egypt - international university of japan...country report egypt the full publishing schedule for...

COUNTRY REPORT

EgyptThe full publishing schedule for Country Reports is nowavailable on our web site at http://www.eiu.com/schedule.

1st quarter 2000

The Economist Intelligence Unit15 Regent St, London SW1Y 4LRUnited Kingdom

The Economist Intelligence UnitThe Economist Intelligence Unit is a specialist publisher serving companies establishing and managingoperations across national borders. For over 50 years it has been a source of information on businessdevelopments, economic and political trends, government regulations and corporate practice worldwide.

The EIU delivers its information in four ways: through subscription products ranging from newsletters toannual reference works; through specific research reports, whether for general release or for particularclients; through electronic publishing; and by organising conferences and roundtables. The firm is amember of The Economist Group.

LondonThe Economist Intelligence Unit15 Regent StLondonSW1Y 4LRUnited KingdomTel: (44.20) 7830 1000Fax: (44.20) 7499 9767E-mail: [email protected]

New YorkThe Economist Intelligence UnitThe Economist Building111 West 57th StreetNew YorkNY 10019, USTel: (1.212) 554 0600Fax: (1.212) 586 1181/2E-mail: [email protected]

Hong KongThe Economist Intelligence Unit25/F, Dah Sing Financial Centre108 Gloucester RoadWanchaiHong KongTel: (852) 2802 7288Fax: (852) 2802 7638E-mail: [email protected]

Website: http://www.eiu.com

Electronic deliveryThis publication can now be viewed by subscribing online at http://store.eiu.com/brdes.html

Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, on-linedatabases and as direct feeds to corporate intranets. For further information, please contact your nearestEconomist Intelligence Unit office

London: Jan Frost Tel: (44.20) 7830 1183 Fax: (44.20) 7830 1023New York: Alexander Bateman Tel: (1.212) 554 0600 Fax: (1.212) 586 1181Hong Kong: Amy Ha Tel: (852) 2802 7288/2585 3888 Fax: (852) 2802 7720/7638

Copyright© 2000 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication norany part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording or otherwise, without the prior permissionof The Economist Intelligence Unit Limited.

All information in this report is verified to the best of the author's and the publisher's ability. However,the EIU does not accept responsibility for any loss arising from reliance on it.

ISSN 0269-526X

Symbols for tables“n/a” means not available; “–” means not applicable

Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK

Egypt 1

EIU Country Report 1st quarter 2000 © The Economist Intelligence Unit Limited 2000

Contents

3 Summary

4 Political structure

5 Economic structure5 Annual indicators6 Quarterly indicators

7 Outlook for 2000-01

14 The political scene

18 Economic policy

24 The domestic economy24 Economic trends26 Oil and gas28 Industry and services

31 Foreign trade and payments

33 Trade data

List of tables

7 Forecast summary18 Structure of government domestic debt21 Money supply25 Tourism33 Foreign trade

List of figures

14 Gross domestic product14 Egyptian pound real exchange rates19 Foreign-exchange reserves20 Exchange rate, 199924 EFG stockmarket index

Egypt 3


Summary

1st quarter 2000

Elections will dominate the political agenda, ensuring that political controlremains firm. Foreign policy will focus on the Middle East peace process and itslikely results. Economic policy should prove liberal. Privatisation will moveforward, but trade liberalisation will lag. The budget deficit will remain ataround 1.5% of GDP. Adjustment to a more flexible exchange-rate systemcould take place in 2001. Economic growth will rise towards 6%, and thecurrent-account deficit will contract to about 1.6% of GDP.

Sectarian strife erupted in Al Kosheh in early January. Islamist violence hasreceded, but the crackdown on political Islam has continued. The president hasoffered expanded democracy, including the judicial supervision of elections.Parliament has passed the personal status law. Egypt has participated in themultilateral peace talks in Moscow.

The government’s policy statement has stressed social justice. Monetary policyremains uncomfortable, but the dollar rate offered by the moneychangers hasmoved closer to the bank rate of E£3.42:$1. Major national infrastructureprojects have come under scrutiny. Trade restrictions have eased. Privatisationhas garnered over $4bn. Utility sales have been delayed, but restructuring ofloss-making companies will go ahead. Citicorp has bought a 20% stake in EFG-Hermes. Egypt has been ranked 63rd on the Transparency International index.

• Inflation has remained at around 3%. The stockmarket has rallied: the EFGindex was up by almost 44% at end-1999.

• Tourism has continued to recover. Suez Canal receipts increased by $60min 1999.

• Investment in the economy has benefited from the entrance of bothSainsbury’s and Legal & General into the Egyptian market.

• EgyptAir will now face competition on domestic routes. The president hasgiven preliminary approval for a new media duty-free zone. The developmentof information technology has become a policy priority, and cost-cuttingmeasures have been pursued.

• Hydrocarbons reserves have risen, following a series of deepwaterdiscoveries. Gas exports, including to Israel, have been made a priority.

Cotton exports have been curtailed by the suspension of sales of popularexport varieties. Egypt pushed the rights of developing nations at the WorldTrade Organisation (WTO) talks in Seattle.

Editor: Andrew GilmourAll queries: Tel: (44.20) 7830 1007 Fax: (44.20) 7830 1023

Next report: Our next Country Report will be published in May

February 9th 2000

Outlook for 2000-01

The political scene

Economic policy

The domestic economy

Foreign trade andpayments

4 Egypt


Political structure

Arab Republic of Egypt

Based on the constitution of 1971

Unicameral Majlis al-Shaab (People’s Assembly) of 444 directly elected members and10 additional members nominated by the president. Deputies serve for a five-year term.All candidates contesting the elections now run as individuals. The president maydissolve the assembly only if he gains the support of the people in a referendum. TheNational Democratic Party has a decisive majority in the assembly

Universal direct suffrage

October 1999 (presidential); next elections due by November 2000 (legislative) andOctober 2005 (presidential)

President, nominated by a two-thirds majority of the assembly and elected by referendum.Currently Hosni Mubarak, who was re-elected for a fourth six-year term in 1999

Council of Ministers headed by the prime minister. The president is responsible forappointing and dismissing ministers. The assembly can require a minister to resign if itpasses a motion of no confidence. Should a motion of no confidence in the primeminister be passed against the president’s wishes, the matter may be put to areferendum. Last cabinet reshuffle: October 10th 1999

National Democratic Party (NDP, the ruling party); Socialist Labour Party (SLP);Socialist Liberal Party; New Wafd Party; National Progressive Unionist Party;Democratic Nasserist Party

Prime minister Atef ObeidDeputy prime minister & minister of agriculture & land reclamation Youssef Amin Wali

Defence Mohammed Hussein TantawiEconomy & foreign trade Youssef Boutros-GhaliElectricity & energy Ali al-SaidiFinance Medhat HassaneinForeign affairs Amr MoussaHousing & new communities Mohammed Ibrahim SuleimanIndustry & technological development Moustafa al-RifaiInformation Safwat al-SherifInterior Habib al-AdliPetroleum Sameh FahmyPlanning & international co-operation Ahmed al-DarshPublic enterprise Mokhtar KhattabPublic works & water resources Mahmoud Abdel Halim Abu ZeidSupply & internal trade Hassan KhedrSocial affairs & social insurance Amina al-GuindyTelecommunications & information technology (minister of state) Ahmed NazifTourism Mamdouh al-BeltagiTransport Ibrahim al-Demiri

Ismail Hassan

Official name

Legal system

National legislature

Electoral system

National elections

Head of state

National government

Main political parties

Senior members of the Councilof Ministers

Key ministers

Central Bank governor

Egypt 5


Economic structure

Annual indicators

1995 1996 1997 1998 1999a

GDP at market pricesb (E£ bn) 205.0 228.3 256.3 280.2 302.2

Real GDP growthb (%) 4.7 5.0 5.5 5.6 5.0

Consumer price inflation (av; %) 15.7 7.2 4.6 4.2 3.1

Population (m; mid-year) 59.23 60.60 62.01 63.25a 64.52

Exports fob ($ bn) 4.67 4.78 5.53 4.40 4.58

Imports fob ($ bn) 12.27 13.17 14.16 14.62 14.85

Current-account balance ($ bn) –0.25 –0.19 –0.71 –2.57 –1.73

Reserves excl gold ($ m) 16,181 17,398 18,665 18,124 15,500

Total external debt ($ bn) 33.3 31.3 29.9 30.4a 30.3

Debt-service ratio, paid (%) 13.1 12.2 9.4 10.9a 10.7

Exchange rate (av; E£:$) 3.39 3.39 3.39 3.39 3.40c

February 9th 2000 E£3.42:$1

% of % ofOrigins of gross domestic product 1998/99b total Components of gross domestic product 1997/98b total

Agriculture & irrigation 17.4 Private consumption 70.0

Industry & mining 19.5 Government consumption 11.2

Petroleum & electricity 6.1 Gross fixed capital formation 22.9

Construction 5.9 Exports of goods & services 28.5

Trade, finance & insurance 22.2 Imports of goods & services –32.6

Transport & communications 9.3 Total 100.0

Total incl others at factor cost 100.0

Principal exports 1997/98b $ m Principal imports cif 1997/98b $ m

Petroleum & products 1,278 Transport equipment & machines 4,530

Cotton yarn, textiles & garments 759 Livestock, food & drink 2,506

Engineering & metallurgical goods 445 Fats & minerals incl fuels 2,188

Other agricultural goods 140 Chemicals, rubber & leather 1,840

Raw cotton 103 Wood, paper & textiles 1,566

Total incl others 4,930 Total incl others 14,718

Main destinations of exports 1998/99b % of total Main origins of imports 1998/99b % of total

US 38.3 US 18.2

EU 29.3 EU 43.1

Arab countries 13.4 Afro-Asian countries 17.5

Afro-Asian countries 11.2

a EIU estimates. b Fiscal years ending June 30th. c Actual.

6 Egypt


Quarterly indicators

1997 1998 1999 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

PricesConsumer prices (1995=100) 113.9 114.7 116.6 117.7 118.4 119.0 120.0 120.9 % change year on year 4.3 4.1 4.5 4.4 4.0 3.7 2.9 2.7Wholesale prices (1995=100) 114 114 115 114 116 114 115 116Cotton prices a (US cents/lb) 53.59b 49.26 50.27 54.85 49.82 43.46 43.03 37.42Petroleum prices Suez Blend 32 ($/barrel) 17.05 12.05 10.62 10.22 9.15 9.82 13.74 18.79

Financial indicatorsExchange rate E£:$ (end-period) 3.388 3.388 3.388 3.388 3.388 3.395 3.396 3.396M1 (end-period; E£ m) 48,708 48,248 51,593 51,660 58,577 61,620 58,174 57,592 % change year on year 9.4 7.7 8.4 6.9 20.3 27.7 12.8 11.1Deposit rate (av; %) 9.6 9.6 9.3 9.4 9.2 9.2 9.2 9.3Discount rate (end-period) 12.25 12.25 12.25 12.25 12.00 12.00 12.00 12.00Lending rate (av; %) 13.3 12.8 13.1 13.0 13.1 13.2 12.9 12.8

Sectoral trendsCrude petroleum (m barrels; prodn/day) 0.88 0.88 0.88 0.88 0.88 0.87 0.86 0.85

Foreign trade (E£ m)Exports fob 3,491 2,418 2,953 2,177 3,096 2,653 3,122 2,908Imports cif 11,962 12,448 13,969 13,367 14,987 13,337 14,610 1,468Trade balance –8,471 –10,030 –11,016 –11,190 –11,891 –10,684 –11,488 1,440

Foreign reservesReserves excl gold (end-period; $ m) 18,665 18,443 18,611 18,420 18,124 17,531 16,761 15,907

a US domestic grade 41, average of 10 markets, mid-month. b Average for year.Sources: IEA, Monthly Oil Market Report; IMF, International Financial Statistics; Oil Market Intelligence.

.

Egypt 7


Outlook for 2000-01

Forecast summary

($ m unless otherwise indicated)

1998a 1999b 2000c 2001c

Real GDP growthd (%) 5.6 5.0 4.5 5.6

Consumer price inflation (av; %) 4.2 3.1 3.8 6.0

Budget deficitd (% of GDP) –1.0 –1.3 –1.4 –1.5

Public domestic debt (% of GDP) 52.5 54.3 55.0 52.6

Merchandise exports fob 4,403 4,579 5,004 5,407

Merchandise imports fob –14,617 –14,852 –15,743 –16,655

Trade balance –10,214 –10,273 –10,739 –11,247

Current-account balance –2,566 –1,728 –1,651 –1,544 % of GDP –3.1 –1.9 –1.7 –1.6

Reserves excl gold 18,124 15,500 14,500 14,500

Total external debt ($ bn) 30.4b 30.3 30.2 29.9

Debt-service ratio (%) 10.9b 10.7 10.2 9.8

Exchange rate (av; E£:$) 3.39 3.40a 3.43 3.70

a Actual. b EIU estimates. c EIU forecasts. d Fiscal years ending June 30th.

Elections in the influential lawyers’ doctors’ and engineers’ professionalsyndicates in early 2000, in addition to the parliamentary election due inNovember, will preoccupy the government in the short term. The parlia-mentary election will be fiercely contested by the 12 recognised oppositionparties, as well as the country's largest Islamist group, the banned MuslimBrotherhood (although the latter's organisational ability will be severelycurtailed by the continuing arrest of grassroots activists as the electionapproaches). For the government, the challenge will be to ensure the “correct”result without sparking international outcry at the methods used. The presi-dent, Hosni Mubarak, has promised a "free and fair" election, with the intro-duction of judicial supervision. However, this will remain patchy, and therewill be official interference if it is considered necessary. The government,mindful of the situation in Algeria, has concluded that political Islam must notbe given any leeway and that free elections are a highly dangerous exercise.

In the run-up to the election the ruling National Democratic Party (NDP) willretain the overwhelming advantage afforded by its web of political patronage.This embraces the entire country and all levels of Egyptian society, with op-position groups never contesting more than one-quarter of assembly seats atthe most. The government will try to address widespread public resentmentand dissatisfaction with the NDP by choosing its candidates more carefullythan in the past; however, this could simply see a number of local power-brokers removed from the official NDP list, standing as independents, and thenrejoining the party once re-elected.

A slightly larger opposition presence in the new parliament will be tolerated, toimprove the regime’s democratic credentials, but only from the secular, offi-cially sanctioned opposition parties which the government is adept at mani-pulating. Despite rumours of the formation of a new business-friendly political

Elections will dominate thepolitical agenda—

8 Egypt


party, there is no expectation that new political forces will be allowed to con-test the election. However, the government will encourage a greater number ofindependent deputies—mainly from the business community—to stand, asthey are expected to focus on social and economic issues, rather than push forgreater political pluralism, and will lend strong support to the government'seconomic reform programme. In time, these deputies may form themselvesinto a parliamentary grouping. A cabinet reshuffle is possible in the aftermathof the election, but the EIU expects it to be limited and to concentrate on thesocial portfolios where ministerial performance has been roundly criticised bythe public. Meanwhile, the president will continue to resist pressure to appointa vice-president and successor, arguing that political stability is assured by theconstitutional mechanisms already in place.

In this environment, no genuine political reform will be forthcoming, despitecontinuing economic liberalisation. There may be some cosmetic loosening toaddress public concerns, and a slightly expanded role for the non-governmentalorganisations (NGOs), to push forward the government's highly ambitioussocial agenda, notably in terms of job-creation. We expect the ceasefire of themilitant Islamist groups to hold, and their actions will thus no longer dominatepolitical debate, as has been the case since 1992. However, the government willfail to adapt to the transformation of the militant Islamist groups into amainstream political movement, which could bring social tensions.

The Middle East peace process, and the question of what will succeed it, will bethe dominant foreign policy concerns over the forecast period. Egypt is keen toensure that the Arab world seizes the opportunity for peace, but worries thatwithout a comprehensive and just peace, the potential for regional instability isgreat. In particular, Egypt will try to keep the Palestinian track in the forefront:it is concerned that this could become sidelined as Israel concentrates on con-cluding a peace treaty with Syria (which, in turn, would allow progress to bemade with Lebanon). Egypt’s efforts to ensure that normalisation of relationswith Israel does not occur before the Palestinians have concluded a final peacewill necessitate close co-ordination with other Arab nations. Egypt will pushfor the convening of the first Arab summit for four years, and will endeavourto obtain Arab commitment and support as the tough peace negotiationsbegin. However, given the difficulty of getting all Arab nations to agree on theagenda before the summit is held, the gathering may not happen at all.Nevertheless, the push to enhance stability in the region, together withattempts to place pressure on Israel, should lead to improving relations withthe major non-Arab regional powers, Iran and Turkey.

Officials are already considering Egypt’s future role in the region, if and whenthe peace process is concluded. With the country no longer automatically atthe centre of events, Cairo is aiming for a regional leadership role, based on itsstrong and thriving economy—which points to considerable rivalry with Israel.The plethora of international conferences scheduled to meet in Cairo in2000—including the first regional conference of the Common Market forEastern and Southern Africa (Comesa), the G-15 summit, and the Middle Eastand North Africa (MENA) conference on regional integration—highlights the

—as political controlremains firm

Foreign policy will focus onthe peace process and

its consequences

Egypt 9


increasing priority Egypt is according to its leadership role among developingnations, as well as to the opening-up of new markets for exports. Aware thatthe world is increasingly being divided into powerful economic blocs, Egyptwill continue to promote the formation of the 19-nation Arab common marketby 2007, although the problems caused by differing trade regimes will provehard to overcome, and in the coming two years improved co-operation willprobably be confined to those countries, which, like Egypt, are due to enter theEuro-Med free-trade zone. Egypt’s partnership agreement with the EU, whichhas already been negotiated and serves as the precursor to entry into theprojected zone by 2010, merely requires a political decision for completion.This should be forthcoming in the first quarter of 2000.

Following the cabinet reshuffle in October, the new government has set out itssocial policy agenda. It has been reticent over the details of its economic policyfor the coming period, with the exception of the need to boost growth to asustainable 7% and to raise exports by 10% annually. On taking power, theministers in the economic team carried out a major reassessment of theirportfolios; this is now being used to shape a comprehensive economic policydocument, aimed at preserving macroeconomic stability and achieving thegovernment’s goals. With pro-market technocrats in charge of economic policyfor the first time, the document is likely to prove rather more radical andliberal than many influential members of the regime can stomach. Inevitably,compromises will be made, and the pace of reform adjusted, but the broadlines of economic policy should remain intact. On the structural side, pressedby the urgent challenges of population growth and the need for job-creation,the emphasis will be on accelerated privatisation, continuing business de-regulation, a greater openness to private-sector activity, and cautious tradeliberalisation—with Egypt working to push the developing-nation agenda,following the failure of the World Trade Organisation (WTO) talks in Seattle.There will also be progress on technological developments, with the particularaim of making information technology (IT) available to all. This initiative willreceive strong backing from the president.

The defining characteristics of macroeconomic policy will be fiscalresponsibility (in the face of much higher social spending and the demands ofthe major national infrastructure projects), and a gradual injection of greaterflexibility into the exchange-rate regime. However, entrenched vested interestsare strong, and will be able to delay the restructuring or liberalisation of sectorssuch as customs, banking and insurance, in the absence of strong directivesfrom the top. Given the sheer concentration of power in the position of thepresident, his personal attention, or lack of it, can determine the course ofeconomic policy. To mitigate against the negative social effects of the faster dis-mantling of the country’s centralised system, there will be an increased govern-ment emphasis on social justice, with much higher spending on health, edu-cation, social services and job-creation. The government is aware that publicgrievances about poverty and disillusionment, which have fuelled the rise ofIslamist extremism, have yet to be convincingly tackled.

Economic policy shouldprove liberal and socially

responsible

10 Egypt


The government, keen to demonstrate its determination to the internationalinvestment community, has made privatisation a priority. Accelerated priva-tisation is essential: the government requires much higher capital inflows tosupport monetary policy, and needs to rationalise state expenditure to main-tain budgetary discipline. There is also a pressing need for improvements inmanagement, technology and quality, if Egyptian industry is to surviveincreasing international competition. With the government now headed bythe public-enterprise minister from the previous administration, Atef Obeid,privatisation policy will remain consistent, with the government adhering tothe target set by the previous administration of completing the sales of allpublic-sector enterprises by end-2001. On present form this will prove over-ambitious, in part because the government is now left with those stateenterprises possessing bad debts, excess labour and outdated technology. Ratherthan sell these off cheaply, or close them down, the government has chosenthe restructuring option, which will prove difficult and time-consuming. Thefocus, however, will be on Egypt’s first large flagship utility sales. These areaiming to attract international attention, revitalise the stockmarket andradically increase the liquidity of the currency market. An initial sale of 10% inTelecomEgypt should take place by April, although the need for restructuringmay see the timetable slip somewhat. With TelecomEgypt possessing E£19bn($5.6bn) in assets, this will be Egypt's largest privatisation to date.

The offer of minority stakes in the seven regional electricity companies—whichare hampered by large debts, the lack of an effective regulatory structure andcontroversy over the introduction of competition—will not now take placeuntil at least mid-2001. However, the separation of the economic authoritiesfrom the state budget in 2000/01 (fiscal year ending June 30th) will push thestruggling Egyptian National Railway Authority to privatise at least some of itsservices. We expect other economic authorities gradually to follow suit over thenext two years, most notably, the postal services. Meanwhile, banking andinsurance-sector privatisation will remain sensitive, and therefore problematicissues, and, in the absence of strong political will, will probably be confined tothe divestment of the state’s stakes in the joint ventures.

The October cabinet reshuffle saw the transfer of the foreign trade portfolio tothe reformist Youssef Boutros-Ghali, as well as the appointment of a less statistminister of finance. Nevertheless, trade policy remains problematic. At theheart of the problem is the balancing act the government must achieve ofabiding by its international commitments—notably, those to the World TradeOrganisation (WTO)—while maintaining the current-account deficit withinsafe limits, and ensuring that local industry, much of it protectionist and out-dated, is reformed, but not destroyed by foreign competition. The usualreduction in import tariffs did not take place in 1999/2000, but the minister offinance, Medhat Hassanein, said that duties imposed on raw materials andproduction requirements would be reduced, while those on finished goodswould be maintained—a policy which appears to be aimed at improving theinternational competitiveness of local products as part of the export drive.However, the EU partnership agreement will push for trade liberalisation and,under the WTO agreement, the import ban on readymade garments is to be

Privatisation will moveforward—

—but trade liberalisationwill lag

Egypt 11


lifted by January 2001 (although heavy duties will then be imposed). Moreover,the focus on export growth will lead to a greater emphasis on removingobstacles to trade, including promoting improved trade infrastructure, full taxrelief for exporters and the opening of new export markets.

Mr Hassanein has said that he intends to keep the 2000/01 budget deficit tobetween 1.3-1.5% of GDP. With petroleum prices hitting nine-year highs,privatisation revenue expected to rise, and a new conscientiousness in fiscalpolicy, we believe this to be broadly achievable. However, it will prove achallenging task, as substantially higher social spending is projected duringthis period. The total cost of the welfare measures announced in the govern-ment’s recent policy statement is officially estimated at $1.5bn, including$555m for job-creation. This could well rise significantly if the governmentfulfils all of its promises. The major national infrastructure projects will alsoprove a fiscal burden, despite the current reassessment of funding and statepromises to prevent budget overruns. According to Mr Obeid, no more thanE£7bn ($2bn) has been spent on these mega-projects over the past three years.The Southern Valley development project and the Gulf of Suez port anddevelopment zone will now gain funding priority, while a slowdown in expen-diture on the East Port Said scheme is expected. The government must avoidlowering the standard of living for the country’s low-income population, andhigh state subsidies for basic goods and services will therefore be maintained—the bread subsidy alone costs some 1% of GDP. However, according toMr Hassanein, the separation of the 67 public authorities from the state budgetcould save the government up to E£15bn, as these authorities, excluding thosein the petroleum and the Suez Canal sectors, generate only E£800m ($233.9m)in revenue annually. Such savings will not be achieved immediately.

A new taxation system is due to be formulated by mid-2000. The government’schallenge is to raise tax revenue while fulfilling the pledge made by theprevious administration not to increase the existing rate of tax or impose newtaxes. The official solution, according to Mr Hassanein, includes applying morereasonable tax rates to encourage compliance—with some reduction incorporate tax rates and the introduction of group taxation; tougher penaltiesfor tax evasion; and a drive to bring the informal economy into the tax system.The proposed extension of the sales tax into a full value-added tax (VAT) is stillunder official consideration and, in view of its unpopularity with the businesscommunity, is unlikely to be implemented until at least mid-2001, if at all.

The difficulties apparent in monetary policy over the past year should begin toease in 2000, as revenue flows increase in response to higher tourism receipts,improved oil prices, projected large privatisation sales in hard currency, andincreased foreign direct investment (FDI). The government will also prove morewilling to use its foreign-exchange reserves—which totalled some $15.2bn inOctober 1999, according to the IMF, equivalent to nine months of importcover—to inject liquidity into the market. Given the political constraints, nodevaluation is expected in 2000. However, the Central Bank of Egypt (CBE)allowed a slight depreciation of the official rate, from E£3.39:$1 to E£3.42:$1 in1999, and this trend is set to continue in 2000. In addition, there is a

The budget deficit willremain at around 1.5%

of GDP

An exchange-rateadjustment could take

place in 2001

A new tax system will beintroduced

12 Egypt


recognition among the cabinet’s economic team, if not among the cabinet ingeneral, that the maintenance of long-term monetary stability requires a moretransparent and flexible monetary policy. This understanding, or lack of it, willspark continuing controversy throughout 2000, but by the latter half of 2001Egypt should be in a position to follow the successful example of Morocco andTunisia and shift to a managed float system, under the guise of adjusting to theforecast strength of the euro. The change to a float system against a basket ofcurrencies dominated by the euro would probably include a downwardadjustment of the Egyptian pound against the dollar. This would see theexchange rate move from a projected E£3.43:$1 in 2000 to E£3.70:$1 in 2001.

Efforts will also be made over the forecast period to reduce Egypt's highdomestic interest rates as, although these have proved useful to support thepound, they are negatively affecting both investment and growth. However,the need to keep a healthy differential of some 200-350 basis points over USinterest rates, at a time when US rates are rising, will constrain the govern-ment's ability to push rates downwards. At present, 3-month Treasury bill ratesare around 9%; these should drift down to around 8-8.5% in 2001.

A stable pound will help to contain inflationary pressures in 2000, despitehigher import costs and a marginal rise in the budget deficit. In 2001 theexpected depreciation of the pound will lead to a temporary surge in prices,while the expected acceleration of economic growth will also affect inflation.However, with high state subsidies on basic goods remaining in place, this willnot unduly affect the generally low inflation picture. The introduction ofgreater competition into the market will also serve to contain prices, despiterising commodities prices. Average annual inflation is therefore projected torise slightly to 3.8% in 2000—from 3.2% in 1999—increasing to 6% in 2001.

Growth prospects in the coming two years will be assisted by a strong recoveryin tourism, higher oil revenue, an improving external environment and agenerally stable domestic macroeconomic climate. However, the reappraisal ofeconomic policy, government concerns over social justice, and lingeringproblems in foreign-exchange liquidity (resulting in a high interest-rateenvironment) will work to dampen growth in 1999/2000. There will also betighter conditions for credit, as more stringent banking supervision comes intoforce, in the wake of the recent sudden departure of a number of large creditorsfrom the country, which has focused official attention on the high level ofnon-performing loans in the banking system. Taking all these factors intoaccount, we expect growth to fall to around 4.5% in 1999/2000.

Growth should pick up to 5.6% in 2000/01, as the government implements itsnew integrated economic policy, and privatisation accelerates, allowing higherforeign-exchange flows. Levels of FDI will increase over this period, and theeconomy will begin to feel the benefits of a greater opening-up to the privatesector. A more flexible exchange-rate regime will also stimulate growth, as willlower interest rates. Public-sector investment is due to rise, with increasedspending on education, health and social services, as well as the major nationalinfrastructure projects, and a government push on the development of IT.

Efforts will be made toreduce interest rates

Inflation will rise slightly

Economic growth will slowin 1999/2000—

—but will recover in2000/01

Egypt 13


Private investment should grow, in response to the greater opportunitiesavailable, the boom in tourism and the steadily improving business environ-ment. The latter will be assisted by the introduction of the government’s legalreform agenda, including a more flexible labour law in 2000; the country’s firstmortgage law—with the potential to shake up the stagnant real estate sector; aunified companies law streamlining procedures; two capital markets lawsaddressing clearing, settlement and depository and market institutions; and anall-embracing telecommunications law. Stronger government efforts to attractmajor IT companies to Egypt, as part of the focus on technological develop-ment, suggest that the enforcement of intellectual property rights will improveover this period. Increased domestic consumption will provide a further stimu-lus to economic activity, given high population growth, a steady inflow ofworkers remittances, recovery in the tourism sector and increasing jobopportunities by 2001. Despite some job losses in the public enterprises asrestructuring gets underway, job opportunities will increase as the private sectorexpands and the government implements large-scale job-creation schemes.

Egypt’s’ export performance remains poor, but government efforts to improvethe business environment and upgrade the country's trade infrastructure,together with accelerated privatisation and a more export-friendly exchange-rate policy, should see improvements begin to appear. Exports will be boostedas local industry gradually realigns itself to take advantage of the raft of tax andother incentives the government is expected to offer over the coming twoyears. The region’s underdeveloped markets will also provide an opportunityfor local industry. Higher oil prices will raise the value of Egypt's exports overthe forecast period, while the increase in world trade will help non-oil exportgrowth. However, gas exports are unlikely to kick in before the end of theperiod; tricky negotiations with Israel over price and quantity have yet tobegin, while any liquefied natural gas (LNG) project will take three years tocomplete. We therefore expect exports to rise to $5bn in 2000, from $4.6bn in1999, increasing to $5.4bn in 2001.

The import bill is also set to rise, from $14.9bn in 1999 to $15.7bn in 2000 and$16.7bn in 2001, reflecting higher global non-oil commodities prices, therequirements of the major investment projects, and the stimulation of demandresulting from increased economic activity. The ensuing trade deficits will belarge. However, the current-account deficit will stay manageable, owing to agreatly improved services performance. Tourism will continue to post a strongrecovery and Suez Canal receipts will pick up with the revival in world trade. Inaddition, Egypt will make increased exports of media, financial and accountingservices to the region. Workers’ remittances will stay high, around $3.8bn/year,buoyed by the improved economic position of the Gulf oil economies. Therewill also be a steady flow of aid, not only from the US, but from the EU, in therun-up to the creation of the Euro-Med free-trade zone. Meanwhile, with Egyptexpected to remain cautious about increasing its level of external debt, in thewake of the Asian crisis, the country’s debt burden will stay manageable, withthe projected annual debt-service ratio dropping to under 10% by 2001. Thecurrent-account deficit is therefore expected to fall back to $1.7bn in 2000 andto $1.6bn in 2001 (equivalent to 1.7% and 1.6% of GDP, respectively).

The current-account deficitwill contract

14 Egypt


The political scene

In the worst incident of sectarian violence in Egypt’s recent history, 21 CopticChristians and one Muslim were killed, over 40 people injured and more than70 properties destroyed during clashes in early January in the village of AlKosheh in the Upper Egyptian governorate of Sohag. The unrest was sparkedby a fight on December 31st between a Christian and Muslim trader, whichescalated into a sectarian riot, followed by a series of gunfire and arson attackson Christians and their property. Rioting also spread to neighbouringcommunities, where Muslims attacked Christian-owned shops and a church.Sectarian violence is rare in Egypt, where relations between the majorityMuslim community and some 10m Coptic Christians are generally good. Thekillings therefore came as an immense shock to the nation and triggered awave of media debate, ongoing even a month after the events, discussing whatwent wrong, who should take the blame and what can be done to prevent suchan incident from happening again.

Despite some murmurings from officials about the role of "outside groups", itwas generally agreed that what happened in Al Kosheh was spontaneous massviolence, arising from latent tensions. The village’s predominately Christianpopulation is wealthier than its Muslim neighbours, and dominates local com-merce. The local police garrison, harshly criticised by the Coptic communityfor failing to arrest suspects and confiscate weapons after the first round ofviolence, or to stop the killings once they began, is mostly Muslim. Moreover,resentment from an incident in August 1998—in which the police wereaccused of arresting and torturing some 1,200 Coptic Christian villagers in thecourse of a routine murder investigation—still lingers. The incident attractedglobal attention, but those responsible were never prosecuted, although theinvestigation has recently been reopened by the new public prosecutor, MaherAbdel Wahed. The government is particularly sensitive to concerns over con-fessional strife, in part because these complicate Egypt's vital relationship withthe US, owing to the outcry they provoke from highly vocal US-based Copticgroups with backing from the US far-right. On this occasion the Egyptian

Sectarian strife erupts inAl Kosheh

Egypt 15


government reacted vigorously and publicly to the deaths in Al Kosheh, withno attempt made either to muzzle the media or cover up the sectarian natureof the trouble. Most analysts concluded that the violence arose from awidespread lack of awareness among the two communities of each other’sconcerns, and of the functions and teachings of their respective religions,leading to the development of deep-rooted misconceptions and suspicions.

In 1999 militant Islamist violence fell to its lowest level since the radicalIslamist groups took up arms against the government in 1992, with a total offour deaths, compared with 38 in 1998 and 184 in 1997. Only two incidentsoccurred, in July and September, and the former, an ambush of a police vehiclein Assiut, seems to have been more of a local settling of scores, with nomilitant group claiming responsibility. In the latter, a police raid on a hide-outresulted in the death of four members of Egypt's largest militant group, GamaatIslamiya. This was denounced by the Gamaat as a violation of an unwrittenunderstanding that those cadres honouring the unilateral ceasefire announcedby the group in March 1999—which has held—would be left alone. In lateNovember 1999 the Gamaat leader at the time, Refai Ahmed Taha, warned thatwhile the militant groups constituted a "safety valve" for society, continuinggovernment repression could provoke individuals to launch their own attacks,unauthorised by any group.

In a bid to end continuing deep divisions over policy in the Gamaat, as well asthe disintegration of the group in the face of harsh security policies at homeand the increased willingness of host countries to extradite wanted activists,the Gamaat announced in mid-December that a fugitive, Moustafa Hamza, hadbeen appointed the group’s new leader. Refai Ahmed Taha is believed to havelost his position following senior membership concerns over his attempts toalign the Gamaat with Egypt's other radical Islamist group, Jihad, with theeventual aim of joining the alliance founded by the Saudi dissident Osama binLaden. Formerly head of the Gamaat's military wing, and a prime suspect inthe 1995 assassination attempt on the president, Hosni Mubarak, Mr Hamza isbelieved to be in Afghanistan.

Despite the lull in the violence, government security policies have remainedtough. However, the large-scale release of imprisoned "repentant" militants hascontinued. Some 1,200 Gamaat members were freed in December, as theinterior ministry attempted to reduce the numbers of Islamic activists indetention (conservatively estimated at 20,000).

Political Islam continues to prove unacceptable to the government. In lateDecember the political committee of the Shura Council (the upper house ofthe Egyptian parliament) rejected an application by the Jihad-backed IslamicLaw Party to gain official status. The application from the Gamaat-supportedReform Party is expected to meet the same fate. Moreover, the state crackdownon Egypt's largest Islamist organisation—the Muslim Brotherhood—hascontinued, as part of a state strategy to keep the movement weak and dividedin the run-up to syndicate and parliamentary elections in 2000. The trial of20 leading Brotherhood activists, accused of "conspiring" to run for office inthe upcoming elections, began in a military court on December 25th. In

Islamist violence recedes—

—but the crackdown onpolitical Islam continues

16 Egypt


addition, four local Brotherhood leaders were arrested in Qena on December21st, and 19 students were arrested in Alexandria on January 23rd; all wereaccused of membership of the outlawed group.

In an unusually forthright speech on the need for greater politicalparticipation, the president used the occasion of the opening of parliament onNovember 13th to announce that he was sympathetic to "opposition attemptsto achieve a more balanced representation in parliament". He promised thatthe parliamentary election in November would be "clean and characterised byintegrity", and asserted that opposition was a necessary part of the politicalsystem, because it kept the ruling party "more active and dedicated to theinterests of the people." The president’s comments appear more an indicationof his dismay at the current poor state of the ruling National Democratic Party(NDP), which has been plagued by scandal over the past year, than a con-version to political liberalism. Nevertheless, for the opposition parties, long-used to marginal influence and frequent state repression from an inflexible andautocratic regime, this presidential backing for greater opposition represen-tation has come as something of a surprise, prompting considerable domesticdebate on political reform. The parliamentary speaker and stalwart of the NDP,Fathi Sorour, even admitted shortly after the president’s speech that a changeto a party-list system for the next general election would allow for a morerepresentative parliament.

One of the opposition’s primary demands is for a return to the slate systemused in the 1984 and 1987 parliamentary elections—when the opposition hada significant presence in the People's Assembly—under which candidates runcollectively on party lists. Under the current system, introduced in 1990,candidates run individually. However, in early December the parliamentaryaffairs minister, Kamal al-Shazli, announced that the individual candidacysystem would be retained. This reflects government concerns that the party-listsystem could be branded unconstitutional, as happened in both 1984 and1987, owing to its discrimination against independent candidates, and that itwould allow the Muslim Brotherhood to gain parliamentary representation.

Nevertheless, under pressure to act on the president's words, the governmentannounced on December 13th that the judiciary, rather than the interiorministry, would supervise voting in the forthcoming parliamentary election—another major opposition demand. The government appears to be hoping thatthis concession will quieten the opposition, allay international concerns aboutthe electoral process, and reduce election violence. The previous parliamentaryelection, in 1995, provoked strong international condemnation as the mostfraudulent in the country's modern history. The authorities were accused ofwidespread vote-rigging, ballot-box stuffing and intimidation, with the Islamistcandidates the main target of government interference. Some 51 people diedduring the campaign and 878 were wounded, making it the country’s mostviolent election.

However, there are insufficient judges to cover all of Egypt's 23,000 pollingstations and the government has rejected opposition calls to hold the electionover several days. Full judicial supervision is therefore expected to prove almost

The president offersexpanded democracy—

—including the judicialsupervision of elections

Egypt 17


impossible, which has led many analysts to conclude that the government isprimarily concerned with improving its international image. However, thegovernment has also indicated that it is intending to revise the terms "workers"and "farmers" in this election. Under the constitution, workers and farmers areentitled to one-half of parliamentary seats. This clause has been looselyinterpreted in the past, and is generally considered obsolete, now that Egypt’ssocialist system is in the process of being disbanded.

Amid tremendous public controversy over the role of women and the rights ofhusbands, the government imposed party discipline on its NDP deputies andensured that amendments to the personal status code—making it easier for awoman to obtain a divorce—were passed by parliament on January 27th.Introducing the traditional Islamic concept of khul to the statute books, awoman will now be able to gain a divorce, even if her husband refuses,provided that she returns her dowry and other gifts and waives the right toalimony. The law also provides legal recognition for the first time to urfi(unofficial marriages) and therefore allows the woman to file for a divorce incourt. However, in a move criticised by liberals as a sop to the Islamists,parliament removed a clause in the draft law which would have allowedwomen to travel abroad without their husband’s permission. Nevertheless, theamended law is a rare example of the regime investing political capital inpushing progressive social issues.

The resumption of peace negotiations between Israel and Syria in Washingtonon December 15th cleared the way for Egypt to attend the revived multilateraltalks in Moscow on February 1st. Despite considerable Israeli and US pressure,Egypt had remained adamant that the multilateral leg of the peace process—in hiatus for four years—could not be reconvened until progress had beenachieved on the Syrian and Lebanese tracks. Egypt’s foreign minister, AmrMoussa, stressed that multilateral negotiations could only support the bilateraltalks, not replace them. However, Egypt will now participate in the fourworking groups convened in Moscow, addressing the issues of regional econ-omic development, the environment, Palestinian refugees and water. It hasmade the revival of the fifth group, which deals with disarmament andregional security, conditional on Israel allowing international inspection of itsnuclear arsenal.

Egypt has made considerable efforts over the past quarter to forge a joint Arabstance on the peace process, now that substantive talks are underway and theprospect of Syria and the Palestinians adopting a joint negotiating positionremains as dim as ever. In a flurry of meetings in December and January,President Mubarak visited Saudi Arabia, Bahrain, Qatar and the UAE in mid-December, and Syria and Jordan on January 23rd-24th. On January 25th hemet with the Palestinian president Yasser Arafat, while on January 30th theIsraeli prime minister, Ehud Barak, arrived in Cairo. The Israeli premier askedfor much greater Egyptian involvement to push the struggling peace processforward. Egypt, highly concerned that the Palestinians may be sidelined asIsrael strives to conclude a peace treaty with Syria, was positive, but insistedthat Israel must abide by its signed obligations.

The personal status lawpasses parliament

Egypt joins the multilateralpeace talks

18 Egypt


Economic policy

The prime minister, Atef Obeid, made his first major policy speech onDecember 18th, setting out the government’s goals for the coming year to thePeople’s Assembly. In the speech, which was criticised by the opposition as an"election speech", in view of the forthcoming parliamentary poll, the primeminister made a number of highly ambitious—and highly expensive—promiseson social welfare. On the economic side, he said that the administration wascommitted to the application of market-based economic policies. In particular,he said that the government intended to raise the annual economic growthrate to 7% over the next decade, and to raise exports by 10% annually, toensure a greater supply of foreign exchange. The current exchange-rate systemwould be maintained, without a devaluation of the Egyptian pound, and aE£200m ($58m) fund would be established to cushion farmers against cropprice fluctuations. The unified labour law would be submitted to the People'sAssembly, " to regulate, in a more balanced way, relations between employersand workers in a market economy", and the administration would act againstcorruption, dumping, tax evasion and the smuggling of substandard goods.Work on the major national infrastructure projects would continue, with theaims of raising growth and modifying the population map, and the govern-ment would also endeavour to reduce foreign and domestic debt. To rationaliseexpenditure and restrain the growth of domestic debt (currently around 54% ofGDP, but over 80% if external public debt is included), Mr Obeid announcedthat the budget of the economic and public-service authorities—including theSuez Canal, the Egyptian General Petroleum Corporation (EGPC), and the tele-communications, electricity, railway and postal services authorities—would beseparated from the state budget in 2000/01 (fiscal year ending June 30th) forthe first time. On January 21st the prime minister announced that the NationalInvestment Bank (NIB), which finances state capital spending, would be placedunder the supervision of the Ministry of Finance, rather than the Ministry ofPlanning and International Co-operation, to improve budgetary supervision.

Structure of government domestic debta

(E£ m)

1993/94 1994/95 1995/96 1996/97 1997/98 1998/99

Securities 88,743 83,690 83,296 90,065 84,654 77,593 of which: T-bonds 38,007 40,959 39,848 40,446 35,446 40,843 T-bills 35,171 26,882 27,282 33,131 38,000 25,558

Government borrowing from NIB 28,359 36,599 44,642 55,459 68,884 78,961

Credit balances with banking sector –21,167 –15,276 –13,840 –20,031 –16,793 –9,528

Outstanding government debt 95,935 105,013 114,098 125,493 136,745 147,026

a Fiscal years ending June 30th.Source: Central Bank of Egypt.

The high level of public domestic debt is a cause for concern. A debutsovereign Eurobond may be issued over the next 12-18 months to lengthen thematurity of public debt, and the ministry of finance says that it is considering

The governmentoutlines economic policy

Egypt 19


issuing Treasury bonds with terms of up to 15 years to fund national infra-structure projects and set a benchmark for long-term private-sector borrowing.

With the economic team currently undertaking a major policy review—theshape of which has yet to be announced—the focus of the prime minister'sspeech was the social agenda. This was also a deliberate tactic to stress that thegovernment is not, as is popularly perceived, a government of big businessinterests, solely focused on selling off state assets, but to show that it alsointends to upgrade the situation of the mass of the lower-income population.The main social promises made were:

• The creation of 650,000 jobs per year. It was later announced that thiswould include 200,000 jobs to be created through loans offered by the SocialFund for Development (SFD) to small businesses; at least 200,000 jobs in theprivate sector, with the government paying the salary of the "trainees" for ayear; and 150,000 jobs to be found in government offices and agencies;

• The institution of a monthly pension of E£50 ($14.6), to be later raised toE£100 ($29.2). This will be awarded to the estimated 1m destitute familieswithout a breadwinner;

• The repayment, over a five-year period, of the savings of hundreds ofthousands of small depositors, which were lost when the Islamic investmentcompanies collapsed ten years ago;

• The continuation of subsidises for basic food supplies, water, electricity,public transport, education and housing units for youth, in addition to apledge to build 100,000 housing units annually;

• The improvement of the working conditions of government employees,including the expansion of the health insurance umbrella to cover all stateworkers—25m are already covered, leaving 10m lacking insurance, accordingto the ministry of health. In addition, junior employees will be allowedunlimited leave without pay to pursue other job opportunities, except in the"vital" services of the police, judiciary and education. Female employees will beallowed to remain at home to look after a family, on 50% of salary; and

Social concerns areemphasised

20 Egypt


• The extension of interest-free loans up to E£1,000 ($292) for impoverishedstudents, with repayment to be spread over 40 years. Furthermore, soft loanswill be awarded to workers and non-governmental organisations (NGOs) todevelop income-generating activities.

The prime minister's firm denial to parliament of any move to devalue theEgyptian pound followed widespread market speculation that the new govern-ment might be willing to inject some flexibility into the fixed exchange-rateregime, in view of the continuing shortage of dollars. The new governmentcame to power with a promise speedily to address the issue, which proved amajor factor in the fall of the previous administration. The minister of econ-omy and foreign trade, Youssef Boutros-Ghali, has consistently stated over thepast quarter that a new monetary policy—with the aim of permanently endingthe foreign-currency shortage—is in the process of being drafted. However, astatement in early December by the then chairman of the National Bank ofEgypt and the Egyptian Banking Federation, Mahmoud Abdel Aziz (who leftboth posts in mid-January) that a new exchange-rate policy had been agreedunder which the pound would float within a 3% band, was strongly denied bythe Central Bank of Egypt (CBE). Nevertheless, the Central Bank has recentlybeen more inclined to use Egypt's foreign-exchange reserves, now estimated tobe around $15bn, to add liquidity to the market.

Both local and international banks admit that the situation has eased some-what over the past few months, although they stress that the Central Bankcontinues to ration dollars, the market remains generally illiquid, and there isstill a huge pent-up demand for dollars. The release of more dollars onto themarket (compared with the chronic shortages over the summer months),added to strong government sanctions for currency violations, has seen dollarrates at moneychangers fall to E£3.47:$1 on February 2nd, from E£3.52:$1 onJanuary 13th and a high of E£3.73:$1 in August 1999. This compares with abank rate, closely monitored by the Central Bank, of E£3.42:$1.

Another result of more dollars coming onto the market has been a steady risein interbank rates, as Egyptian pound liquidity has increasingly been taken up.A Central Bank directive of November 24th advised banks not to extendfinancing against postdated cheques, which further reduced market liquidity.In early January the prime minister admitted that there was a pound liquidityproblem, as a result of "haphazard" unnecessary imports, but said that Egypthad begun to "rationalise" imports, starting with those of the government. Therise in interbank rates had been encouraged by the government, as it supportedthe pound and halted the previous expansion in domestic credit. However, onJanuary 16th the overnight interbank rate on the Egyptian pound reached over17%, the highest rate for more than three years, compared with 13% inNovember 1999 and the previous peak of 14% in July. While the rate has sincedropped, to around 13-13.5% in early February, the Central Bank has beenpressured into issuing ever larger repos, in a bid to ease rates down from suchunsustainably high levels. The tight situation has been reflected in a contrac-tion in narrow money (M1) of 6.5% in the third quarter of 1999, comparedwith the first quarter.

Monetary policy remainsuncomfortable

Domestic liquiditystays tight

Egypt 21


Money supply

(E£ m)

1998 1999 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

Money (M1) 48,248 51,593 51,660 58,577 61,620 58,174 57,592

Source: International Financial Statistics (IFS).

Following the removal of Kamal al-Ganzouri as prime minister in the Octobercabinet reshuffle, parliament and the press have made several attacks on themajor national infrastructure projects which were initiated during his tenure.The wisdom, cost and lack of transparency of the massive projects have beencalled into question, with the government accused of squandering Egypt’sscarce resources and refusing to reveal the true financial implications of theprojects. The revelation by the former prime minister in early January that thelargest mega-project, the Southern Valley development project (popularlyknown as Toshka) had been unwittingly approved by parliament, owing to theuse of a codename in the budget, provoked an outcry.

In response, the government has firmly insisted that the major projects will goahead, but has tried to provide more information, while placing the projectsunder greater official scrutiny. A review headed by the president, HosniMubarak, of five mega-projects—the port and industrial zones at Gulf of Suezand East Port Said, and land reclamation projects in Toshka, Darb al-Arbein inthe Western Desert and the El-Salam Canal—concluded in early December thatgovernment expenditure must be reduced and projects prioritised on a strictcost-benefit analysis. Public-sector companies have been banned from in-vesting in either Gulf of Suez or East Port Said, while investors have beenwarned that the two-year deadline to build the infrastructure on their land willbe strictly enforced. Moreover, a report submitted to the cabinet by theMinistry of Planning and International Co-operation has recommended thatthe government provide just 10% of the capital required by the mega-projects,channelling this to specific infrastructure requirements, and leaving theremaining investment to the private sector. The Toshka project, in particular,has been widely criticised, owing to the massive scope of the undertaking.

The government has moved to ease the much-criticised restrictions on imports,which were imposed in November 1998 in an attempt to halt the alarming risein the current-account deficit, which resulted from a jump in the trade deficit.Of particular concern to business was ministerial decree 619, which stipulatedthat imports would be accepted only if they were shipped from their countryof origin and accompanied by a certificate of origin verified by the authoritiesof that country. Decree 423 from the Ministry of Economy and Foreign Trade,published on November 8th 1999, states that although a certificate of origin isstill necessary, goods can now be imported from the main centre of the prod-ucing company, its branches or distribution centres. The ministry has alsorelaxed the requirement of a 100% cash cover for opening letters of credit forimports of intermediate and capital goods, and says that it intends to speed upcustoms clearance by creating a list of "law-abiding" importers, excluding those

The mega-projects comeunder scrutiny

Trade restrictions are eased

22 Egypt


importing food, who will only be subject to random customs inspections onroutine imports.

By November 30th 1999 the government had privatised 131 of the 314 public-sector companies originally targeted for privatisation, according to the latestfigures from the Public Enterprise Office (PEO), the state body overseeing theprocess. Transactions included the sale of majority stakes in 37 companies andminority stakes in 17 companies through public offerings, the asset sale orliquidation of 28 companies, 19 anchor investor sales and 28 companies soldto employees’ shareholder associations (ESAs). According to the PEO, saleproceeds from the privatisation programme stood at E£14.19bn ($4.2bn) atend-November 1999.

Revenue has been boosted over the past few months by a series of sales ofcement companies to international firms, highlighting the government's ap-parent resolve to offer more and larger companies for sale to recapture investorinterest. Following the acquisition by France's Lafarge of a 76% stake in BeniSuef Cement in July, the Mexican giant Cemex bought a 90% stake in AssiutCement on November 22nd for E£1.4bn. The remaining 10% was sold to thelocal company's ESA, which took the overall value of the deal to E£1.5bn,according to the prime minister, making it the largest privatisation undertakenin Egypt. Under the terms of the contract, Cemex was obliged to pay 77% ofthe value immediately, retain all employees and raise production capacity to4.5m tonnes/year. The UK's Blue Circle Industries (BCI) reached an agreementwith the government on November 30th to purchase a controlling stake of73.6% in Alexandria Portland Cement for E£589m ($173m). The price excludesnet debt of E£86.1m, which BCI says will be serviced out of the Britishcompany's existing debt facilities. BCI, bidding against Greece's Titan Cement,paid E£80 per share, compared with the government's price of E£90. Inaddition, the local Orascom Construction Industries (OCI) is bidding in com-petition with a joint venture of Lafarge and Titan for Amriyah Cement, in adeal which has been criticised for being against the spirit of privatisation.

The still largely public-sector Suez Cement bought a 65% stake in TorahCement on January 25th, after a bid by OCI was ruled invalid. This followed astatement by the minister for public enterprise, Mokhtar Khattab, that a hugeEgyptian cement entity should be established to keep 70% of cement prod-uction in Egyptian hands—the government is believed to have preferred theSuez bid, in order to retain some control over the strategic Cairo cement market.

Large flagship utility sales are planned for 2000. However, the poor shape ofthe utility sector, and the need for considerable restructuring if any priva-tisation offer is to prove successful, is delaying sales, despite the government’swillingness to move forward. On January 3rd some 19.5m shares inTelecomEgypt were listed on the united Cairo and Alexandria stock exchanges,at E£100/share, suggesting that privatisation was near. However, the minister ofstate for telecommunications and information technology, Ahmed Nazif,announced on January 26th that the public offering of a 10% stake had beendelayed for at least three months, to allow the government time to improvethe administrative structure of the company and adjust call prices. Minority

Privatisation nets at least$4.4bn —

—but utility sales aredelayed—

Egypt 23


stakes in the seven regional electricity companies, starting with Greater Cairo,were supposed to follow the TelecomEgypt sale, but the minister of electricityand energy, Ali al-Saidi, told a parliamentary committee on December 6th thatthe seven companies needed restructuring, and that the upgrading processcould take 18 months.

However, the railways, a state monopoly, are now open for partial privati-sation, owing to the need to reduce the drain placed on the budget by the stateeconomic authorities. The prime minister explained on January 8th that therailways have received around E£11bn in direct or indirect state subsidies overthe past decade, some of which has been used to pay debt instalments andannual interest payments totalling E£1.6bn. Officials say that the EgyptianNational Railway Authority has been given a three-year timescale to balance itsbooks; it is intending to employ a mixture of build-operate-transfer (BOT)schemes, the sale or rent of land to investors, private-sector management ofstation services, and the gradual handover of railway upgrading and main-tenance to private companies, in order to comply.

Of the 183 companies still awaiting privatisation, the government intends tooffer 90 for sale in 2000, with the remainder to be sold in 2001, according toMr Khattab. However, with most of the profit-making companies alreadyprivatised, the challenge is to reform and restructure the marginal and loss-making firms, prior to sale. To this end, the government has established a newfund for restructuring, into which one-half of the proceeds of privatisation willbe placed. This compares with the previous one-third of the funds set aside forreform and restructuring purposes. Some 62 ailing firms are to be restructuredin 2000, according to the minister, which will require early retirement schemesfor 46,490 workers, at a cost of E£4.2bn, and settling the firms' debts of someE£3bn with the state banks. The plan will begin with the restructuring of thespinning and weaving sector. The government has also said that it intends tosettle the E£4bn in debt it owes to the state contracting companies, a numberof which, in turn, owe considerable sums to the regional electricity companies(11 contracting companies are slated for privatisation in 2000).

Egypt’s status as a regional financial centre has been enhanced by a recentseries of acquisitions of shareholdings in local firms by international in-vestment banks. Citicorp International Finance Corporation, an affiliate ofCitibank, announced on December 22nd that it had agreed to take a 20% stakein the leading local investment house EFG-Hermes, for approximately $40m.Citicorp has a three-year option to increase its stake to 24%. Flemings CIIC, ajoint venture between the British investment bank Flemings and the localCommercial International Investment Company (CIIC—formally establishedon October 24th), acquired a 40% stake in Al-Ahly for Fund Management fromthe National Bank of Egypt in late November, with the intention of aneventual takeover. This follows the acquisition by the Dutch investment bankABN Amro of a 59% stake in the local brokerage house Delta EAB, and thepurchase by Morgan Stanley Dean Witter of a 27% stake in HC Securities &Investment.

—while restructuringgoes ahead

Citicorp buys into EFG-Hermes

24 Egypt


Egypt has been ranked 63rd out of 99 countries in the 1999 corruptionperceptions index (CPI), which is issued annually by the Berlin-based NGOTransparency International. The CPI score relates to the degree of corruptionperceived by business people, risk analysts and the general public, and rangesfrom 10 (highly clean) to 0 (highly corrupt). Denmark is considered the leastcorrupt nation, with a score of 10, while Cameroon is ranked the most corrupt,at 1.5. Egypt, with a score of 3.3, is on a par with Bulgaria, Ghana, Macedoniaand Romania. It just beats Guatemala and Thailand, but is ranked belowBelarus, China, Latvia, Mexico and Senegal. Of Egypt’s regional rivals for in-vestment, Tunisia is ranked 34th, Jordan 41st, Morocco 45th and Turkey 54th.

The domestic economy

Economic trends

Consumer price inflation has remained stable, at 3% or less, with anannualised rate of 2.4% in September, 2.3% in October and 3% in November.The latter rise was attributed by officials to a pick-up in international prices forfood and beverages. This brings the average inflation rate for calendar year1999 to 3.1%, compared with 4.2% in 1998, and the average inflation rate forfiscal year 1999/2000 to 2.7%, compared with 4.3% in 1998/99.

The independent Hermes index, which tracks the 39 most actively tradedstocks on the unified Cairo and Alexandria stock exchanges, rose by 42.5% in1999, while the independent EFG index, which contains the 15 large, capi-talised, high-profile companies in which foreign and institutional investors aremost inclined to invest, rose by 43.9% in 1999 to end the year at 6,029.However, after peaking at 6,582 on January 18th, the EFG index lost ground,and was trading at 5,879 on February 8th. Turnover on the stock exchange roseby 70% to E£39bn ($11.4bn) in 1999, from E£23bn in 1998. Market capi-talisation grew to E£112bn, from E£83bn at end-1998, while the average dailytrading volume increased by 67% to E£157m, from E£94m in 1998. Foreigntrading has also risen. Foreigners were buyers in 27.4% and sellers in 17.3% of

Inflation remains ataround 3%

Stockmarket indicatorsstrengthen

Egypt ranks 63rd incorruption perceptions

Egypt 25


transactions in 1999, compared with 18% and 22%, respectively, in 1998.However, Egypt’s fixed-income market remains small. By end-1999 just 27 cor-porate bonds had been issued, with a market capitalisation of E£14bn,compared with E£8bn at end-1998. The total trading value of the bond marketin 1999 was E£1.08bn, representing a mere 6% of the total trading value of thecapital market.

The rally which took place in the last quarter of 1999 and into January 2000was primarily driven by improved investor sentiment in the wake of theOctober cabinet reshuffle, particularly with regard to the privatisation pro-gramme. In addition, investors were encouraged by attractive valuations andpositive earnings reports, notably in the banking sector, as well as "overweight"recommendations from international securities firms. In a report issued onNovember 5th, the Dutch investment bank ABN Amro projected a 20% rise inthe Egyptian market by March 2000, with a possible 60% rise by November.The leading local investment house EFG-Hermes likewise projected a 30% in-crease in the actively traded market cap in the first quarter of 2000. Foreigninvestment continued to rise in the new year, centring on the few easily liqui-dated large cap stocks, such as those of the mobile-phone operator MobiNil,Commercial International Bank (CIB) and Orascom Construction Industries(OCI). However, MobiNil’s continued domination of the bourse in 1999—withthe company responsible for around 70% of trading and some 20-30% of themarket cap—has proved cause for concern, highlighting the chronic lack oflarge liquid stocks. Market participants are hoping that liquidity will be in-jected in 2000 through major privatisations.

The Ministry of Tourism announced in December that arrivals in 1999 werepersistently higher than in 1998—November arrivals, for example, were 41%higher than in November 1998—and were often above the levels recorded inthe peak year of 1997. A record 4.5m tourists are projected to have visitedEgypt in 1999, up from 3.5m in 1998 and 4m in 1997. The tourism industryappears to have recovered much more quickly than generally expected fromthe November 1997 Luxor massacre, in which 58 tourists died, plunging thetourism industry into sharp decline. This rapid recovery is attributed by in-dustry sources to a stronger focus on marketing, the diversion of tourists fromnearby markets such as Turkey and Greece in the wake of major earthquakes,and cheap prices. Prices have risen in recent months, as the tourism ministryhas worked with industry groups to position the country so as to attract higherspending tourists, moving it away from being a cheap mass-market desti-nation. However, revenue in 1999 will be below pre-crisis levels, because of thesubstantial discounts that have been offered to lure tourists back.

Tourism

Jan–Sep1993 1994 1995 1996 1997 1998 1999

Total arrivals 2,508 2,582 3,133 3,896 3,961 3,454 3,520

Total departures 2,221 2,343 2,881 3,375 3,664 3,074 3,161

Total no of nights 15,089 15,433 20,451 23,765 26,579 20,151 22,709

Average no. of nights 6.8 6.6 7.1 7.0 7.3 6.6 7.2

Source: Central Agency for Public Mobilisation and Statistics (CAPMAS).

Tourism recovers in 1999—

26 Egypt


The Suez Canal Authority (SCA) announced on January 1st that receipts fromthe waterway had increased by $60m in 1999, to a total of $1.8bn, mainly as aresult of discounts of up to 80% extended to longhaul journeys. Earnings in1997 were $1.76bn. The 1998 decline has been officially attributed to the Asiancrisis and to a 1.4% reduction in the value of the IMF’s special drawing rights(SDRs), in which Suez Canal transit dues are denominated. The SCA hasdecided to leave transit tolls unchanged for 2000, as they have been since1994. According to the SCA chairman, Ahmed Fadel, the freeze is due to fiercecompetition from oil pipelines, including the Suez-Mediterranean (SUMED)pipeline linking Egypt’s Red Sea and Mediterranean coasts, and other shippingroutes. Special discounts for certain Gulf countries and for oil and liquefiednatural gas (LNG) tankers will also remain in force. In addition, the SCA isintending to increase the canal’s depth, so that ships with a draft of 66 ft canbe accommodated by 2005 and those with a draft of 72 feet by 2010. This willenable giant oil tankers of up to 360,000 tonnes to traverse the canal.

Oil and gas

Egypt’s hydrocarbons prospects have improved significantly, following a seriesof finds in deepwater concessions off the Mediterranean coast. In early Januarythe petroleum minister, Sameh Fahmy, stated that these finds raised Egypt’s oilreserves to 8.2bn barrels, from the previous estimate of 3.7bn barrels. Naturalgas reserves jumped to an estimated 120trn cu ft, of which 42.5trn cu ft wereproven, from the previous estimate of 36.5trn cu ft. According to the establish-ment daily, Al Ahram, the minister’s estimates were based on the results of3D seismic surveys carried out by the international companies—British Gas,BP Amoco, and Royal Dutch/Shell—operating in these concession areas.According to Mr Fahmy, oil reserves are now valued at $164bn, of which thegovernment's share is $90bn (equivalent to 5.4bn barrels, according to an oilministry official, Mohamed Abu Zeid). The minister valued the gas reserves at$240bn, with the state’s share estimated at $120bn, or 60trn cu ft. The ministeradded that the reserves would ensure that Egypt would be self-sufficient in oilfor 25 years. They would cover the country's domestic gas consumption andexport needs for 100 years.

Egypt's crude oil production stood at 748,000 barrels/day in November 1999,compared with 806,667 b/d in November 1998, while natural gas productionwas 1.75bn cu ft/d in November 1999, from 1.4bn cu ft/d in November 1998,according to the latest figures from the state-run Egyptian General PetroleumCorporation (EGPC). Egyptian oil production has declined appreciably since1996, when it reached a high of 922,000 b/d, to around 866,000 b/d in 1998and an estimated 760,000-780,00 b/d in 1999. However, natural gas prod-uction, has continued to climb, owing to the sheer size of the Nile Delta gasbasin. Production is expected to rise to over 2.3bn cu ft/d in early 2000,increasing to 3bn cu ft/d by end-2002 and to 4bn cu ft/d in 2003, according torecent forecasts by the US Energy Information Administration (EIA).

—and Suez Canalreceipts rise

Hydrocarbon reservesrise steeply—

Egypt 27


With the prospect of such huge amounts of gas coming on stream, and thelikelihood that the local market will be unable to expand fast enough toconsume the gas found, Egypt is, for the first time, looking seriously to pro-mote gas exports. According to Mr Fahmy, after removing the foreign partner’sshare to be exported, Egypt’s revenue from gas will average $1.4bn-1.8bn/year.If more investments are made and export markets found, Egypt could gaindouble this amount—around $3bn/year. On December 6th the minister toldthe state daily Al-Akhbar that the export of gas was “vital”, owing to mountingpressure on the oil sector’s balance of payments. The minister explained thatoil and petroleum product exports were set to total $1.18bn in 1999, but thatimports would be higher still, at $1.26bn, producing a deficit of $81m. Thiscontrasts with a small surplus of $103m in 1998—when oil prices were low—and $861m in 1997. Although oil prices have recovered from their earlierlevels, the minister said that he still expected a deficit in 1999, owing to thecontinuing decline in oil production; an unexpectedly high local consumptionrate; the extra cost incurred by EGPC when it purchased part of the foreigncompanies' oil production to meet increased local demand; and EGPC's con-tractual requirement to purchase all of the gas production of foreigncompanies. According to Mr Fahmy, the latter will cost $638m in 1999, whilesome $312m of liquefied petroleum gas (LPG) is estimated to have been im-ported in 1999.

Faced with the need to bolster the position of its international partners whoare attempting to find export markets for Egyptian gas, the governmentformally authorised the export of natural gas for the first time on November17th. Little over a month later, on December 22nd, the office of the Israeliprime minister, Ehud Barak, announced that Egypt had agreed to exportnatural gas to Israel through the pipeline being constructed by Italy's ENI. Thepipeline will connect offshore gas fields around Port Said with the NorthernSinai capital of El Arish, via a tunnel under the Suez Canal. It is due to be com-pleted in October. Following completion, Israeli sources say that a new com-pany, linking the EGPC, the Egyptian businessman Hussein Salem and Israel'sMerhav Group—all partners in the new 100,000-b/d Midor oil refinery nearAlexandria—will be formed to construct and manage a $250m gas exportpipeline. This will stretch from El Arish, up Israel's coastline, coming onshoreat three locations to feed power plants at Ashdod, Tel Aviv and Haifa.Eventually, a network will deliver gas to other large industrial users, while thepipeline could continue up the coast to Lebanon, Syria and Turkey. Thepipeline could be completed within 18 months, suggesting that Egyptian gasexports to Israel could start by end-2001 or 2002. However, the Egyptianforeign minister, Amr Moussa, cautioned on January 17th that no tangibleprogress had been made on Egyptian gas exports to Israel, as there were anumber of long-term commercial issues which remained unresolved.

—pushing gas exports tothe forefront of policy

concerns—

—including the question ofexports to Israel

28 Egypt


Industry and services

The UK-based retail giant, Sainsbury’s, has become the first major internationalsupermarket chain to enter the Egyptian market. Egypt was chosen as the basefor Sainsbury’s Middle East operations, in the company’s first venture outsidethe UK and US markets, for several reasons. These include the country’s marketpotential—there are 65m people in a concentrated area, who spend some threetimes more of their income on food than do UK consumers; and Egypt’ssizeable, yet still largely unexploited, domestic food market, which, at E£18bn($5.3bn), is already larger than that of the Netherlands or Belgium, withsupermarket chains taking just some 5% of the market. The country’s politicalstability was also a pull, and the government provided considerable encourage-ment. On January 27th Sainsbury's first own-name hypermarket opened inEl Giza. This is part of the company's strategy to become a mass-market retailerappealing not just to the elite but to Egypt's emerging middle class, who ac-count for some 35% of market spending on food and homecare. Sainsbury'shas chosen to operate with an experienced local partner: in April 1999 it pur-chased 25.1% of the food retailer Edge, which operates about 90 small stores inmixed areas of Cairo. In June 1999 the joint venture bought 100% of the localretailer ABC, and in late October 1999 Sainsbury's increased its holding in Edgeto 80.1%, at a cost of E£225m, retaining the option to buy the remainder.

Production of own-label items is due to begin in March 2000, as the difficultiesand cost of getting goods through customs prevents large-scale importing fromthe UK on a long-term basis. Eventually, the idea is to cover the whole country,but initially operations will begin in the major population centres of GreaterCairo, Alexandria, and the satellite cities around the capital, such as Sixth ofOctober. The company believes that it has the potential for a chain of morethan 250 stores, translating into some 16,000 jobs, not including thoseinvolved in the production of Sainsbury's own-label products in Egypt. Theretailer has already invested E£500m in the business and E£40m in land-banking. Expansion plans for the next nine months will require anotherE£500m. Sainsbury's says that it is interested in being a part of "retail parks" inEgypt, but, although it has talked to other international retailers, many ofwhom are already operating in the Gulf, most are "interested but nervous", asEgypt is perceived as a difficult place in which to do business. Nevertheless,Egypt's retail space is projected to grow by ten times by end-2001.

Egypt's moribund and long-protected life-insurance industry has been openedup to competition, with the award on December 19th of a full operatinglicence to the private Commercial International Life insurance company (CIL—a joint venture between the British insurer Legal & General and Egypt's leadingprivate local bank, Commercial International Bank, CIB). Both partners hold a40% stake in CIL, while the International Finance Corporation (IFC) has takena 10% shareholding, and the local El Mansour & El Maghraby Investment &Development the remaining 10%. The venture is the first new insurancecompany to gain a licence since the passage of Law 156 in June 1998, whichremoved the 49% limit on foreign holdings in domestic insurers, and allowednon-Egyptians to hold top management positions. Starting in March, CIL will

Sainsbury’s enters theEgyptian market—

—and Legal & General setsup a life-insurance venture

Egypt 29


operate under the CIB group of companies, with a technical services agreementwith Legal & General and a strategic marketing agreement with CIB. CIL’s in-surance services will be marketed through CIB’s existing branch network, withthe initial strategy being to focus on CIB’s retail customer base of around100,000 people and its corporate base of 7,000-8,000 companies and businesses.

CIL’s current business plan projects a 25% market share within five years, butits managing director, Ian Viney, believes that the market is still extremelysmall, compared with its potential, should new companies and products beintroduced. Just nine people out of every 1,000 possess an individual life-insurance policy, while current investible funds stand at $3bn, compared withthe more usual 10-20% of GDP ($8bn-15bn in Egypt’s case). CIL estimates thatthe available market for life-insurance products in Egypt would be adequatelyserviced by 15-20 dedicated life insurance companies. Moreover, Egypt needs7-8 new life licences to be issued quickly. The general manager of the EgyptianInsurance Supervisory Authority (EISA), Yehia Abdel Ghaffar, admitted onDecember 7th that while life licences would be encouraged, the freeze on theissuance of non-life licences would remain in place, owing to the undevelopednature of the market.

EgyptAir’s long-held monopoly on domestic flights, bitterly resented by thelocal and international tourist industry as harmful to growth in the sector, hasbeen removed, following a meeting on January 20th between President HosniMubarak and the ministers of tourism, transport and information. At themeeting, a national strategy to double tourist arrivals to some 8m by 2005 wasplanned. International airlines will now be allowed to operate internationalflights to airports in resort areas, while the president is also believed to haveinstructed his ministers to allow much greater private-sector participation indomestic fights and in scheduled international flights on tourist routes.Previously, only charter flights were able to fly directly to Egypt’s resorts, withtravellers on international airlines forced into a lengthy stopover in Cairo tochange to the state airline. Travel agents had long complained that EgyptAirhad used its monopoly position in the domestic market to force travel com-panies to take its international flights, despite the airline’s reputation for poorquality and service. EgyptAir has strongly opposed the government’s adoptionof an "open skies" policy and its agreement to allow foreign competition. It hasmaintained that local private airlines should only be allowed to operate routeswhich EgyptAir does not fly.

On January 17th the minister of information, Safwat al-Sherif, announced thatEgypt planned to allow the operation of private satellite television and radiochannels in a new duty-free zone for the media, to be established in the Sixthof October satellite city, some 30km south of Cairo. The minister said thatPresident Mubarak had given preliminary approval for the zone, which willcover 3.5 sq km. It will offer the tax and customs exemptions and privilegesgranted to duty-free zones in Egypt, and will welcome Arab and internationalsatellite television channels, including eventually the offices of Arab and inter-national newspapers. The new state-run Media Production City is alreadylocated in the designated area: this venture was launched four years ago to

EgyptAir faces competitionon domestic flights

A new media duty-free zoneis announced

30 Egypt


attract the Europe-based Arab satellite channels such as ART, MBC and Orbitwith a low-cost working environment. When completed, the complex will in-clude 18 studios, outdoor and indoor theatres, a services complex, a film lab-oratory, hotel and cinemas.

There are currently no private television or radio channels in Egypt, but theminister has said that the cabinet will licence private Egyptian satellitechannels and set conditions for their capitalisation, work codes and censorshipregulations. Mr Sherif said that Egypt’s radio and television union would havethe right to be a partner in the private news channels, but that this would notentail “privatisation of the Egyptian media or infringement of existing ter-restrial broadcasting”. Ownership of the new free zone will be divided betweenthe Egyptian radio and television union, the Media Production City and thepublic-sector Egyptian Satellite Company (Nilesat). The private sector will beallowed a 50% shareholding, while foreign companies will be permitted to ownup to 20% of the venture, local newspapers reported. The government hasrejected press charges that the project appears to be aimed at outmanoeuvringJordan, which has recently announced similar plans. Analysts have noted thatneither zone is likely to prove successful unless efficient management andgenuine editorial freedom are offered.

As part of a national push to develop Egypt's technological base—an initiativestrongly backed by the president—the minister of state for telecommunicationsand information technology, Ahmed Nazif, has announced a three-yearE£1.1bn ($321.6m) information technology (IT) plan. This is designed to raisethe revenue of the country’s information industry from $50m to $500m withinthree years, and to $5bn in ten years. As part of the plan, the minister is aimingto increase the number of Internet users in Egypt from 250,000 to 1m within ayear, and to raise software exports from $15m to $1bn within three years, andto $2.5bn by 2009. Mr Nazif announced on December 4th that 23 technologyprojects would be created, including the establishment of new technologycentres and an advanced information network covering the areas of tourism,health and education; the creation of an industrial development board; andthe supply of computers to youth and children’s’ centres.

The ministry is also implementing a programme to bring tariffs in line withinternational norms, so as to make IT more accessible. The dues payable toTelecomEgypt for the use of a fax machine have been removed, and thestricture which banned ownership of more than one phone line per home hasbeen repealed. International call rates to most destinations were cut by around25% on January 1st, while the tariff on the leasing of international lines fordata transfer was cut by 25-50%. A 15-year licence has been awarded to theEgyptian Internet Company (EIC, capitalised at E£50m—$14.6m), to build anInternet “backbone” for Egypt, improving access to the country's 55 Internetservice providers (ISPs), as well as reducing costs. EIC's shareholders include thestate IT firm Ritsec, TelecomEgypt, the radio and television union and Egypt'sISPs. The informal pricing restrictions on Egypt's two private mobile operatorshave also been lifted. In addition, Mr Nazif has stated that he is negotiatingwith the Ministry of Finance to reduce customs duties on imported computers

IT development becomesa priority—

—and costs are beingreduced

Egypt 31


and components from 23% to 5%, in a bid to increase the scale of computerusage in Egypt. The final draft of a new unified telecoms law, filling the manygaps in the current legislation, should be completed by June, according toMr Nazif.

Efforts will also be made to improve the IT skills of the workforce; 25,000 soft-ware engineers are to be trained within three years. The government signed aco-operation agreement to promote the IT industry in Egypt with the US soft-ware giant Microsoft on January 12th. Microsoft will offer its products at lowprices—including software to some 100,000 Egyptian students for E£30 ($8.8)per student annually—and will extend scholarships for training universitygraduates. The cost of the protocol was not disclosed, but the government isexpected to have agreed to much stricter enforcement of intellectual propertyrights than is currently the case.

Foreign trade and payments

Exports of Egypt’s major agricultural crop, cotton, have come to a virtual stand-still, following a decree on October 27th to suspend sales of the popular exportvarieties Giza 85, Giza 86 and Giza 89, so that sufficient long-staple cotton willbe available for local mills. These varieties accounted for around 85% of exportsales commitments for the 1999/2000 season (September-August), and thedecision to sacrifice export growth for the struggling state textile producers hasproved highly controversial. Analysts note that Egypt’s mills lack the finance topay for imports of cheaper cotton and have therefore persuaded the govern-ment to allow them to use Egypt's higher-quality varieties—which fetch apremium on the world market—at a much reduced rate, under the pretext thatthis will allow the production of better-quality finished products for export.According to the public enterprise minister, Mokhtar Khattab, the change inpolicy will boost textile exports by 20%. However, the Alexandria CottonExporters Association (Alcotexa) has warned that the decision will jeopardiseEgypt's position in the world market, as longstanding clients are lost. Alcotexaestimates that it will lead to losses of over E£400m ($117m) for the country’scotton exporters.

Egypt attended the millennium round of negotiations of the World TradeOrganisation (WTO) in Seattle (Washington, US) on November 30th-December3rd, but showed little dismay at the failure of the talks. Angered by the ex-clusion of developing nations from the decision process, and the stress placedby the US and the EU on labour issues, the environment and civil society—allof which are seen by Egypt not as trade issues but more as an excuse forprotectionism—Egypt railed against the lack of transparency and fairness in thecurrent WTO system. The failure of the Seattle talks was, Mr Moussa noted, "aclear message that developing countries cannot accept the imposition of aneconomic system that will lead to the collapse of their industry and trade forthe advantage of the major countries." Egypt has said that it will continue topush for a properly functioning multilateral trading system, but will emphasisethe inclusion of the developing world and the need to address the faults of the

Egypt pushes thedeveloping-nation agenda

in Seattle

Cotton exports arecurtailed

32 Egypt


Uruguay Round (including the necessity that the developed world live up to itsobligations on free trade in agricultural products and textiles), before startingon other issues.

Egypt's annual aid package from the US has been approved by that country’sCongress. The package for 2000/01 (US fiscal year, October 1st-September 30th)comprises the usual $1.3bn in military aid, but economic aid declines by $80mfrom 1999/2000, to $735m. Washington and Cairo have agreed a gradualreduction in economic aid over the next ten years, to $400m in 2010. This willhave the dual effect of reducing the US budget deficit and reflecting the pro-gress made by the Egyptian economy. Military aid will not be affected.

The London-based international ratings agency Fitch-IBCA reaffirmed Egypt'sinvestment-grade sovereign rating of BB– on December 16th. The agencyassigned Egypt a short-term foreign currency rating of F3, and a long-term localcurrency rating of A–. In Egypt's favour, the agency cited the fact that thecountry had shown remarkable resilience in the face of the difficultiesencountered in 1997-98—including falling oil prices, the Luxor attack, and theAsian and Russian crises—which demonstrated the strength of its macro-economic and external positions. However, the agency warned that the steepdeterioration in the current account in 1998 emphasised potential vulner-ability, and the authorities were criticised for their handling of pressure on thefixed exchange-rate regime.

The agency expects Egypt's macroeconomic position to remain stable, as risingoil prices and tourist arrivals help to stabilise the current account, and dom-estic investment and GDP growth remain strong. However, while the reformprocess is believed to be on track, its pace has been gradual. Although theauthorities are aware of the areas which require attention, progress on matterssuch as improving the customs regime and facilities for imports and exports,reducing bureaucratic interference and privatising banks, has been halting.Moreover, the private sector has not taken full advantage of the process of lib-eralisation. This slow progress has been reflected in the low level and slowgrowth of non-oil exports and foreign direct investment (FDI).

US aid falls by $80m

Fitch-IBCA retains Egypt’sinvestment grade

Egypt 33


Trade data

Foreign trade($ m)

Total US Germany Italy France Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Imports cif 1995 1996 1995 1996 1995 1996 1995 1996 1995 1996

Foodstuffs 2,611.7 3,058.3 1,255.0 1,482.8 83.2 60.6 14.4 22.9 164.4 81.9 of which: cereals & preps 1,299.2 1,706.1 1,164.5 1,410.1 11.1 1.4 2.0 5.4 71.1 13.1Tobacco & manufactures 142.0 173.8 33.3 55.0 0.4 0.1 11.3 13.3 0.2 0.1Wood & cork 551.0 502.2 4.3 9.0 0.3 0.1 0.1 0.3 1.4 1.1Animal & vegetable oils & fats 510.3 513.1 52.0 48.8 2.0 1.0 0.1 1.0 12.3 12.9Chemicals 1,550.8 1,617.9 117.9 137.3 215.0 181.6 143.7 146.7 97.1 109.6Paper & manufactures 530.1 406.8 68.0 90.9 38.8 29.1 23.8 22.5 12.3 14.9Textile yarn, cloth & mnfrs 279.7 288.9 18.4 15.1 12.3 16.5 28.0 27.2 3.3 4.8Non-metallic mineral mnfrs 157.1 224.3 3.4 6.8 15.8 11.9 12.4 17.0 9.0 10.4Iron & steel 780.6 1,008.0 47.0 35.6 63.9 87.0 42.8 42.7 39.0 42.3Non-ferrous metals 153.6 149.5 8.2 14.0 12.2 15.9 15.7 14.2 5.8 6.4Metal manufactures 230.7 245.9 27.6 28.4 29.7 37.4 41.4 40.2 9.4 11.2Machinery & transport eqpt 2,969.3 3,315.0 359.0 439.8 472.6 532.2 328.8 427.3 282.2 233.8 of which: road vehicles 624.6 598.5 49.4 34.2 73.9 100.3 37.8 44.9 41.8 34.2 other transport equipment 24.7 23.9 2.3 8.0 3.0 3.8 0.2 1.3 0.1 0.2Scientific instruments etc 213.4 240.0 31.2 38.3 34.5 37.3 16.9 14.1 11.5 15.6Total incl others 11,739.0 13,019.6 2,211.1 2,608.8 1,044.6 1,089.2 731.1 870.9 685.2 577.1

UK Australia Russia Netherlands Japan Imports from Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec other countries 1995 1996 1995 1996 1995 1996 1995 1996 1995 1996

Total 379.8 441.4 123.8 386.2 405.3 370.8 381.4 363.5 314.0 344.9

Total US Italy Netherlands Israel Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Exports fob 1995 1996 1995 1996 1995 1996 1995 1996 1995 1996

Food 324.2 359.4 4.7 7.1 12.1 13.5 9.3 6.3 4.2 4.3 of which: fruit & vegetables & preps 206.8 170.0 1.6 2.0 10.4 11.0 8.8 5.9 2.1 2.2Cotton, raw 157.8 92.5 1.1 5.6 29.5 12.7 0.0 0.0 0.4 0.0Petroleum & products 1,231.8 1,634.8 257.0 236.4 229.1 277.4 65.0 232.2 148.3 324.1Chemicals 201.4 176.6 7.8 3.4 18.3 24.9 2.0 4.6 3.2 6.1Textile yarn, cloth & mnfrs 570.1 425.5 76.4 43.8 76.5 65.1 15.7 12.9 9.3 1.7Aluminium 197.6 185.1 0.7 0.2 48.7 13.0 42.0 78.7 0.2 0.0Clothing 252.5 239.3 143.5 135.4 8.9 6.2 8.2 10.4 0.2 0.2Total incl others 3,444.1 3,534.4 522.1 459.9 458.8 438.4 166.7 364.8 173.6 343.6

UK Germany France Greece Saudi Arabia Exports to Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec other countries 1995 1996 1995 1996 1995 1996 1995 1996 1995 1996

Total 142.4 165.7 207.1 162.9 144.3 144.7 137.3 142.4 113.1 122.7

continued

34 Egypt


Total US Germany Italy FranceJan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Imports cif 1997 1997 1997 1997 1997

Foodstuffs 2,684.6 703.8 61.4 52.3 246.5 of which: cereals & preps 1,258.4 593.9 0.7 10.7 161.8Tobacco & manufactures 163.5 43.6 0.0 18.1 0.3Wood & mnfrs 639.8 22.6 6.7 5.6 0.9Animal & vegetable oils & fats 488.2 70.7 2.8 0.4 13.1Chemicalsa 1,799.0 169.8 204.7 152.9 109.6Paper & manufactures 383.4 48.8 24.0 23.9 16.8Textile fibres, yarn, cloth & mnfrs 426.8 8.2 25.5 38.3 4.5Non-metallic mineral mnfrsb 234.9 6.7 14.8 22.4 16.2Iron & steel & mnfrsc 1,085.0 46.7 91.7 64.0 53.0Non-ferrous metals & mnfrsc 280.5 12.9 32.3 31.8 9.9Machinery & transport eqpt 3,510.2 396.3 579.4 454.9 282.7 of which: road vehicles & tractors 623.5 30.1 97.3 43.8 29.6 other transport equipment 104.0 2.3 9.6 1.6 0.7Scientific instruments etc 356.4 54.3 52.5 20.9 16.9Total incl others 13,168.5 1,719.8 1,141.8 929.9 805.4

Total US Italy Israel GermanyJan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Exports fob 1997 1997 1997 1997 1997

Food 272.6 5.9 7.4 5.5 15.9 of which: fruit & vegetables & preps 139.4 3.8 6.5 2.2 14.9Mineral fuels 1,772.9 196.3 150.1 298.1 90.9Chemicalsa 241.6 1.4 16.8 4.6 6.9Textile fibres, yarn, cloth & mnfrs 650.5 71.5 115.8 2.4 103.6 of which: cotton & mnfrs 496.5 40.1 96.5 1.8 87.3Aluminium & mnfrsc 162.3 1.9 46.9 1.4 0.8Clothing 258.7 152.0 5.8 0.1 29.6Total incl others 3,908.0 447.2 438.0 327.9 265.6

Note. Prior to 1997, SITC. From 1997, Harmonised System. Figures are not strictly comparable.a Including crude fertilisers and manufactures of plastics. b Including precious metals & jewellery. c Including scrap.Source: UN, External Trade Statistics, series D.

egypt - international university of japan...country report egypt the full publishing schedule for...

Documents