanon with a base for future growth and the development of a
modern, competitive, and outward‐oriented economy.”
Country risk
Rating agencies have a rather diversified vision of Lebanon risk,
according to the importance given to positive (potential for growth)
or negative factors (debt, political deadlock):
� At the end of January 2007, following Paris III pledges, Fitch
affirmed Lebanon’s ratings at B‐“with stable outlook; S&P
confirmed Lebanon’s ratings a B‐ long‐term sovereign credit
rating (placed on negative watch in July 2006)
� In January 2006, Moodyʹs attributed a B3 rating to the country,
quoting “massive debt burden, wide budget deficit and
political fragility». The crisis following the build up in tension
between Hizbollah and the rest of the Lebanese government is
resulting in loss of confidence by the financial markets and
explains Moodyʹs B3 rating ‐six levels below investment grade.
� For EIU, the economic outlook is not necessarily affected by the
current political blockade: «provided that the political situation
is resolved, real GDP growth will pick up in 2007‐08.
Nevertheless, the fiscal deficit will remain substantial, and the
large public debt burden will continue to increase”. EIU
provided the following estimate of the main country risks as of

Invest in the MEDA region, why how ?
March 2007: Sovereign risk, CCC; Currency risk, B; Banking
sector risk, B; Political risk, CC; Economic structure risk, CC.
Key challenges
Lebanon has to face some serious challenges in the economic
domain. It imports ten times as many goods as it exports in terms
of value, which results in a trade balance with a large deficit. The
unemployment rate is as high as 16%. Mineral resources (iron, coal,
phosphates, salt) are limited.
Main black spot, State debt has reached a high point (180 % of
GDP), despite austerity budgets in recent years.
The geopolitical situation of Lebanon, between Israel and Syria
makes it very dependent on regional equilibrium and it is obvious
that the prosperity of the country is closely linked to the return of
peace to this region of the world. The attacks against high profile
politicians and journalists, as well as the 2006 war by Israel in
Southern Lebanon, have discouraged many investors at a time
when confidence was coming back.
Strong points
Several factors help to contribute to providing Lebanon with a
propitious environment for local and international investments.
Indeed, with its liberal economic regime, it safe business
environment, the wide access it gives to the markets of the Middle
East and its extremely highly‐skilled labour force, the country can
guarantee investors the very best conditions for the development of
their businesses. Lebanon has several factors in its favour:
� A geostrategic situation which provides access to a market of
almost 300 million consumers.
� The quality and the competence of human resources whose
salaries are relatively moderate help them increase their
productivity.
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� An infrastructure in the country which has been completely
rehabilitated and renovated during the past few years which
enables them to lower the cost of their investments.
� A system of guarantees for investments and the moderation of
the taxation rates in force contribute to an increase in profit
margins.
� A financial system which provides for the free circulation of
capital of all types, including profits and dividends.
� A legal Lebanese framework exempt from discrimination
between nationals and foreigners and a law which authorises
non‐Lebanese nationals to possess the totality of shares in a
Lebanese company.
Tourism occupies an important place in the economy. The mildness
of the climate, the snow‐capped mountains, the valleys and the
Mediterranean Sea explain the attraction that this country exercises
on travellers. In the past the customers came from Europe and the
USA, today they come in large majority from the Middle East and
Europe.
Financial services, publishing activities, advertising and publicity,
consulting are well‐reputed and continue to develop. The country
is the leading producer of advertising spots in the Middle East.
Recent years were marked by the arrival of foreign investments of
Arab origin which registered the greatest growth over the past ten
years with a volume that reached 650 million American dollars,
according to the annual report of the Arab Agency for Investment
Guarantees. Concerning the distribution of FDI per sector, 85% of
investments concern the tertiary sector (hotels, shopping centres,
etc.). Saudi investments represented 53.8% of the total in 2002,
followed by the United Arab Emirate projects (29.3%) and Kuwaiti
(15.4%). Lebanon occupies the second place among Arab countries
on the foreign direct investment level and benefited from 22.3% of

Invest in the MEDA region, why how ?
the total of Inter‐Arab investments in 2002, while this rate was
around 8.5% in 2001 and 19.3% in the year 2000.
The Investment Development Authority for
Lebanon (IDAL)
IDAL was established in 1994 by a decree from the Lebanese
Council of Ministers to spearhead Lebanonʹs investment promotion
efforts. On August 16, 2001, IDALʹs role was reinforced by the
enactment of the Investment Development Law 360, regulating
investment promotion of domestic and foreign entities and striving
to stimulate Lebanonʹs economic and social development as well as
enhance its competitiveness.
The IDAL offers a wide range of services whose aim is to promote
investments as well as to facilitate, accelerate and simplify the
process of their implementation. The IDAL is responsible for a
number of activities:
IDALʹs scope of work entails the following functions:
‐Identifying and promoting investment opportunities in Lebanon;
‐Disseminating market intelligence about Lebanon, the business,
legal and investment frameworks as well as other relevant
information;
‐Facilitating the registration and issuance of permits and licenses
required for any investment project;
‐Providing ongoing support for investment projects once
established;
‐Identifying potential joint venture partners and strategic allies for
Lebanese businesses; and
‐Advising the Lebanese government on investment policy issues.
Web: http://www.idal.com.lb/
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How to invest in Lebanon
Lebanon has traditionally been a country open to foreign direct
investment. Over the last three years, the GOL passed several laws
and decrees to encourage investment. There is no specific
legislation on foreign investments, but all aspects of setting up a
business are governed by the Lebanese Commercial Code and
Regulations and the Investment Development law n°360 of 16
August 2001.
A foreigner can establish a business under the same conditions that
apply to a Lebanese national, provided the business is registered in
the Commercial Registry. A foreigner must first obtain residence
and work permits before registering his or her business. There are
no sector‐specific laws on acquisitions, mergers, or takeovers,
except for bank mergers.
Lebanese law does not differentiate between local and foreign
investors, except in the area of land acquisition. Several types of
companies can be created: joint stock companies (Société Anonyme
Libanaise ‐ SAL), limited liability companies (Société à
Responsabilité Limitée ‐ SARL), partnerships limited by share
(Société en Commandite par action ‐ SCPA), holding companies,
offshore companies, partnerships, joint ventures, or
agencies/branches of foreign companies.
For limited companies (SARL), minimum capital of LBP5 million
(US$ 3,300) must be wholly paid in before registration. At least half
of the administrators must hold Lebanese nationality. Banking,
insurance and air transport activities cannot be registered as SARL
companies.
A joint stock company (SAL) must have a minimum of three
shareholders and capital of at least LBP30 million (US$ 20,000),
with one‐fourth paid in by the time of registration.

Invest in the MEDA region, why how ?
These two kinds of companies pay 15 percent tax on corporate
profits. For commercial representation, SAL capital must consist of
registered shares held mainly by Lebanese stockholders and 2/3 of
capital in a limited liability company must be held by Lebanese
nationals.
In the case of a subsidiary company, capital must be held mainly by
Lebanese nationals and authorisation from the Council of Ministers
is required. In the areas of banking, insurance, capitalisation,
savings, capital placement and air transport, limited liability
company status is not an option. Branches and subsidiaries of
foreign companies set up in the form of SAL or limited
partnerships as well as foreign insurance companies must, in
addition to the usual procedures, obtain authorisation from the
Ministry of Economy and Trade. It should be noted that holding
companies, which must have the legal status of a Lebanese limited
company, is exempt from income tax as well as tax on distribution
of profits.
An offshore company can have its headquarters either in Lebanon
or abroad, but by definition it operates outside the country.
Offshore companies are structured like joint stock companies.
However, there is an additional documentation requirement for a
bank guarantee in the amount of LBP 100,000 (US$ 660),
automatically renewable, as security against payment of annual
taxes. Offshore companies, like holding companies, receive special
tax treatment due to their limited status as well as abatement of 30
percent of taxes on foreign employees’ wages.
Law n°296 of 3 April 2001, which amended a 1969 law (n°11614),
governs foreign acquisition of property. The new law eased legal
limits on foreign ownership of property (meant to encourage
investment in industry and tourism), abolished discrimination
between Arab and foreign nationals with regard to property
ownership, and lowered real estate registration fees from six
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percent for Lebanese and 16 percent for foreigners to five percent
for both Lebanese and foreign investors.
The law permits foreigners to acquire up to 3,000 square meters of
real estate without a permit and foreigners can acquire more than
3,000 square meters with Cabinet approval. Cumulative real estate
acquisition by foreigners is not to exceed 3 percent of total land in
each district. Cumulative real estate acquisition by foreigners in the
Beirut region is not to exceed 10 percent of total land area. The law
prohibits acquisition of property by individuals not holding an
internationally recognised nationality. This is relevant primarily to
Palestinian refugees residing in Lebanon.
A 2001 law on investment promotion was enacted to promote
opportunities and encourage investment in the fields of industry,
tourism, agriculture, and food processing industries, marine
resources, media, and information technologies. It established a
ʺone‐stop shopʺ service at the Investment Development Authority
of Lebanon (IDAL) to facilitate procedures and better assist
investors. However, these measures have had limited impact so far
on competitiveness and administrative procedures for doing
business are still too lengthy and burdensome. There are no special
financial provisions for or constraints on foreign investors except
that certain restrictions exist on foreign ownership of banks and
companies involved in media activity, land ownership, and the
employment of foreign labour.
Lebanonʹs membership in the Multilateral Investment Guarantee
Agency (MIGA) is a means of building confidence among potential
foreign investors. In addition, the National Institute for the
Guarantee of Investments makes insurance coverage available to
investors, providing compensation for losses resulting from non‐
commercial risks. Commercial and civil companies must register at
the Civil Companies Registry at the Court of First Instance. Foreign
companies can operate in Lebanon either as a branch or as

Invest in the MEDA region, why how ?
representational office, both of which must register and obtain a
license in order to do business.
The national preference for recruitment of Lebanese staff applies to
trade and the exercise of certain activities (public office, bank clerk,
waiter, hairdresser, engineer, etc.) is reserved for citizens of
Lebanon. This is also the case for retail and distribution, television
and radio, armaments and all strategic activities related to national
security, all off limits for foreigners. In the newspaper industry,
licences are granted only to Lebanese residing in Lebanon. In
banking, capital must be held mainly by Lebanese nationals.
Moreover, the acquisition of shares requires the prior authorisation
of the Central Council of the Bank of Lebanon.
Companies are subject to 15 percent tax on profits. All interest,
dividends, and arrears are subject to a 10 percent tax rate. Special
provisions and exemptions apply to holding companies and
offshore companies. The new 2001 Investment Development Law,
which divides the country into three investment zones, also
provides for tax exemptions. A system of excise duty is applied.
VAT was introduced on 1st February 2002, replacing several pre‐
existing taxes. It applies to both domestic and imported products,
at a single flat rate of 10 percent. The law foresees exemptions for
several categories of goods and refund schemes have been set up
applying, for example, to tourists and foreign businesses. A VAT
Directorate was created within the Directorate General of Finance.
Tax exemptions are available to companies located in the nine free
trade zones (of which Beirut and Tripoli are already operational)
and tax exemptions are granted to educational establishments,
farmers, and airline and maritime companies.
The Lebanese government recognises the importance of foreign
investment and is actively working to provide a more conducive
environment that enables investors to bring or establish their
operations in Lebanon. Within this framework, Investment
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Development Law 360 empowers IDAL to offer a wide range of
investment incentives, depending on the qualifications and criteria
for each project.
With respect to the Investment Development Law, IDAL
categorises investment projects according to geographic location,
sector, investment cost, and other criteria. Sectors include industry,
agriculture, agro‐industry, tourism, information technologies,
telecommunications technologies, and media. The new Investment
Development Law 360 of 2001 divides Lebanon into three
investment zones: A, B and C. Incentives for investment projects
are based on the investment zone in which the project is classified.
Projects in zone A will benefit from exemption from income tax for
two years (from the date on which shares are listed on the Beirut
Stock Exchange), provided that the negotiable shares represent no
less than 40 percent of overall company capital.
Projects classified in zone B will be exempt from income tax for two
years from the date shares are listed on the Beirut Stock Exchange,
provided that the negotiable shares are no less than 40 percent of
overall company capital. This exemption period is in addition to
any other exemption period for which the company qualifies and
an additional 50 percent reduction in income taxes and taxes on
project dividends is provided for a period of five years.
Projects classified in zone C (areas that the government intends to
develop) will benefit from exemption from income tax for two
years (from the date its shares are listed on the Beirut Stock
Exchange), provided that the negotiable shares constitute no less
than 40 percent of overall company capital. This exemption period
will be in addition to any other exemption period enjoyed by the
company. They also benefit from a full 10‐year exemption from
income tax and taxes on project dividends, the reduction applying
from start‐up of operations as governed by the terms of this law. If

Invest in the MEDA region, why how ?
an investor qualifies for the above‐mentioned exemptions (tied to
listing on the Beirut Stock Exchange), any applicable reduction will
kick in following the end of the period of exemption.
New provisions were included in the 2003 law, extending these
advantages to investments with particular economic impact on
social and environmental issues, technology transfer or provision
of technical training, the establishment of research & development
centres and/or development of software and hardware for ICT
projects.
The Package Deal Contract is a grouping of special incentives,
exemptions and reductions available to investment projects, bound
by a contract stipulating the specific terms, rights and obligations of
both IDAL and the investor. Projects benefiting from the package
deal will be granted full exemption of profits from income tax for a
period of 10 years from start‐up of project activities. Foreigners can
obtain work permits provided that the interests of the local labour
force are covered by employing at least two Lebanese nationals for
each foreign employee. A 50 percent reduction in fees is applied on
foreign labour work and residence permits. Joint‐stock companies
planning to implement and/or manage an investment project are
exempt from the obligation of having Lebanese nationals or
members of the legal profession on their board of directors. They
also benefit from a reduction of up to 50 percent on construction
permit fees for project facilities and full exemption from fees
related to land registration, provided that project operations begin
within five years.
Other laws and legislative decrees provide for tax incentives and
exemptions, depending on the type of investment and its
geographic location. Industrial investments in rural areas qualify
for six or ten‐year tax exemptions, depending on specific criteria
(Law n°27 dated 19 July 1980, Law n°282 dated 30 December 1993
and decree n°127 dated 16 September 1983). Exemptions are also
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available for investment in southern Lebanon, Nabatiyah and the
Biqa (Decree n°3361 dated 7 July 2000). For example, new industrial
establishments manufacturing new products are eligible for a 10‐
year exemption from income tax. Factories currently located on the
coast that relocate to rural areas or southern Lebanon, Nabatiyah
and the Biqa qualify for a six‐year exemption from income tax.
However it should be noted that investments pertaining to the ICT
sector are not governed by the zoning requirements as are other
types of investments. An investment in ICT regardless of the zone
is treated the same.
The Government grants a tax reduction of 5 percent on dividends,
applicable to: (a) companies listed on the Beirut Stock Exchange
(BSE); (b) companies that open up 20 percent of their capital to
Arab companies listed on their national stock exchange or foreign
companies listed on a stock exchange in an OECD country; and (c)
companies that issue GDRs (Global Depository Receipts), with a
minimum 20 percent of shares listed on the BSE. Exemption from
customs duty is available to industrial warehouses dedicated to
export. Companies located in the Beirut Port or Tripoli Port free
zones benefit from a 10‐year corporate tax holiday and are not
required to register their employees with the social security service
as long as they provide equal or better benefits.
Foreign‐owned firms have the same investment opportunities as
Lebanese firms. Lebanon has two free zones in operation: Beirut
Port and Tripoli Port. Reconstruction of a 120,000 square meter free
zone at the Port of Beirut has been completed and a 6000 square
meter bonded warehouse facility is now available. The new, WTO‐
compatible customs law issued by Decree n°4461 dated 15
December 2000 fosters the development of free zones.

Invest in the MEDA region, why how ?
Lebanon has adopted legislation on intellectual property and
royalties in conformity with WTO requirements, although
enforcing the laws has been lax.
Finance & banking in Lebanon
The financial sector is bank‐centric, generally acknowledged to be
exceptionally large and relatively stable. Lebanon has liberal codes
for capital and money market transactions, with no restrictions on
either inflows or outflows. The country has an open foreign
exchange market, full currency convertibility, and unrestricted
repatriation of capital. A 1956 law introducing absolute bank
secrecy to protect depositors and investors and law n°318 of 2001
outlining anti money laundering measures have been promulgated.
The Central Bank supervises and regulates the banking system.
Since 1998, commercial banks have been required to meet a
minimum capital adequacy ratio of 12 percent, obligatory reserves
corresponding to 10 percent of annual profits, and systematic
recourse to the provisioning of non‐performing loans in line with
the Basle II Agreement. Banking capital has increased substantially
and by the end of 2001, the average capital adequacy ratio of
commercial banks came to about 16.18 percent. Banks are required
to draw up financial statements and auditors must publish
consolidated and audited financial statements annually.
As of February 2004, the sector consisted of 63 active commercial
banks. Lebanon’s 63 banks in fact have greater means at their
disposal than the national economy, with assets three times higher
than GDP. Activity is strongly concentrated at 16 banks, which
control 80 percent of the market.
By the end of September 2005, total assets at Lebanon’s five largest
commercial banks amounted to some US$ 39.8 billion, 58 percent of
total banking assets. The country counts 10 specialised medium
and long‐term loan institutions, 28 financial institutions, 8 financial
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intermediaries, and 3 leasing companies. The financial
intermediation level is equivalent to around 240‐250 percent of
GDP, reflecting the considerable weight of the banking sector. The
Bank of Lebanon (the country’s Central Bank), however,
encourages bank mergers to boost regional competition. It intends
to push for consolidation of the sector, which is considered to be
too fragmented. Over 25 bank mergers have taken place in the past
decade and additional mergers are expected following Parliament’s
approval of revised legislation governing bank mergers.
Lebanese banks are increasingly turning to retail banking activities,
one component being bank insurance.
Islamic banks were recently authorised in Lebanon, under a law
dated 11 February 2004, supplemented by two circulars from the
Central Bank of Lebanon dated 30 August 2004, which grant certain
incentives. This opening to Islamic banks is mainly dictated by the
already considerable flow of Arab capital to Lebanon. The Crédit
Libanais set up a subsidiary in 2005 specialised in Islamic banking
services. This new entity has capital amounting to US$ 20 million.
Nearly 10 foreign banks are active in Lebanon, notably Banque
Audi (Swiss), Commerzbank, Crédit Suisse, Dresner Bank, HSBC,
Intesa S.P.A, the Bank of New York, JP Morgan Chase, and the
Arab Banking Corporation. Subsidiary companies of French banks ‐
BNPI (BNP Paribas), the Lebanese‐French Bank and Fransabank
(Calyon), SGBL (General Company) ‐ play an important role. In
addition, banks have promoted a strategy for regional expansion
by opening branches in Syria, Jordan, Sudan and Algeria. BLOM
(Lebanonʹs largest bank) has recently acquired 99 percent of
Egypt’s MISR Romanian Bank (MRB).
Insurance activities are regulated by the 1968 Insurance Law, which
sets up a specialised Insurance Department with supervisory
responsibilities at the Ministry of Economy. Amendments to this
law in 1999 introduced an increase in minimum capital required,

Invest in the MEDA region, why how ?
the introduction of a solvency margin corresponding to 10 percent
of gross premiums and an increase in the minimum technical
provisions required per line of business. Newly licensed companies
must specialise in either life or general insurance.
The Beirut Stock Exchange (BSE) is quite dynamic, with market
capitalisation amounting to US$ 3.45 billion at the end of 2004,
compared to US$ 1.24 billion in 2001. This is 86.7 percent growth in
three years, sustained by the introduction of 12 sovereign
Eurobond issues (eleven in US$ and one in EUR). There are 16
traded companies and about three quarters of operations involve
Solidere shares. This is one of the largest publicly held companies
in the region, in charge of rebuilding downtown Beirut. The Beirut
Stock Exchange plans to set up a securities and exchange
commission and in 2005 launched around‐the‐clock trading and
electronic transactions.
The government attaches great importance to development of the
financial market and reforms are under study to increase its
contribution to financing of the economy, in particular the
possibility of quoting privatised company shares on the stock
market, development of the insurance sector and life insurance
products, and other institutional investors who could play a major
role in making the capital market more dynamic.
Telecom & internet in Lebanon
The sector is divided between a fixed telephone network managed
by the traditional public operator OGERO and two mobile
telephony networks originally developed by Cellis (the France
Telecom Group) and LibanCell on the basis of BOT (Build‐Operate‐
Transfer) contracts.
The government decided at the end of 2002 to put an end to the two
contracts and to sign new contracts with MTC Touch and Fal‐
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Detecon (Alpha Network), which manage the mobile telephony
network on behalf of the State.
The sale of 40 percent of State shares in the public company
Lebanon Telecom (another name for Ogero) is envisaged by 2009
and it is expected that a second fixed telephone operator will enter
the market in 2009 after the end of Liban Telecom’s three‐year
period of exclusivity.
Eleven official internet service providers (ISP) share the market for
internet access, with a penetration rate estimated at 17.5 percent
(approximately 700,000 subscribers).
Recently, high‐speed broadband internet services have been
authorised for ISPs and internet users, available periodically, for
example at the technopole of Berytech. On the other hand, voice
over IP and video conferencing are illegal in Lebanon.
The ICT sector continues to benefit from private investment and
Lebanon offers high profits, thanks to its comparative advantages,
its highly qualified and polyglot labour force, and a very dynamic
advertising market.
Lebanon is the primary producer of TV ads in the Middle East as
well as a media and broadcasting leader, providing digital content
throughout the Arab world.
The Lebanese State has announced construction of a development
complex to accommodate ICT companies at Damour, specialised in
electronics, computer equipment, software, and biotechnology. The
total cost of this project, initiated and supported by the American
organisation USTDA, is estimated at 30 million dollars.
Business and investment opportunities in
Lebanon
According to UNCTAD’s “Investor Perception Survey”, there are
investment opportunities in Lebanon in the following sectors:

Invest in the MEDA region, why how ?
� Tourism: Arab tourism, health and wellness tourism,
convention and business tourism, amusement parks, etc.
� ICT: software development, common services, back office
services, call centres, etc.
� Industry: agro‐food, furniture, jewellery, cosmetics, clothing,
paper and packaging, etc.
� Agriculture: fruits & vegetables, organic products, dairy
products, tobacco, olive oil, wine, canned fruits, honey, etc.
� Health & education: private schools and universities,
cosmetics, healthcare services, etc.
� Financial and professional services: insurance, communication,
advertising, financial services, consulting services, etc.
The majority of foreign investments go to tourism and real estate
(luxury hotels, villas, etc.), mainly catering to wealthy Arab tourists
suddenly wary of travelling to the US or Europe. But the current
wave of reconstruction is taking away from investment in
pharmaceuticals, security, construction, education, franchising, and
services. Many Lebanese private individuals and corporations are
looking for safe investment opportunities overseas.
Lebanon’s real estate sector is surging, driven by an influx of
overseas investment. Construction fever in downtown Beirut and
neighbouring districts (Kantari, Gemmayze, Wadi Abou Jmil,
Clemenceau‐Ain Mreisseh) these past few years has now spread to
other residential districts of Beirut (Achrafieh, Ramlet El Baida,
Verdun and Raouche).
Apart from ongoing large‐scale construction projects along the
shoreline and downtown (the Platinum Tower, Beirut Tower I,
Marina Towers, Four Seasons Hotels, the Hilton Hotel, the
jewellery market) for a total value of US$ 1 billion, more than thirty
new tourist and luxury residential projects worth more than US$ 1
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billion are scheduled to be launched by the end of 2006. The
Kuwait‐based Al Sayer Group and its subsidiary Al Dhow
Investment Company announced that they would be launching a
real estate project in downtown Beirut at a cost of US$ 1 billion,
called the Phoenician Village.
Profits earned by Solidere, the company established to rebuild
downtown Beirut after the civil war, reflect the real estate boom.
The company recorded net profits of US$ 108.5 million in 2005,
double the previous year’s figure. Figures for 2005 are remarkably
high, given the political turmoil in Lebanon following the
assassination in February of former Prime Minister Rafik al‐Hariri,
founder of Solidere.
The travel and tourism industry is a catalyst for construction and
manufacturing. In Lebanon, capital investment for travel and
tourism is estimated at US$ 455.1 million, accounting for 12.1
percent of overall investments in 2006. Capital investment for travel
and tourism is expected to reach US$ 714.8 million, (11.8 percent of
estimated overall investments in 2016).
Large international companies have been awarded contracts for
future hotel projects like Campbell Gray, Hyatt, Express by
Holiday Inn, Rotana and Intercontinental Hotels, which has signed
an agreement with Hotels of Lebanon (SGHL) for construction in
the countries of the Levantines (Lebanon‐Syria‐Jordan) of some 20
“Holiday Inn”‐category hotels over a period of five years.
Al Habtoor Hospitality Group has invested US$ 150 million in
Habtoorland. This amusement park was inaugurated at the
beginning of 2005 along with the Habtoor Grand Hotel Convention
Centre & Spa, located in eastern Beirut. Other investments for five‐
star hotels were announced in the district of Raouche, where
promoters include the Horizon Development Company, affiliated
with the Irad Holding Group (held mainly by the Hariri family)
and the Kuwait Projects Company – Kipco ‐ (owned by the Kuwaiti

Invest in the MEDA region, why how ?
royal family of Sheikh Sabah El Ahmad El Sabah). Work is
estimated at a cost of US$ 75 million and construction is expected to
start in 2006. In addition, a US$ 150 million initiative to build a
seaside and harbour complex in Damour (baptised “Port of Love”)
is scheduled to be launched soon.
Beyond hotels, trade and leisure facilities (amusement parks,
casinos, etc.), new activities are booming thanks to affluent
customers interested in luxury activities, real estate and
communications.
Lebanonʹs broadcasting scene is well developed, lively and diverse,
reflecting the countryʹs pluralism. Beirut, home to a number of
television and broadcasting studios, has found new opportunities
to promote its know‐how in content production through internet.
Several Arab portals are hosted in Lebanon and the country offers
fairly good telecommunications infrastructure. Several business
incubators have been set up to accommodate new start‐ups, along
the lines of the Berytech technopole.
Lebanon has the human capital and educational system needed to
develop “market niches”, for example software production, back‐
office operations, call centres and “shared services” companies.
To support these activities, IDAL is launching the Beirut Emerging
Technology Zone (BETZ), an ambitious initiative aimed at
establishing a technology park, including a business incubator for
start‐ups in ICT and other new technologies. There are plans for
establishment of a technology incubator by the Lebanese National
Council for Scientific Research as well as a technopole by the
University of Balamand. A business incubator for start‐ups
(Berytech) was established as early as 2001 by Saint Joseph
University, which includes a business accelerator for start‐up
companies and business hosting facilities for already established
small and medium‐scale companies. Berytech has partnerships
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with European countries and it is a member of the Network of
European Technical Parks.
In addition, the privatisation process offers many opportunities,
especially with the transfer of 40 percent of Lebanon Telecom’s
fixed telephony lines (the longstanding sole operator) and other
privatisation transactions scheduled for 2006, such as production
and distribution of electricity, sale of 40 percent of EDL shares,
rehabilitation/extension of Beirut’s commercial port and extension
of Tripoli’s port, water management projects, municipal solid waste
management projects, environmental and infrastructure projects
such as airport renovation, upgrading and modernisation.
Several laws have been passed (oil production) or will soon be
promulgated (pharmaceutical products) to remove import barriers.
Several factors have contributed to a more dynamic financial sector:
growing opening of the economy, new trade agreements, the
privatisation programme, and new regional opportunities
following for example reform of the Syrian banking structure, in
which Lebanese banks are already heavily implicated. In addition,
a vibrant Beirut Stock Exchange makes it possible to handle online
financial transactions with local and regional investors.
Many other productive sectors such as agriculture have great
growth potential. Products such as fruits, vegetables, olives and
olive oil, organic materials, mineral water, wine, etc. are well
established on various export markets. A number of small projects
in wine making, olive growing and dairy products are seeking to
set up partnerships with foreign companies.
IDAL is launching the “Agro Plus” program to promote the agro‐
industrial sector, focusing on products such as canned food and
juice. Like Export Plus, it will provide subsidies and assist in
improving quality, marketing, and production costs in order to
penetrate new markets and increase exports.

Invest in the MEDA region, why how ?
Similarly, the textile industry (which produces yarn, cloth, socks,
panty hose, towels, curtains, and carpets) suffers competition from
cheap imports but maintains some 2500 factories. Mechanical
industries, whose imports are increasing dramatically as the sector
modernises its facilities and services related to the transport of
people and goods, can be further developed.
Success story: Ipsos polls the Middle East from
Beirut
Ipsos, the survey and marketing group (EUR 857 million turnover
in 2006) has been established in Lebanon since 1995, through the
group’s acquisition of Stat, a local company which had been
created in 1988. The new entity, Ipsos‐Stat, became the bridgehead
of Ipsos for the whole of the region. Beyrouth‐based Ipsos‐Stat is
now present, through an integrated network,,in Syria and Jordan as
well as in the Gulf States (Bahrain, Kuwait, Saudi Arabia). To
illustrate the company’s strategy of regional expansion, Ipsos Stat
set up in the United Arab Emirates (Dubai) in 2003.
The strategy of Ipsos, which has its regional management centre in
Lebanon consists in offering its range of expertise (marketing
studies, advertising and media studies, opinion polls and social
research, studies linked to client relations management) throughout
the Middle East. In order to achieve this, the group which is listed
on the Paris Stock Exchange, works with the local economic players
(advertisers, public and public enterprises, media, etc.) and makes
the most of the know‐how that it practices in thirty countries. As
far as the measurement of advertising efficacy is concerned for
instance, Ipsos underlines that the products developed and
marketed in France (« Baromètre Affichage », « Suivi Télévision
Cinéma », « Suivi Impact Presse) are as well available in Lebanon.
The number four company in the world for surveys is happy with
the rapid expansion of its activities and in particular with its
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Lebanese subsidiary in the domain of media and advertising. It has
undertaken two major surveys for the audiovisual sector: National
Media Analysis and TV Audience Measurement Survey. Ipsos,
despite a fragile context in the region, nevertheless benefits from a
strong growth rate (with an organic growth of 14% compared with
the previous year), which underlines the strong potential of the
Middle East markets.

Libya
Overview
References
Official name Great Socialist People’s Libyan
Arab Jamahiriya
Capital Tripoli (1,3 million inhabitants)
Area 1 760 000 km2 Population 2004 5.7 million
Languages Arabic, 2ème language English.
Italian often spoken
GNP 2005 (US$) 38.735 bn
GNP per capita (2005) 6,800 US$ (11,629 US$ in ppp.)
Religion Islam
National days 1st September (1969 Revolution).
24 December (Independence Day)
Currency (March 2007) 1 € = 1.77 Libyan Dinar (LYD)
1US$ = 1.33 LYD
Association agreement with
EU
Observer since 1999
WTO membership Observer since 2004 in view of
membership.
Sources: FMI, Libya Country Report n°5/83, March 2005, Country Report
n°06/136, April 2006 and IMF World Economic Outlook database.
Economic profile
Located in North Africa, Libya is the fourth largest country in
Africa. Bordering the Mediterranean Sea, it has land borders with
Tunisia, Algeria, Niger, Chad, Egypt, and Sudan. Libya is a
member of the Arab Maghreb Union (AMU) and a founding
member of the Organisation of African Unity (OAU).
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From the earliest days of his rule following the 1969 military coup,
Colonel Muammar al‐Qadhafi has espoused his own political
system: the “Third Universal Theory”, codified in the Green Book.
The system is a combination of liberalism and Marxism and is
supposed to be implemented by the Libyan people themselves.
After more than ten years of international isolation due to the 1988
bombing of a Pan Am plane over the Scottish town of Lockerbie,
the U.N. sanctions were suspended in April 1999 and finally lifted
in September 2003 after Libya settled the Lockerbie claims and
agreed to stop developing weapons of mass destruction. Kaddafi
has made significant strides in normalising relations with western
nations since then and has made progress on economic reforms as
part of a broader campaign to bring the country back into the
international fold. The country has huge potential for
modernisation and foreign investments and is currently
experiencing a business boom including oil and gas, thanks to
plentiful high‐quality hydrocarbon reserves. Other major
opportunities are in infrastructure projects, airports and ports,
healthcare, tourism and education and training. Libya will need to
make considerable progress in all these areas if it is to achieve its
full potential.
Libya is generously endowed with energy resources, with one of
the largest proven oil reserves in the world (39.1 billion barrels of
reserves according to OPEC statistics and 1,500 billion m3 of gas
reserves). Libya’s economy is heavily reliant on oil revenues but
attempts are underway to diversify. Libya’s income from oil
exports has increased sharply in recent years, posting US$ 28.3
billion in 2005 and forecast at US$ 31.2 billion in 2006, up from just
US$ 5.9 billion in 1998. The rebound in oil prices since 1999, along
with the lifting of U.S. and U.N. sanctions, have resulted in an
improvement in Libyaʹs foreign reserves (US$ 31 billion as of June
2005), trade balance (a US$ 17 billion surplus in 2005) and overall
economic situation.

Invest in the MEDA region, why how ?
In part due to higher oil export revenue, Libya experienced strong
economic growth in 2003, with real gross domestic product (GDP)
estimated to have grown by about 9.1 percent. Economic and
financial conditions continued to be favourable in 2004 and 2005,
with GDP growth of 4.6 percent and 3.5 percent respectively,
projected at 5 percent for 2006 in the IMF’s annual economic review
(the latest estimates by the EIU are more optimistic, around 8%).
This level of oil revenue and a small population give Libya one of
the highest per capita GDPs in Africa, posting US$ 6,800 in 2005.
Soaring oil prices contributed to a significant increase in the
external current account surplus, reaching about 15 percent of GDP.
Oil export earnings increased by 47 percent to about US$ 29 billion
and non‐oil exports, mainly petrochemicals, also grew markedly.
Nearly 85 percent of oil production is exported, accounting for 95
percent of total exports and 60 percent of the country’s income.
Kept down to OPEC’s quota, production has for several years come
in between 1.3 and 1.4 million barrels per day, making Libya the
second largest oil exporter in Africa. However almost US$ 30
billion in investments in oil exploration will be needed to bring
production of hydrocarbons to 3 million barrels per day by 2010.
Imports grew by 24 percent to some US$ 11 billion, boosted by
increased domestic demand. Overall, gross international reserves
rose to about 32 months of imports (based on 2005 volume).
Libya’s main trading partners are the EU (mainly Italy, the United
Kingdom, Germany and France), Maghreb countries, and Turkey.
Libya has begun to respond to international, political and economic
pressure, adopting market orientated reforms and introducing
initial liberalisation of the socialist‐oriented economy. Since
settlement of the Lockerbie claims and lifting of international
sanctions, many countries have re‐established dialogue with Libya.
Kaddafi has affirmed his willingness to move towards economic
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reform, liberalisation and a reduction in the Stateʹs direct role in the
economy.
In June 2003, he said that the countryʹs public sector had failed and
should be abolished and called for privatisation of the countryʹs oil
sector along with other areas of the economy. He also pledged to
bring Libya into the World Trade Organisation (WTO), with
adoption of a new customs system (Law‐Decree n°83 of July 7,
2005) including abolition of licenses, lowering of tariff protection by
removing import taxes on all products (except 85 items), in favour
of a 4 percent customs service (handling) fee, reducing customs
duty on products manufactured locally to a maximum of 2.5
percent and consumer tax to rates of 25 or 50 percent (similar to
VAT, which does not yet exist).
Custom procedures are being streamlined.
Other important reforms were made lately, in particular the
planning of a more comprehensive medium term plan and the
multiyear programming of the economic policy with the technical
assistance of the IMF. Obstacles to private sector activity are
gradually being lifted and a turning point in this process was the
adoption of Law n.5/1426 in 1997 (encouraging foreign capitals
investments), which allows investors to acquire a significant share
of capital and have corporate control in many priority sectors:
agriculture, services, industry, health and tourism. The Law was
amended in June 2003; allowing co‐investments between Libyan
and foreign partners, they also subtracted the projects of foreign
investments to the main legal obligations regulating the activities of
Libyan companies, in particular, to the registration procedure in
the trade or industrial registers.
Furthermore, the decree n°178 allows commercial representation
for foreign company, under some conditions. These reforms were
followed by the establishment of the Libyan Foreign Investment
Board (LFIB), created with the purpose of facilitating foreign

Invest in the MEDA region, why how ?
investment procedures and overseeing the application process as a
one‐stop‐shop for foreign investors. Imports licences were
abolished in 2003. In 2005, the authorities continued to reform and
open up the economy. In particular, they streamlined the tariff
schedule; partially liberalised interest rates; and passed laws to
reinforce the central bank’s independence, allow foreign banks to
operate in Libya, and fight money laundering. They also broadened
the privatisation program and the scope for foreign investments to
include downstream activities in the oil, health care, transportation,
and insurance sectors; and launched the privatisation of a major
public bank.
The privatisation program was initiated in January 2004, involving
the sale of 360 economic units by 2008, but excludes the utilities, the
oil and gas sector, and the air and maritime transportation sectors.
Libya also is attempting to position itself as a key economic
intermediary between Europe and Africa, becoming more involved
in the Euro‐Mediterranean process and reciprocally, the European
Union works for its accession to the Barcelona process and its
participation in the European Neighbourhood Policy (ENP).
The Libyan economy remains largely state controlled but the pace
of economic and structural reforms has picked up somewhat, with
the implementation of measures aimed at enhancing the role of the
private sector in the economy. Libya thus offers many business
opportunities, as the country is heavily depending on imports.
Some State import monopolies were eliminated and State‐owned
companies in charge of imports ‐like the “National Supply
Company” which ensures the distribution of the products at very
low prices, some being still subsidised at 90 percent‐, now face
competition from the private sector, which can freely import or
produce goods that were previously under public monopoly
including the building and construction sector, iron and steel
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industry, mechanical industry and agricultural and food
processing.
Libya is committed to reduce its dependency on oil, the countryʹs
main source of income, and to increase investment in agriculture,
tourism, fisheries, mining, and natural gas. Libyaʹs agricultural
sector is a top governmental priority. Hopes are that the Great Man
Made River (GMR) ‐ a five‐phase, US$ 30 billion project to bring
water from underground aquifers beneath the Sahara to the
Mediterranean coast‐, will reduce the countryʹs water shortage and
its dependence on food imports.
International Trade Relations
Libya is a funding member of the Arab Monetary Fund (AMF), of
the Council of Arab Economic Unity (CAEU), of the Islamic
Development Bank (IDB), OPEC countries and AMU (Arab
Maghreb Union). Libya is negotiating WTO membership since
2004.
Economic indicators
� GDP by sector: Agriculture: 8.7 percent; Industry: 45.7 percent;
Services: 45.6 percent.
� Main industries: Oil, iron and steel, food processing, textiles,
craft industry, cement.
� Main exports: Petroleum, natural gas, chemical, and
petrochemical products, fruits and nuts, and carpets.
� Main imports: Machinery, transport facilities, semi‐finished
commodities, and foodstuffs.
� Major exports partners (2004): Italy; Germany; Spain; Turkey;
France.
� Major imports partners (2004): Italy; Germany; Tunisia; UK;
Turkey; France.

Country risk
Invest in the MEDA region, why how ?
The main insurance and rating agencies recently improved their
rating of Libya. The French COFACE for example allots the C score.
Key challenges
The Libyan economy still remains largely state controlled, heavily
dependent on the oil revenues and is not diversified, the industrial
sector being mainly based on the oil refining, petrochemical
industry and the iron and steel industry. The unemployment rate is
important, estimated at 25 percent particularly among young
people. The economy has been weakened by years of ostracism. A
plethoric administration paralyses the emergence of a dynamic
private sector and the foreign investment is somewhat slowed
down by the obligation to have a commercial agent in Libya and
the difficulty in identifying a good partner. Moreover, there is a
lack of reliable information and statistics to be used for market
research.
The country needs foreign investments to increase its outputs of oil
and gas to achieve economic diversification, too vulnerable to a
reversal of the oil market. Although its rehabilitation within the
international community and efforts to re‐integrate itself into the
global economy gave more confidence to investors, structural
reforms remain essential to achieve strong and sustained growth, to
meet the demands of the rapidly growing labour force, and to
develop a capacity‐building for sustainable human development
and public sector reform.
The reform programme launched several years ago is promising
but the achievements are not yet visible, apart from the abolition of
imports taxes and the reduction of the subsidies on fuels and
electricity. The country has a heavy workload. However, to realise
its full economic potential, Libya is committed to build up a sound
investment climate, with strong institutions to support open
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markets and improve the legal framework for investments and the
protection of foreign investments.
Libya is an import‐driven country with extremely limited local
production and manufacturing capabilities. Many of the country’s
manufacturing facilities are in disrepair, overstaffed or under
utilised. Recently, Libya announced plans to privatise several
manufacturing plants, mostly in the areas of steel, iron, and
cement. Other business and investment opportunities include
textile and clothing industries and agricultural refining and
processing.
Strong points
Libya has a strategic geographical location between Europe, Africa
and Middle East and easy access to these markets.
Libya is a major oil and gas producer and can be considered the hot
spot for new explorations. The favourable developments in the oil
market lately will again generate consistent hydrocarbon revenues.
However, the economic activity will remain strong in 2006, driven
by private consumption and increased government spending. The
substantial oil windfall will continue to generate comfortable
budget and external current account surplus.
The Libyan authorities set the target to create a conducive
environment for a more efficient economic activity, and the
building‐up of a sound business climate, by adopting a market‐
oriented policy, liberalizing the economy, and cutting some red
tape to encourage private investment.
The foreign debt is moderate and the financial reserves
comfortable. Libya has taken steps toward regularizing its relations
with external creditors. A new debt department has been recently
established at the Ministry of Finance, with a view to developing an
external debt database and strengthening external debt
management procedures.

Invest in the MEDA region, why how ?
The business environment is changing, the most important Libyan
businessmen are now involved in the import/export business,
wishing hopefully to connect the Libyan economy to the worldʹs
trade and investment flows, and to the globalisation stream.
Lastly, the country has a very young population with an acceptable
level of education. The literacy rate is the highest in North Africa;
82.6 percent of the population can read and write (CIA world fact
book, 2006). Libya has a pool of skilled workers eager to emerge in
the work force. Wages are substantially low.
Some progress was made on the reform front. Measures taken
include the adoption of laws to encourage domestic and foreign
private investment, the adoption of a new tax law, the removal of
customs duty exemptions enjoyed by public enterprises, the
reduction in tariff rates, and the adoption of a new banking law
that gives the Central Bank of Libya greater independence in the
conduct of monetary policy. In addition, a privatisation plan was
initiated in January 2004, which involves the sale of 360 economic
units.
Libya is rich in natural and mineral resources that can be
considered the basis for many potential industrial, agricultural and
tourism projects. The tourist potential, very little exploited up to
now, is important (Mediterranean coast of Cyrenaica,
archaeological sites‐ especially Leptis Magna).
How to invest in Libya?
During several decades, Libya remained closed to foreign
investments, its socialist and centralised economic system
preventing virtually any external financing, except for oil
partnerships and the long period of international embargo worsen
this financial insulation. However, a major reformist course in the
economy has been inaugurated by the appointment in June 2003 of
the new Ministry of Economy, Mr. Choukri Ghanem (appointed
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since April 2006 as the Chairman of the National Oil Company‐
NOC), a promoter of a policy of economic openness with a main
mandate “abolishing the public sector” and making Libya
attractable to foreign capital. Over 54 large State‐owned companies
will be opened to foreign investors. The companies to be sold to
foreign investors are the largest among those to be privatised. The
small and medium firms will be offered to Libyan investors.
The lifting of the international sanctions against Libya in 2003
allowed its return in the international fold. The hydrocarbon
resources and the incentives to attract foreign investments are
likely to improve the attractiveness of the country even if a long
term process has to be taken to carry out the administrative reforms
and improve the businesses climate. Moreover, imports are not any
more a State monopoly. The sectors open to foreign investment are
industry, health, tourism, services, agriculture, and any other sector
approved by the National General People’s Committee (GPC).
Foreign investment is encouraged by Law n°5 amended by Law n°7
in 2003 and its decrees, in the fields of technology transfer,
vocational training, regional development, industry, health,
tourism, agriculture, oil related services but not drilling and
exploration (these are covered by the Petroleum Law) and any
other sector specified by the GPC. Tourism is ruled by the Law n°7
of March 6, 2004 and the Decree n°139 of August 26, 2004. Some
sectors are still closed; the telecommunications and the financial
sector, for example, remain government monopolies. Retail and
wholesale operations are restricted to Libyan nationals.
In addition to many incentives, the law n°5 established the Libyan
Foreign Investment Board (LFIB), in order to facilitate foreign
investment procedures. LFIB oversees the application process and
authorizes investment project by granting a 5 years licence,
extended for 3 years. Moreover, the Law allows co investments
between Libyan and foreign partners without limitation of the

Invest in the MEDA region, why how ?
foreign participation, except for those concluded with the banking
sector and State‐owned companies, they also subtracted the
projects of foreign investments to the main legal obligations
regulating the activities of Libyan companies, in particular, to the
registration procedure in the trade or industrial registers.
Furthermore, the decree n°178 authorizes to carry on the activity of
commercial representation for the account of a foreign company,
under certain conditions.
The Foreign Investment Law provides many incentives for licensed
projects such as a 5‐years exemption from corporate tax, with a
possible extension of 3 years if net profits are reinvested in the
project. It also provides an exemption from customs duties on
imports of machinery, tools, and equipment needed for the project
and for a period of 5 years as well as an exemption from excise
taxes on exported goods.
© AFI
Furthermore, foreign investors are allowed to repatriate the
invested capital in case of total or partial sale; in case of conclusion
or liquidation of the project; after 5 years from the date of release of
the license; or within six months from the release of the license if
independent difficulties or impediments emerge; to transfer profits;
to employ foreign manpower when the local supply is not
sufficient; and to purchase the land where the project is located.
The Free Trade Act of 1999 created a new legal framework for the
establishment of offshore Free Trade Zones in Libya. Fields of
investment and economical activities in Free Zones include:
� Storage of transit and domestic goods, as well as goods
produced within the Free Zones which are intended for export
zones and goods imported for re‐export;
� Unpacking, cleaning, re‐packing and similar operations within
the Free Zone and guarantee their manufacture to meet the
demand of the market;
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� Performing industrial processes;
� Rendering financial, banking, insurance, and other related
service needed by the investors within the Free Zone.
Projects in the free zone enjoy standard privileges, including tax
and customs exemptions, free repatriation of invested capital and
gained profits; movement of capital and products between the Free
Zone and foreign countries is not subject to any monetary
restrictions or monitoring regulations; profits gained from activities
also enjoy the same exemptions if reinvested; legal guarantees
against the nationalisation of projects, etc. Misurata is currently
Libya’s sole operating Free Trade Zone (FTZ). At present, the zone
occupies 430 hectares, including a portion of the Port of Misurata.
Foreign investors wishing to set up in Libya have four main
options: 1) set up a branch office; 2) establish a joint venture/joint
stock company with a local firm; 3) establish a representative office;
and, 4) enter Libya under the provisions of investment Law n°5.
Trade activities and joint ventures
The Law n°65 of May 20, 1970, governing trade and commercial
companies, stipulates that any person or entity wishing to carry on
a trade activity must have the Libyan nationality, however
partnerships are possible. Joint ventures must be at least 51 percent
Libyan‐owned.
Joint Venture holding companies are permitted under Libyan law.
The establishment of Joint Ventures (Joint Stock Companies) is
governed by Law n°65 of 1970, as amended by Law n°21 of 2000.
The establishment of Branch Offices also covered by Law n°65, as
well as the 1953 commercial code. In the construction/ contracting
field, as well as other longer‐term activities, formation of a Joint
venture or Branch Office is virtually a requirement for operating in
Libya. The capital investment floor for qualification has been raised
to US$ 50 million, and must be completely paid‐up during creation.

Invest in the MEDA region, why how ?
Representative office through a local agent
Law n°6 of 2004 mandated that foreigners wishing to sell direct to
the Libyan market employ the services of a local agent. This law
has since been softened; and since the decree n°8 of January 9, 2005,
the following seven product groupings currently require a local
agent: passenger vehicles, motorcycles, copying machines, ovens,
refrigerators, washers & dryers, other major household appliances,
televisions, faxes, and computers, road making and paving
equipment, heavy agricultural equipment (including pumps).
Libyan nationals no longer need import licenses to act as agents for
foreign firms. The General Director of the office must be Libyan as
well as the labour employed. Agencies are simply distributorship
agreements, signed with a local firm or registered agent. The
Tripoli International Fair, held each year in April, is an excellent
window for marketing.
Opening of a branch office/local subsidiary of a foreign company
The decree n°3 of January 3, 2005 regulates the creation of a foreign
subsidiary company in Libya. The request must be addressed to the
Department of Company Registration within the Ministry of
Economy and Trade, and include the name of the designated agent.
The capital investment floor for qualification must be of 150.000
LYD and the duration of the activity is five years renewable. The
scopes of activities authorised with the foreign subsidiary
companies in Libya are determined by the decree n°13 of January 9,
2005. Opening a Representative Office does not grant a foreign
company rights to sell or market goods in the country.
Entering Libya under the terms of Law n°5 for the encouragement
of foreign investment
In this case, investments decisions are taken by the Libyan Foreign
Investment Board who approves proposals and gives the licences.
Many of the restrictions placed upon foreign companies in the
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above categories do not apply to foreign investments and there is
no need to have majority Libyan ownership. The capital investment
floor for qualification for entry under Law n°5 is US$ 50 million.
Contracting with State-owned companies
The law governing the contracts with the Libyan state companies
requires foreign suppliers to pay a contract registration tax of 2
percent of the amount of the main contract or 1 percent for a sub‐
contract.
It should be noted that sale contracts are settled exclusively by
irrevocable letter of credit whose opening can take up to six
months. Major construction contracts are often awarded on turnkey
or EPC (engineering, procurement and construction/
commissioning) terms. BOT (Build‐Operate‐Transfer) contracts are
extremely rare in oil & gas power sectors.
Taxation and customs formalities
Imports licences have been abolished since 2003. However, Libya
requires standard import documentation including certificate of
origin, tariff code, and Customs. The Libyan customs tariff is, since
January 1998, aligned to the simplified harmonised nomenclature
and as a prelude to its application to WTO membership, Libya is
working to accredit its central Standards Bureau and to implement
a network of certified national testing laboratories. The government
significantly streamlined the customs tariff, and eased restrictions
on external trade by downsizing the negative import list from 31
items to 17 items known as “of luxury” or locally manufactured.
The Libyan Customs Administration cancelled duties on more than
3500 product categories, effective August 1, 2005. Approximately
80 products remain subject to duties of between 5 and 50 percent.
The new tariff schedule has only two rates (10 percent for tobacco
products and 0 percent for all other products); the import duties
were replaced by a 4 percent service fee, which must be paid by

Invest in the MEDA region, why how ?
importers on all products except for 85 of them. Additionally, they
have to pay a 2 percent tax for domestically produced goods and an
excise duty of 25 or 50 percent. As mentioned above, duty rebates
are available to foreign investors entering under the terms of Law
n°5 (1997). In addition, the government created an investment fund
to manage part of the government’s oil revenues.
Protection of foreign investments and dispute settlement
Libya ratified many International Conventions and concluded
bilateral agreements of investments protection in particular with
Tunisia, Morocco, Egypt, Austria, Germany, Malta, Switzerland,
Belgium, Bulgaria, France, and Croatia. Article 23 of the Law n°5
on Foreign Investments stipulates that the investment project
cannot be nationalised, dispossessed, submitted to custody or to
sequestration or other similar provisions, without a judicial
sentence and an equitable reimbursement. For dispute settlements,
the Libyan legal system is rather effective and it is relatively easy to
obtain an equitable judgement but the enforcement of judgments
can be delayed. For international arbitration, Libya is not a
signatory to the U.N. Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (The New York
Convention). In the case of commercial disputes, foreign entities
currently opt to try cases before the ICC, the International Chamber
of Commerce, whose judgments Libya has a history of respecting.
Libya is a member of the Multilateral Agency of Guarantee of
Investments (MIGA).
Libya is a member of the 1989 Arab Maghreb Union (AMU) linking
Tunisia, Algeria, Morocco, Mauritania, and Libya. The AMU’s
stated objectives include the encouragement of free movement of
goods and people, revision and simplification of customs
regulations, and movement towards a common currency.
Nominally, AMU mandates duty‐free trade among its members.
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Libya is a part of the Greater Arab Free Trade Area (GAFTA, also
called PAFTA, Pan Arab Free Trade Agreement) and the Euro‐Med
Partnership (EMP). In 1999, 27 European partners agreed to admit
Libya, contingent on Libya’s accepting the Barcelona so‐called
ʺacquisʺ. Libya has also applied for membership within the World
Trade Organisation (WTO).
Income Tax Regime
The authorities passed a new tax law (n°11 of March 5, 2004),
reforming the general income tax, reducing the top marginal tax
rate on wages and salaries, and increasing personal tax exemptions
bands. The corporate tax remains progressive, with a sliding scale
from 15 to 40 percent, compared with 20 to 60 percent under the
previous law.
An additional solidarity tax called “Jihad” is due which amounts to
4 percent on the taxable income. Foreign oil companies have a
specific taxation regime, defined by “Petroleum Law” of 1955 in
course of amendment. The income tax is composed of three tax
brackets of 8, 10, or a flat 15 percent on income instead of 25
percent before. The general tax on incomes has been abolished.
Contracts must be registered with the Tax department within 60
days of signing. Two percent of total amount or 1 percent of the
subcontract is payable upon registration. The Income Tax
Department considers that any payment related to the realisation of
a contract in Libya is taxable and the total amount of the contract is
taken into account for the calculation of the taxable income. In case
of service or engineering contracts, the tax authorities charge 25
percent or more on the taxable profits.
Foreign exchange
Currency and Foreign Exchange controls: more flexible than before,
it is managed by the foreign exchange control department attached
to the Libyan Central Bank. Since June 16, 2003, Libya unified its

Invest in the MEDA region, why how ?
multi‐tiered exchange rate system (official, commercial, black‐
market) effectively devaluing the countryʹs currency. Among other
goals, the devaluation aimed to increase the competitiveness of
Libyan firms and to help attract foreign investment into the
country. Its value is approximately 1 Euro = 1.6 LYD. The Libyan
Dinar not being a convertible currency, it is used only for current
transactions in the country. However, foreign investor can open an
account in foreign currencies in one of the commercial banks or in
the Libyan Arab Foreign Bank (LAFB). Non‐residents working in
Libya may open domestic accounts. Central Bank approval is
required for all other credits to non‐resident accounts.
Foreign investors are allowed to repatriate the invested capital in
case of total or partial sale, in case of conclusion or liquidation of
the project, after 5 years from the licensing agreement or within six
months from the investment act if independent difficulties emerge.
The Libyan Foreign Investment Board (LFIB)
The L.F.I.B. is a one‐stop shop for foreign investors, established as a
key component of the Investment Law n°5/1997 and provides many
services intended to facilitate all procedures that are required for an
entrepreneur to start up an industrial or commercial business.
These include obtaining all necessary licenses and permits and
completing any required inscriptions and incorporation with
relevant authorities. A major progress has been made in
simplifying business application procedures in order to facilitate
and accelerate business creation. In particular, a one‐stop window
has been established. The foreign investment’s scope of activity has
been broadened to include downstream activities in the oil, health,
transportation, and insurance sectors. Also, joint ventures between
Libyan and foreign investors are now permitted to benefit from the
incentives of Law n°5 mainly an exemption from corporate income
tax for up to eight years, and exemptions from customs duties and
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taxes on imports of equipment for the execution and operation of
investment projects.
The main objectives of the LFIB are to:
� Provide advice, information and support for investors.
� Identify and promote investment opportunities, through the
elaboration and the presentation of investment plans and
economic studies for development of the country.
� Receive and consider applications for foreign capital
investments.
� Issue licenses as well as obtaining approvals required for
investment projects. Develop investment programmes and
promotional activities to attract investors.
� Recommend or renew exemptions, facilities, or incentives for
the investment projects.
� Look into complaints and protests of investors without
affecting the investor’s right to petition and legal action.
One-Stop Shop Service
The establishment of the one‐stop shop service could be considered
an important step for the simplification of procedures. It provides
all services needed by foreign investors and this is being done by
means of administrative offices within the L.F.I.B.’s premises. These
offices include: Customs office; Immigration and passports office;
Tax office and Labour force office.
Procedures and approvals that fall within the one‐stop shop
services include:
� License and permits’ procedures. Export and import
procedures.
� Foreign manpower procedures.
� Ownership and renting of real estate procedures

Invest in the MEDA region, why how ?
� Transfer of dividends procedures.
� Complaint procedures.
http://www.investinlibya.com/en_index.htm (in Arabic and
English).
A list of investment projects is available online at:
http://www.investinlibya.com/en_projects.htm
Financial & banking sector in Libya
The banking structure includes the Central Bank of Libya (CBL),
five State‐owned commercial banks, one private commercial bank
(Bank of Commerce and Development), and 48 national banks. The
largest of the state commercial banks, The Libyan Arab Foreign
Bank (LAFB), operates subsidiaries and affiliates in more than 30
countries. Other State‐owned banks are Jamahiriya Bank, the
National Commercial Bank, Sahara Bank (undergoing
privatisation), Umma Bank and Wahda Bank.
A new banking law on Bank Reorganisation, Currency, and Credit
(n°1 of January 12, 2005) has been passed which aims to modernise
and introduce market‐based monetary instruments into the
financial system, in order to make the banking structure to play a
more proactive role in the redistribution of capital flows towards
the most productive sectors of the economy.
The law gives the Central Bank of Libya (CBL) greater
responsibility in the conduct of monetary policy, including issuing
its own securities. In addition, the authorities have capped the
interest rates across the board in an effort to encourage private
sector demand for credit and developed a strategy to modernise the
payment system. An Anti‐Money Laundering (AML) law has also
been adopted (Law n°2 of 2005).
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Commercial banks must assume the form of a Libyan joint‐stock
company with paid‐up capital of at least LYD10 million. According
to the new law (art. 67), the Central Bank of Libya may permit the
establishment of banks with foreign capital. It may also permit
foreign banks to hold shares in domestic banks and to open
branches or representation offices, and the capital allocated for the
branchʹs activity in Libya must be of at least US$ 50 million.
The Central Bank of Libya (CBL) was created in 1956 in order to
maintain the stability of the Libyan currency and to promote the
sustained growth of the economy in accordance with the general
economic policy of the State. With the new law of January 12, 2005,
the functions of the CBL have grown and its supervision
strengthened. It controls money supply and credit, supervises
commercial banks to ensure the soundness of their financial
position and protection of the rights of depositors and
shareholders, and advises the State on the formulation and
implementation of financial and economic policy. In addition, the
CBL issued a number of decrees to improve the operations of
commercial banks, launched the privatisation of Sahara Bank, and
recapitalised three of the five State‐owned commercial banks. The
governor of the Central Bank announced that privatisations of
major banks will continue at the beginning of 2006, with Wahda
Bank already scheduled. As of August 2005, banks were granted
autonomy to determine freely interest rates on deposits and to set
lending rates within a band of 250 basis points above the discount
rate (currently at 4 percent).
As for the exchange control, the Libyan Dinar is used only for
current operations in the country because it is not a convertible
currency. However, foreign investors have the right to open an
account in convertible foreign currencies in one of the trade banks
or the Libyan Arab Foreign Bank. There are two offshore banks ‐
Valetta Bank (Malta) and British Arab Commercial Bank (UK)‐.
Bawag PSK (Austria), have opened a representative office in 2005

Invest in the MEDA region, why how ?
as well as HSBC. Other foreign banks such as the International
Arab Bank (Egypt), Swiss Bank Channel, and Housing Bank of
Amman have announced their intent to set up in the near future.
The government reduced to zero its debt with the trade banks and
the Central Bank. The financial sector is underdeveloped and the
payment system, completely embryonic, is in the course of
modernisation. The credit card facilities will be introduced soon.
Telecommunication & Internet in Libya
Telecommunications infrastructure developments are the main
projects in which the government plans to invest massively in the
next ten years. International companies in particular Alcatel,
Siemens, Ericsson and Nokia are already operating in the country.
Regarding Internet and data processing, many opportunities are
offered to SME: for example, some US$ 15 million will be spent for
the installation of a data‐processing network connecting Libyan
banks. Demands on equipment and services relating to ICT are in
growth for the public sector with the on‐going master plan for
networking strategic public services, as well as the private sector, in
particular for foreign oil companies, which need adequate
infrastructures to carry out their projects.
The historical State‐owned General Post and Telecommunications
Company (GPTC) oversees the Postal services, satellite
telecommunications, mobile telephony (in partnership with Al
Madar, Libyana Mobile Phone), fixed telephony and other
associated services, as well as Libyan Internet service providers
(ISPs) through the Libyan Telecom & Technology company (LTT).
GPTC is also acting as a consultant for State‐owned companies and
supervises big projects such as the Great Man River (GMMRA) and
the municipalities (Shaâbiyates).
Libya has consequent network and transmission equipment
comparing to its population: nearly 180 telephone exchanges (main
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suppliers: Alcatel, Siemens, Ericsson); 13 earth stations ensuring the
national connections via the ARABSAT satellite (network
DOMSAT); international connections and a VSAT network; nearly
10,000 km of radio‐relay systems and border to border connections,
linking the Mediterranean coast from the Tunisian border to Egypt.
It also provides more than 30,000 km of UHF radio bands; a 6,500
km network of coaxial cables, which doubles the radio relay system
and connects 107 cities, which has been set up by four Italian
companies (Pirelli, SIRTI, CEAT and Telettra). In 2005, the General
People’s Committee (GPC) passed a law creating the General
Authority for Information and Telecommunication (GAIT), which
oversees GPTC and its subsidiaries/affiliate companies, as well as
the National Authority for Information and Documentation
(NAID).
Libya is confronted to many problems for the maintenance of its
equipment. Digitisation began only lately and some equipment is
on disrepair or out of service. In fixed telephony, the rate of
penetration is less than 10 percent. Procurement for the supply of
telephone exchanges for 1.5 million fixed lines (including 500,000 in
broadband) and 7.000 km of optical fibre network was launched at
the end of 2004.
There are two operators of mobile telephony: “Al Madar Telecom
Co” and “Libyana Mobile Phone”. Libyana Mobile Phone (LMP),
created in 2004 signed a contract with two Chinese companies: ZTE
to provide 1.5 million lines and Huawei Technologies to provide 1
million lines. Alcatel and Ericsson obtained in September 2004 a
US$ 100 million contract for the supply and the installation of a 3G
mobile telephony network (one million lines for each), first
network of this type in Africa.
The Thuraya Company, also subsidiary of GPTC with headquarters
in Dubai, offers services of satellite telecommunication to mobile
users. Libya must finalise its project of the Pan African

Invest in the MEDA region, why how ?
telecommunications satellite Rascom covering 44 countries, whose
construction was given to Alcatel. A project of a monitoring
satellite for the terrestrial environment is also being studied.
The only supplier of Internet access was LTT (Libyan Telecom
Technology), subsidiary of GPTC, but three other providers. Libya
is connected to the Internet through STM1 link (155Mbps) through
the submarine fibre cable between Libya and Italy. The ADSL was
introduced and 10.000 lines were installed. Tripoli enjoys Internet
access but for the rest of the country it requires a long‐distance
phone call. Web content development is still in its infancy but
businesses are starting to embrace the new medium, particularly
with the use of e‐mail. Apart from some cyber café, Internet access
is still reserved for the high social class, because of its high cost.
In July 2004, GPTC issued tenders for the installation of a next‐
generation backbone and switching networks with an eye towards
bringing 3 million new lines into service by the end of 2005. GPTC
is considering acquiring VSAT and VoIP capabilities in the near
future. In September 2004, France’s Alcatel and Finland’s Nokia
won a US$ 244 million contract to expand Libya’s nationwide
mobile network by 2.5 million new mobile lines, using EvoliumTM
mobile radio access and core network solution to serve GSM/EDGE
and 3G users (Nokia’s part of the contract applies to the area from
Tripoli to the Western mountains, while Alcatel’s covers Libya’s
Eastern and Southern regions). GPTC has announced its intention
to spend US$ 10 billion on telecommunications infrastructure over
the next 15 years. In 2004, GPTC launched Libyana, a second State‐
owned subsidiary. Libyana’s area of coverage will be limited
initially to Tripoli, Benghazi, and Sebha. In December, 2005,
Chinese firm Huawei won a US$ 40 million contract to increase
Libyana’s capacity by 1 million mobile lines, and the Swedish
Ericsson signed a US$ 58 million contract to provide al‐Madar with
the same number.
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Business and Investment Opportunities in Libya
Libya is a very promising market and new opportunities and
challenges are opening up in the economy. With proven oil and
natural gas reserves estimated at about 39 billion barrels and 1.5
trillion cubic meters, respectively and the price of oil at record
levels, Libya’s oil and gas sector will remain a high priority for the
near future. Libya, would like to see significant foreign investment
in non‐hydrocarbon sectors. Important investment plans were
launched to improve the infrastructure and transport networks,
telecommunications (extension of the fixed and GSM network),
information technology, electric power generation (to double the
generation capacity from 4,500 MW to 8,000 MW by 2020),
development of oil and gas exploration and production to reach an
output of 3 Mb/d in 2010, project of the “artificial river”‐Great Man
Made River‐, installation of 11 desalination sites, broadcasting
(digitalisation of the equipment and training), development of food
processing industry, development of a tourist industry, health &
medical services, wastewater treatment, agricultural technologies,
tourism, education & training, manufacturing, construction and
engineering…
In 2005, 1 billion LYD was allocated specifically to alleviating
Libya’s acute housing shortage, through state‐run building projects
and mortgage loans. The Libyan government in recent years has
increased the development budget, and raised the proportion of
funds dedicated to telecommunications, construction, health, real
estate and education.
The five‐year privatisation plan announced by the government
considers the privatisation of 360 companies by 2008, of which 41
will be completely open to foreign capital. Priority has been given
to heavy industries (steel and iron, chemistry, cement, vehicles
assembly), textile, and shoes companies, farming factories and
State‐owned public firms and banks. However, the bureaucratic

Invest in the MEDA region, why how ?
regulation and administrative procedures for foreign investments
remain rather cumbersome (file application including an economic,
marketing and social study, as well as an administrative file).
However, foreign investors are allowed to buy land and buildings
in Libya since the law of 21/10/03. A list of companies set for
privatisation is available online at:
http://www.libyaninvestment.com/privatisation/privindex.php
The Libyan authorities set up the first elements of an FDI
promotion strategy with the support of international financial
institutions in particular the IMF. The law n°5 of 1997 for the
promotion of foreign investments was amended in June 2005 in
order to broaden the scope of FDI and widen the attractiveness of
the country for foreign capital. In addition to the traditional
incentives (custom and tax exemptions), the Libyan Foreign
Investment Board, acting as a one‐stop‐shop for foreign investors
was created. It grants a 5 years licence, extended for 3 years. It also
allows partnerships between Libyans and foreigners without
limitation of the foreign participation except for those concluded
with State‐owned enterprises and the banking environment. The
incentives offered by the law are: customs duties exemption,
income tax exemption, and the repatriation of all benefit.
The oil sector is ruled by a more attractive legal framework (law
n°25 of 1955 called “Petroleum Law”).
Agriculture, fishery and food processing
Agricultural development is a national priority. Largely covered by
the desert, the climatic conditions and poor soils severely limit
agricultural output, and only 1 percent of the land is arable while
approximately 8 percent is in pasture and the rest is agriculturally
useless desert. Most arable land lies in two places: the Jabal al
Akhdar region around Benghazi, and the Jeffarah Plain near
Tripoli. Agriculture occupies 18 percent of the workforce and
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accounts for 6.7 percent of GDP. Libya’s main crops include wheat
& barley, tomatoes, citrus fruits, potatoes, olives, figs, apricots and
dates. Until recently, farming activity depended wholly upon
erratic rainfall and poorly developed irrigation systems. To ease the
chronic water shortage, a massive engineering project known as the
Great Man‐Made River was launched in 1983, which consists of
more than 1300 wells, and supplies 6,500,000 m³ of freshwater per
day to the cities of Tripoli, Benghazi, Sirte, and elsewhere and 40
percent of this water is dedicated to agriculture. Libya aims at
increasing its cultivable surfaces of 200,000 ha to 600,000 ha by 2008
to ensure the needs for its population.
Concerning the food processing industry, the years of embargo
caused the closing of the majority of the transformation units and
those that are still in activity have obsolete or useless equipment
and work under‐utilised. The majority of the foodstuffs are
imported essentially of Tunisia, Egypt, and Malta.
In an effort to increase agricultural production and to stem rapid
migration to the major coastal cities, the Libyan government has
offered various subsidy and land grant schemes. To date, the most
successful ventures have been those that consolidate smallholdings
into large production and marketing operations. With the aid of
imported technology (irrigation, etc.), foreign consultants have
helped identify “off‐season” export crops (red globe grapes, other),
fed by water from the Great Man‐Made River.
A major agreement for the development and the modernisation of
the Libyan agricultural sector was signed with the Food and
Agriculture Organisation (FAO) in 2003. It aims to the
improvement of national food safety thanks to promotion and to
the diffusion of the production of seeds and plant breeding on a
broad scale.
Agricultural mechanisation is underdeveloped. Procurements are
set to be launched by Libyan Tractorʹs Co, the sole company

Invest in the MEDA region, why how ?
manufacturing farming equipments; by GENCO, the public
importer of farm equipment; and from public departments, the
Ministry for Agriculture, the Directorate‐General for the
Agricultural Projects, etc. The needs include traditional farming
equipment but also power generating units and irrigation pumps
for the needs of small farms sometimes badly fed in electricity and
water.
Of livestock, sheep is dominating, counting about 5.6 million.
Because of the climatic conditions, which prevail in the country, the
grazing land is rare in Libya for animal feeds and the country’s
needs for meat are imported from Romania, Egypt, and Australia.
It also imports frozen meat from Australia and New Zealand.
Poultry farming has been encouraged in the country for subsistence
food. However, Libya imports frozen poultry meat in small
quantities. Eggs for laying can be imported, but imports eggs for
direct consumption are prohibited. Some large farming factories
are planned for privatisation. Tenders should be launched during
2006 for the purchase of livestock (mainly dairy cattle). Other
opportunities exist in particular in the husbandry expertise and
race improvement in order to optimise the dairy breeding and the
breeding for meat. Tenders are also planned to purchase veterinary
products and small specific equipment.
With a coastal line of 1,800 km and the second largest continental
shelf in the Mediterranean, surveys have indicated ample
quantities of white fish, tuna and unexploited sea sponge and coral
reserves, but this potential has not been exploited until now
because of a small and old fishing fleet. The government has been
encouraging fishing activities and attempting to stimulate the
consumption of fish products. The catch includes tuna, sardines,
and red mullet. In 1986, a new fishing port was built at Zuwarah
(northwest), and numerous ice plants have been built at several
coastal sites. Agreements for joint development of fishing have
been signed with several countries, including Tunisia and Spain.
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There is currently a factory of tuna processing in Zanzur and two
others in Zuwarah and Khoms for sardines canning. Many
opportunities are offered in fisheries, fisheries industry, trawling
and in aquaculture, the local marine environment being naturally
suitable for aquaculture investment projects. The government and
private companies wish to create cannery and tinning facilities or to
sell those already existing. The preservation process, freezing
technologies and plants, food storage equipment and refrigerated
rail cars are also needed.
Water supply
Libya is a desert country, and finding fresh water has always been
a problem. The natural resources (surface water, groundwater,
watershed) cover only 2.3 percent of the needs evaluated at 5 Gm3
per annum (including 80 percent for agriculture), the major part
being satisfied by groundwater. A national management strategy of
the various hydraulic sources was worked out by the General
Council of Planning.
Likewise, progress was made in terms of access to safe water for
the population, for productive purposes in Agriculture and for
Industry, addressed through the construction of the Great Man‐
Made River.
The key national priority is to finalise the Great Man‐Made River
project. Phase I of the GMMR completed in 1991 at a cost of US$ 14
billion pumps approximately 2 million cubic meters of water a day
from As Sarir and Tazerbo to Benghazi and Sirte, over a distance of
1200 km. Phase II is complete and delivers 1 million cubic meters of
water a day from the Fezzan region to Tripoli and the Jeffarah
plain. Phase III is divided into two sets of projects. Those centred in
the East include a 700km expansion of the existing Phase I system
linking Sarir to Benghazi, adding 1.68 million m3/day to Phase 1
capacity. The expansion includes the construction of a reservoir
and pipeline linking Tobruq to a well‐field at Al‐Jaghboub. The

Invest in the MEDA region, why how ?
500‐kilometre pipeline will pump 138,000 cubic meters per day.
The ‘Western’ project consists of building a pipeline linking
Ghadames to Zuwarah and Zawiya. Subsequent phases involve the
extension of the distribution network together with the
construction of a pipeline linking the Ajdabiya reservoir to Tobruq.
Ultimately, the Eastern and Western pipelines will be linked into a
single network.
The GMMR project is managed by the Great Man‐Made River
Authority (GMMRA). The prime contractor for the initial phases
was South Korean construction Dong Ah. The preliminary
engineering and design work for Phase III, a US$ 15.5 million
contract, went to Nippon Koei/Halcrow consortium. The
Frankenthal KSB consortium won a contract for construction of
pumping stations and technical support, while Canada’s SNC‐
Lavalin built the pipe production plant (Lavalin recently signed an
MOU for an additional US$ 1 billion contract to assist with water
distribution). The cost of this strategic project is evaluated at
approximately 31 billion dollars, project with which is associated
the French group Vinci.
On the other hand, current desalination output is reportedly 30
million cubic meters per year. It is widely believed that, even with
extensions to the GMMR, there will be a large demand for
desalination technology in Libya over the coming years. Over 60
percent of medium and large capacity desalination plants currently
operating are more than 17 years old. A desalination of saline water
project to supply the towns of Zuwarah (east) and Aboutara
(western) was awarded to Sidem, subsidiary of Veolia
Environnement. Other projects of water mobilisation are managed
by the municipalities; in charge of the construction and the
maintenance of watersheds and reservoirs. Some 23 new reservoirs
must be built in addition to the 17 already built, increasing the
storage capacity from 60 mm3 to 120 mm3 of water. Foreign
companies are already active in this sector like the French
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engineering and design department Coyne and Bellier, which
makes a study for a watershed in Wadi Kattata with the Italian
company Del Navero and the Yugoslav company Hydrograznia
carries out the dams of Zaghadua and Shuhubeen.
The Libyan government seeks to increase its output desalinated
and recycled water by the establishment of new water purification
units. A desalination complex of a capacity of 250,000 m3 per day
in Janzour in the Western suburbs of Tripoli, has been launched,
the investment for this project is estimated at US$ 650 million. In
Khoms, German DVT is building desalination units, and Sidem is
building some in the West of Tripoli (e.g. Tobruq). Ionics (US) is
also an important actor in this sector. The Public company GECOL
is increasingly involved in this sector, and can become in the long
term a major project superintendent for relevant projects. The
General Company for Water and Wastewater (GCWW) seeks to tie
partnerships for the maintenance of its stations of purification and
it signed an agreement with the English company Invent. Lastly,
Biwater Construction (GB) has been awarded three contracts of 40
million Euros for the installation and the maintenance of 13 stations
of desalination in Libya. Libya envisages doubling, by 2025, its
processing capacities of worn water and seawater, which covers
respectively only 1.4 percent and 0.7 percent of the needs. Other
issues such as the Environment, which
have been given less priority in the past, are nowadays attracting
the government’s attention especially in terms of sanitation and
management of solid wastes in less affluent urban areas, as well as
the pollution of the country’s coastline.
There are thus many opportunities in the civil engineering and in
public works. Several hundred million of dollars worth of water,
wastewater treatment, and desalination contracts are expected to be
awarded over the coming few years.

Building Construction
Invest in the MEDA region, why how ?
The Libyan authorities launched a real property programme in
order to reach 150,000 houses and flats over 3 years and entrusted
the General Authority of Infrastructure and Constructive
Development (GAICD) the execution of the engineering studies
and public works (accommodation, roads, and networks). The first
project relates to the construction of 50,000 houses in Tripoli with
Chinese and Malaysian companies which will be able to call upon
foreign companies for the realisation of this important project,
integrating commercial, restoration and leisure’s infrastructures.
Amona Ranhill Consortium, owned at 60 percent by Ranhill Bhd
(Malaysia) obtained a contract of construction of 20,000 residences
in the municipality of Tajura, close to Tripoli. In addition, 50.000
individual or collective residences will be built by Libyan
engineering companies. For this purpose, the Libyan banks will
offer loans over 30 years at an attractive 2 percent interest rate.
Lastly, 50,000 other residences will be financed by various private
investment funds. Industrial construction is also booming.
Contracting services and construction materials will be required in
the coming years to support major road, large‐scale office complex,
hotel, and residential housing projects.
Civil Engineering, transportation and infrastructure
Libya’s transport infrastructure is extremely weak. Roads,
highways, railroads, ports, airports, all the infrastructure network
must be upgraded. The paved road network (83,200 km) is
insufficient taking into account the needs of the country
development. The paved roads account for the 2/3 of the national
network and the quarter of the current road network is in bad
condition. The main road is the 1,822‐km national coastal highway
between the borders of Tunisia and Egypt passing by Tripoli and
Benghazi. The “General National Company for Roads” supervises
the maintenance and building work. Contracting authorities have
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been set up in each of the shaabiyyat to oversee road construction.
The government has issued a number of high‐profile road and
road‐improvement tenders in recent months.
Inactive since 1969, the railways network was re‐opened and a
national company, the Railways Executive Board, was created in
2000. It signed a US$ 477 million contract with the Chinese “China
Civil Engineering Construction Corporation” and began the first
phase of construction of a 163 km line with 16 stations from the
Tunisian border, to Tripoli.
Libya currently has 132 usable airports, of which 57 have
permanent surface runways. There are four international airports:
Tripoli International Airport; Benina Airport (near Benghazi);
Sebha Airport, and Misratah Airport. There are also 10 regional
airports as well as smaller airfields. Because of U.N. sanctions
against Libya, air travel was proscribed between 1992 and 1999, the
aviation infrastructure deteriorated and the serviceability of many
Libyan aircraft declined. An US$ 800 million programme to
improve the airport infrastructure and air traffic control network
was approved in mid‐2001. More than 20 airline companies
resumed flights to Libya. In addition, along with the Libyan Arab
Airline and Afriqiyah Airlines, a third company, Buraq Air
transport, was set up and ordered six Boeings 737.
Lastly, Finmeccanica, AgustaWestland and the Libyan Company
for Aviation Industry have signed an agreement to form a joint
venture called the Libyan Italian Advanced Technology Company
(L.I.A.TE.C.) in order to provide know‐how, training, technology
and equipment, while the Libyan shareholder will mainly invest in
infrastructure, plant and local marketing activities. A training
centre open to all Libyan flight and maintenance personnel will
also be set up. At the same time as announcing the creation of the
joint venture, AgustaWestland announced a contract to supply ten
A109 Power helicopters for border patrol, as part of a programme

Invest in the MEDA region, why how ?
that is worth a total EUR 80 million, including equipment and
services. The deliveries of the first two helicopters are expected at
the end of 2006 and the beginning of 2007.
Concerning the maritime sector, the ports and harbours
infrastructures are composed of several ports and oil storage
terminals. Work started in the port of Tripoli to increase its capacity
but the harbour capacities remain under utilised. There are several
development prospects in this area particularly for the maintenance
of the existing infrastructure, modernisation and the adaptation of
the maritime embankments to all means of transport by containers
and tankers and the creation of a new terminal for oil storage. The
Libyan government announced it would be spending US$ 10 billion
to buy 32 new ships and it would spend US$ 600 million on port
improvements.
Hydrocarbons
Libya has huge reserves of hydrocarbons. According to the Oil and
Gas Journal, the country has total proven oil reserves of 39.1 at the
end of 2005, 3 percent of the world reserves, and 40 percent of the
African continent. The volume discovered in the country already
reached 140 billion barrels. Gas production will reach 10 billion m3
in 2006 including 8 billion exported towards Italy via the Green
stream. Libya ranked 21st in 2003 and the 3rd rank on the African
continent behind Algeria and Nigeria. However, these figures
underestimate the real reserves of the country. Libya would conceal
much more hydrocarbons, because only one third of the territory is
currently covered by prospecting and production agreements, in
spite of the recent procurements and is considered as a highly
attractive oil province.
During 2004, Libyan oil production was estimated at nearly 1.6
million barrels per day (bbl/d), with consumption of 237,000 bbl/d
and net exports of about 1.34 million bbl/d. For the 2000‐05 periods,
the sector of hydrocarbons contributed for 56 percent to the GDP,
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97 percent of exports of the country, and 80 percent of the revenues.
The vast majority of Libyaʹs exports are sold to European countries
like Italy (562,000 bbl/d in January‐October 2005), Germany
(285,000 bbl/d), France (101,000 bbl/d), Spain, and Greece. In
addition, Libyan oil exports to the United States averaged 56,000
bbl/d during the first 10 months of 2005, after resuming in June
2004 for the first time in two decades.
However, Libya remains ʺhighly unexploredʺ and only around 25
percent of Libyaʹs area is covered by exploration and production
agreements. The under‐exploration of Libya is due largely to
sanctions, to the lack of modern technology, and also to stringent
fiscal terms imposed by Libya on foreign oil companies. Changes to
Libyaʹs 1955 hydrocarbons legislation, is likely to prove extremely
helpful in boosting the countryʹs oil output.
Since the lifting of the U.N. and US. sanctions, the government
decided to modernise the infrastructures of the country and to
increase the oil production. Overall, Libya would like foreign
company help to increase the countryʹs oil production capacity
from 1.60 million bbl/d at present to 2 million bbl/d by 2008‐2010,
and to 3 million bbl/d by 2015. Libya is seeking as much as US$ 35
billion in foreign investment over that period to achieve this goal,
and to upgrade its oil infrastructure in general.
In this scope, the country held two bidding rounds called EPSA IV
(Exploration & Production Sharing Agreement IV) in 2005. EPSA IV
round ‐launched in August 2004‐offered 15 exploration areas for
auction. In October 2005, Libya held a second bidding round under
EPSA IV, with 51 companies taking part and nearly US$ 500 million
worth of new investment flowing into the country as a result. In
this round, acreage in 26 fields, both onshore and offshore, went to
19 companies. Agreements were for exploration periods of 5 years,
extendable to 25 years under certain conditions. With the success of
the first and second bidding rounds, NOC announced in 2005 that

Invest in the MEDA region, why how ?
the country will offer at least four more bid rounds in 2006 and
2007, covering 261 blocks.
Libyaʹs oil industry is controlled by the State‐owned National Oil
Corporation (NOC), which in turn runs subsidiaries Waha Oil
Company, Arabian Gulf Oil Company (Agoco), Zueitina Oil
Company (ZOC), and Sirte Oil Company (SOC). Libya has five
refineries (Ras Lanuf export refinery, Az Zawiya refinery, Tobruq
refinery, Brega, and Sarir) with a combined nameplate capacity of
approximately 380,000 bbl/d, significantly higher than the volume
of domestic oil consumption (258,000 bbl/d in 2005). Libya is
seeking a comprehensive upgrade to its entire refining system, with
a particular aim of increasing output of gasoline and other light
products (i.e. jet fuel). Possible projects include a new 20,000‐bbl/d
hydro skimming refinery in Sebha, which would process crude
from the nearby Murzuq field and meet local demand in south‐
western Libya; and a 200,000‐bbl/d export refinery in Misurata. The
Syrte Oil Company launched a call for tender for the construction
of two gas pipelines for a value of US$ 270 million and Zawiya
Refining Company launched a call for tender at the end of 2005 for
the extension of the terminal and refinery facility of Az Zawiya.
The Libyan government recently sold 60% of its interest in Tamoil.
This company is present in Egypt, in Switzerland, in Germany, in
Italy and in Niger.
Libya has vast natural gas reserves. Proven reserves as of January
1, 2006 were estimated at 53 Tcf by the Oil and Gas Journal, but the
countryʹs reserves are largely unexploited and unexplored, and
thought by Libyan experts to be considerably larger, possibly 70‐
100 Tcf. In recent years, large new discoveries have been made in
the Ghadames and El Bouri fields, as well as in the Sirte basin.
Libyan natural gas development projects currently on‐going
include as‐Sarah and Nahoora, Faregh, Wafa, offshore block NC‐
41, Abu‐Attifel, Intisar, and block NC‐98.
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To expand its gas production, marketing, and distribution, Libya is
looking to foreign participation and investment to increase its gas
exports, particularly to Europe (mainly Italy and France), and to
convert the power stations which still function with the heavy
crude or the diesel. The underlying objective of this programme is
to triple exports. Libyan gas exports to Europe are increasing
rapidly, with the Western Libyan Gas Project (WLGP) the
ʺGreenstreamʺ underwater gas pipeline. The WLGP ‐a 50/50 joint
venture between Eni and NOC‐ has now expanded these exports to
Italy and beyond. Currently, about 8 billion cubic meters (210 Bcf)
per year of natural gas are being exported from a processing facility
at Melitah, on the Libyan coast, via Green stream to south‐eastern
Sicily. After that, the gas flows to the Italian mainland, and then
onwards to the rest of Europe. In 2001, a joint venture agreement
was signed between NOC and Egyptʹs EGPC for the construction of
a pipeline between Egypt and Libya. The joint venture company is
called ʺArab Company for Oil and Gas Pipelines,ʺ or ACOG.
Yet, another ambitious project is to build: a nearly 900‐mile pipeline
from North Africa to Southern Europe. It would transport natural
gas from Egypt, Libya, Tunisia and Algeria, via Morocco and into
Spain (a pipeline between Morocco and Spain already exists). In
addition, Tunisia and Libya agreed in May 1997 to set up a joint
venture, which will build a natural gas pipeline from the Mellita
area in Libya to the southern Tunisian city and industrial zone of
Gabes. In late 1998, Tunisia and Libya signed an agreement for
around 70 Bcf of gas per year to be delivered from Libyan gas fields
to Cap Bon, Tunisia, and in October 2003 the two countries set up a
joint venture gas company to build the pipeline.
Foreign companies are looking to Libyaʹs liquefied gas LNG
potential. In May 2005, Shell agreed to a final deal with NOC to
develop Libyan oil and gas resources, including LNG export
facilities. Reportedly, Shell is aiming to upgrade and expand Marsa
El Brega and possibly build a new LNG export facility as well at a

Invest in the MEDA region, why how ?
cost of US$ 105‐US$ 450 million. Shell also purchased exploration
rights for five blocks in the Sirte basin (the company began seismic
work in November 2005). In addition to Shell, other companies like
Repsol are also interested in developing Libyaʹs LNG export
potential.
The Energy Ministry was re‐established in 2004. Oil rights in Libya
are awarded under Exploration and Production Sharing
Agreements (EPSA) based on the 1955 Hydrocarbon Law.
Downstream investment is covered by the 1997 Foreign Investment
Law.
Electricity and power generation
According the official data, the wiring rate of the country reaches
nearly 100 percent. Libyaʹs power demand (4 GW in 2005) has
grown rapidly over the past few decades in line with the country
development, and major expansions of the country’s generation,
transmission, and distribution systems are planned for the next five
years with plans calling for a doubling in power generating
capacity by 2020 to reach 8 GW.
According to the General Electricity Company, Libya currently has
electric power production capacity of about 4.9 gigawatts (GW).
Most of Libyaʹs existing power stations are being converted from
oil to natural gas, and new power plants are built to run on natural
gas, in large part to maximise the volume of oil available for export
purposes. Libya is also looking at potential wind and solar projects,
particularly in remote regions where it is impractical to extend the
power grid. To respond to the growing need, Libyaʹs State‐owned
General Electricity Company (GECOL) has drawn up a long‐term
master plan worth US$ 3.5 billion of investment in eight new‐
combined cycle and steam cycle power plants by 2010. Further US$
2.6 billion will need to be invested by 2020. About 2,400 MW of this
extra capacity is under construction, and the rest is in different
stages of contracting. Deals have been signed with Russia’s
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Tekhnopromexport and South Korea’s Hyundai, worth US$ 600
million and US$ 280 million respectively. Several power plants are
being built, including: the Western Mountain Gas Turbine Power
Plant; the Zawiya Power Plant Gas Turbine Extension; the North
Benghazi Combined Cycle Power Plant; the Zawiya Combined
Cycle Power Plant; and the West Tripoli Power Plant Extension.
GECOL’s development plan also includes the building of hundreds
of new substations networks, the restoration of 1.000 km of lines,
the construction of 20.000 km of overhead lines, of 7.500 km
underground cables and 3.000 sub‐stations to upgrade the
transmission and distribution systems. A new 400 kV grid and an
expansion of the existing 220 kV system are expected to cost
around US$ 1 billion. Lastly, nearly US$ 200 million should be
invested to set up 10 network control centres by 2015. In 2004, a
US$ 225 million deal was signed with Germany’s Siemens to
provide five district network control centres, scheduled for
commissioning in early 2008. Ten control centres are planned by
2010. A new national control centre is expected to come into
operation in 2006, in addition to the upgraded Tripoli control
centre.
Libya is also acting to reinforce interconnection with the Tunisian
and Egyptian power grids: the 220 Kv networks between Egypt
and Libya are connected since 1998, those between Tunisia and
Libya since 2004. Lastly, a Maghreb consortium called Eltam was
created between Libyan entity GECOL, the Egyptian EEHC, the
Tunisian STEG, Algerian Sonelgas and Moroccan ONE to study the
feasibility of a highway backbone of the transmission network to
enhance the interconnexion in the whole Mediterranean
(MEDRING, Euro‐Mediterranean electric ring). The projected
growth of oil production will generate an additional demand for
electric power. The National Oil Corporation and its subsidiary
companies have 117 electricity generators of a total capacity of

Invest in the MEDA region, why how ?
1.100 MW. These materials require work of maintenance and the
NOC has requirements in new equipment.
Libya also intends to develop renewable energies with a capacity
510 MW by 2020. GECOL is mapping an atlas of the wind and solar
power potentialities and already finished the study for the wind
potential of the East coast of Libya. The realisation of a pilot farm of
wind‐powered generator of 25 MW is planned as well as another
pilot scheme using photovoltaic technology to provide electric
power is being studied.
Healthcare and medical supplies and services
The pharmaceutical market is booming because there is no local
production as testifies the expanding growth of imports in this
sector. The total value of imports of drugs and medical equipment
is estimated at 280 million Euros per annum, with 70 percent for
pharmaceutical products and 30 percent for medical equipment.
Growth prospects are expected to be considerable owing to a strong
population growth (+3.6 percent per annum), a consequent
government aid provided to the CEN‐SAD countries (Community
of the States of the Sahel and the Sahara); and the planned
investments in the healthcare systems.
Libyan suppliers are mainly European: English, Italian, Swiss,
German, and French. The government is the main purchaser
through various organisations, and the Red Crescent Association,
increasingly active in the country. Imports in this sector were a
State monopoly, but since the opening and the privatisation of the
market, new import licences are granted to some operators for the
supply of pharmacies and private clinics. The public sector is being
reorganised and could cover approximately 60 percent of the
market. Companies wishing to take part to public procurements or
to distribute products in the market through a local agent must be
recorded at the “Food and Drug Control Centre”. Tenders
generally take place in spring for the public supply or throughout
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the year for the Red Crescent, but it is advised to be regularly
informed by the local representative. In‐market production of
drugs and partnerships with Libyan operators offers a means to
gaining a foothold and is rewarding investment opportunities.
Libya’s hospitals and clinics largely do not meet international
standards. Those Libyans with sufficient resources travel to
Tunisia, Jordan, or Europe for medical care. Benghazi Medical
Centre recently announced a US$ 120 million tender for mid‐term
management and complete furnishing of the facility, including
advanced imaging equipment, basic supplies, furnishings, etc.
Tourism
The country has a huge potential. In addition to the 1,800 km of
coasts and virgin beaches, Libya has a lot of natural resources such
as the Sahara desert with its gigantic dunes, regs and oasis. For the
cultural heritage, Libya is home to some of the worldʹs best
preserved archaeological sites, showcasing tales of Roman,
Byzantine, and Greek civilisations as in Sabratha, Lebda (Leptis‐
Magna, among five world heritage sites in Libya) Sahat (Cyrene),
Sousa (Appolonia), Dirsiya/Tolmeita (Ptolemasis).
The country is covered by a good road network and many airports.
According to the High Authority for Tourism and Antiquities
(HATA) forecasts, the number of tourists should rise from 290,000
in 2004 to 630,000 in 2006 and 1,025,000 in 2008. However, the
hospitality capacity is very limited. The number of hotels is 194 per
11,815 rooms and a 19,969 beds capacity. The majority is located in
the urban areas of Tripoli and Benghazi but few attain acceptable
international standards.
The government wishes to build 14,800 additional rooms by 2008.
A Ministry in charge of Tourism was set up with a US$ 7 billion of
funds to be invested over five years including investments in new
accommodation; significant improvement both in the development

Invest in the MEDA region, why how ?
and presentation of tourist attractions, including those targeted at
the domestic tourism market, and the provision of ancillary
supporting tourist facilities and services.
The tourist activity is governed by the Law n°7 May 2004 and its
decrees of application. Law n°7 of 2004 created the Libyan
Association for Voyages and Tourism (LAVT), responsible for the
development of a comprehensive, nation‐wide tourism policy.
LAVT is the coordinating body for 25 government‐run tourism
agencies. Tourism projects may profit from the incentives granted
by the Law n°5 of 1997, which has been revamped in 2003 (tax
advantages, exemption of customs duties on the import of
equipment necessary to the realisation of the projects, etc.).
Several projects already started in particular the tourist complex of
Tajoura (suburbs Are of Tripoli) and “Borj Al‐Ghazala” in Tripoli
and others are in the pipeline. The project of safeguard, restoration
and management of the historical district of the Medina of Tripoli
has been transformed into a tourist centre. The opening to private
investment allowed the arrival of foreign investors like the Hotel
“Corinthia Bab Africa”, built in partnership with Maltese.
European firms, including France’s Club Med are rumoured to
have opened talks with the government for the construction of a
few large resort facilities. South Korea’s Daewoo reportedly has
plans to build a 100 million dollar, 3000‐bed hotel complex in
Tripoli. In 2004, the Italian real estate broker Gruppo Norman
signed a deal with the Libyan government, a first step towards the
construction of a 300 million Euros resort on the island of Farwa,
near the Tunisian border. A number of Italian firms have come to
similar understandings regarding proposed developments in the
Homs/Leptis Magna area such as “Valtur”. The other tourism
services such as travel agencies, cars rentals and tours guide are
also booming all over the country.
220

Morocco
Overview
References
Capital Rabat
Surface area 710,000 km2 (incl. Western Sahara)
Population 30,666,000 inhabitants (2006)
Official Language Arabic
Languages used Berber, French, Spanish
GNP (dollars) US$ 65.93 (Ministry of Finance, 2006)
GNP/per capita
(dollars)
US$ 2,152 (Ministry of Finance, 2006)
Religion Islam (98.7 % Muslims); Christian (1.1%) and
Jewish (0.2%) minorities
National days 30th July (Fête du Trône), 18th November
(Independence Day)
Currency (March Moroccan Dirham (MAD)
2007)
1 Euro = 11.23 MAD ‐ 1US$ = 8.4 MAD
Association
agreement with EU
Signed on 26/02/1996; implemented since 1 st
March 2000
EU web site:
http://www.delmar.cec.eu.int
WTO membership Member since 1/1/1995
Economic profile
A Mediterranean country that also borders the Atlantic, the
Kingdom of Morocco is the most western country in North Africa,
with a western coastline along the Atlantic Ocean that turns at the
Straits of Gibraltar and continues along the Mediterranean Sea. Its
eastern border is with Algeria and a relatively narrow body of
water separates it from Spain to the north.
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Invest in the MEDA region, why how ?
Over the past decade, Morocco has embarked on an ambitious
programme of structural reforms in several fields (cf. good
performances attested by the report Doing Business), aiming to
further liberalise its markets and enhance the competitiveness of its
economy.
This policy aims to help the Moroccan economy reach more
sustainable growth, improve living conditions, and reduce social
and regional disparities. Morocco has achieved significant progress
as regards democratisation of public life, education and health, and
strengthening of basic infrastructure. All these advances have
contributed to greater social and political stability. However,
growth in Morocco’s economy remains volatile, heavily dependent
on agriculture, which in turn is at the mercy of weather conditions.
Morocco enjoyed higher economic growth of 4.5 percent between
2001 and 2004, but this is far from the level needed to fight poverty.
The growth rate slipped to 1.7 percent in 2005 (compared to 3
percent in budget projections), affected by severe drought
conditions (reflecting the economy’s great vulnerability to weather
conditions), the slow transition of using national savings for
productive investments (including those generated by transfer of
funds from abroad) and Moroccan companies’ relatively weak
competitiveness in the world economy despite the small/medium
business modernisation programme. However, recovery came
quickly in 2006 (official estimates say above 8%), partly explained
by exceptionally high agricultural output.
Inflation went slightly up in 2006, around 3.3% (2.6% in 2005) and
external balances are at a comfortable level, with foreign debt
estimated at US$ 15.4 billion (25.2 percent of GDP) and the budget
deficit (6.3 percent of GDP) remaining moderate but very much
dependent on proceeds from privatisation, remittances, tourist
receipts and foreign direct investment. Gross domestic debt was on
the rise in 2005, amounting to 71 percent of GDP compared to 66.4
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percent in 2004 and 66.9 percent in 2003. The 2005 budget included
significant exceptional expenditures, in particular those related to
the implementation of the operation of voluntary retirements
which cost the State DH 8.5 billion. Concerning the year 2006, the
achievements regarding the principal economic and financial
indicators are rather encouraging:
� The investment rate was around 29.4 percent of the GDP and
the saving rate reached nearly 33 percent;
� The current account of the balance of payments shows a
surplus for the sixth consecutive year being at nearly 4 percent
of the GDP. The exchange reserves, including the banks assets,
reached 190 billion DH, that is to say 24 billion DH more than
at the end of 2005;
Morocco’s largest employer is the primary sector, with 45 percent
of the labour force and 60 percent of the female labour force.
Agriculture represents between 12 and 17 percent of GDP, with
variations from year to year, particularly vulnerable when rainfall
is low. The secondary sector accounts for 30 percent of GDP,
dominated by extraction and transformation of phosphates, which
represent more than 17 percent of world production. The services
sector is the largest sector in terms of contribution to real GDP
(around 38 percent). Manufacturing is dominated by chemical and
related industries, food, textiles, clothing, and leather goods, with
an 18 percent share of GDP.
Long‐term trends for Moroccan trade indicate increasingly open
foreign trade, up from 49.5 percent in 1977 to 60.5 percent in 2005,
thanks to the coming into force of the free trade agreements with
the EU, the USA and different Mediterranean countries. In 2004,
imports reached US$ 17.822 billion and exports US$ 9.925 billion.
Exports from Morocco are dominated by three groups of products,
representing nearly 79 percent of total sales: consumer goods (more
than 80 percent being textile products), semi‐finished products

Invest in the MEDA region, why how ?
(phosphoric acid, natural and chemical manure, beverages) and
foodstuffs. Sale of gross products (11.6 percent of total exports)
involves primarily phosphates. Nearly 85 percent of the country’s
imports involve semi‐finished products, consumer goods,
equipment, and energy‐generating products. The EU is Morocco’s
primary trading partner, providing 65 percent of Morocco’s
imports (EUR 9.6 billion) and receiving 70 percent of Morocco’s
exports (EUR 6 billion). France is by far the Kingdom’s number one
trading partner (23.5 percent of overall trade), followed by Spain
(12.9 percent), Italy (5.7 percent), Germany (4.1 percent), the United
Kingdom (3.7 percent) and the United States (4.1 percent).
Morocco has signed a free trade agreement with the European
Union, which came into effect on 1 March 2000. This agreement
will gradually establish free trade of industrial products, for which
the European Union already grants free access, while Morocco is
committed to gradual tariff dismantling over a 10‐year period
starting March 2003. With regard to agricultural products, new
reciprocal trade concessions came into effect in January 2004. A
“rendezvous” clause is set for 2007, in the framework of
dismantling of obstacles to trade in these products.
In addition to tariff dismantling and the lifting of restrictions on
exchanges of goods, Morocco has entered into commitments with
respect to trade in services and various trade‐related areas such as
payments for current transactions, direct investment, the right of
establishment, competition rules, property law, public procurement
contracts and standards and certification as well as strengthening
co‐operation on immigration and social affairs and cultural co‐
operation.
As regards South‐South trade, Morocco has participated in the
Agadir Process, signed in February 2004, which seeks to create a
free trade area with Egypt, Jordan, and Tunisia. It has not yet gone
into effect, pending ratification by Morocco. Morocco has also
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concluded a free trade agreement with Turkey, scheduled to enter
into force at the beginning of 2006.
Morocco has signed a free trade agreement with the United States
of America, which will allow for 98 percent of two‐way tariff‐free
trade in consumer and industrial products. The agreement came
into effect in January 2006. The US‐Morocco FTA should play a
decisive role in attracting American direct investment and making
Morocco a platform for exports bound for Europe and the United
States, taking advantage of the country’s geographic location and
the Tangiers‐Med harbour complex.
Country risk
In its annual report on Morocco, published in March 2007, Moody’s
Investor Service confirms a Ba1 rating for Moroccan foreign debt.
The agency considers that notable improvement in Morocco’s
external liquidity and acceleration of structural reforms are the
reasons behind ongoing reduction in the volume of foreign debt.
The Kingdom’s favourable rating is also influenced by its relatively
stable political environment. But the report stresses that the
economy remains burdened by a high unemployment rate,
especially for young people, and heavy dependency on the
agricultural sector. On March 26, 2007, Standard & Poorʹs raised the
prospect for Moroccan debt in hard currency from stable to
positive, after a move in 2005 from BB up to BB+, taking into
account the dynamic 2006 GDP growth rate. S&P considers that
Morocco’s political stability and monetary policy contribute to
better external liquidity for the country. Fitch in April 2007 posts a
BBB rate in hard currency and IDR (Issuer Default Rating) in local
currency; the short term debt ranking being F3.
Key challenges
The Moroccan economy remains heavily dependent on agriculture
(20 percent of GDP, 40 percent of employment), and thus highly

Invest in the MEDA region, why how ?
sensitive to weather conditions. Unemployment is high, and the
labour force is growing considerably (3 percent), with increasingly
broad participation by women in the labour force. Large segments
of the population are still socially and economically marginalised,
with some 15 percent of the population considered poor. In spite of
the progress recorded over the past few years, current economic
dynamics are insufficient to maintain employment and meet these
challenges. A National Initiative for the Human Development
(NIHD) was launched in May 2005, aiming at reducing the social
and geographical disparities, developing employment and income,
and helping vulnerable populations by means of a participative
and transparent process. The total cost of the Initiative over the
period 2006‐2010 is estimated at 10 billion dirhams (2 percent of the
GDP). The rate of unemployment dropped significantly in 2006 to
9.7 percent at national level, vs. 11.1 percent in 2005, according to
the High Planning Commission (HCP). This rate declined to 15.5
percent in urban area (18.4 percent in 2005) and 3.7 percent in rural
area (3.6 percent in 2005).
Strong points
Among Morocco’s assets, the low cost and the high quality of
labour, the country practises a policy of structural reforms which
attract the interest of the investors.
Its political, economic, geographical and financial proximity of the
European Union contributes to the dynamism of the economy. Its
political stability and its democratic evolution ensure to him the
support of the international community.
An offshore financial market was instituted by the Dahir N 1‐91‐131
carrying promulgation of law N 58‐90. This market is opened to
banks and holding companies authorised to settle in the country.
The country has some attractive sectors: agrifood, fishing,
phosphate, electronics, automotive and aeronautical sub‐
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contracting, textile, clothing and leathers building and public
works, tourism, telecommunications, trade, transport. Morocco
made great progress in the aeronautical sub‐contracting and near‐
shoring (close relocation), becoming the first offshore destination
for the French‐speaking market.
The country developed welcoming infrastructure for FDI such as
industrial parks, technoparks and free zones for exports and
logistics, economic activities zones and company headquarters.
The Department of Investments (DI)
Charged since 1996 with promoting Morocco among international
operators, the Department of Investments (Direction des
Investissements) today actively intervenes in the new framework
implemented by the Ministry of Economic and General Affairs.
In 1998, an Interministerial Investment Commission (CII), chaired
by the Prime Minister, was established for purposes of appeal and
arbitration. It is responsible for making rulings on obstacles to
investment projects and for implementing measures to enhance the
investment climate.
Sixteen regional investment centres (CRI) have been established
since 2002, seeking to decentralise, simplify procedures, and
decrease the burden of procedures at the regional level. The two
main tasks of these regional investment centres are to assist in
setting up new businesses and help investors, each with its own‐
targeted services. For example, the facility that assists in setting up
businesses is the sole intermediary for new companies. It provides
applicants with the information required by law and undertakes
the relevant procedures to obtain required documentation.
DI and CRI role
Beyond a mission of information about the potential of the country,
the Department of Investments conceives and implements

Invest in the MEDA region, why how ?
investment promotion strategies on the targeted segments which
encourage the concretisation of projects. Its plan of action in this
sense is concentrated around four major orientations:
� The identification of the different categories of investors and
issuing countries;
� The valorisation of priority sectors such as tourism, the NICT,
electronic and automobile components and, textiles, aeronautics
and agrofood;
� The coordination between national institutions and
international organisations concerned by investment;
� The orientation of projects according to the opportunities
offered by the different regions of Morocco in collaboration with
the CRIs.
So as to fully play its role of support to the investment policy
conducted by the government while continuing the development of
its mission, the Investment Department has adopted an
organisation which is both transverse and sectoral:
� Thus, two divisions cover the domains of Promotion,
Communication and Cooperation, Studies and Regulations;
� Two other divisions are dedicated to priority activity sectors,
Agriculture and Industry on the one hand, Tourism and Services
on the other.
For optimal efficacy, these also benefit from the competence of the
services charged with Human Resources and General Affairs.
The Department of Investments also provides the Secretariat for the
Interministerial Investment Commission, and appeal and
arbitration authority chaired by the Prime Minister.
Web site: http://www.morocco‐invest.com
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How to invest in Morocco
The Kingdom has drawn up a comprehensive strategy for foreign
investment promotion based on three main elements: a more
conducive institutional and legal framework for international
investors, a regional strategy for FDI promotion, and a sectoral
strategy based on outsourcing and delocalisation.
This strategy is based on the following fundamental factors: the
right to invest, the right to transfer income from investment
(profits, dividends, capital) and earnings from sale or liquidation,
without any limits on amounts or duration and the freedom to
invest without prior authorisation. All industrial sectors are open
to foreign investment, except for agriculture, which is regulated by
the Dahir law n°1‐69‐25, modified by Dahir laws n°1‐97‐171 and 1‐
01‐55, forming the agricultural investments code. Investment in the
money market, offshore export zones, or hydrocarbons are also
ruled by specific regulations. Acquisition of arable lands by foreign
investors is prohibited, but foreign investors can obtain long‐term
leases.
The Investment Charter adopted in 1995 provides for additional
instruments to encourage investment in the form of contributions
and benefits granted by the State to investors. The main incentives
are as follows.
� Export enterprises are exempt from corporate tax (IS) and the
general income tax (IGR) for a five‐year period, after which
there is a 50 percent reduction in these taxes.
� VAT and licence exemptions are good for five years.
� Capital goods, equipment, and tools acquired locally are
exempt from VAT.
� VAT is suspended for products and services slated for export.
� For investment in the province of Tangiers, there is a 50 percent
reduction in corporate tax (IS), professional tax and licences.

Invest in the MEDA region, why how ?
� For investment in the Tangiers free trade zone, there is total
exemption of corporate tax for five years and taxation at 8.75
percent for the following 10 years.
� Stock option capital gains are taxed at 10 percent, under certain
conditions.
� Acquisition of land intended for an investment initiative is
exempt from registration fees. This exemption also applies to
companies investing in areas earmarked for priority
development.
� Full convertibility in foreign currency is available for foreign
investment.
� Investment is protected and there is free transfer of capital, tax‐
free profits, and revenue from the sale or total or partial
disposal of these investments, including capital gains.
� Non‐discrimination between foreigners and nationals is
guaranteed.
� In addition to tax incentives, large‐scale investments (exceeding
DH 200 million) are also exempt from import duty and VAT on
imported capital goods, equipment, and tools for activities that
benefit regional development. In order to boost regional
development, the State also assumes part of the cost for
developing industrial zones.
In addition to these tax and customs incentives, foreign investors
are also eligible for other advantages in targeted geographic and
sector‐defined free trade zones. Two types of infrastructure are
being developed:
� Industrial parks such as Bouskoura, Jorf Lasfar (class A
production facilities and controlled pollution) and Meknes.
� The Tangiers Free trade zone (which relates exclusively to the
exporting companies) and the Tanger Méditerranée harbour
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complex, one of the largest Mediterranean ports at the
crossroads between Europe and Africa, on the way between
Asia and America, with a potential of 140,000 jobs. The first
ships should call in 2007.
Investors can also take advantage of a number of benefits
pertaining to customs regimes, such as temporary entry for
processing, bonded warehousing and storage, as well as
advantages provided under the free export zone regime and the
offshore financial centre regime.
Regulations
Moroccan legislation governing companies is covered commercial
law (law n°17‐95) on limited companies and law n°5‐96 relating to
other corporate structures. Foreign investors can acquire holdings
in a Moroccan company or set up a new company. Joint stock
companies are the most widespread form of corporate structure in
Morocco, along with other forms: limited companies, limited‐
partnership companies, stockholding companies) and partnerships
(partnerships, joint‐stock limited partnerships).
To assist foreign operators in their investment undertakings, the
authorities have adopted a sectoral approach to FDI promotion,
based on three target categories: activities related to subcontracting
and delocalisation, tourism, and agriculture. 2500 companies in
Morocco work in outsourcing, with sales amounting to more than
MAD 29 billion (2.6 billion Euros), mainly in the textile‐clothing
sector, electrical and electronic engineering, assembly of
commercial vehicles and railway equipment, and manufacture of
mopeds and private cars. In the tertiary sector, the strategy to
promote FDI for the development of call centres has met with great
success. In the tourism sector, the “2010 Vision” development plan
and the “Azure Plan” are the main vectors for attracting foreign
investment and four seaside resorts have been sold off to foreign
investors. In the agricultural sector, the authorities attacked

Invest in the MEDA region, why how ?
reprofiling of two public companies (SODEA and SOGETA) in May
2003. The restructuring process is at an advanced stage, with an
international tender launched at the end of October 2004 for these
two companies to sell 205 lots involving 56,497 ha of real estate to
the private sector.
The government has also created the Hassan II Fund for Economic
and Social Development, which grants direct assistance for
investment in industrial sectors with strong growth potential. In
addition, the Moroccan Corporate Upgrading Fund “FOMAN” has
been launched to help companies with their modernisation efforts.
The 2006 finance law introduced a new taxation code. The
corporate tax rate has been 35 percent for profits since 1996, down
from the previous 39.6 percent rate, which still applies to insurance
companies and financial establishments. Non‐resident construction
and civil engineering companies can opt for an alternative tax
amounting to 8 percent of the amount of the contract, under certain
conditions. Dividends are taxed at the source at 10 percent
maximum and this gives rise to an equivalent tax credit.
Company branches and other companies are also taxed. The
standard rate for VAT is 20 percent and reduced rates vary
according to product and service, for example 7 percent on water,
electricity, pharmaceutical products; 10 percent on restaurants; and
14 percent on real estate, coffee, tea…).
In addition to the emphasis on social aspects (5 5percent of the
budget), the 2007 finance law brought various tax innovations: tax
reductions, the lowering of the VAT rate and the improvement of
its management. A more equitable income tax replaces the General
Income Tax (GIT). The taxes on labour (employersʹ share of the
GIT) are reduced for investors, supporting the recruitment of
qualified human resources. This revision also institutes a
declaratory mode and the unicity of collection procedures.
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The 1996 association agreement with the European Union went into
effect in 2000, leading to a free trade area by 2012. A free trade
agreement was also signed in June 2004 with the United States, in
force since 1 January 2006. The Kingdom is also negotiating several
trade agreements targeting regional integration, the so‐called
“South‐South” agreements. Morocco is part of the Agadir
agreement signed by Jordan, Egypt, and Tunisia in February 2004,
ratified by Morocco on July 11, 2006. The Agadir Agreement came
into force on March 27 2007 A free trade agreement was also signed
with Turkey in April 2004.
Finance & banking in Morocco
Since the beginning of the Nineties, the Moroccan financial system
has carried out several reforms, which focus on three goals:
restructuring of capital markets, liberalisation of financial
transactions, and reform of banking legal framework. The 1993
banking law abolished direct credit controls, liberalised interest
rates, largely eliminated mandatory bank credit allocations, and
introduced an interbank foreign exchange market. These reforms
were accompanied by efforts to develop indirect and market based
instruments of monetary policy. Liberalisation of the financial
sector was undertaken along with strengthening of the financial
situation at banks (through restructuring and recapitalisation) and
implementation of enhanced prudential regulations and bank
supervision in line with international standards, accompanied by
privatisation of certain public banks. Legislation has also
introduced the concept of “universal bank”, putting an end to the
distinction between commercial banks and specialised financial
institutions. In January 2005, the government passed a law granting
the Central Bank greater autonomy. In addition, in 2005, Morocco
passed a comprehensive financial sector law designed to strengthen
banking supervision and improve risk management practices in the
banking sector.

Invest in the MEDA region, why how ?
The 1993 legislation regulates financial companies: consumer credit
and leasing companies. The new law is dominated by three new
aspects:
� Unification of the legal framework governing credit
institutions, which now include banks and financing
companies
� Creation of three institutions: the National Currency and
Savings Council (CNME), the Credit Institutions Committee
(CEC), and the Credit Institutions Committee (CDEC)
� Protection of depositors by a set of measures (compliance with
prudential rules, new conditions for activity) and setting up of
a deposit guarantee fund
A number of monopolies have been eliminated. This is the case for
example for operation of the RME (Moroccans resident abroad)
structure, the Popular Credit of Morocco (CPM), and the export
insurance activities of the Moroccan Bank for Foreign Trade (BMCE
BANK), which have now been transferred to an independent
company. Over the past two years, the restructuring and
rehabilitation of financial institutions have focused on public sector
banks: Banque Nationale de Développement Economique, Crédit
Agricole du Maroc and Crédit Populaire du Maroc.
An offshore financial market was instituted under law 58‐90 of
1992 and circular of September 1992. This law introduced an
offshore financial market in the municipality of Tangiers, open to
banking and trust company activity. Six licensed institutions were
operational as of end December 2005.
Moroccoʹs banking sector is fairly well developed and modern. The
banking system is made up of the Central Bank, Bank al‐Maghreb,
16 commercial banks (partially owned by or working in
partnership with European banks such as BNP Paribas), several
development banks, and 36 financing companies. Seven banks
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control the market and the principal actor is the Banque Populaire’s
network, followed by Attijariwafa, the BNPE and banks controlled
mainly by foreign shareholders, including the BMCI (a subsidiary
of BNP‐Paribas) and the Credit du Maroc (a subsidiary of the
Crédit Lyonnais‐Crédit Agricole Group). The Caisse des Dépôts is
extremely active in real estate and tourism, funding public interest
projects as well as more modest initiatives.
It is expected that the recent move to consolidate will lead to
transition of the sixteen commercial banks into four or five large
institutions, leaving only a couple of smaller banks. Large banks
will have greater national and regional influence and will be able to
underwrite larger projects.
The Moroccan banking system has developed a range of financing
options to help promote investment and new businesses, with
lending rates freely negotiated between banks and entrepreneurs.
Traditional bank loans cover up to 80 percent of corporate needs,
with specific credit lines financing 70 percent of the cost of
restructuring programmes for SMEs. With regard to micro‐lending
and in the framework of the upgrading programme, European
credit lines – French, Italian, Spanish and Portuguese – and the
Islamic Development Bank have contributed to national financing
sources for the development of SMEs. Furthermore, leasing for the
acquisition of capital equipment or property for professional use
guarantees the rental and financing of up to 100 percent of the cost
of acquisition. Capital investment– venture capital, development
capital, start‐up capital, and restructuring capital – provides SMEs
with fresh capital at the various stages of the development cycle.
Under certain conditions, seven‐year loans can be granted as part
of an extension to a new partner or shareholder. The European
Investment Bank (EIB), a partner in several funds, encourages the
setting‐up of such financial instruments in Morocco. There are
currently ten venture capital funds. The majority of these funds are
of a general nature while others focus on specific activities, in

Invest in the MEDA region, why how ?
particular new information and telecommunication technologies,
such as the Upline Technologies fund. Mobilised funds came to
MAD 1.5 billion in 2000.
During year 2006, many banks launched investment funds, often
specialised in key sectors for Morocco: agriculture, tourism,
property, ICT, etc. The Central Bank of Morocco gave a green light
for so‐called alternative financial products (Islamic financial
products) to be introduced in the Moroccan banking sector. On one
hand the availability of such offer has become a substantial asset in
attracting Arab capital, on the other hand it should satisfy certain
customers in Morocco and develop capital venture. In particular,
the Moucharaka is a type of private equity whereby the bank takes a
stake in an unlisted company, sharing the risk and potential loss,
but also the potential profit.
The Casablanca Stock Exchange (CSE), considered one of the most
advanced in the Arab world and using the same electronic trading
system as the Euronext (Paris) Stock Exchange, prospered in the
1990s, but from late 1998 through 2002 it suffered from long‐lived,
severe bear conditions. Market capitalisation passed from MAD 7.7
billion in 1990 (3.6 percent of GDP) to MAD145.1 billion in 1998
(42.2 percent of GDP). Marked rebound in 2003 followed by
healthy performance in 2004 and 2005 reflect an upturn in investor
confidence. 2005 performance was strong, with MAD 252.33 billion
or US$ 29 billion (55 percent of GDP) and 54 listed companies. The
capital ratio is on the rise, up 102 percent (14.87 percent vs. 7.36
percent in 2004). The MASI Index rose to 5539.13 points (up 22.49
percent) and the MADEX by 23.8 percent.
Telecom & internet in Morocco
Morocco has successfully undertaken major reforms in the
telecommunications sector over the past decade. In 1999 the ex‐
Office des Postes et Télécommunications was divided into two
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entities: Morocco Telecom for telephony and Barid Al Maghrib for
postal operations. An independent organisation, the National
Agency for Telecommunications Regulations (ANRT), is now in
charge of licensing. Under the TELECOM I and II plans, Morocco
launched liberalisation of the telecommunications sector.
In 1999, the State granted a GSM licence to Médi Télécom (for
MAD10.6 billion), a company newly in competition with Morocco
Télécom, and a second block corresponding to 16 percent of capital
in Morocco Télécom was sold to Vivendi in 2004, amounting to 51
percent of holdings. ANRT allotted five GMPCS licences (Global
Mobile Personal Communications Systems) to Soremar, the
European DataCom Maghreb, Thuraya Maghreb, Globalstar North
Africa, and Orbcomm Maghreb. Three VSAT cellular telephony
licenses were allotted to CimeCom (ex Argos), SpaceCom and
Gulfsat Maghreb. Three 3RP licences (Radioelectric Networks with
Shared Resources) were allotted to Moratel, Inquam Telecom and
Miden. It is also expected that 3G fixed telephony and UMTS
licenses will be issued in 2006. A tender was launched in May 2006
for three 3G licences and another one is scheduled for 2007.
The cellular phone market is in full expansion, with a penetration
rate of 41.46 percent as of the end of December 2005 (vs. 31.23
percent in 2004 and 9 percent in 2001). There are 12,392,805
subscribers and pre‐paid telephones are used by 97 percent of
customers. On the other hand, the penetration rate for fixed
telephony is low, estimated at just 4.49 percent in 2005 (1.350
million subscribers). By the end of 2005, there were 262,326 internet
subscribers, an increase of 331.4 percent since December 2003. The
number of ADSL subscribers is also increasing, posting an annual
growth rate of almost 294 percent for 2005.
The internet market is highly concentrated. While Morocco had
allowed many (300) small internet service providers to enter the
market, there are only two major ISPs: Menara, owned by Morocco

Invest in the MEDA region, why how ?
Telecom, and Wanadoo Morocco. Only 1.5 percent of Moroccans
use internet and 85 percent of activity is concentrated in the
approximately 2020 public‐access phones “cybercafes”.
Foreign companies looking to outsource or move operations to a
less expensive location are attracted by Moroccoʹs technological
know‐how and infrastructure.
The call centre industry is booming and in just a few years,
Morocco has become a leader in offshore French‐speaking call
centre activities. There are approximately 140 call centres
(according to ANRT), including a hundred outsourcing call centres.
There are currently 18,000 positions employing 25,000 agents, as
well as indirect employment. Annual growth is estimated at 2000
posts. 85 percent of this turnover is generated through activities
with France and Spain. Webhelp has grown to six sites in Morocco,
with 600 positions. Phone Assistance has opened an 800‐position
site in Marrakech. Atento is opening a new site in Tetouan, and
Grupo Konecta has two 500‐position sites. The “SICCAM” (Salon
International des Centres de Contacts et dʹAppels du Maroc),
international fair has been the key professional meeting of call
centres in Morocco since 2004.
Business and investment opportunities in
Morocco
The range of sectors of interest to investors has expanded from the
traditional (energy, textiles, fishing, and agriculture) to those
presenting greater added value (such as infrastructure, transport,
telecommunications, financial services and others).
The privatisation programme launched in 1993 succeeded in
attracting a significant level of FDI inflows to the Kingdom. From
1993 to 2003, some 66 entities were transferred to the private sector,
generating MAD 54.7 billion (EUR 5.4 billion) in income from
privatisation, of which 82.7 percent were foreign investments.
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Privatisation is of three kinds: tendering (76 percent of the receipts),
public offers on the Casablanca Stock Exchange (6.5 percent), and
direct attribution (17.4 percent). Morocco is also contracting out
certain public utilities to the private sector. The public utilities
covered by this new policy include electricity distribution, drinking
water supply, sewage treatment and solid waste management,
urban public transport, street lighting, and the management of
public gardens and parks.
In 2003, FDI flows amounted to MAD 23.5 billion, thanks in
particular to the sale of 80 percent of the capital of the tobacco
company “Régie des Tabacs” to the French‐Spanish group Altadis
(MAD 14 billion) and Renault acquisition of 38 percent of public
shares in the Moroccan Automotive Engineering Company
SOMACA for EUR 9 million.
By 2004‐05, about half of the 114 public companies targeted for
privatisation in 1993 had been sold. The main transactions were
sale of 16 percent of Morocco Telecom’s capital to Vivendi
Universal (which already held 35 percent of capital) for EUR 2.15
billion, a transaction involving the Popular Central Bank, the
transfer of all public shares in the four sugar companies Surac,
Sunbel, Suta and Sucrafor to the Moroccan group Cosumar for a
total amount of MAD1.4 billion, the sale of 80 per cent of “Régie
des Tabacs” tobacco company capital for MAD 14 billion, and the
MAD 95 million purchase of 26 percent of SOMACA automotive
construction company capital. Other privatisation transactions
were carried out at the end of 2004: the fertiliser producer
FERTIMA was sold for MAD 14.1 million, SONIR printing works
for MAD 22 million, and 40 per cent of COMANAV shipping
company stakes was also sold off.
New investment prospects are available thanks to privatisation
transactions in the pipeline, concession of public utilities to the
private sector, and the development of franchising.

Invest in the MEDA region, why how ?
The authorities have programmed deregulation of certain sectors,
with deregulation of electricity planned for 2005 expected to lead to
establishment of both a regulated market and a free market that
will share access to ONE’s grid. In the field of transport, the state
railway company (Office National des Chemins de Fer) has become
the Société Marocaine des Chemins de Fer and the former public
body is now a joint stock company, opening the way to
deregulation of railway management through concessions for the
management of railway infrastructure and operations.
As for ports and shipping, a reform is planned that will split the
Office d’Exploitation des Ports into two entities: the Agence
Nationale des Ports, which will act as port authority, and the
Société d’Exploitation des Ports, which will be responsible for
commercial functions, the introduction of competition between and
within ports, and unification of cargo‐handling services. A new
deregulation policy has been instituted in air transport, based on
the objectives set out in the Plan Azur (notably increasing the
number of passengers to 15.6 million by 2010) and targeting
deregulation of the regular flight market on a controlled, voluntary
basis as well as limited deregulation of the charter market.
The telecommunications and ICT sector offers many opportunities.
Morocco has a large pool of relatively cheap and well‐qualified
French and Spanish speakers and good telecommunications
infrastructure. The launching of economic zones will help with
offshore business processes and IT operations and in attracting a
handful of multinationals to the country. Liberalisation of
telecommunications should attract new operators and market
development will require more investment in infrastructure
(equipment, software) and services (software development,
integration, consulting and training). A study published by
McKinsey at the request of the government, which provides a
roadmap for industrial policy, outlines nearly 700 measures to be
taken and stresses eight sectors with strong potential: textiles and
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clothing, craft industry, food processing, fishery processing,
outsourcing activities, automotive industries, electronic equipment
and aeronautical subcontracting. McKinsey proposes a set of
transversal measures, more specifically development of these last
three sectors based on a concept of Mediterranean “maquiladoras”
profiting from tax and logistic advantages. Successful
implementation of this strategy would meant 250,000 direct new
jobs by 2012 and GDP growth of 6 percent.
Transport
The country has a network of more than 500 km of highways and
11,000 km of national roads. The government needs to invest 2.2
billion Euros to upgrade road infrastructure in the framework of
the second national programme to build rural roads (PNRR‐2).
PNRR‐2, which seeks to provide transport for some three million
people at a rate of 300,000 a year, targets the construction and
improvement of 15,500 km of roads between 2005 and 2015. The
first National Programme of Rural Roads (PNRR‐1) was launched
by the Moroccan government in 1995, programming action that has
become necessary to meet the challenges facing the Moroccan road
network, including under‐development, limited rural accessibility,
weak maintenance, and severe weather conditions.
In addition, the programme plans to upgrade some 1100 km of
roads, repair civil engineering structures, rebuild works, renew
public works equipment, carry out technical and feasibility studies
for new projects, upgrade access by road to Casablanca (increase
capacity, add intersections, create underpasses, build new
exchanges…)
As for motorway projects, MAD 15 billion will be invested from
2005 to 2009 for the construction of stretches from Had Soulem to
Tnine Chtouka (35 km) and Tnine Chtouka to El Jadida (28 km); the
building of new sections from Casablanca to Reduction (30 km),
Tetouan to Fnideq (28 km), Settat to Marrakech (143 km); a bypass

Invest in the MEDA region, why how ?
around the port complex of Wadi‐Rmel (54 km); and construction
of the Marrakech‐Agadir motorway, which is part of the Tangier‐
Marrakech‐Agadir network. The Fes‐Oujda run is scheduled to
take place over the period 2006‐10 and some MAD 5 billion is
earmarked for completion of the Mediterranean bypass.
The national railroad authority “Office National des Chemins de
Fer” (ONCF) currently manages overall rail traffic in Morocco,
operating a 1907 km rail network. Its 2005‐2009 investment budget
amounted to MAD 15.5 billion, including almost MAD 1 billion in
capital expenditure. The TSRP includes various measures to
upgrade the sector, including acquisition of 18 multi‐unit trains,
double tracking of the rail network up to Fez, Settat and Jorf Lasfar.
Projects under way also include extension of the overall rail
network to add new links to Nador and the Tangiers‐Med port and
to upgrade existing train stations.
Morocco plans to extend port capacity, encourage greater private
sector participation in commercial port activities, reduce port
transit costs, and strengthen the competitiveness of national
shipping lines. Morocco launched construction of the Tangiers
international port “Tangiers Mediterranean”, awarded to Bouygues
Holding. Located on the Straits of Gibraltar 35 km east of Tangiers
and 15 km from Europe, the Tangiers‐Med project is a Special
Economic Zone at the crossroads of major shipping lanes.
Scheduled to be completed by 2007, the project includes a multi‐
purpose harbour, several customs free zones, and modern
transport and service infrastructure. The Tangiers‐Mediterranean
Special Agency (TMSA) is in charge of carrying out this
undertaking, at a cost of MAD 11 billion. Operation of the first
container terminal has been awarded by tender to a consortium led
by Maersk in partnership with the Moroccan conglomerate Akwa
and the second terminal has been awarded to the Eurogate‐
Contship consortium (German‐Italian), Comanav (Morocco), MSC
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(Swiss) and CMA‐CGM (France). Other tender offers will soon be
launched for the petrol and truck‐loading terminals.
ODEP announced a plan for MAD 2.7 billion in investments over
the period 2003‐2007 to extend Casablanca’s east terminal, with
work beginning the end of 2003. Equipment at the Jorf Lasfar port
will be extended and strengthened and the port of Mohammedia
will also undergo major work (extension of dams and quays).
The national airport authority (ONDA) is in charge of managing
the civil airport network, made up of 17 airports, 10 of which
accommodate international flights. The period 1992‐2002 was
devoted to rehabilitation of infrastructure and more precisely
construction and equipping of the Nador Airport, construction of
the Fes air terminal, extension of the Marrakech Airport, and
extension of JRC‐type radar coverage.
In the framework of the “2010 Vision” strategy, which aims to
accommodate 10 million tourists by 2010, ONDA is committed to
liberalising the sector, ending the monopoly long held by Royal Air
Maroc, and reducing ground service costs. Partial air‐sector
liberalisation was launched in February 2004. These reforms are
meant to make Casablanca’s Mohammed V Airport a hub for the
entire North and West African region as well as to help the
Kingdom achieve its goal of attracting 10 million tourists by the
year 2010. ONDA will invest MAD 3 billion over the period 2004‐
2007 for construction of the new terminal at the Mohamed V
Airport, extension of airports at Tangiers, Essaouira, Errachidia and
Al Hoceima, and acquisition of radar and navigational equipment
to improve airport safety and security.
Tourism
With 5.8 million tourists in 2005 using the country’s
accommodation capacity of 124,000 beds, tourism is the second
source of foreign currency for the Moroccan economy.

Invest in the MEDA region, why how ?
The “Vision 2010” development strategy has been launched, with
the goal of quadrupling tourist activity by the end of 2010 to 10
million tourists, doubling hotel capacity to 115,000 rooms (250,000
beds), developing seaside resorts (construction of six new world‐
class establishments with 160,000‐bed in proximity to the country’s
airports), and diversifying tourism products. A budget of EUR150
million is planned for hotel renovation. The approach adopted for
creation of this additional capacity is to develop integrated tourist
zones and meet new tourist demands by promoting private
partnerships through tenders.
The Department of Tourism has launched a number of initiatives,
such as the “Azur Plan” to build six new integrated seaside resorts
(Saidia, Lixus, Mazagan, Mogador, Taghazout and Plage Blanche).
Four have been awarded to international developers: Saidia
(Spanish group FADESA), Mogador (Thomas & Piron/ lʹAtelier/
Colbert Orco/ Risma), El Haouzia (Kerzner International/ Somed/
CDG/ Mamda & MCMA), and Lixus (Thomas & Piron/Orco). An
invitation to tender was launched in May 2005 for upgrading of the
Taghazout site and final selection will be made at the beginning of
2006. Leasing of the “Plage Blanche” site was launched in 2006.
The government has also launched plans to update the tourist
zones of Aguedal (Marrakech) and Ghandouri (Tangiers), to be
handled by Morocco Hotels and Villages (MHV), a subsidiary of
the “Caisse des Dépôts et Consignation”. In parallel, the
Department of Tourism started building sites for the upgrading of
current destinations such as Fes, Casablanca, Agadir, Tangiers,
Tetouan, etc., in the framework of the Regional Development
Programme (PDR). Major United Arab Emirate investment
initiatives were announced at the beginning of 2006.
National tour operators set up a new private low‐cost airline
“Jet4you” at the end of 2005, with 40 percent of capital held by
foreign investors. This gives concrete form to the principle of
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liberalisation affirmed by signature at the end of 2005 of the “Open
Sky” global air traffic agreement by Morocco and the European
Union.
Construction and public works
Prospects for construction and civil engineering are encouraging,
with implementation of social housing programmes and building
of basic infrastructure to mitigate the problem of urbanisation and
housing deficits. The Kingdom has decided to create two new cities
close to Marrakech (Tamansourt) and Rabat‐Sale‐Temara
(Tamesna). The Ministry of Housing will carry out urban studies to
review the status of real estate and arrange for off‐site facilities,
while private promoters will be in charge of construction (in
particular at Addoha, Chaabi Liliskane and Chaima).
Other initiatives relate to development of the Bouregreg Valley,
which includes construction of two marinas, setting up of an arts
and handicrafts complex, esplanade, bridges and a tramway as
well as an economic and cultural area and man‐made lake
surrounded by a technopark, a sports city and irrigation system,
development of urban spaces, etc. The cost of this initiative is
estimated at MAD 10 billion.
The housing sector, characterised by serious shortages and new
needs growing far more rapidly than the current rate of new
housing, is the object of government plans to double annual
production in order to reduce these deficits, estimated at 900,000
units by 2007 and 570,000 by 2012.
It is projected over the medium term that annual production of low
cost housing will need to double to 100,000 units per year in the
form of equipped or semi equipped lots for individual homes and
finished or semi‐finished residences and by reorganising certain
districts. Furthermore, a national programme (“Slum‐free Cities”)
has been set up to eliminate sub‐standard housing, estimated at a

Invest in the MEDA region, why how ?
cost of MAD 17.1 billion. Some 1.5 million people live in nearly
1,000 slum areas.
Under this programme, private individuals who cannot qualify for
bank loans will be able to obtain funding to be repaid over a period
of 20 to 35 years. Nearly 5,600 hectares of land have been released
and aside from funding for low cost housing, the State has adopted
a policy of tax exemption and tax breaks in favour of land
promoters who commit to building at least 2,500 homes over the
next five years. This initiative hopes to meet the housing needs of
low‐income segments of the population and thus improve living
conditions as per Ministry of Housing priorities. It also aims at
encouraging the private sector to participate in the construction of
low‐cost housing.
Energy and mining
Morocco’s overall energy consumption stands at 11.4 million Mtoe,
having increased by 3.3 percent per year over the period 1999‐2003.
It is estimated that power consumption will reach 17 million Mtoe
by 2015. Morocco is strongly dependent on oil and, to a lesser
extent, on coal for the production of electricity. Other sources of
energy remain weak and the country depends on imported energy
products for more than 85 percent of its consumption.
Hydrocarbons
The national gas project intends to build a gas pipeline to tie into
the Maghreb‐Europe gas pipeline (GME), crossing Morocco for 540
kilometres and connecting to Algerian and Iberian networks. The
first will go through Ouezzane, Mohammedia and Casablanca to
Jorf Lasfar and the other will cover areas close to the GME. A
tanker terminal for methane will be installed at Mohammedia and
underground storage is also envisaged. The cost of this
development programme is estimated at MAD 4 billion (EUR370
million). The National Hydrocarbons and Minerals Office has
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stepped up its promotional efforts to attract foreign investors. New
agreements have been signed, increasing to 26 the number of
companies prospecting for hydrocarbons in Morocco over an
estimated area of 107,000 km2 offshore and 23,000 km2 onshore.
Phosphates
Morocco possesses 75 percent of the worldʹs known mineable
phosphate reserves. The “Office Chérifien des Phosphates” (OCP)
is in charge of operating these phosphate mines, then processing,
producing and marketing by‐products (phosphoric acid,
fertilisers…), of which it is the number one world exporter.
Phosphate exports account for 17 percent of Moroccan exports and
constitute an important source of foreign currency for the country.
The OCP has modernised its processing sites at Jorf Lasfar and Safi
and built a new processing line for phosphoric acid and sulphuric
acid. Over the period 2004‐2008, MAD 12.8 billion in new
investments are planned, in particular for construction of a
phosphoric acid production unit, a DAP fertiliser production unit,
acquisition of trucks, various machinery, receiving hoppers and
connection conveyors for the new mine and a phosphate washing
and flotation unit. To select its suppliers, the OCP proceeds on the
basis of restricted calls for bids to pre‐qualified companies.
Electricity
The demand for electricity is increasing by 5 to 8 percent per year
and Global Rural Electrification Programme (PERG) targets a rate
of household connection at virtually 100 percent by the end of the
decade. The National Electricity Board (ONE) has launched an
ambitious investment programme (MAD 11.32 billion invested
between 1999 and 2003) to carry out a large number of initiatives
such as the Tahaddart power station (MAD 2.4 billion), doubling of
transit capacity to and from Spain (MAD 1.34 billion),
strengthening of the network with a new sub station (MAD 1.13
billion) and construction by Alstom Power of a STEP (transfer of

Invest in the MEDA region, why how ?
energy per pumping station) facility at Afourer (MAD 1.7 billion).
From 2004 to 2007, ONE will invest a further MAD 18.2 billion for
construction of new production sites, notably construction of a
thermo‐solar power station at Ain Beni Mathar, wind farms near
Tangiers and Essaouira, and modernisation of a power station in
Mohammedia.
Water
The availability of water in Morocco is very uneven from one area
to another, ranging from the relatively favoured north‐western part
of the country under the influence of the Atlantic Ocean to the very
arid regions of southern and eastern Morocco. Morocco’s climatic
and hydrological systems are also subject to cyclical variations,
generally several years of drought followed by wetter conditions.
Water resources are thus a major concern for Morocco. Nearly 90
percent of resources are already mobilised and they are being
seriously degraded by domestic, industrial, and agricultural
pollution. Only 5 percent of urban effluents are treated. The
promulgation of ”water” law 10‐95 in 1995 constitutes the starting
point of a new national water policy. It addresses fundamental
issues ranging from water resource planning and management,
institutional reform, the transition from supply to demand
management, the development of a reservoir management strategy,
application of ʺuser‐paysʺ and “polluter‐pays” practices and
promotion of dialogue between users and operators in the sector.
A new National Water Plan is being drawn up to outline future
strategy for water management and climate and environmental
protection. One aspect of reforms undertaken by the Ministry in
charge of Land Development, Water and Environment will help
Morocco control its water resources and supply in both urban and
rural areas, “in order to have an integrated strategy over the
medium and long terms with regard to management of water
reserves”.
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Another aspect focuses on controlling pollution through
development of a national programme to improve and maintain
water quality, fight pollution of underground reserves, develop
domestic and industrial wastewater treatment and decentralise
management of these resources over the next ten years. The budget
allocated for this programme is set at MAD 43 billion, 30 percent in
State funds. The programme should reduce the pollution rate by 60
percent by 2010 and 80 percent by 2015. The third aspect of the
programme relates to rational use of water and the fourth concerns
integrated, decentralised and partner‐based management of water
resources.
Agriculture and agrifood
Agriculture plays a major economic and social role in Morocco,
largely contributing to efforts under way for several decades in the
Kingdom to boost economic performance. Morocco depends
heavily on its agricultural sector, which generates 15 to 20 percent
of GDP (depending on the harvest) and employs some 40 percent
of the labour force. More than 90 percent of the country’s crops
receive no irrigation and production is very uneven. Although
agriculture is so important for Morocco, only 19 percent of land
area is cultivated, producing barley, corn, citrus and other fruits,
wine, vegetables and cattle. Morocco is a net exporter of fish as well
as fruit and vegetables, but it imports many cereals, oleaginous
seeds, and sugar.
To tackle the water management problem, the government, with
the support of the International Financial Corporation (IFC), has
recently signed a partnership with ONA to construct and manage
an irrigation network to channel water from a dam directly to
farmers, providing them with water at lower prices than those they
currently pay. In addition, the government launched a new plan in
2005 to upgrade the agricultural sector and resolve the crisis
currently faced by the sector.

Invest in the MEDA region, why how ?
Morocco enjoys a highly dynamic fishing industry that employs
some 400,000 people (directly and indirectly). With 1835 km of
coastline along the Atlantic Ocean and the Mediterranean Sea,
fishing generates approximately 15 percent of Morocco’s
agricultural GDP per annum. The principal fishing centres are
Agadir, Safi, Essaouira and Casablanca and catches include
sardines, tuna, mackerel, anchovies as well as shellfish and
molluscs. A large portion of Morocco’s fish is processed (i.e. frozen
or tinned) for export, mainly to Europe. The new fishing treaty
signed by Morocco and the EU to replace the treaty that expired in
November 1999 will come into effect in March 2006, granting EU
trawlers access to Morocco’s Atlantic waters for four years in return
for an annual payment of EUR 36 million.
Food processing is Morocco’s principal industry, a strategic sector
able to meet the food needs of a fast growing population and to
generate economic activity based on export. The industry currently
generates turnover of approximately US$ 5.6 billion, representing
nearly US$ 1 billion in exports and providing 60,000 jobs. There are
1700 companies in the sector, accounting for 25 percent of overall
industrial plants. Almost all branches of the industry are
represented: processing of cereals and sugar, dairy products,
vegetable and animal oils, canned fruits and vegetables, beverages,
baked goods/sweets/chocolates. Morocco’s agrifood companies are
currently working on upgrading their equipment and processes to
improve competitiveness and output and to align to sound
manufacturing practices and international operating procedure
standards. The sector is also being liberalised and agricultural
authorities recently launched a number of invitations to tender. The
sugar sector has been entirely privatised. Moreover, the State
provides local or foreigner investors with land in the form of long‐
term leases to carry out investment initiatives.
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Retailing and modern distribution
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Invest in Morocco
The market for modern organised retailing is being structured.
Over the last few years, a number of modern self‐service retail
outlets (including convenience stores) have opened in major cities,
and this trend is likely to continue. The retail food sector has
progressed significantly over the past ten years, as modern,
spacious supermarkets opened in major cities, increasingly
changing the shopping habits of the majority of urban consumers
throughout Morocco.
The country counts 200 supermarkets (more than 300 m2) and 17
hypermarkets, including six cash & carry facilities. European
multinationals have invested heavily in Morocco’s modern
distribution chain in Casablanca, Rabat, Marrakech, and some other
large cities, accounting for about 10 percent of turnover. Three
successful international retailers—Metro, Auchan and Casino—
have captured about 17 percent of the retail market. Auchan took
control of 49 percent of holdings in the local supermarket Chain
Marjane, the first independent store in Morocco. These retailers sell
local products.
Although there is still room for new entries on the market, success
depends on building strategic partnerships, as is the case for
Auchan. In the area of specialised retailing, the do‐it‐yourself
market is being structured with the entry of Bricorama, Mr.
Bricolage and Weldom. This also holds true for household
appliances and to‐be‐assembled furniture. The Moroccan retailer
Kitea, with 21 stores, was the first to enter the market, then
followed by Mobilia, Layalits, Kaoba, Kit Express and the Turkish
firm Cilek. Yadeco, a new distribution chain for furniture and
equipment, opened three outlets in 2005.
Textiles-clothing
Textiles and clothing is a major sector for the country’s economy. It
is the foremost industrial employer, providing 200,000 jobs to 40

Invest in the MEDA region, why how ?
percent of the labour force. The multifibre agreements that
governed world trade in textiles and clothing for thirty years were
phased out on 1 January 2005. According to a Ministry of Finance
and Privatisation study entitled “what is at stake for Morocco in
dismantling of the MFA”, the loss of preferential conditions
enjoyed by Morocco on the European markets will exacerbate
competition from Asia, but Morocco retains a number of assets:
undeniable cost competitiveness for certain products; proximity (an
advantage for small series, with quick turn‐around time in
response to tailored requests); and a reasonable degree of
competitiveness comparing to Chinese similar exported products.
To face international competition, Moroccan operators have
worked out a comprehensive strategic plan based on
competitiveness and quality, targeting greater added value in
production and a policy of vertical integration. Priority action
relates to a higher level of fabric upgrading, additional investment,
greater efforts in innovation and R&D and implementation of
training cycles, the transition from subcontracting to co‐contracting,
improved retailing networks, and investment in information
technologies to optimise techniques and allow better management
of orders and turn‐around time.
The government and the Moroccan Association of Textiles
(AMITH) signed an agreement in October 2005, the “Textile and
Clothing Emergence Plan” to modernise Morocco’s textile and
clothing industry. It offers an array of measures and facilities to
support corporate restructuring programmes aimed at capacity
building in marketing and promotion, investment and partnership
promotion, and materials sourcing. A special fund (FORTEX) has
been set up with EUR10 million Euros. The industry was also been
reorganised in four branches (chain and screen, mesh, jeans and
sportswear, household linens) in order to target marketing strategy
and boost synergy.
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The free trade agreement recently signed with Turkey, a major
producer of textiles, will support vertical integration since it allows
Moroccan companies to buy textiles from Turkey while complying
with the European Union’s rules of origin. With Moroccoʹs free
trade agreement with the US in force since January 2006, the new
Tangiers Med port, which is expected to be operational by the
second half of 2007, should allow Morocco to tackle the US market
in the same way, as goods will reach the east coast of the US in
roughly a week, thanks to improved connections.
High technology industries
The high technology sector is booming in Morocco as a result of
government incentives and the decision by large international
groups to set up maintenance and microelectronic component
assembly operations in Morocco. This strategy is based on the
availability of high‐level facilities and technicians in Morocco.
Sectors like electronics, in particular the production of electronic
components, have high potential for exports. Mono and multi‐layer
printed circuits, passive and active components, converters, and
telecommunications equipment are real investment opportunities,
in particular in subcontracting for export. Other sectors, such as
automotive industries, precision mechanics, the aeronautics
industry, as well as industrial research and development are
growing steadily thanks to relocation trends. The State is
supporting investment in these sectors through the Hassan II Fund.
After the national ICT strategy, baptised E‐Morocco, the country
launched the Progress Contract 2006‐2012, relating to the
implementation of a strategic vision for the development of the
sector. This contract was signed on September 20, 2006 between the
Government and Apebi ‐Moroccan Federation for IT,
Telecommunications and Off‐Shoring‐ a representative of private
ICT professionals. The contract aims to enhance ICT sector growth
and to promote Morocco as an off‐shoring destination. The main

Invest in the MEDA region, why how ?
innovation is undoubtedly the support for innovation and creation
of added value. The State launched a fund intended to facilitate the
access to financing for ICT companies (100 billion DH to be raised
according to needs).
Success story: Telefonica invades the Moroccan
telecom market
Following the opening up of the telecoms market to the private
sector and thanks to a record offer, a Telefonica‐led consortium
acquired in July 1999 the second GSM licence for a cost of 1.1
billion US dollars (the equivalent of 10.8 billion DH). Medi
Telecom (Méditel) then became the competitor of the historic
operator Maroc Telecom in the mobile telephone industry.
After a successful bid for Morocco’s second fixed telephony license
in July 2005, implying a DH 5 billion investment plan over 3 years,
and the acquisition for DH 320 million of a UMTS license in July
2006, Méditel rapidly took its place as a major telecoms player in
the Kingdom. As of December 31 st 2005, it claimed 4 million
mobile phone subscribers, while the commercial launching of its
fixed telephony services in May 2006 prevents Meditel from giving
any significant figure for 2006 in this sector..
Telefonica, via its operational division Telefonica Moviles,
together with Portugal’s PT Moveis, both owners of a 32.18% stake
in Méditel (while the rest of the capital is held by Moroccan
partners), is happy to reap the benefits from its massive
investments into Moroccan telecoms infrastructures.
The Spanish giant is also active in the call centre business, through
Atento Marruecos, Telefonica’s Atento local subsidiary, present in
Morocco since 2000. With three hubs at Casablanca, Tangiers and
Tetouan, Atento has more than 1,000 positions (telemarketers) and
is in consequence one of the main players in the sector. The creation
of 230 extra positions is planned for Tangiers. The investment
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amounts to 80 million DH (7.5 M €) for each centre. Atento
Marruecos has among its clients, Méditel, Royal Air Maroc and
Crédit du Maroc.

Palestinian Authority (West Bank and Gaza)
Overview
References
Seat of the
Palestinian Auth. Ramallah
Claimed capital Jerusalem East (Al Quds)
Population (Source:
Palestinian Central
Bureau of Statistics)
3.8 million inhabitants (2,4 million in West
Bank and 1.4 million in Gaza (end of 2005)
Growth rate: 4.91%
Languages: Arabic (official)
English (population generally conversant)
French, German, Hebrew, Italian, and
Spanish are widely spoken
GDP per capita US$ US$ 1,146 (2004)
GDP US$ 4,011 million US$ (2004)
Religion Muslims, Christians, Jews
Time of Work 1. The government sector: from 8:00 am to
2:30 pm
2. The private sector from 8:00 am to 4:00
pm
Time zone Time Differential from GMT is +2
Currency No local currency. Currencies used: new
Shekel NIS, US dollar, Jordanian Dinar
Association
agreement with EU
Interim agreement since /07/1997
EU web site:
http://www.delwbg.cec.eu.int/
WTO membership Observer since 2005
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Economic profile
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Invest in the Palestinian Territories
After nearly four decades of war and occupation and five years of
conflict and destruction since the second intifada, the
disengagement of Israel from the Gaza Strip in 2005 has created the
groundwork for a possible improvement in the situation. Efforts by
Palestinian authorities to establish the foundations of an
“economically viable” State parcelled out and divided between
non‐contingent zones are more than ever challenged by a political
context and institutional architecture that do nothing but increase
Palestine’s vulnerability and dependency on Israel and
international assistance.
The Oslo agreements created a climate of optimism in the
Palestinian Territories, resulting in strong economic growth, with
regular increases in GNP (recording 8.4 percent in 1999) and an
unemployment rate of 11.9 percent. But since the start of the second
intifada at the end of September 2000, economic activity in the
Palestinian Territories has been seriously undermined by the
explosion of violence and Israeli military response, in particular the
system of internal closure of the Palestinian territories and
withholding of tax revenues collected by Israel on behalf of the
Palestinian Authority (some two thirds of its tax resources). By the
end of 2002, GDP per capita had fallen by 39 percent. Tax transfers
and assets blocked since December 2000 were finally released
starting in November 2002.
Palestine’s economy slowly started to recover, with GDP growth of
6.1 percent in 2003, 6.2 percent in 2004 and 6.3 percent in 2005,
according to the World Bank’s Economic Update and Potential
Outlook of 15 March 2006. Several factors contributed to sustained
recovery, in particular over the first three quarters of 2005: robust
growth in the Israeli economy and growing trade between the
Palestinian Territories and Israel, increased international assistance,
more bank loans to the private sector, an increase in the number of
Palestinians employed in Israel or in the settlements (some 64,000

Invest in the MEDA region, why how ?
at the end of 2005, up from 50,000 at the end of 2004 but
considerably less than the 116,000 recorded at the end of 1999), and
sustained high growth in the building sector (+ 25 percent, 13
percent of the labour force).
In spite of these favourable developments, per capita GDP remains
30 percent lower than in 1999, unemployment stands at 25 percent
and the poverty rate at 43 percent (at least 15 percent living in
conditions of extreme poverty). Public investments financed before
the crisis by international assistance are also hampered. Indeed,
increasing difficulties in implementing infrastructure projects led
international donors to reduce their commitments to development
projects (US$ 238 million in 2003 vs. US$ 852 million in 2000),
shifting funds to emergency aid.
Palestine’s economy in the West Bank and Gaza is concentrated
primarily on services. The country has limited natural resources,
but the population is well educated and labour is highly skilled.
Agricultural activities, including fishing, are gaining importance in
the Palestinian economy. The major agricultural products include
olives, citrus fruits, flowers and vegetables. The industrial sector is
based primarily on small establishments that produce agricultural
products, shoes, and clothing. The Palestinian economy enjoys a
considerable volume of remittances from expatriates and
companies operating abroad. The country also has a promising
tourism sector.
According to UNCTAD statistics and the Palestinian Central
Bureau of Statistics (PCBS), the various economic sectors
contributed to GDP in 2004 as follows:
� Agriculture and fishing: 12.4 percent of GDP, employing
almost 15 percent of the population and providing a quarter of
total exports (fruits, olives, olive oil, vegetables and cut
flowers);
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� Mining, manufacturing, electricity and water: 15.7 percent of
GDP, employing 12.7 percent of the population;
� Construction industry: 3.3 percent of GDP;
� Commerce, hotels and restaurants: 15.2 percent of GDP;
� Transport, storage and communications: 11 percent of GDP;
� Services and miscellaneous (including public administration):
42.4 percent of GDP.
In terms of added value, industries are classified in the following
order: textiles and clothing (23 percent), non‐metal products (21
percent), metal products (13 percent), foodstuffs and beverages (12
percent), machinery and equipment (9 percent), shoes and leather
(4 percent). There are 117,000 industrial companies, 91 percent of
which are private, and more than 90 percent are very small
companies with a maximum of 4 employees.
At the end of 2005, the results of the seven year Economic Policy
Programme “Towards an economically‐viable Palestinian State”
under the aegis of the London School of Economics in coordination
with the Ministry of National Economy (MNE) were published.
The objectives of this three‐phase programme were to provide
technical assistance to the Ministry of National Economy and the
Palestinian Authority (PA) in preparation for the emergence of an
economically viable Palestinian State, to examine options for
permanent economic statutes, to prepare legislation compatible
with WTO rules and a sovereign framework for trade to replace the
Paris Protocol. During phases I and II, the MNE and experts
focused on the development of trade with Israel, technical
preparations for negotiating trade agreements with third parties, as
well as a Palestinian request for observer status at the WTO.
Net imports from Israel represent two thirds of the total trade
deficit. For the last five years, the deficit in Palestine’s trade balance
with Israel ranged between 32 percent of GDP in 2002 and 40

Invest in the MEDA region, why how ?
percent GDP in 2004. These figures can be explained in particular
by the fact that the Palestinian economy is almost totally dependent
on just one market: Israel. Trade with Israel has represented 67
percent of Palestine’s exports and imports, whereas imports from
Palestine account for only 2.3 percent of Israel’s trade.
Palestinian exports brought in US$ 449 million in 2004, 93 percent
to Israel, with basic commodities accounting for approximately 80
percent of this total (US$ 360 million). Exported services,
amounting to US$ 29 million, go solely to Israel, an increase of 22
percent thanks to strong growth in telecommunication services (+
153.5 percent). The Palestinian Territories’ top 10 suppliers in 2003
were Israel (72.75 percent), Turkey, China, the US, Italy, the United
Kingdom, Jordan, Spain, France and Germany. Its top 10 customers
in 2003 were Israel (91.53 percent), Jordan, the Netherlands, Saudi
Arabia, the United Arab Emirates, Italy, the United Kingdom, the
US, Belgium and France.
Key challenges
As a result of the current crisis, the economy of the West Bank and
Gaza is clearly shifting to a new growth trajectory. Closely
integrated with Israel since 1967, the Palestinian economy enjoyed
modest growth in real per capita income and significant declines in
unemployment following signing of the Paris Protocol in 1994. At
the same time, high levels of remittance from Israeli employment,
restricted trade relations and significant donor aid inflow
contributed in part to an expansion of the non tradable sector,
particularly the government wage bill, declining competitiveness in
the tradable sector and higher costs of production, particularly
domestic labour (World Bank 2002 ”Long Term Policy Options for
the Palestinian Economy”, and IMF 2001 “West Bank and Gaza:
Economic Performance, Prospects and Policies”).
Periodic closure worsened growing imbalances in the Palestinian
economy, further weakening the economy’s ability to move itself to
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Invest in the Palestinian Territories
a more sustainable growth path. Following the outbreak of civil
conflict in September 2000 and heightened Israeli security
procedures, significant declines in trade, employment, investment
have contributed to decline per capita income of 48%.
Since September 2000 and the intensification of the closure regime,
private firms face even higher transport costs, physical losses to
capital equipment, diminishing market share and credit shortages.
The private sector has borne the brunt of physical damage,
estimated to be as high as US$ 728 million, with foregone
investment opportunities totalling US$ 3.2 billion. The situation is
particularly acute for firms in vulnerable sectors such as tourism
and traditional industries—food processing, sewing and
furniture—while pharmaceuticals, information technology and
handicrafts appear to be surviving the current crisis more readily.
Strong points
Palestine, with its strategic location and need for widespread
infrastructure development is an untapped emerging market with
enormous investment potential. The Palestinian economy is a
market‐based economy with the private sector playing the leading
role. The Palestinian Territories benefit from the high quality of
Palestinian labour, from the existence of a large diaspora, and the
financial support of a number of States.
The Palestinian economic strategy being developed is export‐
oriented and outward looking. The Palestinian economy has
already begun the process of integrating with regional and
international economies through a network of free trade
agreements and trade associations.
Current short‐term goals focus on improving access to foreign
markets and overcoming the obstacles hindering the movement of
people, goods and services to these markets.

Invest in the MEDA region, why how ?
Palestine Investment Promotion Agency (PIPA)
In 1998, pursuant to the Promulgation of the Investment Promotion
Law, the Palestinian Investment Promotion Agency was
established as an autonomous agency of the Palestinian National
Authority. The law not only established PIPA, but it provided the
bylaws by which PIPA would operate. A One‐Stop‐Shop was
established to assist all investors from licensing their projects,
getting approvals, to acquiring incentives and income tax
exemptions.
PIPA’s goals and mandate
PIPA’s mandate goals and responsibilities are to:
1. Increase the flow of foreign and domestic investments in line
with national priorities;
2. Provide employment opportunities pursuant to increased
investment and developmental activities;
3. Expand Palestinian exports and increase flow of foreign
exchange;
4. Ensure the transfer of modern technology in all priority sectors;
5. Determine deficiencies in Palestinian Investment Climate and
seek, through its Board of Directors, to influence Government
decisions promoting investment‐friendly policies.
One-Stop-Shop
Once the decision to invest in Palestine has been made, PIPA is the
one place investors should go to for everything they need to begin
working. Its One‐Stop‐Shop, launched in 2005, provides all the
necessary forms, and is committed to deal with all this paperwork
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in a timely manner (less than a month, and less than 10 days will be
the next step).
PIPA & After-care investor support
Once a project has received all the official assistance available, be
it’s incentives, or permits and income tax exemptions, PIPA’s
usefulness does not come to an end. After‐care may not be as
important a function for more economically stable regions og the
world, but here PIPA views this function as key. PIPA continues to
provide assistance to investors in any matter where it can be of
service. One significant area where PIPA can help is in proposing
changes to laws and regulations which may be restricting
investment thanks to the feedback it receives from investors on the
ground.
The institutional aspects
PIPA is headed by a thirteen‐member Board of Directors. Five of
these members are drawn directly from the private sector, while
the rest is from the public sector. The Board of Directors is chaired
by the Minister of National Economy, with a representative of the
Ministry of Finance serving as deputy chairman. This detail, in
combination with the addition of direct private sector input, allows
both for changes to be made to the investment laws itself, and the
monitoring of all Palestinian laws and regulations which may be
imposing restrictions or limitations on investments.
The additional benefit of having members of the private sector
serving on the Board is precisely to keep in constant touch with
entrepreneurs’ concerns and maintain a closer ear to the ground.
The public sector board members provide a valuable link to the
internal developments and new initiatives within the Ministries of
Tourism, Industry, Housing, Planning and International
Cooperation, Monetary Authority and Agriculture. Close

Invest in the MEDA region, why how ?
cooperation also ensures a unified promotional and strategic front,
while keeping and eye on developments within these sectors.
http://www.pipa.gov.ps/index.asp
How to invest in the Palestinian Territories
To begin with, here are some elements of the Palestinian strategic
offer:
� Free Trade Agreements with the US, EU, EFTA, Canada,
Russia, Jordan, Saudi Arabia, Syria and Egypt;
� Special Trade Agreement with Arab League Nations;
� Equally favourable incentives for international and local
investors;
� No restrictions on profit and capital repatriation;
� Free movement of currencies;
� Free Industrial Zones;
� Regionally competitive investment promotion and Free Zones
laws;
� Business support firms, consultancy firms, secondary
businesses, IT universities, etc;
� A skilled workforce, often conversant in English.
The Palestinian Authority has created a framework of economic
legislation to encourage and support foreign and local investment
in Palestine. The 1998 Law on Encouragement of Investment
provides incentives for capital investment in all sectors of the
Palestinian economy by both local and foreign corporations
registered to do business in Palestine.
The Palestinian Authority hopes that increasing capital investment
growth will generate jobs and help develop an export‐oriented
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manufacturing base. Law n°10 governs investment in industrial
parks and free trade zones. A foreign investor can own a company
without the obligation of having a local partner. Currency can be
freely transferred and profits freely repatriated.
Jordanian legislation dating back to 1964 governs the setting up of
new businesses in the West Bank, except for those in non self‐
governing areas of the West Bank, which operate under the Israeli
military ordinance of 1970. Corporate legislation dating back to
1929, adopted during the British mandate, constitutes the legal
framework for setting up businesses in Gaza.
Customs legislation in the West Bank and Gaza is derived from
Jordanian or Israeli laws and Israeli military ordinances. The 1994
economic protocol of Paris governs economic and trade relations
between the Palestinian Authority and Israel. Most customs
procedures and Palestinian tariff measures are based on Israeli
standards and are pretty much controlled by Israel.
However, on the basis of the economic Protocol of Paris, certain
products are regulated by the Palestinian Authority, which can
reduce or increase customs duty rates. Other products are
governed by the Palestinian Authority but are subject to
quantitative restrictions or Israeli standards. There are multiple
incentives:
� PIPA offers exemption from customs duty for a given period.
This also applies to spare parts, fixed assets for developing or
enlarging an already existing company, and price increases due
to higher costs because of price hikes in the exporting country
or increases in shipping or processing costs. Investment
initiatives approved by PIPA benefit from exemptions and tax
cuts according to volume. The corporate tax rate is 20 percent
and VAT is at 17 percent.

Invest in the MEDA region, why how ?
� For investment between US$ 100,000 and US$ 1 million: tax
exemption for five years and taxation at a 10 percent rate for
the following eight years.
� Investment between US$ 1 and US$ 5 million: tax exemption
for five years and taxation at a 10 percent rate for the following
12 years.
� Investment of more than US$ 5 million: tax exemption for five
years and taxation at a rate of 10 percent for the following 16
years.
� Projects recommended by PIPA and approved by the Council
of Ministers are exempt from tax for five years and taxable at a
10 percent rate for the following 20 years.
‐Exemptions or special incentives are granted to investment in
hospitals, hotels or enterprises engaged in export activities.
� Investment in training in the ICT sector can be deducted from
the tax base.
Finance & banking in Palestine
There are currently 21 banks, including 10 Palestinian banks with
total assets of US$ 1.355 billion and 12 foreign banks (9 Jordanian, 2
Egyptian and HSBC Middle East) with total assets of US$ 4.128
billion.
The Palestinian monetary authority LDC monitors banking
operations and conformity to prudential practices. Certain banks
have been rated AA by the Thompson rating agency.
Banks in Palestine are equipped with the most modern
technologies to serve their customers, in particular:
� Data processing systems;
� Automatic teller machines (ATM) throughout the territory;
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� Banking operations by telephone;
� Banking operations online via internet.
In the absence of a Palestinian national currency, banks operate
primarily with the Israeli shekel, the Jordanian Dinar and the US
dollar.
The Palestinian stock exchange ‐ the Palestine Securities Exchange
(PSE) ‐ began trading in February 1997. The PSE is a member of the
federation of Euro‐Asian Stock Markets, of the Arab Federation of
Stock Markets, and of the Arab Monetary Fund as well as the
international federation of stock markets.
The Capital Market Authority (CMA) has been in charge of
supervising the PSE since August 2005. Currently, 28 companies
are listed on the stock market and 40 others will be posted shortly.
These companies work in various sectors, from pharmaceutical
production to telecommunications, banks and insurance or
tourism. The Alquds index (base 100 in 1997) is based on average
market capitalisation of the 10 largest listed companies. Starting at
139.13 points in 1997, it reached 1128.59 points in 2005 (306.61
percent growth) and market capitalisation came to US$ 4,456 billion
in 2005 (+306.39 percent).
Telecommunications & internet in Palestine
Under the terms of article 36 of the Oslo II agreements, the
Palestinian Authority is authorised to establish and operate an
independent telecommunications system, whereas the former
system of connection depended almost entirely on Israeli
infrastructure, the Ministry of Telecommunications and
Information Technology (MoTIT).
In 1996, the Palestinian Authority granted the national operator
Paltel (Palestine Telecommunications Company) a 20‐year licence
for the fixed telephony network, renewable for a further 20 years.

Invest in the MEDA region, why how ?
Paltel has held a monopoly for the first 10 years of this concession.
Furthermore, a five‐year licence constituting a monopoly for this
period was granted to Paltel for exploitation of a mobile telephony
network. Paltel’s monopoly was legally abolished in 2001, so the
cellular telephony sector is now open to new operators. In
September 2000, Paltel created a subsidiary company Palcell called
Jawwal (the “itinerant”) to manage this network, in which it holds
a 100 percent of the capital since 2004. The company has invested
US$ 140 million to establish a cellular network covering the West
Bank and the Gaza Strip.
Plans for expansion of the network are envisaged in four phases,
including more than 350 “cells” serving more than 500,000
customers. Jawwal has completed phase 3 and is preparing to
increase the number of transmission stations in order to serve
420,000 customers. The network’s backbone will also be reinforced,
using GPRS data transmission technology.
According to a recent study by the Madar Research Centre, the
Palestinian Territories are at the top of the list of the six countries of
the Near East (Egypt, Iraq, Jordan, Lebanon, Syria and the
Palestinian territories) in terms of investment in information and
communication technologies as a share of GDP, posting 4.04
percent, a little higher than the world average.
The Paltel group is also expanding on international markets. It has
just created a company, TEL V, with its head office in the United
Arab Emirates. It will manage the group’s investments and those of
its partners on regional and international markets. This new
company will initially subscribe capital of US$ 300 million. It
should be noted that the Palestinian operator of
telecommunications Paltel previously set up business in the
Emirates with capital of US$ 7 million to work in the field of fixed
telephony and the internet.
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In September 2005, the Minister of Telecommunications announced
the end of Jawwal’s monopoly. One year later, in September 2006,
Palestine’s second mobile licence was awarded to Kuwait’s
Watanyia Telecom holding, which, in partnership with the
Palestinian Investment Fund, will run a new operator to be
operational in 2007/2008 (see Success Story)..
Business and investment opportunities in
Palestine
In the current context of social, economic and political difficulties,
major investment will be needed to continue the rehabilitation
initiatives launched ten years ago and to develop modernisation of
the country’s infrastructure and rebuilding. Effective infrastructure
will provide a sustainable economic development, a fundamental
cornerstone in the establishment of a viable Palestinian State in the
near future.
According to the World Bank, investment needs are evaluated
between US$ 500 and US$ 900 million for the short‐term (2005‐
2008), depending on how the political situation evolves.
The withdrawal of Israel from the Gaza Strip in 2005 offers many
opportunities for the development and rebuilding of Gaza. The EU
decided at the end of 2005 to release EUR 60 million to finance the
setting up of political institutions and the construction of strategic
infrastructure henceforth controlled by the Palestinian Authority.
The main opportunities are:
� Rehabilitation and construction of infrastructure: urban
development, roads, the Jenine‐Hebron highway, water
purification and distribution facilities, energy production and
distribution (electricity, gas), which will have major economic
impact;

Invest in the MEDA region, why how ?
� Construction work for the development of tourism (tapping the
country’s extraordinary and unique cultural heritage) and
construction of housing to keep up with high demographic
growth;
� Modern retailing (shopping centres), in a country with a long
tradition of commerce;
� ICT to support sectoral growth;
� Machinery and equipment for the development of Palestinian
industry;
� The development of agriculture and agrofood (fruits and cut
flowers).
In addition, a medium‐term economic development plan (MTDP)
covering the period 2005‐2007 has been launched by the Ministry of
Planning (MoP) as the framework for the development process and
the guide for the relationship between PNA institutions and the
donor countries and organisations.
Energy
Palestine’s energy sector started developing under the Palestinian
Energy Authority (PEA) in 1995, later becoming the Palestinian
Energy and Natural Resources Authority (Penra). In the field of
energy generation, more than 30 percent of electricity consumption
is now produced in the Palestinian Territories, compared to only 3
percent prior to 1995. Despite this progress, the situation remains
difficult: electricity consumption (2 to 2.5 million MWH) is still
largely dependent on Israeli sources and levels (about 70 percent).
Approximately 13 percent of the population is not connected to the
network, particularly in rural communities (where 4.5 percent are
without electricity and 8.5 percent are supplied by small power
generating units). The Ministry of Energy and Natural Resources
expects that the demand for electricity in the West Bank and the
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Gaza Strip will increase fourfold in the next 15 years. In order to
increase domestic output and to reduce dependency on Israel,
Penra is encouraging the private sector to invest in the construction
of new power stations, e.g. the 140 MW Gaza combined cycle
power plant, carried out under a BOO arrangement for total
investment of US$ 150 million and managed by the ʹʹPalestine
Electricity Companyʹʹ (PEC) consortium.
In addition, Penra and NEC (National Electricity Company) have
signed an agreement for the construction of a 200 MW power
station in Kalkilya, which will serve the northern areas of the West
Bank, later to be inter‐connected to Jordan’s grid. Penra is
considering construction of a 220 KV electrical grid system to
connect Gaza’s power plant to transformation stations north and
south of Gaza; connection of the Gaza and West Bank networks
using 220 KV cables; and construction of a 220 KV grid system to
connect the districts of the West Bank. Penra is considering creation
of a public company, the Palestine Energy Transmission Co. Ltd
(PETL), to manage, maintain, and develop a national transport
system. It will buy the electricity produced by private companies
and sell it at the regional level.
As for gas resources, there are major natural gas layers in Gaza that
have remained unexploited because of the Israeli Veto, which
controls territorial waters. Two offshore gas fields have been
identified, with reserves estimated at 46 billion m3. The first field,
in Palestinian territorial waters, potentially offering 30 years of
commercial exploitation, has been awarded to a consortium of
British Gas (90 percent) and the CCC Group. A second field located
further to the north (67 percent in Palestinian territorial waters and
33 percent in Israeli territorial waters) is being explored by British
Gas.

Water
Invest in the MEDA region, why how ?
A strategic field for the Palestinian Territories, controlled mainly by
Israel, the water sector has vital political, economic and social
implications, both locally and at the regional level. Thanks to
mobilisation of the international community, infrastructure for
distribution, purification and treatment is improving, but needs
remain considerable. From 1995 to 2006, international investment
in the sector reached US$ 620 million, according to the PAMS
database (Palestine Assistance Monitoring System) on aid
coordination managed by the Ministry of Planning. Palestinians
want an autonomous distribution network, with a view to avoiding
Israeli restrictions and constraints. They need to increase the
quantity of water for consumption by reducing losses in the
network and investing in purification and water treatment in order
to preserve groundwater quality.
The PA has privatised water services in the framework of delegated
management contracts with the financial assistance of the World
Bank. The French companies Vivendi and Lyonnaise des Eaux have
been awarded the first two tenders launched by the World Bank for
management of water services in the Gaza Strip and southern areas
of the West Bank. However, Vivendi decided to withdraw at the
beginning of 2003 because of difficult working conditions in and
around Bethlehem. For Gaza, a new tender will be launched
shortly. Six international companies have been short listed: Suez
Environment (France), MVV (Consultants and Sanitary Engineers
(Germany), Saudi Consulting Services (Saudi Arabia), OMI Inc.
(US), Amiantit, Infranan and HydroComp Enterprises (Austria),
and Hydroplan (Germany).
Information technologies
Information technology is the fastest growing sector in the
Palestinian economy. A large pool of well‐educated work force and
Palestineʹs geographic proximity to advanced technology centres in
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Israel are two factors that have greatly contributed to the sectorʹs
expansion.
Palestinian universities are capitalising on the worldwide shortage
of IT specialists by putting strong emphasis on IT training in their
curricula. Sun Microsystems, for example, has donated laboratories
to three Palestinian universities in order to train IT students and a
number of universities in Palestine have established Information
Technology Units. It is expected that this specialised curriculum
will be of critical importance to the emerging Palestinian state,
providing graduates well versed to meet the special needs of
ministries, municipalities, telecommunications companies, as well
as banking and financial structures.
A commitment to international quality standards (such as CMM
and ISO) and supportive international trade agreements are key
reasons why leading names such as IDS, Oracle, 3Com and Timex
have chosen to establish offices, R&D operations or links in
Palestine.
Construction and public works
Development of the construction sector is a priority for the
Palestinian Authority to meet the needs of a population growing at
a rate of 3.3 percent. Housing construction is developing very
quickly thanks to the return of investors from the Palestinian
Diaspora. The PA is also offering public land to the population, in a
move to encourage construction. The Palestinian Territories count
3.7 million inhabitants and the population is largely urban.
Population density is one of the highest in the world, particularly
in Gaza (3800 inhabitants/km²), where housing needs are the most
critical. Most of the population lives in refugee camps, where the
majority of buildings remain unfinished. Current forecasts show
that some 200,000 new homes will need to be built by 2010, with
the Ministry of Housing evaluating needs at 40,000 units in the
Gaza Strip.

Invest in the MEDA region, why how ?
Building materials are imported from nearby countries, Israel in
particular. The construction sector accounts for 17 percent of GNP
and employs 11.5 percent of the Palestinian labour force, with
nearly 21,000 employees on record. The Palestinian Real Estate
Investment Company is implementing a vast real estate project in
the northern part of the Gaza Strip. Two categories of housing have
been built, one for the middle class (2700 residences, 700 shops, a
hotel, a police station), the other for low‐income segments of the
population (800 units).
Construction of the first phase of the residential city of Sheik Zayed
at Bet Lahya in northern Gaza has been completed. The total cost of
this phase, which includes 750 apartments, came to US$ 50 million.
The overall project will include 3700 apartments and related
infrastructure at a cost of approximately US$ 250 million, to be
financed by a grant from the President of the United Arab
Emirates, with the Palestinian Authority providing the land.
Following evacuation of the Gaza Strip by the Israeli army in
August 2005, Mahmoud Abbas, President of the Palestinian
Authority, announced construction of a city to be named “Sheik
Khalifa Ben Zayed” on the ruins of the “Morague”colony. The city
is mean to have 3000 apartments at a cost of US$ 100 million, in
addition to Emirate funding of 638 flats in Rafah and Saudi funding
of another 1210 flats, also in Rafah.
The road network is made up of 2495 km of roads, including 2200
km in the West Bank and 295 km in the Gaza Strip, and an
additional 1300 km known as “detour roads” to Israeli settlements,
where access is limited to Israelis. The Palestinian road network is
inadequate and this constitutes a major handicap for the
Territories, which suffer from isolation and inability to trade with
neighbouring countries. Planning of a road network in the PT is
subject to preconditions. In effect, the Territories are divided into
three zones (A, B and C), each with a different level of autonomy,
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so any roadwork requires coordination between Palestinian and
Israeli authorities, which is not an easy proposition.
Health and pharmaceutical products
Four entities are present on the health market: the public services of
the Palestinian Authority managed by the Ministry of Health
(MOH), the United Nations Relief and Works Agency for Palestine
(UNRWA), Palestinian or foreign non‐governmental organisations
(NGOs), and the Palestinian private sector.
The Ministry of Health is responsible for the supervision,
regulation and licensing of all Palestinian medical services. In spite
of considerable international assistance, health needs remain
considerable. In a study undertaken by the PCBS and published in
its 2004 Annual Report, total health expenditure in the Palestinian
Territories amounted to US$ 503 million in 2003.
According to the Palestinian Assistance Monitoring System (PAMS)
database at the Ministry of Planning, international assistance in the
health sector amounted to US$ 250,161 million, including US$
166.253 million disbursed from 1994 to 2005. This assistance has
contributed to construction of infrastructure such as new hospital
complexes (the European Khan Younis Hospital in Gaza, the
Radiotherapy Centre of Gaza) and private basic health care clinics,
the supply of high‐technology medical equipment or
pharmaceutical products as well as medical transport equipment
(ambulances…).
According to the 2004 Annual Report, 93 health projects were
carried out between 2000 and 2004 or are currently under way, at a
total cost of US$ 235.92 million: 66 projects already completed for
US$ 124.87 million and 27 ongoing projects for US$ 111.05 million.
55 involve hospitals, with 27 operational in 2004. 27 projects (nine
still under way) relate to private basic health care linked to the

Invest in the MEDA region, why how ?
primary education system. 11 others (five still under way) relate to
other medical services.
Palestine’s pharmaceutical industry is unique in terms of
innovation and development. The industry began to develop after
the events of 1967, which resulted in closed borders with the rest of
the Arab world. Nine pharmacists in the West Bank established
small laboratories to manufacture simple syrups for local
consumption. Twenty‐five years later, annual sales of the six largest
manufacturers in the West Bank amounted to US$ 25 million,
contributing to US$ 65 million in annual sales, with Israeli and
foreign manufacturers covering the balance of US$ 40 million.
Palestinian pharmaceutical companies have expanded capacity and
product lines at a rate of 7‐10 percent per annum over the last 25
years. Product lines concentrate on meeting the needs of the
Palestinian market. There are currently six major Palestinian
companies representing some US$ 45 million in capital investment.
Production at these companies currently ranges between 1.5 and 8
million units a year, with nearly 400 kinds of generic products.
Local production is not high enough to meet market needs and the
PT must import a significant portion of its pharmaceutical goods.
The main suppliers are Israel (75 percent of total imports),
Switzerland, France, Great Britain, Germany, the United States,
Jordan, and Egypt.
The remaining companies operate in the Gaza Strip. Key
competitive factors include the introduction of automated
production lines, improved management and production
processes. Ongoing training and quality control practices have led
to significant increases in local production and standards.
Textile and clothing industries
The textile and clothing industry is the second largest industrial
employer in Palestine. The industry is made up of hundreds of
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small enterprises working out of private homes. Seventy percent of
registered companies are considered individual proprietorships,
the remaining 30 percent partnerships. The highest concentration of
garment and textile factories in the West Bank is in Nablus, where
there are 362 factories. Gaza is home to 760 factories and the
remaining 578 are distributed throughout West Bank towns and
cities. The industry is made up predominately of micro‐
establishments with between one and four employees. Only 1
percent of companies in the sector employs over 50 workers. The
remaining 49 percent of garment and textile factories in the West
Bank and Gaza employ between 5 and 49 employees. An increasing
number of Palestinian companies export directly to the US, Europe
and Arab countries, while a significant 80 percent of production
goes to Israel, to be exported to international markets under Israeli
brand names.
Inputs for the industry, ranging from fabric to trimmings and
accessories, have potential for development. Developed countries
are the prime clients for high‐end apparel, with Europe, the US and
Japan together currently accounting for 85 percent of overall world
imports. Free trade agreements between Palestine and the US and
Europe provide favourable terms for export and investment.
Stone and marble
The stone and marble sector contributes 4 percent to Palestine’s
GNP and 5 percent to its GDP. Average annual sales per employee
come to approximately US$ 40,000, fivefold average productivity
per employee for overall industrial activity in Palestine.
Sales grew significantly in 2005, reaching US$ 270 million in 2005
vs. US$ 220 million in 2004. In 2005, 32 percent went to the
domestic market, 55 percent was exported to Israel, and 13 percent
was shipped throughout the Middle East region, a promising
market with a fast growing potential (10 percent in 2004).

Invest in the MEDA region, why how ?
The sector accounts for 25 percent of overall Palestinian industrial
production and represents 4.5 percent of GDP, providing 15,000
direct jobs as well as several thousand more jobs in related
industries. Production of stone rose to 14.5 million m3 in 2005, up
from 12 million m3 in 2004. The technology used in this sector is
mostly semi‐automatic (85 percent), with some automatic
equipment (15 percent). Ninety five percent of raw materials come
from local sources. With sales turnover of US$ 200 million in 2004,
the stone industry plays a predominant role in the Palestinian
economy.
Overall, Palestinian stone has high export potential, easily
competing with the marble currently traded on world markets and
available in a wide range of colours and other specifications. The
Palestinian Territories occupy 12th place worldwide in this sector,
accounting for 1.8 percent of world production.
Tourism
Palestine provides the tourist not only with an opportunity to
discover its many religious and historical monuments, but also its
unique geography and short moderate winters in which to enjoy
their holidays. Palestine also has coastal areas and scenic
mountainous landscapes, in addition to the historic city of Jericho
and the Dead Sea. There are several health resorts and recreational
facilities in the Jericho/Dead Sea area. A state‐of‐the‐art casino was
opened in late 1998 on the outskirts of Jericho and shortly
thereafter, a five‐star international hotel was built as an extension
to the Oasis Casino project. Major Palestinian investors are poised
to launch a world‐class theme park when political stability returns.
Cultural heritage, entertainment and recreational opportunities,
and conference facilities are all available in Palestine for local,
regional, and international tourists and businesspersons. It is
estimated that nearly one million tourists visited Palestine in 2000,
generating approximately US$ 450 million in revenue. Tourism’s
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contribution to Palestine’s national economy is greater than that of
industry or agriculture.
The hotel industry is the backbone of Palestine’s tourism sector in
terms of income, investment and employment. Hotels provide 25
percent of overall revenue from tourism and generate 46 percent of
total tourism‐oriented employment. Substantial development of the
hotel industry has been accompanied by a perceptible increase in
the quality of services. The entry of international names such as the
Intercontinental chain on the Palestinian hotel scene has
contributed to enhanced growth prospects for the industry. Other
sub‐sectors range from tour guides and tour operator services to
transportation companies and handicrafts, in addition to souvenir
shops and eating establishments.
Agriculture and agrifood
Palestine has traditionally enjoyed a strong reputation for trade in
agriculture, which plays a major role in food security and jobs. It is
also the basis for activities in agrofood, production of fodder,
soaps, furniture, cosmetics, leather goods…
Agriculture employs 16 percent of the Palestinian labour force and
provides activity for more than 39 percent of the informal sector.
Moreover, more than 17 percent of Palestinian families practice
subsistence farming and livestock activities. The agricultural sector
generates 25 percent of Palestinian exports, mainly fruits (72
percent of cultivated land), olives and olive oil, strawberries,
vegetables and (more recently) cut flowers.
The food and beverage sector has been one of the fastest growing
branches of the Palestinian economy. The Investment
Encouragement Law eased restrictions on new businesses in 1998
and, as a result, the sector has become a major pole for investment.
Manufacturing plants in this sub‐sector are well equipped and

Invest in the MEDA region, why how ?
most are semi or fully automated. A large percentage of existing
food and beverage manufacturing plants are ISO‐certified.
Market share for Palestinian‐processed food products has increased
dramatically over the past few years. It stood at 25 percent in 1996,
but by 2001, it had increased to 50 percent. This was due in part to
proactive public policies to encourage local investment as well as
an aggressive marketing campaign to promote Palestinian‐
manufactured food and beverages. Like other manufacturing
industries, this branch depends heavily on a vibrant local market.
87.7 percent of domestic sales are concentrated in the West Bank,
the remainder in Gaza. 89 percent of exported products are sold in
Israel, the rest in the Middle East and Europe.
Reconstruction opportunities in the Gaza Strip
The Israeli withdrawal from Gaza in 2005 has created new
development prospects in the area outlined by the “Gaza Strip
Economic Development Strategy” covering the 2005‐2015 period.
The objectives of this plan are as follows:
� to create a healthy vital space for a young, rapidly growing
population, by regulating and rationalising land use and urban
development;
� to preserve and protect scarce and already vulnerable natural
resources and to ensure their optimal, durable use;
� to preserve cultural heritage and protect historic and cultural
sites;
� to harmonise regional development priorities with the national
Medium Term Development Plan;
� to create a favourable physical environment and the
infrastructure required for a return to economic growth, while
focusing on poverty alleviation and unemployment;
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� to rehabilitate and rebuild homes, damaged infrastructure,
manufacturing/commercial units, and farms;
� to create a modern and effective transport network for people
and goods between the Gaza Strip, the West Bank and the
outside world;
� to reinstate communities on the grounds of evacuated
“settlements” and related infrastructure;
� to set up a legal framework for future investment;
� to work for setting up of an independent Palestinian State that
includes the West Bank and the Gaza Strip.
The Plan gives special attention to the areas evacuated starting on
15 August 2005, which represent approximately 16.5 percent of the
total surface of the Gaza Strip. 97 percent of the land occupied by
these settlements is public land with major but fragile ground
water reserves that urgently require measures for their protection
and safeguarding and a rational basis for resource allocation
The Plan outlines general directives for the rehabilitation of these
areas in the context of Palestine’s overall urban fabric and defines
options for future use in line with medium and long‐term needs
and priorities for the development of Palestine and optimal use of
existing equipment and infrastructure. The Economic Development
Matrix includes:
Emergency
� Rehabilitation of evacuated areas and surrounding;
� Rehabilitation of destroyed industrial and commercial
establishments;
� Repair and replacement.
Infrastructure
� Natural gas carrier line project;
� Municipal, national and border industrial zones;

Invest in the MEDA region, why how ?
� Construction of a central wastewater treatment plant in middle
area and Gaza.
Access to market
� Safe passage;
� Establishing Gaza harbour;
� Modernisation programme & upgrading of industrial firms
� Good governance (enabling environment)
� E‐government project;
� Industrial and information technology incubators and parks;
� Development and establishment of vocational training centres.
Access to finance
� Study and establish a credit insurance fund;
� Reportage facility for refinance of private sector bad debt.
Access to technology and know how
� Development of R&D centres at national universities;
� Joint international MBA programme with national universities;
� Solid waste recycling project.
More information is available on:
http://www.mne.gov.ps/pdf/gazaa.pdf
The Arab Fund for Economic and Social Development (AFESD) has
already approved US$ 5.5 million for the construction of an
industrial park in Gaza devoted to the handicrafts industry. This
financing will cover infrastructure and warehouses, where
workshops will be located. The Ministry will offer investment loans
at preferential rates for the purchase of equipment and materials.
The area will include 200 to 250 workshops and create some 2,000
jobs directly, as well as indirect employment.
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Success story: Watanyia Telecom believes in the
power of communication
In spite of a rather troubled business environment, foreign
companies still bet on a brighter Palestinian future. The example of
Wataniya Telecom’s involvement in setting up a second national
mobile operator is there to prove it. In September 2006, the Kuwaiti
telecom holding made a successful USD 356.7 million offer as an
upfront licence payment to install and operate new 2G/3G mobile
telecommunications system and services. Together with its local
partner, the Palestinian Investment Fund (PIF), it had since then
been negotiating with the Ministry of Telecommunications and
Information Technology in Palestine (MTIT) to finalise the detailed
terms of the license. A final agreement was signed on March 15,
2007.
The partners established a new local company called Wataniya
Palestine Mobile Telecommunications Company, whose leadership
will be logically let to Wataniya. Under the shareholder agreement,
Wataniya International, which has meanwhile changed hands in
March 2007 to become a subsidiary of Qatar Telecom, will
eventually own 40% of its capital. The PIF will hold 30%, while the
remaining 30% will be offered to the Palestinian public through an
IPO. The commercial launching is expected in the coming months.
Faisal Al Ayyar, Chairman of Wataniya International, believes that
his company can be “a significant contributor to the building of a
strong and independent Palestinian economy, fuelling Palestinian
economic growth through direct foreign investment, contributing
to the advancement of the information and communication
technology sector in Palestine, investing in the build‐up and
retention of human capital and by delivering direct and indirect
employment opportunities”.

Syria
Overview
References
Capital City Damascus
Surface area 185,180 km²
Population 19 million inhabitants
Language Arabic, Circassian, Armenian, Aramaic
PIB (dollars) US$ 26 bn (2005)
GNP/per capita
(dollars)
US$ 1,418 – 3,847 in ppp. (2005)
Religion Muslims (90%), Christians (10%)
National Day 17 April (date of France departure in 1946)
Currency (March Syrian Pound (SYP)
2007)
1 EUR = 72.76 SYP – 1 US$ = 54.45SYP
Association agreement
with EU
Signed on19/10/2004; still being ratified.
EU web site:
http://www.delsyr.cec.eu.int/
WTO membership Negotiations in progress
Sources: IMF, WDI 2006 and Consultations Article IV 2005, Country
Report 05/355, October 2005
Economic profile
Located at the crossroads of Europe, Asia and Africa, the Syrian
Arab Republic is bordered by Lebanon to the west, Israel and
Jordan to the south, Iraq to the east and Turkey to the north.
Syria has opened up to the outside world only very recently, when
Bachar El Assad became President in 2000. The previous period
(1960‐2000) was marked by a socialist, nationalised economy, with
very directive production aimed at self‐sufficiency. Since 2000, and
especially since 2003, a number of major reforms, particularly in the
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financial sector, have led to an improved economic environment
and growth is on the rise, up from 1.3 percent in 2002 to 3.8 percent
in 2005 (the latest estimates mention a growth rate close to 2.9%).
GDP came to US$ 26.2 billion in 2005, compared to US$ 20.3 billion
in 2002.
Syria has adopted a prudent policy in the area of economic and
administrative reforms, targeting a more conducive economic
environment based on private sector involvement but with due
attention to social balance. The State has started to modernise the
country’s banking structure, revise the foreign exchange system,
privatise a number of public companies, improve the business
climate, and simplify customs formalities. Certain State monopolies
will be opened to competition, notably in metallurgy, textiles, and
dairy products. Special attention is also given to education and
training.
Agriculture weighs heavily in the economy. Depending on the
sources, it is said to employ directly 30% of the labour force, to
amount up to 30% of GDP, while 20% more of the labour force
depend on it indirectly (Oxford Business Group). The government
wants to modernise the sector, in particular by installing irrigation
systems and improving water usage, which has been beneficial for
cotton, the country’s second largest export. According to the World
Bank (WDI 2005 figures), industry accounts for 35% of GDP (up
from 31% in 2001) and involves mainly extractive industries.
� Syria is the 29th world producer of oil, turning out 26 million
tons. Oil accounts for 60 percent of export earnings (US$ 3.8
billion) and provides half of state revenues. However, oil
reserves are likely to be depleted within 10 years.
� Natural gas is the object of considerable efforts by the
authorities to substitute it for oil. Gas production is on the rise,
thanks in particular to the pipeline connecting the port of

Invest in the MEDA region, why how ?
Banias to Jordan and the gas initiative at Deir Ez Zor (managed
by Total and Conoco).
� Phosphate reserves are estimated at more than 1 billion tons
and nearly 75 percent of production is exported.
Manufacturing industries contribute less than 6 percent to GDP,
mostly involving textiles (30 percent of manufacturing output and
15 percent of exports), agrofood and construction.
The government has also launched a strategy to develop tourism, a
sector in which Syria has considerable potential thanks to its nature
and historical sites and cultural heritage. Hotel capacity is slated to
rise from the current level of 36,000 beds to more than 170,000 beds
by 2020, an increase of 8000 new beds a year, generating some
10,000 jobs annually. Tourist entries have increased considerably,
up from 700,000 in 1990 to 3.1 million in 2005 (US$ 1.4 billion in
revenue, 6.5 percent of GDP) but the sector is currently suffering
from the conflict in Iraq. Privatisation is not yet on the agenda, but
the government is starting to turn to outsourced management
contracts and concessions.
Foreign direct investments reached US$ 700 million in 2005 while
domestic investments reached US$ 6.3 billion (compared to US$ 3.7
billion in 2004). Syria signed a draft association agreement with the
European Union in October 2004, but it is not yet ratified. For the
moment, all trade provisions in the agreement will be applied on a
purely provisional basis until it enters into force.
The 2004 trade balance registered a deficit of US$ 1.2 billion,
compared to a surplus of US$ 600 million in 2003. This
deterioration was due primarily to declining exports, in particular
oil exports (‐8 percent), and the rise in imports (+29 percent). Italy,
France, and Iraq are Syria’s main customers, the destination for its
exports of oil, textile products, cotton, and foodstuffs. The country’s
first three suppliers are the Ukraine, China, and Russia and its
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main imports are capital equipment, consumer products, and
vehicles.
Economic policy is outlined in five‐year development plans. The
just‐published 10th Economic and Social Development Plan covers
the period 2006‐2010, setting objectives, and the framework for a
social market economy. The main priority of this plan is
progressive state disengagement in order to stimulate
competitiveness and competition while maintaining social balance.
Syria’s economy will need 1.800 billion Syrian pounds (US$ 34
billion) in investments over the next five years to reach GDP
growth of 7 percent in 2010. The main objectives of the plan are as
follows:
� The opening of public economic sectors to private investment;
� Equal distribution of growth throughout the 14 governorships
and development of the Syrian desert and regions to the east;
� The upgrading of social structures and living standards and
anti‐corruption measures.
Country risk
EIU provided the following estimate of the main country risks as of
March 2007 (AAA=least risky, D=most risky):
� Sovereign risk (CCC, stable): pros: low debt level, resources
(oil) and liquidity; cons: poor repayment record; declining oil
production, risk of international sanctions;
� Currency risk (B, negative): pros: relative stability of the
currency; cons: reliance on oil earnings political risk, limited
convertibility;
� Banking sector risk (CCC, stable): cons: poor quality of mainly
publicly‐owned assets, need for reforms.

Invest in the MEDA region, why how ?
� Political risk (CC): pros: on power is unlikely to be broken;
cons: regime’s isolation
� Economic structure risk (B): cons: heavy export dependence on
oil.
Challenges
Syria is in the heart of a turbulent region: it shares borders with
Turkey in the north, Iraq in the west, Jordan and Israel in south,
and with Lebanon in the west.
The economy – for a long time under State control – is heavily
dependent on the oil market.
Unemployment, which affects 25% of the population, mainly the
youth, is another problem and the current growth does not make it
possible to slow down this upward trend.
Strong points
Numerous efforts have been made to attract foreign investors.
‘’Investment Law n°10’’, enacted in 1991, provides a significant
contribution in that direction. By way of example, companies are
exempted of profit taxes for seven years; another measure concerns
the importation of machinery, equipment and vehicles which is tax
free as well. Under a decree dated 2000, capitals can be repatriated.
It should also be pointed out that Syria opens up to neighbouring
countries. Agreements have been signed with Jordan, Saudi Arabia,
Iraq, Egypt… There is a free trade zone project in the region in
2005.
Syria has many assets: a deep‐rooted trading culture, its
geographical position, and its tourist potential.
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A Syrian Investment Promotion Agency to be set
up soon
New measures passed at the end of 2006/ beginning of 2007 called
for the creation of an investment authority to operate under the
prime ministerʹs office. This new administrative body should be
launched in 2007. Meanwhile, an Investment Bureau will continue
to act as the main front office for facilitating FDI projects.
It is worth mentioning that the Syrian Investment Bureau
introduced a “one‐stop‐shop” service that facilitates the
administrative procedures for setting up a company. The only
formal condition to benefit from this service is for a company to
have a minimal capital of US$ 200,000.
How to invest in Syria
After thirty years (1960‐1991) of strong restrictions on private
investment (both national and foreign), followed by fifteen years of
relative opening (1991‐2006), the Syrian authorities promulgated at
the end of 2006 a new investment law which:
� Authorises the investors to repatriate the benefits on the capital
introduced into the country via Syrian banks;
� Provides for an exemption of the customs taxes on the means of
production, including the means of transport (however, the
former tax exemptions will now be part of the annual fiscal
law; depending on sectors and areas, companies could be taxed
at 14% of their benefits, vs. 28% in the ordinary regime);
� Considers the creation of an investment promotion
organisation in Syria.
This new law and its application decrees n°8 and 9 (dated January
26, 2007) are replacing and complementing the Law n°10 of 1991,
symbol of shy country opening conceded by President Hafez Al

Invest in the MEDA region, why how ?
Assad in the 90s. It is accompanied by a series of new provisions:
new customs code, law creating an open Damascus Stock Exchange
on November 1, 2006, public‐private partnerships and
multiplication of private investment opportunities, starting with
the bank and insurance sectors.
It is too early to explain all the details of the new regulations. The
law n°10 of 1991 already made investment in Syria more attractive
by offering some tax holidays, loosening restrictions on hard
currency, reducing income taxes for share‐holding companies, and
incorporating additional sectorial and regional incentives. This law
and its amendments provided for foreign ownership without limits
or control in numerous sectors.
The terms of this law applied to economic and social development
projects in the following fields: agriculture and agro‐industry,
private and joint (public‐private) industrial projects, initiatives in
the field of transport, and any other undertakings authorised by the
Council within the limits of the law. Profits remain tax‐free for five
years and companies that export over 50 percent of their
production enjoy a seven‐year tax holiday. Capital goods and
transport equipment needed for the project are exempt from
customs duty. The law was amended by decree 7, which grants
foreign investors the right to own the land where their business is
located.
Almost all sectors of the economy are open to foreign direct
investment, except for power generation and distribution, air
transport, port operations, bottling of water, telephony, and oil and
gas production and refining. Power generation and cement
factories were recently opened to private investors.
All legal forms of companies, from limited liability to holdings, are
authorised. In matters of trade, Syrian authorities have over the
past few years started to gradually open up the country, in
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particular by signing a number of free trade agreements with its
neighbours.
The Arab free trade zone (GAFTA), in force since 2005, will give
investors based in Syria tariff and customs free access to more than
14 other Arab countries. The pending EU association agreement
will provide similar access to the EU market.
A “negative” list of prohibited imports is gradually replacing
compulsory export and import licenses. The exclusive right of
commissioned agents to manage imports has come to an end.
Customs duty on imported raw materials has been reduced and the
harmonised NHS system introduced. Investors can open foreign
currency accounts at the Commercial Bank of Syria. Decree 7
allows exporters to retain 100 percent of income from exports.
Investors targeting export markets can set up operations in any of
the country’s seven free trade zones. There are free zones near the
border town of Darʹa, in Adra (north of Damascus), Aleppo,
Damascus, and at Damascus International Airport. There are also
free zones at the ports of Latakia and Tartus.
The government provides the following benefits to companies
operating in free zones: no import licensing requirement for inputs
and goods entering these zones, imports cleared with only a
manifest as documentation and for inspection purposes; all goods
entering and stored in the zones exempt from local taxes and duty;
free foreign exchange transactions; any commodity eligible for
import into Syria can be acquired from free zone manufacturing
facilities, but an import permit is required; and access to private
banks operating in free zone areas.
Regarding taxation, the tax on corporate profits is applied at
progressive rates ranging from 10 percent to 45 percent, depending
on the amount of taxable income. Shareholding companies and
industrial limited liability companies are taxed at a flat rate of 32

Invest in the MEDA region, why how ?
percent and 42 percent respectively. Foreign branches are taxed as
well as resident companies.
All imported hard currency must be deposited in an account at the
Commercial Bank of Syria, along with 75 percent of income from
exports. Restrictions on the repatriation of capital have been eased
in the framework of law n°10 and foreign investors can freely
repatriate their profits annually. Outward capital transfers and
profit remittances are currently prohibited, unless approved by the
Prime Minister or sanctioned under law 10 or a special
arrangement, as is the case for production sharing agreements
signed with oil exploration companies.
Under decree 7, the actual value of the project can be repatriated
five years after completion of the project (six months, if the project
fails due to events beyond the control of the investor). Expatriate
employees are allowed to transfer abroad 50 percent of their salary
and 100 percent of severance pay. For foreign oil companies, ʺcost
recoveryʺ for exploration and development expenditure is
governed by formulas specifically negotiated in the applicable
concession agreement.
Finance & banking in Syria
Reform of the banking environment was launched by promulgation
of legislation, new law n°23 of 2002, which redefines the role and
statute of the Central Bank and creates the Monetary and Credit
Council (CMC), in charge of monetary policy and private banking
activity. Law n°28 of April 2001 outlines reform of the banking
environment and allows for private banking.
Key provisions of the private banking law include: wholly private
or joint public‐private ownership of private banks; minimum 51
percent Syrian ownership of private banks; minimum capital of
SYP1.5 billion (approx. US$ 30 million) for private banks; 10
percent of a private bank’s subscribed capital to be deposited at the
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Central Bank as reserves. There is a 25 percent income tax on net
profits for all banking operations and private banks are banned
from engaging in commercial, industrial, and service activities
unrelated to banking.
Other recent measures such as authorisation to open a bank
account in foreign currency, the possibility of transferring foreign
currency, and falling interest rates on the money market reflect
Syria’s commitment to adopting forward‐looking monetary and
financial policy.
Syriaʹs government‐controlled banking system is made up of the
Central Bank of Syria and five specialised banks: the Commercial
Bank of Syria, the Agricultural Cooperative Bank, the Industrial
Bank, the Real Estate Bank, and the Peopleʹs Credit Bank. The
Commercial Bank had a monopoly on international transactions
until 2004, holding foreign exchange deposits outside Syria and
providing commercial banking services (including letters of credit),
while other banks were more or less limited to savings and
checking accounts and lending for non‐commercial purposes.
New private banks entered the market since 2004, in particular the
subsidiaries of banks in neighbouring countries, which had already
been working with the Syrian private sector:
� The BEMO‐Saudi‐Fransi bank is a joint‐venture between
Banque Européenne pour le Moyen‐Orient (BEMO) of Lebanon
and Banque Saudi Fransi, an affiliate of Franceʹs Crédit
Agricole‐ Banque de Syrie et dʹOutre Mer (BSOM), whose main
shareholder will be Lebanonʹs Banque du Liban et dʹOutre Mer
(BLOM) in partnership with the International Finance
Corporation.
� Bank Audi whose leading shareholder are the Lebanese Bank
Audi, Audi Saradar Investment Bank and Lebanon Invest,
Sheikh Abdallah El Rahji;

Invest in the MEDA region, why how ?
� The Arab Bank Syria with 49 percent shares by the Arab Bank
which takes Jordan as a headquarters;
� Bank Byblos Syria: the Lebanese Byblos and the OPEC fund for
international development;
� Fransabank (Lebanese), due to begin operations in 2006.
Furthermore, a 2005 decree authorises Islamic banks to operate in
the market, as long as they have minimum capital of 5 billion SYP
(US$ 100 million) instead of 1.5 billion SYP for other banks. Three
Islamic banks should be starting up operations by the end of 2006:
Al Shall (Kuwait), Dallah Al Baraka (Saudi) and Qatar International
Islamic Bank.
The opening of the financial sector has improved confidence of
economic operators and stimulated competition between banks.
Private banks have attracted many new customers and
considerable deposits; and public banks, in particular the Trade
Bank of Syria started modernising and launching new services to
develop electronic transactions (VISA, an electronic payment
network, e‐banking…).
Prospects for the sector are promising. After only two years of
activity, performance at private banks has exceeded projections,
with deposits of 100 billion SYP (US$ 2 billion).
A stock exchange commission was set up at the beginning of 2006
to draw up legislation to enable launching of the Damascus Stock
Exchange.
The insurance sector, previously monopolised by the Syrian
Insurance Company, has now been opened to private investment,
with enactment of law n°43 of June 2005 and nine companies have
been licensed to start operations. According to the law, companies
specialising in life insurance must have minimum capital of US$ 17
million, US$ 14 million for corporate general practitioners. Some
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private banks have started selling insurance products (bank
insurance).
Telecom & internet in Syria
To accelerate liberalisation of the sector, the Ministry of
Telecommunications has announced very ambitious objectives to
develop infrastructure and ICT by 2013. Investment of US$ 8 billion
over 10 years will be required.
The fixed telephony sector is managed by a public monopoly, the
Syrian Telecommunications Establishment. The STE has built an
X.25 network with more than 2.4 million fixed lines, undergoing
continuing development (finalisation of a contract with Siemens for
the development of 1.65 million new lines) but the Frame Relay
network is not yet available. It has a monopoly on internet and
international communications infrastructure.
Since promulgation of law n°11 of 1991 liberalising
telecommunication services, STE is gradually opening services to
encourage foreign investors and granting new licences. The
organisational structure of STE will be transformed into a private
limited company, while maintaining a monopoly on infrastructure.
The Syrian data‐processing company “Syrian Computer Society”
(SCP), founded in 1989, is an association grouping the majority of
private actors, in charge of promoting a computer culture and data‐
processing know‐how in Syria. It acts as a consultant for public
organisations for acquisition of equipment and introduction of new
technologies related to data processing and telecommunications.
SCS is also the second largest internet provider and the first
“private” ISP in the country.
Two private operators share the mobile telephony market: Syriatel
and Spacetel. They operate on the basis of a seven‐year BOT (Build‐
Operate‐Transfer) contract, but prices are set by STE. The number

Invest in the MEDA region, why how ?
of subscribers for pre‐paid and post‐paid services reached 1.185
million at the end of 2003 and the network grew considerably in
2004, reaching 1.8 million subscribers. A third mobile licence is
planned for 2008. STE and the Syrian Computer Society are the two
ISPs. The Best Italia Holding Company obtained a licence for
internet by satellite in January 2005.
The Syrian Ministry of Telecommunications and Technologies has
set the goal of reaching a penetration rate of 20 percent (four
million users) by 2013. Internet broadband was launched in 2005
but for the time being ADSL access in Syria is expensive. In 2004,
only 300,000 households had a computer. To increase the
computer/household ratio, the SCS launched a programme at the
end of 2004 in co‐operation with the Commercial Bank of Syria: “a
computer for all”, allowing Syrians to buy computers on credit.
Business opportunities in Syria
Syria’s economic policy has in the past been based on import‐
substitution policies meant to protect domestic industries from
foreign competition. A gradual process of opening up began in
1991, which has accelerated somewhat in recent years. Syria has
clearly taken a number of steps to improve conditions for private
investment. These measures include: simplification and reduction
of certain tariff rates starting in 2001; a cut in the standard
corporate tax rate on private companies to 25 percent in 2003; a
2001 banking sector law allowing private operators on the market,
with four banks starting operations in 2004; and substantial
investment in electric power generation. Thus, there are numerous
business and investment opportunities, particularly in
infrastructure, finance, and tourism.
The countryʹs transport infrastructure needs to be developed,
upgraded, and modernised. According to the 2006‐2010 five‐year
plan, Syria should invest the equivalent of US$ 523 million for
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development of its eastern regions over the next five years, nearly
LBP17 billion (US$ 323 million) in investments in the Hassake area
and LBP10.2 billion in the region of Deir Al‐Zor area.
New oil refineries and an industrial park are also planned. The
purpose of these investments is to make eastern Syria a platform
for development towards Turkey and Iraq. Eastern Syria is indeed
a strategic location for the country, playing a major economic role
(oil, corn and cotton, major hydraulic resources thanks to the
Euphrates, Khabour and the Tigris).
The highway network will double over the next five years, from
1100 km to 2300 km. Syria wants to capitalise on its geographic
location to become a gateway for transit between the
Mediterranean and Iraq and between Turkey and the Gulf
countries. The Ministry of Transport hopes to attract foreign
investors by proposing concession contracts in the form of BOT.
Other infrastructure development projects include modernisation
of the ports of Lattakia and Tartous, the latter being the largest
commercial port, enjoying an impressive increase in traffic thanks
to growth of trade with Iraq. In addition, in this sector, the Ministry
of Transport will grant private concessions for the management of
part of the terminal in the form of a BOT contract.
The country’s five airports (Qamishli, Lattakia, Deir‐ez‐Zor,
Aleppo, Homs) will be modernised and extended. As for the
railway network, the objective is to set up express lines, such as
Damascus‐Aleppo route, which will make it possible to get
between these two major Syrian cities in less than two hours.
The services sector also offers many investment opportunities.
Ongoing reforms, in particular in the financial sector, reflect the
commitment of Syrian authorities to carry out a vast modernisation
programme and a new legal framework for privatisation that will
ease market access.

Invest in the MEDA region, why how ?
The banking and insurance sectors have been opened to private
and foreign operators. In information technologies, the country’s
telecom and internet grids will be extended and new operators, in
particular on the web, are expected to propose new services and
content.
Tourism is one of the most dynamic activities in the country. The
government has adopted a new vision for tourism, with plans to
make it a pillar of the national economy. Acquired skills should
make it possible to advance to a new stage of development, with
new hotels and leisure equipment that meet demand for elitist,
cultural tourism. The country’s middle‐level hotel infrastructure is
insufficient and in any case outdated and there is not much in the
way of leisure facilities, aside from services offered at luxury
hotels)
Following the Tourism Investment Market Forum held in April
2005 at which the Ministry of Tourism proposed 33 project ideas to
foreign investors, 13 initiatives were contracted, worth US$ 600
billion and for the first time hotel management companies were
authorised to enter Syria: Intercontinental, Holiday Inn, Royal,
Accor and Soys Inn. At the 2006 Forum the government is offering
investment opportunities in 43 projects located in 12 governorates.
A number of projects initiated several years ago by the private
sector (such as the Damascus International Airport and coastal
roads) are not yet finished. Old cities (especially in Aleppo and
Damascus) attract a growing number of national and international
investors, who buy and restore old homes for their own use or to
open boutique hotels and restaurants. Opportunities in the tourist
sector include:
� Infrastructure: desalination of seawater, water purification,
installation of electricity, telecommunications, transport;
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� Tourist products such as leisure equipment, entertainment and
sporting activities, seaside resorts, spa therapy, museums,
sound and light shows, consulting;
� Products: construction, management, consulting, software;
� Training: partnership with the Training Centre for Tourism and
Hotel, upgrading of existing schools, creation of an institute of
gastronomy;
� Promotion: communications, marketing, board of trustees;
� Financial investments: hotels, resorts, leisure clubs and parks,
development of cultural sites, festivals.
Business opportunities also exist in agriculture and manufacturing.
Syria has developed expertise and know‐how in agriculture,
notably in cotton and olive tree production, but also greenhouse
fruit and vegetable crops are developed, requiring new equipment,
packaging technologies transfer, etc. Downstream, food processing
industries, largely under public control, need to be progressively
opened to new actors. In industry, aside from a few large oil
facilities, there are dynamic small and medium industries, notably
textile factories, pharmaceutical subcontracting firms and
mechanical assembly firms.
Success story: the Spanish company Aceites del
Sur has faith in the Syrian olive oil
Aceites del Sur, one of the main Spanish groups in the olive oil
sector, has started operating in Syria in May 2003. The Spanish
company already exports to more than 65 countries in the world,
especially to the Americas and to Russia. For several years it has
been managing a regional office in Aleph (north of Syria), and it
has decided to cross the threshold of delocalisation to be active in
the whole region.

Invest in the MEDA region, why how ?
The new company, called Middle East Olive Oil Company (MEO),
is a joint‐venture with the Bin Ladin Saudi conglomerate. Its plant
is installed in the city of Idlib, in the north‐west of the country, in
the olive groves region, on a site that covers more than 50,000m².
Each day, it can extract 120,000 litres, produce 100,000 litres of
refined oil, and bottle 150,000 litres. MEO employs 60 people, and it
is the only company that covers the whole olive oil sector in Syria.
It is indeed too early to draw a conclusion about this investment,
but MEO intends to grow rapidly on the local market, in a first
phase, before targeting other markets of the region. It relies on two
essential factors: the fact that Syria is among the five major olive
producers in the world, and intends to become the leader thanks to
a ‘’live tree park’’ in excess of 80 million trees, and on the setting up
of the Arab Free Trade Zone which will eliminate the custom
barriers between the countries of the region.
300

Tunisia
Overview
References
Capital Tunis
Surface area 162 155 km2
Population 10,175,014 inhabitants
Languages Arabic, French, English, Italian
GNP (dollars) US$ 31,9 bn (2005)
GNP/per capita US$ 3,148 (8,600 in ppp.) in 2005
Religion Muslims (98%), Christians, Jews and
others (2%)
National holiday 20th March (independence in 1956)
Currency (March 2007) Tunisian Dinar (TND)
1 EUR=1.76 TND – 1US$ =1.31 TND
Association agreement
with EU
301
Signed on; 17 July 1995, implemented
since March1998.
EU web site:
http://www.ce.intl.tn/
WTO membership Member since 1995
Sources: IMF, WDI 2006 and Consultations Article VI 2005, January
2005
Economic profile
With its temperate climate, proximity to Europe, socio‐political
stability, and a fairly skilled labour force, Tunisia enjoys significant
comparative advantages. Having opted early on for a market
economy and progressive integration in the world economy, the
country’s economic policy has succeeded in boosting private sector
involvement, diversifying its industrial base, and containing the

Invest in the MEDA region, why how ?
social cost of structural adjustment, a pre‐condition for political and
social stability.
Tunisia was the first country (in 1995) to sign the free trade
agreement with the European Union in the framework of the
Euromed initiative. Between 1992 and 2004, Tunisia’s GDP rose by
an average 4.1 percent, reaching a record 5.8 percent in 2004. The
2005 performance was for the most part positive (4.2 percent of
GDP), despite tougher international competition and rising oil
prices, sustained by favourable growth in service activities such as
tourism (6.4 million tourists, TND2.563 million, some 12.5 percent
of current revenues), air transport, telecommunications, and new
technologies. For 2006, the latest estimates forecast GDP growth of
4.6 percent.
The manufacturing sector, in particular textile/clothing industries,
has been the spearhead of Tunisia’s economic development since
1972, stimulated by a policy of foreign investment promotion and
exports. 42 percent of overall manufacturing output is exported,
thanks in particular to subcontracting activities. Manufacturing
industries account for 20 percent of GDP and employ 20.5 percent
of the labour force, whereas agriculture and fishing contribute for
14.3 percent of GDP and provide 22 percent of jobs and tourism
generates 15.6 percent of GDP. The country counts more than
10,000 industrial companies.
A structural adjustment or ʺupgradingʺ programme has been
introduced to improve the competitiveness of the manufacturing
sector and related service companies in order to prepare companies
for implementation of the free trade zone with the EU. In parallel, a
strategy of export promotion was launched to strengthen export
capacity at the company level. One component of this strategy is
the institution of a documentation called the “single bundle” (liasse
unique) for imports and exports. As early as 1989 the Government
also set up a legislative framework for privatisation. There have
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been several reforms of the financial system, targeting sounder
finances at banks and insurance companies and diversifying the
range of financial products available to economic operators.
Thanks to a prudent monetary policy at the Central Bank of Tunisia
(BCT), the inflation rate has fallen from 6.3 percent in 1995 to about
2 percent today. The Tunisian Dinar (TD) is convertible for current
operations and a foreign exchange market was created recently, the
objective being to reach total convertibility of the Dinar over the
long term. Tunisia’s total national debt is projected at
approximately US$ 16.3 billion for 2005 (57.6 percent of GDP) and
its foreign debt is estimated at US$ 15.7 billion (54.9 percent).
As a result of its trade liberalisation policy, Tunisia has enjoyed
dynamic exports, a narrowing of the trade deficit, and
diversification of its export base. In 2005, the volume of trade
reached TD 31 billion (EUR19 billion), despite difficult
international economic conditions: an end to the multifibre
agreement, soaring oil prices, and an economic downturn in
Europe. The coverage rate of imports by exports increased from
69.6 percent in 2001 to 79.6 percent in 2005.
Still, the trade deficit remains high, at 9.3 percent of GDP (vs. 14.5
percent in 2001), but this is partially offset by surpluses in services,
factor income and transfers.
Tunisian trade is conducted to a large degree with the EU: nearly
70 percent of Tunisian imports come from the EU, which is the
destination for 80 percent of the country’s exports.
The country’s main exports are clothing, textiles, leather, and
footwear (almost half of total), electrical equipment for the
automotive industry, chemical products (mainly phosphate
fertilizer), and fuel (fuel oil). Imports are more diversified and
include textiles (generally used to make clothing), agricultural
products (especially cereals and other food products), and
industrial goods. The high degree of foreign inputs in domestically

Invest in the MEDA region, why how ?
produced goods is because raw materials and semi‐finished
products account for nearly 30 percent of imports. Most of Tunisiaʹs
trade, especially its export trade, is with the EU. Nearly 70 percent
of Tunisian imports come from the EU, which also absorbs 80
percent of its exports. In 2005, Tunisian imports from EU countries
cost EUR 7.32 billion, with the EU’s market share falling from 71.6
percent in 2001 to 69 percent in 2005. Tunisian exports to the EU
earned EUR 6.75 billion. France alone supplied over 27 percent of
total imports (26 percent in 1995), accounting for one third of the
export market. Italy and to a lesser extent Germany are the
country’s other main trading partners.
Tunisia is traditionally a net exporter of services. Tourism accounts
for more than half of foreign exchange earnings from non‐factor
services, TD 2.564 billion in 2005. Remittances from Tunisian
workers living abroad have increased steadily and now rank just
behind earnings from tourism (TD1.783 million).
At the end of 2005, more than 2700 foreign companies or joint
ventures were operating in Tunisia, employing nearly 260,000
people, 72 percent of these companies being export‐oriented (i.e.
exporting their entire production). FDI accounts for 10 percent of
productive investments and generates one third of total exports
and a sixth of employment. From 1990 to 2005, foreign direct
investment (FDI) rose from TD 78 million to approximately TD
1.016 billion (2.7 percent of GDP). More than 32 percent of the sums
involved have been invested in manufacturing, 38 percent in the
energy industry, 22.4 percent in services including 2.8 percent in
tourism and property, and 1.3 percent in agricultural activities.
Overall, FDI comes mainly from the European Union, but also from
the United States and the Middle East.
Tunisia was the first MEDA country to sign the Association
Agreement with the EU, in the framework of the Barcelona process.
This was concluded on 17 July 1995 and came into effect on March
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1st, 1998, but tariff dismantling began early in Tunisia, on 1 January
1996. The agreement stipulates reciprocal liberalisation of trade in
goods by 2008.
The Agreement provides for duty‐free trade for the majority of
industrial products 12 years after its entry into force. Customs duty
for list 1 (capital equipment and inputs) was dismantled in 1996.
Products on list 2 (raw materials and intermediary products not
produced locally) have been entering duty‐free since 2001. Lists 3
and 4 consist of locally manufactured goods. List 3 comprises
products considered able to face up to outside competition, with
protection removed over a 12‐year transition period (1996‐2007),
with duty‐free status by 2008. List 4 also concerns industrial
products manufactured locally, but for these items, tariffs will be
reduced over an 8‐year period (2000‐2007), following a 4‐year
transition period (1996‐1999), with duty‐free status by 2008. The
Agreement also envisages the progressive liberalisation of certain
agricultural and fishing products. Preferential tariffs for
agricultural and fishery products originating in Tunisia, in
particular olive oil, meat, roses, cut flowers, spices, fruit and
vegetables (the latter only at specific periods of the year), canned
fruits and vegetables, wine, and processed fish and shellfish.
In 2000, further negotiations led to signature of a new five‐year
agricultural protocol, with an implementation beginning in January
2001. This provided better access for Tunisian products, including
an increase in quotas, particularly for olive oil (up to 56,000 tonnes
in 2005); an extension of market access periods; and introduction of
a number of new products. For its part, Tunisia granted
preferential tariff quotas to the EU for cereals and sugar for the first
time. On the agenda for 2006 is the renegotiation of the agricultural
protocol and the launch of negotiations on the right of
establishment for companies and the liberalisation of services.

Invest in the MEDA region, why how ?
Tunisia is a founding member of WTO, a member of the Arab
Maghreb Union that also includes Libya, Algeria, Morocco, and
Mauritania, and a member of the League of Arab States.
It is also a signatory of: the Arab‐Mediterranean free trade
agreement with Morocco, Egypt and Jordan (the Agadir
Agreement) dated 25 February 2004; a free trade agreement with
Turkey dated 25 November 2004 and in force since July 2005; and a
free trade agreement with the European Free Trade Association
(EFTA) dated 17 December 2004. As regards investment protection,
Tunisia adheres to many international conventions, the Multilateral
Agency for the Guarantee of Investments (MIGA) and the
International Centre for the Settlement of Investment Disputes
(ICSID). It has signed bilateral agreements concerning investment
protection and elimination of double taxation with the majority of
OECD countries as well as bilateral agreements guaranteeing
mutual investment protection with about fifty countries.
Tunisia has already laid down guidelines for the development and
consolidation of a knowledge‐based economy by focusing on four
complementary and interdependent elements: education and
training, research & development, information and communication
technologies, and innovation and organisational systems.
Substantial progress has been made in these areas, particularly in
upgrading human resources, creating technology centres,
intensifying scientific research, diversifying specialisation at the
level of higher education, and strengthening infrastructure,
especially in the information and telecommunications technology
sector.
Medium‐term prospects are promising. According to the IMF, solid
growth in real GDP should accelerate in 2006 (+ 1 billion USD
foreseen) on the strength of agricultural recovery and higher
industrial production and construction activity. Inflation has been
successfully kept down. External balances have improved despite
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fallout from phasing out of the multifibre agreement (which has
been limited so far), rising oil prices on international markets and
sluggish demand on the European market. International reserves
continue to grow, corresponding to 3.5 months of imports of goods
and services.
Tunisia has committed to a vast privatisation programme, with
transactions giving a positive signal to the private sector and
contributing to a better image of the country as an investment site,
attracting more foreign investors.
Almost 200 public companies had been privatised as of the end of
2005, generating receipts of TD 2.5 billion (almost EUR1.5 billion at
the exchange rate in effect at that time). Nearly 73 percent of this
revenue comes from foreign investment, with FDI inflows
amounting to nearly 15 percent of overall foreign direct investment
in Tunisia at the end of 2005. 2005 inflows were estimated at TD
146 million (EUR90 million), with two operations accounting for 77
percent of this total: privatisation of the “Bank of the South” to the
Wafa Bank/Banco Santander consortium for TD 98 million and sale
of the SOTACIB cement factory to the Spanish Grupo Prasa for TD
14.5 million.
At the beginning of 2006, 35 percent of Tunisia Telecom capital was
sold to TeCom Dig (Dubai), generating TD 3.050 billion in income,
more than the cumulative total of revenue from privatisation since
1987.
Country risk
Overall, ratings by the main agencies improved, thanks to the
country’s sound finances, guaranteeing access to international
capital markets.
� R&I (ex‐JBRI): BBB+ in 2005 with BBB+ positive prospects since
February 2006.

Invest in the MEDA region, why how ?
� Fitch IBCA: BBB (AAA is the best rating and D the worst, on a
scale of 1 to 34).
� Moodyʹs: Baa2 (Aaa is the best rating and C the worst, on a
scale of 1 to 27).
� Standard & Poorʹ S: BBB (AAA is the best rating and D the
worst, on a scale of 1 to 18).
� Coface: A4 (A1 is the best rating and D the worst, on a scale of
1 to 7).
Key challenges
Exogenous factors such as the European demand and the climatic
risks strongly determine the trend of the growth.
An increased effort of investment and modernisation of the
companies is essential to improve competitiveness of the Tunisian
products, in particular in the textile sector.
The situation of the banking system remains fragile and reduces the
access to credit for the companies.
Tunisia does not have many natural resources and is dependent on
imports for its energy needs and thus on the world levels on oil.
Unemployment reaches 14.2% of the working population. It is
accentuated by the arrival of many young graduates on the market.
The principal challenge is to increase the current annual economic
growth from at least 1‐1.5% before 2010 in order to reduce the
unemployment that the graduates are more and more facing.
Strong points
The implementation of economic reforms attracts foreign investors.
This policy is facilitated by the support of the European Union and
of the international community.
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The solvency of the country favours its access to the international
capital markets.
The increasing diversification of the economy reinforces its
resistance to the global economic situation.
Tunisia enjoys a strategic position in the Mediterranean. Tunis is at
2 hours flight in average from the main European capital cities.
A developed social system and an ambitious education policy aim
at attenuating the social cost of the adjustment and at reinforcing
the modernisation of the country.
Tunisia has a qualified, productive work force and competitive
wages. Thanks to the reforms of the education, the new graduated
arriving on the labour market represent more than half of the
additional needs planned for the period 2002‐2006.
In addition, the Finance law 2007 as well as measures in favour of
technological innovation and economic competitiveness should
create a very favourable environment for SMEs.
The government has indeed set the target of creating 70 000
companies by 2009. Two tools in particular were created at the end
of 2006: the Bank of financing for small and medium companies
(BFPME), aimed at focusing on innovative projects; and the
Tunisian Company of guarantee (SOTUGAR) to secure the
investors and guarantee the profitability of the projects.
Tunisia’s innovation policy deals with:
� Institutional and legal reforms: Revisions and introduction of
laws concerning the legal framework of the technopoles; the
intellectual property and the patent procedures.
� The reinforcement of the coordination between the various
players in research & development.
� The development of the necessary competences and human
resources.

Invest in the MEDA region, why how ?
� The mobilisation of financial resources to promote
technological innovation.
The Foreign Investment Promotion Agency
(FIPA)
The FIPA was created in 1995 under the umbrella of the Ministry
for Development and international co‐operation. The agency
employs 70 people and has a network of 5 offices located abroad in
Brussels, London, Cologne, Milan and Paris. The role of the agency
is to promote Tunisia as a site for investments, to help the foreign
investors to settle in Tunisia and to propose measures to improve
the investment environment.
For the implementation of its mission, FIPA employs international
consultants to make comparative studies on the factors of
localisation and the production costs of several products in Tunisia,
in order to provide the investors with a neutral vision and
benchmark of the Tunisian competitiveness and attractiveness.
FIPA also provides the investors with several documents and
promotional supports offering useful information on the economy,
the cost factors, the infrastructures and the incentives programmes.
Web Site: http://www.investintunisia.com/
How to invest in Tunisia
Tunisia set up an attractive legal framework for foreign investment
back in the seventies (including, notably, creation of offshore
companies), strengthened in 1993 by creation of the Investment
Incentives Code (CII). The Code guarantees freedom of investment
for foreigners to set up, expand, update, or transform activities.
Direct investment in most manufacturing industries as well as in
certain service activities is eligible for the incentives outlined in the
CII. Non‐eligible manufacturing industries include, for example, oil
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refining and certain other activities are subject to prior
authorisation or specific conditions. Service activities covered by
the CII (unless they export their entire production) are also subject
to prior authorisation from the CSI when foreign holdings exceed
50 percent of company capital.
The CII distinguishes ʺwholly exportingʺ enterprises (at least 70
percent of turnover coming from exports) from ʺpartially
exportingʺ enterprises. The increasing importance of exports in the
mid‐80s led to further development of this regime, giving rise in
1992 to the concept of ʺfree economic zoneʺ and then ʺeconomic
activity parkʺ, which is in fact an industrial estate.
The CII provides for both common and specific benefits. Common
benefits consist mainly of tax exemptions, including deduction of
invested funds from taxable profits, up to a ceiling amounting to 35
percent of the latter; a reducing‐balance depreciation regime; and
exemption from customs duties and taxation at a reduced VAT rate
of 10 percent on material essential to the company. Specific benefits
are set in accordance with horizontal objectives such as export
promotion, regional and agricultural development and the
promotion of technology.
Specific advantages such as exemption from corporate tax for 10
years and 50 percent reduction of taxable income starting from the
11th year for an unlimited period of time, exemption from
registration fees, total exemption from tax on capital equipment
including means of transport, raw materials, semi‐manufactured
goods and services necessary to the activity are granted to export
oriented companies. It should be noted that the rate of income tax
for any company passed from 35% to 30% at the end of 2006.
Foreigners can acquire up to 100 percent of capital in a Tunisian
company without any prior authorisation. However, certain service
activities (banking, insurance, investment companies, stock brokers
and forwarding agents, transport and port activities…) other than

Invest in the MEDA region, why how ?
wholly exporting businesses are subject to approval when foreign
holdings exceed 50 percent of capital, but Tunisia has committed to
eliminating this restriction in the framework of Structural
Adjustment Facility IV by 2006‐2007.
Furthermore, the exercise of commercial activity by a foreigner
requires a commercial license, issued by the Ministry of Trade. This
is the case notably for wholesale distribution, retail trade, and the
restaurant trade. However, foreigners can establish international
trading companies (SCI) working in import and export, provided
that at least 70 percent of the SCI’s annual turnover is generated by
exports. Certain independent professions, such as lawyers,
accountants, and architects can be exercised solely by Tunisian
nationals. Certain service activities such as sales representative,
broker, salespersons, and agents are also limited to Tunisians,
unless an exception is made by the Ministry of Trade.
Specific financial and tax incentives are provided by the CII for
investment in “regional development zones” and “priority regional
development zones”.
They include, among other things, total exemption from tax on
income or profits for the first ten years after the actual start up of
production and 50 percent exemption over the following ten‐year
period. Financial benefits include a subsidy equal to 15 percent of
the overall cost of investment, up to a ceiling of TD 450,000‐700,000
for projects in regional development zones.
Formalities for setting up a company can be accomplished at the
“one stop shop” run by the Industrial Promotion Agency (API) in
Tunis, Sousse and Sfax. A limited company can be set up in three
days on average. With the finance law 2007, new tax incentives
were introduced for transferring companies. These provisions also
concern on the take over of companies facing economic difficulties.
Provided that the new owner keeps the activity and maintains the
jobs, these operations are tax free. The law also allows the
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companies that have been sold to continue benefiting from the
incentives allocated to foreign investors.
For transfer of capital, companies investing in Tunisia are free to
repatriate profits as well as any foreign currency brought into
Tunisia. Interest, dividends, and profits earned by non‐resident
investors are tax‐free and can be repatriated without any
restrictions. Beside this, the 2007 Finance Law provides decisions
towards non resident people owning over 50 percent of a Tunisian
company. They can now freely manage the accounts of these
companies and contract short‐term loans, in Tunisian Dinars or
foreign currencies.
Tunisia has two kinds of economic activity zones. Exporting
companies have the advantage of a tax system similar to that
applied to free trade zones as well as an access to the one‐stop shop
that facilitates setting up a business, and also addresses
construction issues and public utilities, etc.
Imports are free for a large majority of products, handled by means
of a foreign trade certificate domiciled with the bank responsible
for implementing financial regulations. A foreign trade certificate is
valid for six months. Imports by “totally exporting companies” and
companies in free trade zones are not subject to foreign trade
formalities.
Finance & banking in Tunisia
Significant measures have been taken to consolidate and modernise
the banking environment and to improve the diversification of the
financing sources. Privatisation of the banking environment has
been accelerated, the legal and regulatory framework modernised
by introducing universal banking and the alignment to
international prudential standards. The action plan targets
enhanced banking operations by consolidating the financial base,
strengthening prudential and supervisory regulations, and

Invest in the MEDA region, why how ?
modernising the management methods to improve the quality of
services.
The banking environment includes the Central Bank, 20 trade and
development banks, two investment banks, eight offshore banks,
nine offices representing foreign banks, and specialised financial
institutions such as two factoring companies and 11 leasing
companies. Interest rates are freely set.
Banking legislation has strengthened prudential rules and the
solvency ratio. The commitment/capital equity rate is 8 percent, in
accordance with Basle II international norms. The latest reforms
have introduced the concept of universal banking and
implemented an electronic clearing system for transactions,
implemented a scheme to guarantee deposits and loans as well as
made considerable progress in introducing electronic money.
The sector is being opened to foreign partnerships and the
government sold its 52 percent stake in the Union Internationale de
Banque (UIB) to the French Société Générale while privatising the
Banque du Sud.
The money market has undergone major transformation in both
structure and products. It is managed by a private entity and the
monetary market council regulates the sector and monitors
operations.
Quotation on the stock exchange is handled by an electronic system
and there are 46 companies currently listed on the Tunis Stock
Exchange. Acquisition by foreigners of shares in companies listed
on the stock exchange does not require an authorisation if no more
than 50 percent of capital is acquired. Foreign investors hold 21
percent of market capitalisation.
Close‐ended (SICAF) and variable (SICAV) investment companies
and private capital venture funds (SICAR) have multiplied,
numbering 158 at the end of 2002.
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The Tunisian Dinar is convertible for current operations since 1994
and the foreign exchange market handles buying and selling of
foreign currency.
Transfers relating to capital income (profits, remuneration of
founders’ shares, dividends, percentages and attendance fees,
interest on loans), transfers relating to commercial deals and
related operations, and transfers relating to production operations
and real net proceeds from the sale or liquidation of capital funded
by means of imported hard currency, are free.
Market capitalisation amounted to TD 3.840 billion in 2005, with 46
listed companies.
The BVMT Index (base 465.77 on 31 March 1998) hit 1142.46 points
(974.82 in 2004) and the TUNINDEX index (base 1000 on 31
December 1997) rose to 1615.12 points (1331.82 points in 2004). The
liquidity ratio was 55 percent.
The programme for implementation of an alternative money
market on the Tunis Stock Exchange began on 1 March 2006. This
initiative aims at facilitating access by industrial SMEs to the
money market so they can diversify their sources of financing.
Companies that want to be listed on this new market (which will
have simplified admission criteria) can take advantage of expert
advice to prepare for quotation on the stock exchange. Initial
quotation should take place by the 1 st of March 2007.
Telecom & internet in Tunisia
Telecommunications infrastructure is highly developed in Tunisia.
The telecommunications network counted some 7 million
subscribers in 2005, including 5.7 million mobile subscribers.
Approximately 9.4 percent of the population had access to internet
in 2005, with nearly a million subscribers. The communication and
information technologies sector posted high growth of about 21

Invest in the MEDA region, why how ?
percent. The Tunisian Government in 1999 set the goal of providing
all Tunisians with access to high‐level telecommunications services
in terms of quality and cost.
The 10th Economic and Social Development Plan (2002‐06) has
scheduled TD 2.8 billion in investment in telecommunications. The
principal measures relating to modernisation and development of
ICT infrastructure are the improvement of phone network coverage
and quality, higher internet network capacity, better networks to
exchange data between users (educational, commercial). A whole
set of actions and measures were adopted in the data‐processing
sector, relating in particular to electronic administration, support
for the private sector to invest in the field of data processing,
promotion of the national software industry, and diffusion of
electronic culture on a large scale.
In parallel, Tunisia started opening the sector to competition, in line
with GATS commitments and in preparation for future
negotiations with the WTO.
Several important actions were undertaken to update the legal
framework and adapt it to the reference document annexed to
protocol IV on basic telecommunications, in particular adoption of
a new communications code and establishment of an independent
regulatory agency.
The traditional operator, Tunisia Telecom, is the sole supplier of
most basic services (fixed telephony, telex, fixed satellites and
rented lines). 35 percent of capital at Tunisia Telecom was sold at
the end of 2005 to TeCom Dig (Dubai) for TD 3.05 billion, more
than the cumulative total of revenue from privatisation since 1987.
Two operators share the cellular telephony market: Tunisia
Telecom (Tunicell) and the Egyptian company Orascom Telecom
Tunisia (OTT), which acquired its licence at a cost of TD 680
million. According to authorities, OTT had more than one million
subscribers in 2005, with turnover of approximately TD 375 million.
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The Tunisian Internet Agency (ATI) manages the internet network
at the national level. There are twelve providers (ISP) in all, seven
public and five private, and 281 public access “Publinet” facilities.
Connection to ADSL has been available since May 2002 but growth
has been slow because of cost, considered to be too high.
Call centre export of services has enjoyed major development over
the past few years. There are currently seven foreign call centres
employing 1,100 people, six of which are totally exporting
companies. According to official sources, “new relatively
advantageous technical and financial conditions for the acquisition
of powerful telephone systems, meant to attract foreigners (even if
they are not specific to call centres) explain to a great extent their
development in Tunisia”. Technical factors specific to Tunisia
include the ready availability of skilled staff, fluency in French, and
favourable labour costs compared to other countries.
Business & investment opportunities in Tunisia
The prospects for major upgrading of Tunisia’s manufacturing
sector are good, thanks in particular to the upgrading programme.
Maintaining exports will depend on the capacity of Tunisian
companies to specialise in activities that can compete in the new
context of free trade with the European Union.
Tunisia decided in the second half of the Nineties to modernise its
industrial fabric. In conjunction with the Association Agreement,
the EU is assisting the Tunisian governmentʹs upgrading
programme (Mise à Niveau) to enhance the productivity of Tunisian
businesses. The programme was relayed in 2003 by the industrial
modernisation programme, which aims to support the industrial
modernisation process in order to boost the economy and prepare
SMEs to compete in the global marketplace.
Goals are to develop company competitiveness through technical
assistance (coaching and quality), to diversify Tunisian industry by

Invest in the MEDA region, why how ?
encouraging the establishment of new businesses, and to improve
the business environment. The industrial modernisation
programme is implemented by the Ministry of Industry, Energy
and Small Businesses, which has formed a special management
unit for this purpose: the UGPMI. Coordination is handled by a
national officer, who represents the Ministry of Industry, Energy
and Small Businesses within the Programme.
The Tunisian government provides financial support to Tunisian
SMEs in an amount corresponding to 70 percent of intangible
investments. There are opportunities for consulting companies
specialised in organisation, training, quality, certification,
standardisation, production methods and management of
innovation.
In terms of sectorial opportunities, Tunisia has comparative
advantages in various sectors, identified by strategic studies. In the
following sectors, certain branches or niches of activity are
considered of particular interest, with great potential:
� Food products: prepared and partially prepared dishes,
tomato‐based products, semi‐conserved food,
dried/dehydrated/freeze‐dried items, cheese, deep‐frozen
products, ice cream, preparation and processing of wine,
modern olive oil plants, olive oil packaging, date packaging,
organic dates, a unit to process seafood left over after sorting
by size, a unit to produce dried tomatoes, organic jams, fresh
and stuffed pasta, setting up of grain storage silos.
� Building materials: single‐layer mosaic tiles, granite block
processing, automated brickworks, semi‐automatic tile
manufacturing, a unit to manufacture high‐performance
insulated windows, a unit to produce laminated glass (flat or
curved) using the vacuum process, an automated unit for the
manufacture of footed glassware (blowing process) in sodo‐
calcic glass, a semi‐automated line for the manufacture of table
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glassware by pressing or centrifuging, a semi‐automatic
manufacturing line for high quality crystal glass, plans for a
shop to process flat glass for decorative purposes, a unit for
decorating hollow glass.
� Metal and mechanical industries: setting up of a Tunisian pole
for metalwork, a unit to study and produce isothermal
bodywork for large commercial vehicles, modernisation and
transformation of an existing foundry, a foundry for low
melting point non ferrous material, automated, with gravity
flow (alloy foundry).
� Car parts: cable harnesses, ringed tubes for cable harnesses,
exhaust systems, brake plates, moulds, clutch fittings, electrical
cables, interior equipment, rubber parts.
� Electrical, electronic and household appliance industries:
networks, security and safeguarding, intranet and electronic
commerce, advanced management and corporate information
systems, wiring of cards in small series, meters, over moulding
for electrical parts.
� Chemical industries: technical injection plant, extrusion of large
sections or tubes, blowing of hollow bodies, manufacture of
plastic sections, shaping of plastic sections, moulds, extrusion,
rotocasting, large thermal‐moulded items, composites,
concentrated liquid detergent in flexible pouches, concentrated
detergent bleach, fabric softener.
� Textiles and clothing: gabardine fabric, denim fabric, pants
fabric, shirt fabric, work clothes fabric, chain and weft fabric
finishing, dress pants, jeans, shirts, bras, men’s ready‐to‐wear
clothing, mesh clothing and finishing.
� Leather and footwear industries: dress shoes, safety shoes, a
unit for the manufacture of small leather goods, a unit for the
manufacture of handbags.

Invest in the MEDA region, why how ?
� Other manufacturing products: seats, office furniture, interior
furniture, modular interior furniture, digital printing (ʺQUICK
PRINT SHOPʺ) companies, cleaning/sorting/filing/baling of old
paper and cardboard, a factory to turn recycled paper into
corrugated material (corrugation and test liner) to manufacture
corrugated cardboard.
For more information on project opportunities, see the very helpful
website of the Industrial Promotion Agency (API):
www.tunisieindustrie.nat.tn/guide
In the tourism sector, a vast hotel modernisation project to be
carried out over seven years was launched in 2004, with financing
needs estimated at TD 1.5 billion. International donors (TD 50
million from the Islamic Development Bank, FADES) are expected
to contribute to this programme. Business opportunities are also
available in the second phase of work, involving equipment and
training. Regarding tourism infrastructure, many projects are in the
pipeline (marinas, yacht clubs), likely to interest foreign investors,
in particular management of marinas (coastal traffic, town
navigation, adaptation of structures to meet customer demands).
Technological partnership, privatisation and concessions are being
sought to implement major projects. The privatisation agenda for
2006 included seven industrial and nine service companies. More
information is available at:
http://www.privatisation.gov.tn/www/fr/home.asp
Privatisation of the Tunisian Automotive Industries Company
(STIA) is on the agenda. Created in 1961 and specialised in the
assembly of buses, coaches and industrial vehicles, the company
has two production sites. 99.98 percent of capital will be yielded in
block and UBCI (owned by BNP‐Paribas) will act as consultant for
the Tunisian State.
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Other privatisation operations include: sale of 35 percent of capital
in the National Oil Distribution Company (SNDP), transfer of all
public holdings (51.59 percent) in the Tunisian Tire Industries
Company (STIP), and transfer of the lime manufacturing unit of the
Tunisian Lime Company (S.T.Chaux). A strategic partner is being
sought for capital increase at the Tunisian Insurance and
Reinsurance Company (STAR).
In addition, and in the framework of its privatisation strategy,
Tunisia is moving increasingly towards private sector involvement
in carrying out infrastructure projects in order to mobilise private
investment and foreign direct investment in the sector and to
facilitate economic integration on world markets.
Telecommunications (35% of Tunisia Telecom operator have been
sold in 2006 to TeCom Dig from Dubai), electricity and gas (87,5%
of SITEL ‐ Société Industrielle Tunisienne dʹElectricité ‐ sold to a
Gulf consortium in 2000), drinking water and sewage/sanitation
(47,5% of SOSTEM ‐Société des Stations Thermales et des Eaux
Minérales‐ sold to a Tunisian company in 2002) are sectors
recognised as worthy of foreign or Tunisian private/public
partnerships. Initial results of a study on the construction under a
concession arrangement of a deep‐water port (17 m with draught)
to handle containers, semi‐trailers, and mobile cases were
presented in January 2006.
The port and supporting logistic activities will be located north of
Enfidha, 100 km south of Tunis. Initial financial negotiations
project investment ranging from EUR 600 to 785 million for phase 1
and from EUR 1100 to 1335 million by phase 3. Complementary
studies will be undertaken shortly to launch the call for tenders at
the end of 2006.
The Office of the Merchant Marine and Port Authority (OMMP) has
just issued invitations to tender for three large‐scale concessions for
the construction and operation under a BOT arrangement of a

Invest in the MEDA region, why how ?
container terminal at the port of Rades and construction/operation
of a logistic zone, also at the port of Rades.
A national invitation was issued to tender for the construction and
operation under a BOT arrangement of a terminal for cruise ships
at the port of La Goulette.
More information on these invitations to tender is available on the
OMMP website: www.ommp.nat.tn
At the end of 2005, a pre‐qualification tender was launched for the
construction and operation of an oil refinery at the Skhira oil
terminal, under a 30‐year BOO (Build Operate Own) arrangement.
Refining capacity would be 120,000 to 140,000 barrels per day and
investment is estimated at between 1 and 1.2 billion Euros. The
other main concessions involve:
� The National Water Exploitation and Distribution Company
(SONEDE): Operation under concession of a desalination unit
in Jerba. Selection of an investment bank and launching of an
international tender are planned for the fourth quarter of 2006.
� The technical‐economic study has been finalised concerning a
concession for the Tunis‐South purification station at El Allef.
The invitation to tender is planned for the third quarter of 2006.
� A concession for work at the Olympic Sports Complex in Rades
will be the object of an invitation to tender to be launched the
second quarter of 2006.
� A study on tapping private sector involvement for investment
and exploitation in the field of solid waste disposal in Tunisia
(Public Private Partnership) is at the stage of selecting an
engineering agency.
� The invitation to tender has been sent out concerning
construction of the Enfidha Airport by means of a concession.
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Furthermore, Tunisia offers various investment opportunities in the
framework of technological parks and technopoles.
The telecommunications technological park, the second largest in
Africa and 31st in 104 countries, was considered the most advanced
in the ICT sector, ahead of Italy, Hungary, South Africa and
Morocco according to the 2004 World Economic Forum, able to
meet the needs of new information technology companies. Indeed,
many foreign high technology companies and major foreign groups
(call centres, internet research centres etc.) are locating at this park,
which has undergone successive expansion to meet the ever‐
growing needs of these companies. Indeed, many high tech
companies and major foreign groups are setting up business in the
field of new information technologies: call centres, internet research
centres... Six new sectoral technopoles are being built throughout
the country, each specialised in an area of particular relevance for
the region in which it is located:
� The technopole at Borj Cedria is specialised in renewable
energy, water, environment and plant biotechnology. It will
group a number of higher institutes (environmental sciences
and technologies, computer activities, and technological
studies) and three research centres working in these sectors.
� The technopole in Sidi Thabet is specialised in biotechnology
and pharmaceutical industries. It groups a number of higher
institutes as well as Tunisia’s veterinary school and the
national centre for nuclear sciences and technologies.
� The technopole in Sousse works in the mechanical, electronic,
and computer sectors. A business incubator and technological
resources centre are now installed at this facility.
� The Sfax technopole handles computer and multimedia
activities. Training and scientific research are provided by a
number of computer and multimedia institutes and research
centres.

Invest in the MEDA region, why how ?
� The Monastir technopole focuses on textiles and clothing. The
higher institute for fashion and the physico‐chemical research
centre are some of the structures found at this technopole.
� The Bizerte technopole supports agrofood industries, with a
food technology and sciences research centre and the national
engineering school of Bizerte.
Tunisia: The Spanish group Uniland invests in the
Enfidha cement plants
In 1998, in the context of the privatisation programme, four of the
country’s six cement plants were sold to private foreign operators.
The Spanish group Uniland acquired the Enfidha cement company
for 168 million dinars, in which it now holds a 88% stake, the
remaining 12% being held by the Islamic Development Bank. The
operation provided immediate access to a share of the country’s
market. The long term objective is to position the Tunisian site as a
strategic base for regional deployment. Today, the Uniland Group
has a cement factory, an aggregate quarry and 4 concrete plants
The Enfidha Cement Company’s plant is located at Ain M’Dhaker,
10 km from the town of Enfidha, North of the governorship of
Sousse. 190 million dinars have been invested to modernise the first
production line and to create a second, with an annual capacity of
600,000 tonnes. An overall programme to bring the plant up to the
standards of the group has also been initiated (computerisation,
stock management, respect for the environment).
At the same time, the Uniland group, which had a turnover in 2005
of 473 million Euros, is present in the concrete business through its
subsidiary Select Béton, a company belonging 100 % to the Enfidha
Cement Company. The Tunisian concrete market is in full
expansion, is modernising and becoming automated. With four
production plants, Select Béton is the leader in the sector. These
sites « also have mobile plants ready to participate in any type of
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large undertaking which require an ʺ in situ ʺ plant, underlines the
company.
«The main objective of the Uniland Group in Tunisia is to position
itself as the reference in terms of quality and services » states the
group, whose Head Office is in Barcelona. Select Béton S.A. is « the
only Tunisian concrete manufacturing company which has three
certifications of quality available in the country: NT certification
(product), ISO 9000 certification (production systems) and BVQi
certification (procedures) ».
Uniland, bought meanwhile by another Spanish group, Cementos
Portland Valderrivas, in June 2006, still expects one long‐awaited
change to be made: the complete liberalisation of cement prices
which are maintained under public control.

Turkey
Overview
References
Capital Ankara
Surface area 774,820 km2
Population 72,000,000 inhabitants ‐2006)
Languages spoken Turkish (Official), Arab, Greek, Armenian,
Kurd, Ladino
GNP (dollars) US$ 362 bn in 2005
GNP/per capita
(dollars)
US$ 5,800 (7,950 in ppp.) in 2005
Religion Musulmans (99%)
Currency (March Turkish New Lira (TRY)
2007)
1EUR = 1.85 TRY ‐ 1 US$ = 1.38 TRY
National day
29th October (Republic ‐1923)
Fiscal year 1er July‐30 June
Association
agreement with EU
Customs Union since 31/12/1995
Negotiations in progress for EU
membership since 3/10/2005.
EU web site:
http://www.deltur.cec.eu.int
WTO membership Member since 26/03/1995
Sources: TURKSTAT, Ministry of Finance, World Bank (CAS Report and CAS
Progress Report), IMF (Word Economic Outlook Database 2006)
Economic profile
With a population of 72 million and estimated GDP of US$ 403
billion in 2006, Turkey is ranked the 20th largest economy in the
world by the World Bank and one of the most dynamic emerging
markets. Spanning continents, at the crossroads of Europe, Asia
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and the Mediterranean, Aegean Sea and Black Seas, its geographic
location has made it a strategic country over the centuries.
Relations with the European Union are based on an association
agreement known as the Ankara Agreement, signed on September
12, 1963 and effective December 1, 1964. The final phase instituting
a customs union took effect on December 31, 1995, involving free
movement of goods, adoption of the EU’s Common Customs Tariff,
harmonisation of technical legislation, and regulations in the fields
of intellectual, industrial and commercial property, competition
and taxation.
A candidate for entry in the European Union since 1999, Turkey
aspires to membership with the 27 states. Seventeen years after
Turkey’s initial request for accession, the European Council agreed
to open negotiations regarding adhesion on October 3, 2005.
Turkey has committed to a long process of reform involving 35
goals, in conformity with the Copenhagen criteria, pre‐conditions
to entry in the EU. The European Commission has begun screening,
the first phase of negotiations for adhesion, which makes it possible
to evaluate the degree of preparation of countries applying for
accession before deciding if a chapter can be opened for
negotiation.
Turkey has undergone three major disasters and economic crises
over the last ten years, in 1994, 1999 and 2001. The latter was
particularly severe, marked by 50 percent devaluation of the
currency, collapse of the banking sector, severe recession (a 6.7
percent decline in GDP), inflation of some 70 percent, and a net
public debt to GNP ratio exceeding 90 percent. In response to the
economic crisis, the government worked out a reform programme
over the period 2002‐2004 with support from the International
Monetary Fund (IMF) and the World Bank. These reforms have had
a positive impact and the economy has started to rebound rapidly,
with gross national income up by 8.9 per cent in 2004 and 7.4 per

Invest in the MEDA region, why how ?
cent in 2005, driven by private consumption, private investment,
and export growth.
Recent obstacles have mitigated the benefits derived from the
decision to open accession negotiations in terms of higher domestic
and international confidence, without affecting deeply Turkey’s
growth rate for 2006, which, according to the latest estimates
should be around 5.2%. According to IMF projections based on
purchasing power parity, per capita GDP, which rose to US$ 6737
in 2002, will reach US$ 8393 in 2006.
The share of manufacturing and service activities in the economy
has increased steadily over the past decade, while that of
agriculture has declined. Agriculture’s share of gross added value
fell from 18 percent in 1990 to 12 percent in 2004 (although it
employs more than 34 percent of the population), while services
became the leading sector in terms of contribution to real GDP,
about 65 percent. The major branches in the services sector are
tourism (a major net foreign exchange earner) and financial
services. Manufacturing industries contribute some 27 percent to
real GDP and Turkeyʹs long‐term strategy targets an increase in
production of high added value manufactured goods and services
to accelerate the move to an export‐oriented, technology‐intensive
production structure.
Turkey continues to liberalise its trade regime, with a focus on
export promotion. The share of foreign trade of goods and services
to GDP grew from 58 percent in 2003 to 64 percent in 2004 and
foreign trade posted US$ 160 billion (+37.5 per cent) in 2004 and
US$ 190 billion in 2005 (+18 percent). According to the World Trade
Organisation, Turkey is fifth in the world in terms of export
growth.
Export of goods has almost tripled in the past five years, up from
US$ 28 billion in 2000 to a record high of US$ 76.7 billion (FOB) in
2005 despite depreciation of the dollar. Imports are also on the rise,
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Invest in Turkey
posting US$ 105.7 billion (FOB) in 2005, led by household demand
and businesses intent on securing more modern capital goods. For
2005, Turkey was ranked 23rd largest exporting country in the
world and 14th largest importer.
Breakdown of Turkey’s manufacturing production and foreign
trade points out the country’s comparative advantage in labour
intensive industries. Added value in textile/clothing industries,
leather, foodstuffs/ beverages, and tobacco represents nearly one
third of overall added value in manufacturing. The share of
manufactured goods in overall exports rose to 85 percent,
composed primarily of textiles/clothing and machinery/transport
facilities. Imported manufactured goods account for 65 percent of
overall imports, the main categories being capital goods such as
machinery and transport facilities and chemicals. This was made
possible mainly by the 54.6 percent increase in private investment
in 2004.
The EU is Turkey’s primary trading partner, with a market share of
55 percent in 2005. Germany is in first place, followed by Italy and
the US. Turkey’s main suppliers in 2005 were Germany (11.7
percent), Russia (11 percent), Italy (6.5 percent), France (5.1 percent)
and the United States (5.9 percent). Its main customers are
Germany (12.9 percent in 2005), the United Kingdom (8.1 percent),
Italy (7.7 percent), the United States (6.7 percent) and France (5.2
percent).
The EU is also Turkey’s main partner in the field of foreign direct
investments. In 2004, approximately 78 percent of overall FDI
inflows came from the EU, for average annual volume of 1 billion
dollars and steady growth, up from US$ 2.8 billion in 2004 to US$
9.7 billion in 2005. This was 2.6 percent of GNP and growth of 239
percent. The number of companies with foreign capital came to
11,685 including 2825 created in 2005. According to International
Institute of Finance (IIF) estimates, Turkey could receive US$ 11

Invest in the MEDA region, why how ?
billion or more in FDI in 2006. The geographic focus for FDI is
Istanbul and the nearby area of Marmara, where the major portion
of large‐scale industrial projects is located. Other initiatives are
found in coastal areas (Izmir, Antalya), generally relating to
tourism. Antalya, the Turkish Riviera, is the tourism capital of the
Mediterranean coast.
Authorities have set an objective to expand the ratio of total
investment to GNI from approximately 22 percent in 2000 to 27
percent in 2023, with public sector share in total investment falling
from 30 percent to 10 percent. Over the same period, public
investment in education, health and R&D will rise and investment
in energy, transport and communications are expected to remain at
current levels until 2010. The government has decided to undertake
an ambitious decentralisation process by transferring responsibility
for expenditure to the special provincial administrations (81), cities
and communes. Regional development agencies will be set up in
the 26 areas newly created to coordinate regional infrastructure
projects and local development initiatives.
On 1 January 2005, the Turkish lira was replaced by the New
Turkish Lira by dropping six zeroes, i.e. 1 new lira is equal to
1,000,000 old lira, with new bank notes of 10, 20, 50 and 100 in
circulation.
Risk rating
The main rating agencies upgraded their evaluation of country risk
as follows:
� Standard & Poor’s: BB‐ as of January 23, 2006
� Fitch: BB‐ as of 6 December 2005
� Moody’s: Ba3 as of 14 December 2005
� Coface: B as of December 2004
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Invest in Turkey
However, for Coface, the B rating under positive watch was
downgraded to B in January 2007 for the following reasons:
� The fall of the pound in May 2006 (more than 16%) and the
significant rise of the interest rates (from 13.25 to 15%) decided
by the Central Bank to fight inflation and reassure the markets,
may cause a significant deceleration of the domestic demand
and diminish growth. The fall of the pound penalises importers
and borrowers in hard currencies;
� A continued fall of the pound would affect in priority the
private sector, whose debt will be increased. Restrictive budget
policies and a sound reorganisation of the banking
environment should better protect the State and the banks than
at the time of the 1994 or 2001crisis;
� The current account deficits reaches new records and the risk
for volatile capital to withdraw rapidly is significant.
Key challenges
� In spite of steady economic growth, certain imbalances such as
a high unemployment rate for graduates and young people and
a low proportion of working women continue to be of concern.
� Approximately 95 percent of Turkish companies are small
businesses with low productivity and technology levels.
Prospects for development and modernisation are affected by
limited access to credit and financing.
� The country is highly dependent on imports of hydrocarbons.
� The situation with Cyprus and the Kurdish minority, security
issues and the role of the Army could in the long term weaken
a currently stable political situation and make the accession of
Turkey to the EU more difficult.
�

Strong points
Invest in the MEDA region, why how ?
� Greater domestic and international confidence since the
opening of adhesion negotiations with the European Union
will stimulate strong GNI growth, projected at an average of 6
percent for 2006‐2007.
� The government offers many incentives for capital investment
and encourages regional development.
� Globally, there are no restrictions on the ratio of foreign
holdings and the requirement for minimum capital of US$
50,000 to form a company has been removed.
� Turkey has the support of the international community thanks
to its exceptional geographic location. The 2005 financial
support in the framework of the EU’s Pre‐Accession Economic
Programme came to 300 million Euros and loans from the
European Investment Bank (EIB) amounted to 3.6 billion Euros.
� Strong fiscal performance has been the cornerstone of Turkey’s
economic programme and public finances have improved
considerably since the 2001 crisis. Progress has been made in
the area of bank solvency and the quality of their assets has
improved.
� Thanks to the customs union with the EU, the Turkish
economy has been integrated into a major economic block and
this has stimulated the Turkish economy since the start of the
liberalisation process. Turkey has opened its market to
competition from EU and third party countries while obtaining
free access to EU markets. The prospect of accession to the
European Union is likely to deepen reforms in the years ahead,
modernise the institutional framework, accelerate economic
development, and enhance potential for growth.
� The private sector is diversified and dynamic, adapting quickly
to an unstable environment. It has experienced remarkable
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growth, even if the government continues to play a major role
in the fields of industry, banking, transport, and
communications. Modern production equipment is available in
various sectors. There are more than 70 organised industrial
parks (OSB) on 17,132 hectares and 11 technopoles.
� The majority of the companies in Turkey are small businesses,
but major family holdings such as Koç, Sabanci, Dogan, Zorlu
and Dogus control more than 270 companies in virtually all
sectors of the economy.
� Labour is skilled, flexible and relatively inexpensive. Turks
speak several languages, including French, which is taught at
10 bilingual secondary schools in Ankara and Istanbul as well
as the French‐speaking University of Galatasaray in Istanbul.
� The local market is keen on western know‐how and
technology.
� A consumer‐intensive middle class lifestyle is quickly taking
hold.
Turkey has modest reserves of oil and natural gas but abundant
proven reserves of lignite, borax, chromite, magnesite and marble.
Mining and energy activities are booming and Turkey’s growth
rate for total production of primary energy has been almost 5
percent per year and that of total final consumption approximately
4 percent per annum over the past three decades, expected to reach
an average of 6.4 percent for the period 2000‐2010. The need for
direct foreign investment in this sector is estimated at US$ 4.5
billion a year until 2010.
Thanks to its strategic geographic location, Turkey is an export
platform with access to a market of almost a billion consumers,
made up of:
� Its domestic market of 72 million people, projected to reach 84
million by 2010

Invest in the MEDA region, why how ?
� The 600 million inhabitants of the European market
� The 250 million inhabitants of emerging markets in the Balkans
(Bulgaria, Romania, Greece), the Caucasus (Azerbaijan,
Georgia, Russia) and the Turkish‐speaking former Soviet
republics of Central Asia (Kazakhstan, Uzbekistan,
Turkmenistan)
� The 160 million inhabitants of the Middle East’s expanding
markets (Iran, Iraq, Syria) and North Africa.
According to the latest A.T. Kearney Foreign Direct Investment
Confidence Index, an annual survey of executives at the worldʹs
largest companies, Turkey jumped from under the top 25 to the
13th most attractive market in 2005. This sharp increase in the FDI
confidence level was affected by launching of negotiations for full
membership in the EU.
The Directorate General for Foreign Investments
(GDFI)
A new agency, Invest In Turkey, has been set up in late 2006 in
order to ease the landing of new investors on Turkish land. This
new structure will take over, step by step, the former marketing
and servicing responsibilities of the Directorate General for Foreign
Investments (GDFI, Treasury). A web site already exists at:
http://www.investinturkey.gov.tr
An Investor Relations Office (IRO) has also been established under
the Treasury (Secretariat of State based in Ankara) and is
contributing to the efforts to foster and improve Turkey’s relations
with international investors on a continuous basis. The primary
objective is to enable constant information flow with respect to
prevailing macro‐economic aggregates by providing reliable and
accurate data while pursuing prudent investor relations with
financial community. Web site: http://www.treasury.gov.tr/iro.htm
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So far, the GDFI has been acting as a one‐stop shop for major
investments, offering tax exemptions and other incentives. Its main
tasks include:
� Providing full information on how to set up a business in
Turkey
� Advising on investment incentives, processing applications
and issuing incentive certificates, in its capacity as sole
governmental authorising agency in this area
� Providing information on labour, infrastructure, trade,
investment sites, Turkish legislation, and all other topics
relating to Turkish business matters
� Identifying investment sites on the basis of investor preferences
� Providing guidance for administrative, legal, tax and labour
procedures
� Facilitating contacts and identifying suitable local partner
counterparts
� Assisting international investors to organise fact‐finding tours
in Turkey
To attract greater foreign investment the government adopted new
legislation regarding foreign direct investment under law N 4875 of
2003. This law stipulates that according to the law, there are
generally no restrictions to FDI except for certain sectors ruled by
specific laws.
Other institutions dealing with FDI:
� Under Secretary of Foreign Trade:
http://www.dtm.gov.tr/English/doing/iginvest/invest.htm
� Union of Chambers and Commodity Exchanges of Turkey
(TOBB): www.tobb.org.tr
� Turkish Industrialistsʹ and Businessmenʹs Association (Tüsiad):
www.tusiad.org.tr

Invest in the MEDA region, why how ?
� International Investors Association of Turkey (Yased):
www.yased.org.tr
� Small and Medium Industry Development Organisation
(Kosgeb): www.kosgeb.gov.tr
� Foreign Economic Relations Board (DEIK): www.deik.org.tr
� Export Promotion Centre (IGEME): www.igeme.gov.tr
� Istanbul Chambre of Trade: www.ito.gov.tr
� The EU Turkish Business Centres (ABIGEM) are designed to
support Turkish small and medium enterprises (SMEs) by
providing them with management and economic development
services: www.abigem.org
How to invest in Turkey
Turkish authorities recently took measures to improve the
investment climate, under a new legal framework governed by law
n°4875 of June 2003 replacing law n°6224 of 1995 on foreign
investment. This legislation dictates that foreign investors be
treated in a non‐discriminatory manner, with no limit on foreign
holdings in corporate capital except in certain sectors such as media
(for which the share of foreign holdings is limited to 25 percent)
and air transport, telecommunications, maritime transport, harbour
services, and processing of fishery products (limited to 49 per cent).
Banks, insurance companies, and the mining sector are governed
by legislation specific to these activities and a special permit is
required to do business in these sectors.
Foreign investors can acquire land in Turkey under condition of
reciprocity, but purchase of more than 30 hectares requires the
prior authorisation of the Council of Ministers (law n°2644
concerning land registry). Trade in real estate remains limited to
Turkish concerns. Turkish investors who want to invest more than
5 million dollars abroad must also obtain authorisation from the
Under‐Secretary of the Treasury’s office.
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Legislation governing investment provides for all kinds of
companies. There is no limit on capital holdings and management
and licensing agreements no longer require prior authorisation
from the Treasury. The right of foreign investors to international
arbitration and protection against expropriation is recognised and
international arbitration law n°4686 of July 2001 provides for
recourse to international arbitration for dispute settlement in the
area of public utilities. Other major innovations have strengthened
this legal framework and thus improved the business environment.
Law n°4817 of March 2003 governs work permits for foreign
workers and simplifies the procedures for recruitment of foreign
personnel. Moreover, Parliament recently adopted a law
simplifying the process for setting up a company. Today it is
possible to create a business in 24 hours (compared to 53 days
previously) by registering at the trade registry, with only three
authorisations required instead of 19. Tax rates are expected to
drop in 2006 to 20 percent, down from 30 percent.
In the framework of privatisation, the Turkish government treats
FDI and local investments in the same manner, even if restrictions
apply to some strategic sectors. Foreign investors also get equitable
treatment for incentives such as reduced corporate income tax,
exemption from VAT on machinery and equipment bought locally
or imported for the needs of the investment initiative, loans at a
subsidised interest rate for research and development, etc.
Except for tax cuts on profits, which are granted automatically,
investors must get a “certificate of investment” from the Treasury
Department in order to be eligible for incentives. The duration and
level of exemptions and other assistance vary, on the basis of
geographic and sectoral factors and the amount of the investment.
Financial legislation governs portfolio investment at the Istanbul
Stock Exchange (ISE).

Invest in the MEDA region, why how ?
Turkey represents a large market of 72 million consumers. It has
been negotiating its adhesion to the European Union since 2005. A
customs union with the EU has been in effect since January 1, 1996,
dealing with industrial and manufactured agricultural products.
Industrial products of European origin or from EFTA countries
enter Turkey free of customs duties. It also applies to EU common
customs tariffs with respect to third‐party countries, except for a
number of products considered “sensitive”. On average, custom
duty on imports from third party countries (which are not
members of the EU) is charged at 5 percent. The protection rate in
2005 was 4.20 percent for industrial products and 56 percent for
agricultural products, which are subject to high tax rates (135
percent on sugar, 145 percent on green tea, 150 to 170 percent on
certain dairy products and 225 percent on meat).
Customs duties are calculated on the basis of CIF prices. The
average VAT rate is 18 percent on industrial products, on top of
customs duties. Equipment and machinery are entirely exempt
from customs duty and VAT, while there are special rules for
import of foodstuffs. To export products and services, companies
based in Turkey must be members of one of the thirteen export
associations. The requirement also holds for imports. There are a
number of export incentives and aids, such as Eximbank credit and
export promotion aid. Additional tax cuts and customs incentives
are granted to companies operating in any of the country’s 21
offshore zones. Activities allowed in these zones are production,
purchase‐sale, assembly‐disassembling, maintenance‐repair,
banking, insurance, leasing, office rental, etc.
Law n°5084 of February 6, 2004 introduced new tax incentives. The
law applies to private individuals and corporate entities that
obtained a license to operate prior to entry in force of the law; they
will continue to take advantage of tax exemptions for as long as
their licenses remain valid. Employees are exempt from income tax
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until 2009. All income tax exemptions remain valid until Turkey
accedes to the European Union.
Turkey is a member of the World Trade Organisation (WTO).
Aside from negotiations with the EU, Turkey has signed the Black
Sea Economic Co‐operation Pact (BESC) as well as free trade
agreements with EFTA states and it is a member of the Economic
Cooperation Organisation (ECO).
To date, Turkey has signed 18 free trade agreements, with: the new
EU members, EU applicant countries (Croatia, Bulgaria and
Romania), Eastern European countries (Macedonia and Bosnia) and
a number of Mediterranean countries (Israel, Morocco, Tunisia,
Syria and the Palestinian Authority). Negotiations are under way
with other Mediterranean countries. Turkey also signed a co‐
operation agreement with the Gulf Cooperation Council (GCC) in
2005, targeting creation of a free trade area with the six monarchies
of the Gulf region. Turkey has also signed 66 bilateral agreements
for the promotion and protection of foreign investment. It has been
a member of the International Centre for Dispute Settlement and
the Multilateral Investment Guarantee Agency (MIGA) since 1987.
In 1991, it adhered to the Convention for the Recognition and
Execution of Foreign Awards and the European Convention on
International Commercial Arbitration.
Finance & banking in Turkey
The Turkish banking environment helped attract more than US$ 6
billion in foreign capital in 2005. The sector needs to grow at 8
percent over the period 2005‐2020 with assets of US$ 790 million in
order to correct weak financial intermediation and private sector
credit corresponding to just 21 percent of GDP.
There were 47 banks operating in Turkey as of January 2006,
compared to 50 in 2003: 35 commercial banks with total assets of
US$ 296 billion and US$ 111.7 billion in cash loans. The five largest

Invest in the MEDA region, why how ?
banks have a market share of more than 60 percent, the foremost
being the public agricultural bank Ziraat Bankasi, with 22 billion
dollars in loans. After the financial crisis of 2000‐2001, an extensive
consolidation plan, the Banking Sector Restructuring Program, was
started by the BRSA, based on the following main actions: (1)
restructuring of state banks, (2) prompt resolution of SDIF banks,
(3) strengthening of private banks, and (4) strengthening of the
regulatory and supervisory framework by setting up a supervisory
authority for the regulation of banks (BRSA). Ziraat Bank and Halk
Bank, the two main State banks, were restructured and
recapitalised in 2004 in preparation for their privatisation.
The legal environment of Turkey’s financial market, altered and
unified by adoption of law n°5387 of 1 October, 2005, will be
addressed in a second phase. Responsibility for regulation and
monitoring of financial companies, leasing and factoring
companies, and loan co‐operatives was transferred to the agency
for the regulation and monitoring of the banking environment
(BDDK). Minimum capital equity requirements for banks were
raised by 50 percent and governance criteria were strengthened.
The BRSA and the Central Bank are preparing a new framework of
requirements for capital equity and the Cooke ratio based on the
criteria of Basle II. Under the terms of this legislation, any bank
operating in Turkey must be a joint stock company, with minimum
capital of 20,000 billion Turkish Lira (approximately US$ 1.42
million). Foreign banks can operate in Turkey either by establishing
branches or subsidiary companies or by entering into joint ventures
with existing banks. It is not currently possible to set up offshore
banks.
With successful implementation of the economic program,
increased confidence, political stability, and prospects for EU
accession, foreign bank participation in the Turkish banking system
has after many years become a reality. Major mergers and
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acquisitions took place in 2005‐06, increasing foreign participation
from 3.6 percent of total credit to 13.4 percent in 2005.
This trend is likely to continue in the years to come. Small and
medium size banks, which have higher intermediation costs, will
need more foreign partnerships to increase their financial base and
compete with the sector’s giants. Merrill Lynch announced its
intention to open an investment bank. Foreign investments are also
expected in the public sector and the government is committed to
privatising three state owned banks. In November 2005, Vakiflar
Bankasi was offered to the public by IPO, raising US$ 1.27 billion,
two thirds from foreign institutional investors. It is also expected to
yield 30 to 40 percent of its shares in 2006 by public offer.
Privatisation of the Ziraat Bank and of public shares in the
HalkBank has been entered in the privatisation program. This sale
will be conducted using the block sale method.
Established in 1985, the Istanbul Stock Exchange (ISE) is one of the
most important emerging stock markets, with trading in a wide
range of securities such as stocks, exchange funds, government
bonds, Treasury bills, money market instruments, corporate bonds,
and foreign securities. Market capitalisation went up from 26.5
percent of GDP in 2003 to 30.6 percent of GDP in 2004 and 45
percent of GDP in 2005, worth US$ 162.8 billion. 304 companies are
quoted, including 282 on the national market where the main
stocks are posted. 100 companies selected from among the listed
companies on the national market make up the ISE National 100
Index, the main index; other indexes are IMKB‐50 and IMKB‐30.
The bond market is dominant in Istanbul, in fourth place
worldwide in terms of annual volume traded on the stock
exchange. The bond market lists only government debt securities,
representing US$ 246.8 billion at the end of 2005, but only part of
domestic debt (US$ 182.4 billion) is negotiable (US$ 126.2 billion).
The ISE International Market (ISE IM) has been established in the
ISE International Securities Free Zone, operating in a tax‐free

Invest in the MEDA region, why how ?
environment. The ISE International Market’s objectives are to
encourage the flow of international capital to the ISE and to
provide a transparent and secure trading environment for
securities issued on international markets. In an environment of
entirely free mobility of funds, prices are determined freely and
competitively, thereby raising the liquidity and diversity of
investments.
A new long‐term financial market for raw materials and products
opened in February 2005 (VOB). At one daily session, two long‐
term contracts for raw materials (cotton and corn) and six contracts
for financial products were handled on this market.
Investment funds have been very dynamic since their creation in
1986, on a growth path thanks to the status of non‐resident
investment funds (NRIF). At the beginning of 2005, Turkey counted
255 investment funds with a total portfolio of 15 billion Euros
(approximately 6 per cent of GDP) and 84 pension funds holding
credits of 258 million Euros.
Weak development of the insurance sector is an impediment to the
development of local institutional investors: in 2004 direct
premiums paid to 48 insurance companies amounted to just 1.53
percent of GDP (compared to 7.9 percent in Europe and 3.1 percent
in emerging markets). But ongoing reform of the pension system, in
particular the creation in February 2003 of private pension funds
and adoption of new accounting legislation is likely to have a
positive impact in stimulating the market. By the end of 2005, 41
percent of the Turkish private insurance sector was controlled by
foreign companies.
In spite of a dynamic economy, venture capital is not very well
developed, limiting the growth potential of young innovative
companies and slowing down the emergence of a knowledge‐based
economy. A mortgage debenture market was to be created in 2005‐
2006 to meet the needs of strong demographic growth and plans
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were in place to build 300,000 residences a year. Legislation
reforming how mortgages are regulated and allowing for creation
of a mortgage debenture market is in the ratification process.
Telecommunications & internet in Turkey
The telecommunications sector has seen major structural change
toward liberalisation, in particular since 2004 when the fixed
telecommunications network was opened to competition,
previously the monopoly of the state‐run operator Türk Telecom
(TT), and an independent telecommunications regulatory body, the
Telecommunications Authority (MT) established. New licences
were granted to 16 suppliers of data transmission services in fixed
telephony. Further steps towards liberalisation and breaking up of
the monopoly were taken in 2005‐06 by sale of Türk Telekom to
Oger Telecom, a subsidiary of the Saudi group Oger, for US$ 6.55
billion. Vodafone repurchased Telsim, the second largest mobile
phone operator, for US$ 4.55 billion. The Turkish
telecommunications network continued to grow, currently ranked
the 13th largest market in the world and fifth in Europe. Sales
turnover for fixed telephony amounted to US$ 5 billion in 2004,
expected to reach US$ 9 billion in 2010. In practice however, Türk
Telekom has a quasi‐total monopoly of the market, with 19 million
subscribers.
With nearly 40.4 million subscribers in July 2005 and a penetration
rate of 58 percent, the mobile phone market is growing faster than
fixed telephony and Turkey in this regard is an Eldorado for
mobile operators. TT is also present in the sector through its
subsidiary company Turkcell (28.7 million subscribers as of March
31, 2006), followed by Telsim (8 million subscribers) repurchased
by Vodafone, and Aria (4 million subscribers), in which Telecom
Italia holds a 49 percent share.

Invest in the MEDA region, why how ?
Turkcell provides high quality wireless telephony services
throughout the country, covering 100 percent of cities with more
than 10,000 inhabitants. Turkcell is quoted on the NYSE (New York
Stock Exchange). It also provides international cellular services
through Fintur in Azerbaijan, Georgia, Kazakhstan, and Moldavia,
which had nearly 6.4 million subscribers at the beginning of 2006
for the third consecutive year. Turkcell was classified 14th among
the 100 most powerful information technology companies by
Business Week Tech magazine.
There are 24 satellite platform operators. Internet use is also
developing very quickly, in particular since introduction of cable
networks and broadband services such as ADSL in 2001, growing
from 6 million users in 2003 to 10 million in 2005, with a
penetration rate of 13.9 per cent. Turkish Telecom has decided to
invest nearly US$ 800 million over the next five years to improve
services. Turk Telecom’s cable television services were transferred
to Turksat A.Ş. (Turksat), the public company in charge of satellite
services, which has exclusive rights in this sector.
The major innovations planned for 2006 relate to adoption of a law
on electronic trade and electronic signature. Turkey must still align
its legislation to European standards with regard to electronic trade
and services with conditional access. Similarly, cable telephony and
wireless fixed telephony (broadband Fixed Wireless Access) were
authorised to broaden competition in telecommunications
infrastructure. Local loop unbundling, which will facilitate
competition, was legally introduced on July 1, 2005. Opportunities
exist in added value services such as Push to Talk (chat), 3G
telephony and other new cellular technologies like MMS (Multi‐
media Messaging Service) and MVS (Mobile Video Streaming).
Useful sites:
� Telecommunications Authority: www.tk.gov.tr
� The 2006 Telecommunication Plan is available online at:
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http://www.tk.gov.tr/Yayin/Is_Planlari/tk_2006.pdf
� Turk Telekom website: www.turktelekom.com.tr
� Turkcell website: www.turkcell.com.tr
� Telsim website: www.telsim.com.tr
Business opportunities in Turkey
Classified as the 20th biggest economy in the world by the World
Bank in terms of income, with a population of 72 million and a
geographic location that provides access to a market of almost 1
billion consumers, Turkey has many advantages thanks to a solid
industrial base and prospects for growth in many fields. Its
geographic location makes it a country of transit and an export
platform for international trade in oil and gas, making the country
an “energy hub”. Thanks to the many plans for construction of oil
and gas pipelines with neighbouring countries, Turkey could
become the fourth largest source of energy in Europe, after
Norway, Russia and Afghanistan.
Several sectors have been liberalised (transport, electricity,
telecommunications), independent regulation authorities have been
created, and these reforms have helped the in‐depth economic
modernisation process. Banking and financial reform is under way,
with restructuring of the main establishments (788 subsidiaries of
public banks were closed), recapitalisation of the two largest public
banks and some private banks, and adoption of international
prudential standards. Although State intervention has been
reduced considerably since 1985, public companies still control five
percent of the non‐agricultural sector.
Turkey is committed to its privatisation plan for the public sector,
but privatisation efforts proceeded slowly, mainly due to the
multiple economic crises and adverse international conditions.
Between 1986 and October 2003, revenue from privatisation came

Invest in the MEDA region, why how ?
to about US$ 11.2 billion, including US$ 1.3 billion from foreign
investors. The breakthrough in privatisation finally came in 2005,
when implementation generated US$ 8.2 billion. With hydroelectric
power plant deals and the sale of companies managed by SDIF (the
Savings Deposit Insurance Fund), the government raised US$ 29.8
billion from the sale of state assets in 2005. Foreign investors
showed their interest in the Turkish market by participating in key
privatisations such as the Tüpras oil refinery and the Erdemir iron
and steelworks. The Saudi group Oger Telecom acquired 55
percent of Türk Telekom with a US$ 6.5 billion bid, one of the
largest deals in 2005. Another important deal was the Galataport
tender and Iskenderun port tender secured by the PSA‐Akfen
consortium with an US$ 80 million bid. The same consortium was
also awarded the tender to manage the port of Mersin, Turkeyʹs
largest, with a bid of US$ 755 million. A public offering of 34.5 per
cent of Petkim shares was completed in mid‐April 2005, raising
US$ 288 million.
The list of privatisations is available on the privatisation
administration’s website:
http://www.oib.gov.tr/portfoy/portfolio_general.htm
One of the Turkish economy’s strengths is its dynamic small
businesses and SMEs, which have the ability to adapt quickly,
particularly in agricultural and textiles/clothing. Turkey is the
fourth largest supplier of clothing and tenth largest supplier of
textiles in the world, the second largest supplier of clothing and
fifth largest supplier of textiles to the EU. Despite local investment
capacity, more materials and equipment will be required to boost
output and profits in order to be ever more competitive in world
trade and to meet the challenge of adhesion to the European Union.
Furthermore, the country’s economic growth is creating new
downstream investment opportunities for primary activities, for
example in agrofood industries and agriculture.
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The tourism sector plays an increasingly important role in the
economy. From 1990 to 2004, the number of tourists increased by
280 percent to 17.5 million. Tourism revenue increased by 380
percent to US$ 12.12 billion, making the country the eighth most
popular tourist destination in the world, after China. The target is
to welcome 50 million tourists annually by 2010.
Nearly 5 percent of GDI is currently generated by this sector, which
represents nearly 15 percent of employment and total investments
of US$ 35 billion for accommodation capacity of 450,000 beds
meeting international standards and nearly 1 million beds in the
guestroom category. Tourism is well developed, in particular along
the Mediterranean coast, in Istanbul and in the central portion of
the country (Cappadoce). Thanks to its natural resources and
historical vestiges, the country has strong potential for further
development. With exceptional coastlines as well as archaeological
and cultural sites, Turkey can exploit two categories of tourism:
mass tourism interested in a seaside holiday and cultural tourism
focused on sightseeing. Business tourism is also on the rise in
Turkey, with six major conference centres in Istanbul hosting many
international events every year.
Foreign investment in tourism amounted to US$ 3 billion in 2004.
According to the tourism organisation TYDʹS, 15 percent of beds
(65,000) are managed by foreign capital. German companies are the
most active in this sector (Steigenberger, TUI, Neckermann and
Club Robinson), followed by Swiss companies (Kuoni), French
(Accor, Club Mediterranée) and Anglo‐Saxon (Sheraton, Hilton,
Ramada, Conrad, Hyatt Regency, Inter‐Continental and Holiday
Inn). The Japanese are also present, with significant holdings in the
Swisshotel. The Canadian group Four Seasons, which already has a
five‐star hotel in Sultanahmet (Istanbul’s historic district), hopes to
build a new hotel near the Ciragan Palace.

Invest in the MEDA region, why how ?
Major deals concluded lately include the sale of the Istanbul Hilton
hotel for US$ 255.5 million, Cyprus Turkish Airlines for US$ 33
million, and the Büyük Efes and Büyük Ankara hotels for US$
121.5 million and US$ 36.8 million respectively. The Tarabya and
Bursa Çelik Palas hotels are on the 2006 agenda.
Construction and public works
After several lean years because of tight fiscal policies, the sector
expanded anew in 2005 (+21.5 percent vs. +4.6 percent in 2004),
driven by growing real estate and residential development thanks
to relatively low interest rates and policy that promotes housing
loans. Investment came to US$ 32.8 billion in 2005, 60 percent of
overall investments. Growth and investments were led by the
private sector, up from US$ 8.9 billion in 1998 to US$ 21.2 billion in
2005. Public expenditure in the sector rose from US$ 8.6 billion in
2004 to US$ 11.5 billion in 2005. The government has projected that
in the next five years the national housing gap will reach 1.5
million. With an economy in full expansion and rapid urbanisation,
there is a considerable need for construction of new factories,
commercial buildings and offices, shopping centres, malls and
shops. Development of tourism continues to generate new
construction projects.
Turkish building firms are active in Central and Eastern Europe,
Russia, the Caucasus and the Middle East and the country is a
major supplier of building materials and construction in the region.
More than 5000 companies produce building materials and over
100,000 companies are involved in the sector. The market for
building materials is the third largest industrial sector in the
country, after agrofood and textiles, accounting for 10 percent of
overall added value and 11.4 percent of total exports in 2005.
Turkey is a major producer of cement, iron and steel, frames, tiles,
PVC, polyethylene, glass, ceramics, ceramic components, and
enamel. Turkey has 57 private cement factories (39 integrated
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factories and 18 packing and grinding plants) turning out 67
million tons of cement and 39 million tons of clinker, up from 38.8
million and 32.8 million tons respectively in 2004. Turkey is the
12th world cement producer and the third largest in Europe. It is
the second largest exporter of cement in the world and the largest
in Europe. Sabanci, Oyak and Rumeli (currently being
restructured) are the three main cement manufacturers in Turkey.
Exports of cement amounted to 8.2 million tons in 2004, with 66
percent in terms of volume going to Iraq, Italy, Spain and the
United States. Exports to Iraq increased from 698,000 tons in 2003
to 2.1 million tons in 2004.
The financial institution FinansInvest is planning to invest some
US$ 15 billion in residential projects in the next few years,
primarily with foreign money. Retail infrastructure has undergone
considerable development over the past decade. The number of
modern retail outlets (hypermarkets, supermarkets, discount stores
and shopping centres) has been soaring and this has attracted
many foreign investors and pension funds (mainly from the US):
Cgi (a Commerzbank real estate investment fund), ECE Turkey
(German), MDC Turk Mall (Dutch), General Growth (USA),
Sanatorium (UK), Pirelli Real Estate (Italy). Other foreign investors
in the retail sector are Emaar Properties (Dubai) for US$ 10 billion,
Hawthorn Hotels (USA), General Growth Properties (USA),
Panargo Construction (Dutch), Commerzbank Grund Investment
(Germany) for US$ 652 million, International Dubai Properties
(Dubai) for US$ 5 billion, MDC Turkmall (US) for US$ 1.2 billion.
The Turkish retail sector is in a growth phase of the business cycle
and the outlook for shopping malls appears more promising, with
relatively higher yields (12‐15 percent) than in major European
cities.

The retail sector
Invest in the MEDA region, why how ?
The modern retail sector has a bright future in Turkey. AT
Kearney’s Global Retail Development Index ranks Turkey as the
eighth largest developing market in the world in 2006 and sixth in
the world in terms of the sector’s attractiveness, with a score of 59
on a scale of 100 to 0.
There has been sustained growth in retail trade since 1990 and
future growth is expected to grow at a higher rate than the
economy as a whole. According to research carried out by Tansas
regarding food distribution channels (valuated at US$ 24 billion),
modern forms of retailing accounted for 31 percent in 2003,
representing turnover of US$ 7.4 billion, approximately 3.1 percent
of GDP. According to the same source, the market is expected to
increase to US$ 28 billion in 2010, with a 41 percent share for
organised distribution channels.
The Turkish market has seen an influx of foreign retailers and
brands since the early 90s. The French group Carrefour has 12
hypermarkets under the Carrefour brand name, 7 supermarkets
under the Champion brand name, and 303 discount stores under
the Dia brand name. Carrefour’s local partner is the second largest
Turkish conglomerate, Sabanci Holding, holding 40 per cent of
Carrefour’s subsidiary company. The German firm Metro is present
in Turkey with 22 stores under three brand names: Metro Cash &
Carry, Real Hypermarket and Praktiker. Kipa, founded in 1992 by a
group of some 100 Turkish entrepreneurs, has become a regional
brand name, opening five hypermarkets totalling 38,000 m² with a
market share of 30 percent. Kipa sold 50 percent of its capital to the
English firm TESCO in 2003. The Swiss chain Migros (controlled by
the Turkish group Koç) has 507 stores with a total surface of
424,000 m², 62 of which are located in Russia, Kazakhstan,
Azerbaijan and Bulgaria.
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Several mergers and acquisitions took place in 2005. In May,
Carrefour bought the Gima chain (including its Endi discount
stores) belonging to the Fiba Group (Finansbank). In July, Migros
acquired 71 percent of capital in Tansas from the Dogus Group.
Hard discount is the fastest growing form of retailing, especially in
Istanbul. There are four major brands: BIM, held mainly by three
investment funds (Bank of America International Investment
Corporation, Merrill Lynch Global, and World Wide Ltd.), leader in
this segment with more than 800 stores, Sok (Migros), and Dia
(Carrefour). For You Bakim Urunleri Magazalar, which has 55
stores specialised in personal care and beauty products, was
repurchased at the beginning of 2006 by the American investment
fund AIG Capital Partners, Inc. (AIGCP).
Agriculture and agrifood
Agricultural output has increased over the decades, ranging
between US$ 40 and 43 billion in recent years. According to the
Food and Agriculture Organisation, Turkey ranks among the top
10 countries in terms of per capita fruit and vegetable production.
Though a net exporter of fruits and vegetables, Turkey’s imports
have grown steadily since the 80s, amounting to 5 percent of
overall imports in 2004. Production is currently equal to about 40
per cent of EU‐25 fruit production and 20 per cent of vegetable
production. The sector has also become an important resource base
for many export‐oriented industries and the share of agro
industrial products in total exports is around 6 per cent. Since 2001,
Turkey has been reshaping its agricultural sector in preparation for
EU membership and in line with its commitments to the IMF.
The agricultural reform programme focuses on creation of a rural
development strategy targeting modernisation of subsistence and
semi‐subsistence farming and ensuring commercially viable
structures. Harmonisation of Turkish agriculture with the CAP
(Common Agricultural Policy) is a priority in Turkish‐EU relations.

Invest in the MEDA region, why how ?
Turkey will have to adopt 17 laws, 211 regulations, and circulars in
order to adjust its agricultural system to that of the EU.
TIGEM (state farms) opened its medium and smaller size farms to
the private sector at the end of 2001. The first deal was a joint
venture between TIGEM and Dimes (top milk and fruit juice
producer) in 2003. 22 farms involving 491 million sqm are slated for
foreign involvement. TIGEM is open to proposals and suggestions
from local and foreign investors for all of the state farms. Thus,
TIGEM farms are likely to offer even greater opportunities for
foreign investors, especially for contract farming with farmers in
the vicinity.
The Southeastern Anatolia Project, a development initiative called
GAP, has been launched. This is Turkeyʹs largest regional
development scheme, expected to make the region a major exporter
of a wide variety of agricultural products. Exports from the region
rose from US$ 427 million in 1994 to US$ 1.9 billion in 2005 and
given that it is a gateway to the US$ 200 billion Middle East market,
this undertaking is likely to offer many opportunities for investors.
It involves US$ 32 billion in investment, of which over US$ 17.8
billion was made at the beginning of 2006. US$ 8 billion is needed
for irrigation alone, offering profitable opportunities for investors
in this field. The 196 km Sanliurfa‐Gaziantep highway is planned
for completion in the near future, linking the region to
Mediterranean ports.
The agrofood sector, very disparate, needs investment in R&D to
bring quality and sanitary conditions up to world standards.
Restructuring and regrouping of land that has been parcelled out
(90 per cent of farms are less than 10 ha) are also necessary to
facilitate mechanisation of production to boost output, since for
Turkey to accede to the EU it will need to align to the common
agricultural policy. Foreign investors are eager to circumvent
prohibitive tariff barriers and develop joint ventures in order to
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modernise some underdeveloped or untapped sectors with high
growth potential, particularly frozen products, milk and baby food.
The leading French food manufacturer Danone, working in
association with the Sabanci conglomerate to develop its dairy
products under the Tikvesli brand, is a good example. The Swiss
group HERO has set up a joint venture with ULKER, the largest
consumer foods company in Turkey, to produce baby food under
the brand Ulker Hero Baby.
Health and pharmaceutical products
The health sector is slated for privatisation, but a substantial
portion of health care services is still provided by the public sector
and 80 percent of total capacity is still held by public agencies.
Turkey is pursuing the objective of improving health care in terms
of both coverage and quality, through greater reliance on private
sector funding and an increase in the efficiency of the public
system. Investment incentives and the introduction of private
health insurance in 1990 played an important role in accelerating
progress in the sector. Hospitals can import all required machinery
and equipment listed on their incentives certificate free of customs
duty and related charges and they are eligible for 100 percent
exemption from corporate tax. The private sector has begun to take
advantage of the incentives system in recent years. With increasing
demand for private health care services, the number of private
hospitals has grown steadily since 1993, up from 141 in 1995 to 295
in 2005. Some of the foreign entities involved are the Metropolitan
Florence Nightingale Hospital/American Cancer Centre (which has
established ties with Memorial Sloan‐Kettering) and Johns Hopkins
(which has established an alliance with the Anadolu Group). IFC
has recently released long‐term loans to the Acıbadem Healthcare
Group in Istanbul and Mesa Group in Ankara to finance their
expansion and construction of three hospitals. An important new
trend is patients from European and Middle Eastern countries
travelling to Turkey for treatment in private sector facilities. In

Invest in the MEDA region, why how ?
addition, there have been instances of patient exchange on a private
basis with various European countries including the Netherlands
and UK. The most promising areas include ophthalmology,
cosmetic surgery, and dentistry.
The market for medical equipment is estimated to be growing at
12‐14 percent annually, reaching some US$ 3 billion in 2005.
Growth has been fuelled mainly by increased imports rather than
production, which exceeded US$ 500 million in 2003. Turkey relies
on imports to meet a large portion of its sophisticated medical
equipment needs and the general trend is for an increase in both
imports and exports.
Industry is fragmented, with over 300 manufacturers and some
1500 importers, 350‐400 of which can be classified as medium scale,
the rest being small businesses. Production generally focuses on
low‐technology products and artificial body parts, most of which
are exported. The majority of world manufacturers are present. The
United States is the main supplier with a market share of 30
percent, followed by Germany with 20 percent and France with 5
percent. Japan’s market share has been growing steadily since 1990,
in particular for radiology and electronic equipment, securing 17
percent of the medical imagery market in 2003. The distribution of
market shares could evolve in favour of European companies, since
EC marking is compulsory for imported medical equipment. The
Turkish pharmaceutical market was estimated to be worth US$ 6.6
billion in 2003.
Textile and clothing industries
The textiles industry was one of the first industries established in
Turkey. The export oriented economic policies of the mid‐1980s
have been the main impetus for development. Low labour costs, a
skilled and highly flexible workforce, cheap raw materials
(including home grown cotton) have been other factors
contributing to the Turkish textile and clothing industry’s solid
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performance. Turkey figures prominently in global trade in textiles,
accounting for 3 percent of world exports of textiles/clothing and a
local industry that is the fourth largest clothing supplier and tenth
largest textile supplier in the world and second largest clothing
supplier and fifth largest textile supplier to the EU region,
according to WTO sources. Two segments dominate Turkey’s
textile and clothing industry: the spinners and weavers that use
high quality domestic raw materials to produce textiles. These
firms maintain high market standards through their original
designs and apparel manufacturers use a combination of domestic
and imported cloth to produce finished non‐branded goods. This
includes non‐branded firms that market their products through
third party retail chains, with non‐branded items making up the
majority of the industry’s domestic and export sales. As regards the
industry’s technology level, the textile and clothing industry is an
outward oriented industry, using modern technology and
competing on export markets.
The sector accounts for about 7.8 percent of GDP, 19.9 percent of
industrial production, 18.4 percent of manufacturing industry
production, and 28 percent of overall Turkish export earnings.
(Source: Istanbul Textile and Apparel Exporters’ Association.)
Knitted apparel is the leading product group in textile and clothing
exports, accounting for 51 percent of the value of Turkey’s overall
exports. Woven apparel accounts for 35 percent and other
manufactured articles for 14 percent. Over 90 percent of overall
textile and apparel, imports are fibres, yarns and fabrics, the
remainder being ready‐made garments and other articles. Turkey is
also among the leading importers of textile and clothing machinery,
spare parts and chemical agents. Average imports of these items
exceed US$ 1.7 billion annually. The EU countries are the main
traditional markets, with EU 15 share of total Turkish exports of
textile and clothing industry posting about 63 percent.

Invest in the MEDA region, why how ?
The industry counts 40,000 companies, with only 337 foreign
companies employing more than 12 per cent of the population.
Subcontracting is very well established, especially for a number of
international buying offices, trading houses and major retailers and
department stores like Marks & Spencer, GAP or H&M…
Despite the fact that Turkey will face greater competition in textile
and clothing industries after quota elimination in 2005, Turkey still
has great potential in this industry thanks to the advantages of
geographic location, raw materials production and trained
workforce. In the medium term, with decreasing lead times, better
quality/price ratios and creation of brands, Turkey will continue to
be one of the most competitive textile and clothing industries in the
world. However, restructuring is needed to improve quality,
management and marketing skills, logistic performance and
certification. Foreign investment can play an important role in
increasing product quality and institutional capacity.
A report called Roadmap for 2010 sets targets of US$ 67.5 billion for
total demand, US$ 34.8 billion for exports and US$ 32.7 billion for
domestic demand by 2010. The report recommends that Turkey
reduce the share of subcontracted production in total textile
production, reduce the share of simple/ordinary products in overall
subcontracted production & maximise the share of medium‐high
products in subcontract production, sell medium‐high fashion
merchandise under global Turkish brand names and increase the
share of such products to half of overall exports by 2010. The report
also recommends that marketing and public image be improved,
notably by creating ten international brands over the next ten years.
In this framework, the Turquality label has been created to support
the development of 15 companies and three designers in the sector.
Electronics and information technology sector
2005 posted a record high level of foreign investment in
telecommunications, with three major deals worth US$ 14.4 billion.
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Several private firms have obtained licenses for the introduction of
new telecommunication services and over 40 Turkish private sector
companies have obtained various licenses, including 44 long
distance telephony service provider licenses. Others are in the
process of signing an interconnection agreement with Turk
Telekom. The demand for telecom equipment from these
companies and from Turkcell, Telsim and Aria will be growing
significantly. This is still an attractive market, with a mobile
penetration rate of only 55 percent at this time; expected extension
of 3G services represents considerable business potential. The
number of mobile subscribers increased from 34.4 million in 2004 to
43 million in 2005, expected to reach 51 million by 2006. Although
about half of the market is longstanding, the duration for model
changes has come down to 1.8 years. This, together with a young
and growing population and the steady rise in national wealth, has
placed Turkey at the top of the list of attractive sites for investment
in the telecommunications industry.
The market for hardware is expected to follow the same strong
development path. Many opportunities exist to supply fibre‐optics
networks, ADSL, VoIP and Wireless Local Loop networks. 3G
telephony must also be launched shortly. Türk Telekom is the fixed
operator of telephony in several neighbouring countries, with
strong growth in particular in Iraq where existing networks
urgently need to be improved.
The ICT market was estimated at a total of US$ 17.7 billion in 2005
and the Turkish information technologies market valued at 4.85
billion. With more than 6 million computers, sales continue to
generate high earnings, but Turkey still has a very low PC
ownership ratio, around 10 percent. There remains considerable
potential in terms of consumption of technology products, not only
computers and accessories. Applications for digital signature will
be required in the future, as provided for under new legislation.
The government continues to develop its programme to connect

Invest in the MEDA region, why how ?
administrations and some US$ 6 to 8 million in investments will be
needed to implement the e‐government project.
Although Turkey has a relatively large ICT market, ICT production
is low. Most inputs such as hardware, software and computer
equipment are imported and the high‐skill IT base in Turkey tends
to be used by multinationals as an assembly shop. There is no
manufacturing of the principal components of computers:
mainboard, hard disk, RAM, graphic card, processor, monitor,
mouse, keyboard and case; local manufacturing activity is limited
to assembly. There are long‐term prospects for Turkey to become a
power in export of software. The current market share for software
is 14 percent, far below worldwide averages. Thus, software is a
strategic growth segment for IT sector exports.
Energy market
Turkish hydrocarbon production is low and the country’s proven
reserves limited. There is a major deficit in the balance of energy
for hydrocarbons, with a dependency rate of 91.6 percent for oil
and 98 percent for natural gas. Energy consumption is growing
rapidly in the wake of demographic growth and economic
development. The Turkish government estimates that electricity
production will reach more than 160,000 billion kWh, 500 million
kWh to be imported and 2152 million kWh exported. Total demand
is expected to reach more than 240,000 billion kWh by 2010. The
country thus needs an additional generating capacity of 54,000 MW
by 2020. Turkey has no nuclear thermal power stations but it has
had an experimental engine (250 kw, operational type TRIGA II) at
the Technical Institute of Istanbul since 1979. A radioactive waste
processing plant has been in operation since 1989 in Ckmece.
Turkey recently took up old plans to develop nuclear energy
generating capacity planning through three nuclear power plants
(1500 MW each) for total nuclear capacity of 5000 MW by 2020.
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Hydrocarbon consumption will also grow for at least 20 years,
more particularly gas for the production of electricity. But because
of the priority given over the long term to hydroelectricity, coal,
lignite and to a lesser extent renewable energies (including
development of solar energy), the share of hydrocarbons in overall
energy consumption is expected to decrease sharply for oil and
stagnate for gas.
Turkey embarked on liberalisation and deregulation of the energy
sector in 2001. Two laws were enacted (Electricity Market Law
n°4628 and Natural Gas Market Law n°4646) to end the state’s
monopoly of electricity and natural gas. This was followed by a
series of other laws governing electricity market licenses (2002), the
oil market (2003) and renewable energy (2005). An independent
regulation authority, the Energy Market Regulatory Agency
(EMRA in English, EPDK in Turkish) was set up in September
2002, mandated to monitor and supervise the market and to grant
licences.
According to law n°6326 governing oil activities, foreign companies
can invest free of restrictions in the marketing and sale of
petroleum products. They can also invest in exploration and
prospection as long as these activities are not controlled or held by
a foreign State, but this restriction can be waived by the Council of
Ministers.
Oil related activities can be carried out via companies legally
constituted under Turkish law or local subsidiary companies set up
under foreign law. It is necessary to obtain authorisation from the
Council of Ministers to invest in refining, pipeline transport, and
storage. Foreign investment is encouraged, in particular for the
construction of next generation plants to create the additional
capacity needed. Investment needs in the energy sector for the
2005‐2020 period have been estimated by the Ministry of Energy
and Natural Resources (MENR) at US$ 129 billion.

Invest in the MEDA region, why how ?
Starting in 2006, authorities plan to sell approximately 16,000 MW
of State‐owned thermal and hydro capacity. Considered as major
privatisation tenders involving thermal and hydro power plants,
these plants will be grouped in six lots. These auctions, including
Yenikoy and Kemerkoy (the largest power plants in Turkey), are
likely to attract the interest of international bidders.
Opening up of the gas market began in 2002. Other texts were
adopted relating to tariffs, grid systems and distribution,
infrastructure, services and installations. Lignite mines have been
opened to the private sector based on a royalty system.
Turkey has laid 3177 km of gas pipelines and 3562 km of oil
pipelines (2004). As a transit country/energy hub between East and
West, it has developed a strategy of energy corridors. Indeed,
Turkey is in proximity to 70 percent of world energy resources and
a regional centre for the storage and transport of oil and natural
gas. Turkey is supporting implementation of pipeline projects to
transport hydrocarbons produced in the Caspian.
Meanwhile the EU has been encouraging Turkey to provide a safe
transit centre to help meet the EU’s future energy requirements. It
is also highly interested in establishing new supply networks
through Turkey. The EUʹs dependency on gas imports, presently 41
percent, is expected to correspond to some two thirds of total gas
demand by 2020. According to an EU study, 70 percent of Europe’s
incremental gas demand can be supplied via Turkey and the U.S. is
interested in reducing its dependency on Persian Gulf oil supplies
and preventing supply disruptions. Turkey could become Europeʹs
fourth‐largest source of energy supplies after Norway, Russia, and
Afghanistan.
The Directorate General for Oil Affairs (PIGM) within the Ministry
of Energy and Natural Resources is mandated to handle corporate
requests for licences and leases for exploration and exploitation
activities such as canalisations and refineries.
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Turkey has great potential for developing renewable energy. There
is major demand within the country for small hydro power plants,
wind power, solar energy, geothermal power generation, and
waste to energy types of technologies. It is expected that €1.2 billion
will be invested in wind energy alone. There is about 128 billion
kWh per year in hydropower potential in Turkey. About 35 per
cent of hydropower potential is used to generate electricity and
hydropower plants with an installed capacity of 11 billion
kWh/year are under construction. Many private companies are
developing small and medium size hydropower projects. A new
law on the use of renewable sources of energy was adopted in May
2006, establishing a legal framework for the promotion of
renewable energies. The law outlines transitional measures
between now and 2011 for more competitive prices for electricity
generated at facilities holding a renewable energy resource
certificate as well as incentives for investment in renewable
energies.
Water and environment
Turkey is currently undergoing high demographic growth (1.6
percent per annum) in the wake of vigorous urbanisation, 68
percent of the population living in urban environments vs. 22.5
percent in 1955. More people and greater industrial production
mean increasing pollution, particularly in the largest cities
(Istanbul, Ankara, Izmir) and in light of soaring needs for urban,
tourist and energy infrastructure.
The demand for water has increased proportionally.
Although there are reasonably good fresh water resources (110
billion m3 per annum that could be tapped, although only 38
percent is actually being exploited), the country suffers from
unequal distribution. Water is found largely in eastern Turkey,
while population density is concentrated in the west. To alleviate
the accumulated needs of the past few years and in line with the

Invest in the MEDA region, why how ?
faster pace of EU harmonisation, municipalities and public
agencies are giving top priority to water and wastewater treatment
plants. Other concerns are air pollution and solid waste disposal.
Compliance will require significant investment.
Figures developed by the EU estimate that some €45 billion in
expenditure will be required over the period 2003‐2032. According
to the results of the Integrated Compliance Strategy for the
Environmental Sector in the Republic of Turkey, the overall cost of
environmental investments is estimated at €23 billion and total
compliance costs including adoption, implementation and
investment will come to €21.8 billion. This means that
approximately €1.5 billion in EU funds will be spent yearly on
environmental issues. In the framework of pre‐accession financial
aid, the EU budget for Turkey is €800 million for the period 2005‐
2006, with initiatives grouped under three main headings: capacity‐
building, legislative harmonisation and economic and social
harmonisation. There are numerous opportunities in the
environmental sector, particularly in the following fields:
� Building and rehabilitation of water treatment and drinking
water facilities;
� Improvement of water resource management;
� Wastewater treatment and drainage work;
� Management of solid and liquid waste disposal, by both the
public and private sector;
� Rehabilitation or construction of discharge and composting
plants;
� Development of renewable energies, with non‐polluting
transport and recovery of biogas, in the framework of measures
against climate change and air pollution;
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� Development of new ecological concepts (reservoir agencies,
eco‐packing systems…);
� Improvement of masterplans for the environment and urban
transport.
While many Turkish contractors can supply basic pollution control
equipment, Turkey must import advanced equipment. There are
opportunities for foreign companies in collaboration with local
partners throughout the environmental chain, from consultancy
work with central and local government to supply of equipment to
public structures and private companies. However, this is a very
competitive market involving European, Asian, and Middle
Eastern companies.
Transportation
Turkey is a rapidly developing country and its transportation
sector has grown significantly over the past few decades. Turkey is
currently implementing several large‐scale infrastructure projects:
urban transport, interurban transit systems, highways, airports,
ports, dams and water sewage networks, and urban transit
systems.
A 10‐year transportation masterplan strategy has been launched.
Currently, a €4.2 million EU funded twinning project is being
carried out with Deutsche Bahn AG to prepare an action plan for
railroad development. The sector, with 8697 km of rails, is
managed by a public company, TCDD.
A radical shift in strategy was made in April 2005, allowing private
sector involvement in railway transportation. There are currently
25 private companies operating in the country, holding a 25 percent
share in overall transportation.
Priority goes to construction of high speed lines, while existing
lines and wagons will be improved and upgraded, increasing
current line capacity by 30 percent. Domestic production of

Invest in the MEDA region, why how ?
wagons, locomotives, and rails is being encouraged. Railway
terminals and buildings and their surrounding area will be
developed as recreational areas.
Branch lines are to be built to serve industrial zones, private train
operators will be allowed, and some high speed train initiatives are
at various stages of progress to increase travel speed to 250 km/h,
including the Ankara‐Istanbul, Ankara‐Konya and Ankara‐Izmir
lines. The Istanbul‐Ankara line is a priority item on the planning
board. The other major project is the Marmaray Project that will
run a line under the Bosphorus at a cost of some US$ 3.5 billion.
Turkey will need some 2000 wagons just for rail projects under
construction. Another 3000 will be needed for projects planned by
16 municipalities, worth US$ 10‐12 billion in railway equipment.
The biggest prize of all is the Haydarpasa Terminal Project, slated
to be built under a 49 year BOT arrangement. The project foresees
investment of some US$ 5.1 billion.
The national company Turkish Airlines (THY), 98 percent of which
is held by the State, shares this market of almost 60 million
passengers with international airline companies and low cost
private operators.
After the opening of 23 percent of capital in Turkish Airlines, the
government must yield an additional portion of shares in the
national airline. THY, which currently has 93 planes, launched a
major programme to renew its fleet by ordering 36 Airbuses, 15
Boeings and a flight simulator in July 2004.
Analysts envisage 7 percent growth in acquisition of air transport
and cargo liners for each of the next 10 years, estimating that
Turkey will need to increase its fleet to 300 planes by 2010 in order
to meet expected growth in tourist traffic. Other studies undertaken
by THY predict a 5 percent increase in demand for maintenance
and repair services over the next 10 years.
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There are 34 airports in Turkey, 10 of which are open to both
international and national traffic.
The six largest airports are located in zones with strong tourist
potential:
� Atatürk Airport in Istanbul (16 million passengers a year)
managed by the consortium Tepe‐Akfen‐LIFE,
� Antalya Airport in the Mediterranean area managed by the
consortium Bayındir‐FAG (7.5 million passengers a year),
� Esenboga in Ankara (4 million passengers),
� Adnan Menderes in Izmir,
� Dalaman and Bodrum‐Milas in the Aegean area.
BOT arrangements are anticipated for investment projects to
expand airport capacity and modernise air safety, in particular at
the new terminals of Antalya, Dalaman and Izmir ‐ Adnan
Mendérès.
There are 61,500 km of roads and 1900 km of motorways. Urban
congestion and pollution are a major problem. Road network
expansion began with construction of the South Black Sea Road
(560 km) and the Ankara‐Samsun route (402 km).
A consortium composed of Akbank, the Garanti Bank and Is Bank
has secured an US$ 831 million loan for a highway project
connecting the Caucasus region, Central Asia and Europe. Projects
awaiting financing include a road across the Gulf of Izmit, which
will cut journey time between Istanbul and the Aegean, and a third
Bosphorus bridge.
Privatisation of ports has begun, except for Haydarpasa.
Operational rights for Iskenderun (US$ 80 million) and Mersin
(US$ 755 million) have been finalised and adjudication for the port
of Izmir and the port of Samsun has begun. The Bandirma and
Derince ports are slated for privatisation in 2006.

Invest in the MEDA region, why how ?
Success story: Schneider has created a network
of 100 partners and exports out of Turkey
Schneider Electric, one of the leading world manufacturers of
electricity distribution equipment and industrial programmers
(Merlin Gerin, Square D, Télémécanique brands) has been located
in Turkey since 1987.
At the time, the group arrived in Turkey by directly creating a
subsidiary called Schneider Electric Turquie 100% owned by
Schneider Electric SAS. The objective was to profit from the
economic growth of the country, to gain a foothold in a territory of
strong industrial potential, and meet the needs of an emerging
country where expenses in electric equipment are still very high.
Over the years, the presence of Schneider was to gain strength, as it
accompanied the development of the country, the demand for
electric equipment evolving in parallel with the rise in power of the
country’s electricity network as well as the development of the
Public Works sector. Today, the Schneider group, which had in
2006 a turnover of almost 14 billion Euros, has a complete
commercial organisation in the country, with 13 branches and a
network of 100 partners, a production site with two factories at
Izmir, as well as a distribution centre near Istanbul.
The world number one in circuit‐breakers, switches and electric
sockets today employs a total of 400 people in Turkey with a
turnover of 74 million Euros in 2002.
« The situation is positive » underlines the group when asked about
the main lessons to be learnt from its presence in the country. It
especially highlights the quality of the production site of Izmir. The
factory was chosen to satisfy the global needs of Schneider Electric
for the supply of medium voltage boards. A sign of world
recognition of Izmir and Turkish know‐how.
366

ANIMA
Euro-Mediterranean Network
of Investment Promotion
Agencies
ANIMA is a European project devoted to helping 10 Southern Mediterranean and
Middle Eastern countries partners of the EU (“MEDA” countries: Algeria, Palestinian
Authority, Egypt, Israel, Jordan, Lebanon, Morocco, Syria, Tunisia, Turkey), plus
Cyprus and Malta (now EU members), to acquire strategies and tools to attract
foreign investments. The Invest in France Agency (AFII), assisted by the ICE (Italy)
and the Direction des Investissements (Morocco), is running this project, which is
financed by the European Union, MEDA Programme. The City of Marseille, the
Region Provence‐Alpes‐Côte d’Azur and the Invest in France Agency also
contributed to the publishing of this study.
Invest in the MEDA region, why, how ?
Algeria / Egypt / Israel / Jordan / Lebanon / Libya Morocco / Palestinian Authority /
Syria / Tunisia / Turkey
PAPERS & STUDIES n°22 / April 2007
This practical guide gives good reasons to invest on a territory which shares a common destiny
with Europe –even if this partnership must develop novel approaches. Neighbour of the
European Union, made up of 10 States partners (plus Libya as an observer), the MEDA region is
rich in 2007 of its 265 million inhabitants, producers, and consumers. The region should reach
320 million inhabitants in 20 years. A stronger integration with Europe seems natural: history,
geographical proximity, languages, complementarities of resources, whether it is sun, water,
energy or labour. However, if Europe is significant for MEDA countries (representing 50% of
their foreign trade, for example), the latter count little for the old continent (which invests in
MEDA only 5% of its worldwide private capital).
The European and world firms know that they must look at MEDA. It is an intermediate market
–incomes per capita resembling those of Portugal or Greece before EU. MEDA is a formidable
development reserve for a European growth which needs second breath. Beyond easy
relocations, based on labour cost attractiveness, numerous firms start understanding the possible
interest of a co‐development based on true benefits for the two banks.
MEDA in turn vitally needs European private investment. EU capital flows may at the same time
contribute to modernise the economic and social fabric, suggest efficient industrial models, inject
the money which States can seldom release, develop growth in both Europe and the south,
finally participate in the long awaited area of peace and security.
� Sonia Bessamra, independent consultant, Bénédict de Saint‐Laurent, coordinator of the ANIMA
programme within Invest in France (Agence Française pour les Investissements Internationaux),
have managed the preparation of this collective work with the ANIMA team and the MEDA IPAs.
www.animaweb.org