Will Egypt’s capital market overhaul help attract more investment?

Egypt is stepping up efforts to modernize its capital markets by reforming tax policy, offering incentives for new listings, updating trading products, and improving the digital infrastructure that supports the market.

At the heart of the overhaul is a shift from capital gains tax to stamp duty, along with tax breaks for large companies that list on the Egyptian Exchange (EGX). Market makers will not have to pay stamp duty, which should help support liquidity.

The EGX is broadening the tools available to investors by introducing short selling, derivatives, and a new trading system. The exchange is also upgrading its technology infrastructure and exploring how AI can be used across the market. 

A government-backed digital platform is being piloted to automate capital increases and connect relevant authorities, aiming to cut processing times and make it easier for companies and investors to access the market.

Will these steps help strengthen the EGX, encourage more non-bank financing, bring in more large companies and private-sector listings, and ultimately support economic growth?

MARKET REFORMS

“Over the last 15 years, the stock exchange and the asset management industry have benefited from continuous enhancements and simplifications of the rules, all aiming at encouraging more investor participation and the growing collective investment schemes,” says Sherif Samy, Investment & Financial Markets Advisor and Chairman of the Board at National Asset Management and Investment SAE.

He points out that the main challenges for Egypt’s capital market are getting more large-cap companies to list and ensuring enough stock liquidity. These factors are important for attracting both local and foreign institutional investors, as well as for having a wider range of companies across sectors.

Major stock markets worldwide, including the New York and London exchanges, have seen a decline in the number of listed companies over the last two or three decades, mainly due to mergers and acquisitions, as well as companies opting to delist and go private.

“The trend to go private is driven by wanting to avoid the quarterly earnings pressure, the need to create more value via business transformation better understood by private investors, in addition to the growth of the private equity industry.”

On the other hand, Awad Issawi, MENA Regional Spokesperson and Market Analyst at IFOREX, notes that Egypt is entering a significant phase in the development of its capital markets.

“Egypt’s digital overhaul is significant because it is addressing the practical infrastructure behind market participation, rather than simply transferring existing services online,” Issawi says. 

He adds that the EGX has identified technological upgrades and AI as priorities, while the government is developing electronic connectivity between GAFI, the Financial Regulatory Authority, the EGX and the Commercial Registry to accelerate corporate procedures such as capital increases and approvals.

“For investors, the benefits can include faster onboarding, easier access to market information and a more streamlined trading experience. For companies, improved digital connectivity can reduce administrative friction when accessing the public market,” adds Issawi.

This becomes increasingly relevant as Egypt develops its IPO pipeline, with the EGX recently reporting market capitalization above $82.1 billion and average daily trading values approaching $191 million.

“The wider significance is that digital infrastructure can support the entire capital-formation cycle, from a company preparing to raise funds to investors participating in the resulting offering and subsequent trading.”

CAPITAL-GAINS TAX

Samy says the capital gains tax change is less about creating a major new investment driver and more about removing uncertainty that has surrounded the issue for years. 

“Practically, the capital gains tax was never really implemented. It was a law that got postponed on more than one occasion. The uncertainty around the topic was bad for investors.”

With the issue now settled, Samy sees the change as a simplification that puts Egypt on a more level footing with neighboring regional markets, rather than a decisive factor in investment decisions. He also points to the treatment of other investment channels, noting that interest on bank deposits and savings is exempt from taxes.

Karima El Hakim, Country Lead for Egypt and North Africa at Plug & Play Tech Center, similarly says abolishing capital-gains tax makes the tax treatment of investing in the EGX simpler and more predictable.

“It can also improve the expected after-tax return for investors, which matters when capital is choosing between Egyptian equities and other domestic or international asset classes.”

However, El Hakim says tax is only one factor in investment decisions. Investors also consider inflation, interest rates, currency risk, liquidity, corporate governance, transparency, regulatory predictability, and the ease of entering and exiting the market.

A simpler tax system could encourage greater participation, but its long-term effect will depend on how well it works alongside other improvements to the market’s infrastructure and liquidity.

“So I would not measure the success of the reform simply by whether trading volumes jump the next morning. The more important test is whether it contributes to a deeper, more predictable and more competitive capital market over time.”

Issawi says the tax changes also address the predictability and cost of investing and raising capital.

“Egypt has moved away from capital-gains taxation on listed securities toward a proportional stamp-duty framework, while reducing the stamp-duty burden for non-resident investors and exempting market-making activities.”

The reform also introduces an incentive for companies. Qualifying companies with an approved IPO and a fair value of at least EGP 50 billion can receive a 15% corporate income tax discount for three years from the date of the offering, subject to the applicable conditions.

This change helps both investors and companies. Investors get a clearer framework for listed securities, and eligible companies have an additional economic incentive to consider an IPO.

“Sustained investor confidence will also depend on liquidity, disclosure standards, corporate governance, valuation, and the quality of market infrastructure.”

AI AND AUTOMATION

Egypt is in an interesting position on AI, as the regulatory conversation has already started. 

In 2024, the Financial Regulatory Authority (FRA) introduced a framework for robo-advisory, allowing regulated portfolio-management companies to use automated systems to help construct, manage and rebalance investment portfolios, with requirements around capital, cybersecurity, reporting and human oversight.

AI can also be applied to fraud detection, digital identity, onboarding, KYC and AML compliance, anomaly detection, market surveillance and risk management, helping reduce friction while strengthening market integrity.

“Automation can also remove repetitive manual work from documentation, reconciliation and reporting. None of that sounds particularly futuristic, but it can materially change how efficiently the market operates,” says El Hakim.

She says the FRA Regulatory Sandbox could further support capital-market innovation by giving startups, financial institutions and technology providers a controlled environment to test solutions for brokers, asset managers and market infrastructure before wider deployment.

“AI should expand capability, not replace governance. Egypt already has pieces of the regulatory architecture in place. The next stage is turning those rules into responsible products and operational tools that genuinely improve access, efficiency and market integrity.”

“For investors, automated onboarding and transaction processing can reduce delays, while real-time information can provide a timelier view of prices, volumes, and market developments,” says Issawi.

For exchanges and regulators, integrated data can strengthen market surveillance, help identify unusual trading activity and improve regulatory reporting. These capabilities become increasingly relevant as Egypt expands its range of market mechanisms, including derivatives and short selling, which require technology capable of supporting higher volumes of data and more complex transactions.

“The strategic opportunity is therefore to make AI and automation part of the market’s core operating infrastructure, improving execution and oversight while maintaining appropriate cybersecurity, governance, and investor-protection standards,” adds Issawi.

NEEDED CHANGES

Samy calls for continuous fine-tuning and improvements to governance, as well as shortening the cycle for IPOs and capital increases.

He adds that the stock exchange’s leadership must double its efforts to promote and advocate for more listings, while the government should encourage large institutional investors, such as state pension funds, the Universal Health Insurance Authority and the Post Office, to participate.

“The capital market is not only equity, but also debt. We should continue developing such a leg. Egypt has seen a dramatic increase in bond, sukuk and securitization issuances, this trend should continue for a well-balanced market,” adds Samy.

El Hakim says the next challenge is extending digital transformation across the wider capital-market ecosystem, starting with secure digital identity, standardized data exchange and stronger connectivity between institutions.

“An investor should not have to repeatedly prove the same identity, submit the same documentation or move through disconnected processes across brokers, asset managers, clearing and settlement infrastructure and other regulated institutions.”

Once this connectivity is in place, real-time data and automation can support areas such as settlement, compliance, market surveillance and risk management. But El Hakim says innovation should extend beyond the exchange itself to the companies listed on it, with technology increasingly serving as a revenue enabler, rather than simply an efficiency tool.

She also points to the FRA Regulatory Sandbox as a potential bridge between technology companies and the capital market, allowing new financial technologies and business models to be tested under regulatory oversight before wider deployment.

Ultimately, she says, the goal should be more than just having a digital trading floor. A modern capital market should link companies with capital, technology, and institutional opportunities. Digitalization should be judged by how well it supports wider participation, deeper liquidity, stronger companies, and better infrastructure.