This action might not be possible to undo. Are you sure you want to continue?
Egypt at a glance: 2007-08
OVERVIEW The Economist Intelligence Unit is sceptical about whether the constitutional amendments that were passed in a referendum on March 26th 2007 represent a genuine advance in the process of political reform. Instead, the authorities are expected to continue to tighten political control, as many of the new amendments are likely to be used to curb civil rights. The government will, however, continue to press ahead with its programme of economic reform, based on an assessment that strong and sustainable economic growth to raise living standards is the best way to undercut the Islamists! appeal. Some privatisations and significant investment in the country!s infrastructure are expected in 2007-08. The current-account surplus widened in 2006, but we expect it to narrow slightly as a proportion of GDP over the next two years, owing to a widening trade deficit.
Key changes from last month Political outlook
• We have made no significant changes to our political outlook since last month. We are increasingly concerned, however, that the amendments will lead to a reduction in basic civil rights, and will facilitate election-rigging by removing judicial oversight of elections.
Economic policy outlook Economic forecast
• Our outlook for economic policy is broadly unchanged. • We have made an upward revision to our inflation forecast for 2007 and 2008, as the government is expected to move ahead with a decision to reduce fuel and energy subsidies further during 2007. This would lead to significant upward pressure on prices. We now expect inflation to average 8.8% in 2007 (up from 8.6% last month), and to fall to an average of 5.8% in 2008 (4.5% last month).
The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom
The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For 60 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8500 E-mail: email@example.com Website: www.eiu.com New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 E-mail: firstname.lastname@example.org Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: email@example.com
Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office
Copyright © 2007 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of 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 Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it.
Symbols for tables 'n/a' means not available; '–' means not applicable
Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.
3 4 5 5 6 7 7 8 9 12 18 24 24 26 27 29 32 33 35 Summary Political structure Economic structure
Annual indicators Quarterly indicators
Outlook for 2007-08
Political outlook Economic policy outlook Economic forecast
The political scene Economic policy The domestic economy
Economic trends Oil and gas Manufacturing Financial and other services Tourism Infrastructure
Foreign trade and payments
List of tables
9 12 20 24 25 26 31 32 33 36 37 37 International assumptions summary Forecast summary State finances, Jul-Dec Gross domestic product by expenditure Inflation Money supply Stockmarket index Suez Canal Tourism Current account, Jul-Dec Foreign reserves Public external debt
List of figures
Country Report May 2007
Gross domestic product Consumer price inflation
www.eiu.com © The Economist Intelligence Unit Limited 2007
Windfall privatisation receipts mean that the deficit for 2006/07 is expected to be about 5. but the current-account surplus expanded. The government has continued to crack down on any form of political dissent. to 6. The government will. Despite rising inflation over the past year.6% year on year. down from 7% in the previous quarter. lower than previously projected. Suez Canal receipts rose strongly in 2006. Some privatisations and significant investment in the country!s infrastructure are expected in the next two years. Ania Thiemann (editor). the authorities are expected to continue to tighten political control. Real GDP growth slowed slightly in the second quarter of 2006/07 (OctoberDecember 2006). The stockmarket climbed by over 10% between January and April.5% of GDP.8% in March 2007. as many of the amendments are likely to be used to curb civil rights. The draft budget for fiscal year 2007/08 (July 1st-June 30th) projects a strong rise in current expenditure. A controversial referendum on a raft of amendments to the constitution was brought forward in a surprise move. Instead. the Central Bank of Egypt decided to leave interest rates unchanged at its meeting on May 10th. David Cowan (consulting editor) May 10th 2007 Tel: (44.20) 7576 8000 E-mail: london@eiu. Egypt!s foreign-exchange reserves have increased markedly. thanks to strong capital inflows related to the privatisation of Bank of Alexandria. The rate of inflation rose to 12. owing to buoyant invisibles receipts.eiu. Popular resentment against Israel has risen following the arrest of several individuals accused of spying for Israel. The government has announced its new five-year plan. however. leaving little time for the opposition parties to prepare.com © The Economist Intelligence Unit Limited 2007 . the Muslim Brotherhood.com/schedule The political scene Economic policy The domestic economy Foreign trade and payments Editors: Editorial closing date: All queries: Next report: Country Report May 2007 www. The trade deficit widened in the first half of 2006/07 (July-December 2006).8% in 2007-08. and have made it almost impossible for the Muslim Brotherhood to lawfully participate in elections. which targets economic growth of 8% a year and seeks to attract private-sector investment and to use public-private partnerships.eiu. The amendments have removed judicial monitoring of elections. based on an assessment that strong and sustainable economic growth to raise living standards is the best way to undercut the appeal of the main Islamist group. continue to press ahead with its programme of economic reform.com Full schedule on www. Real GDP growth will average 6.Egypt 3 Egypt May 2007 Summary Outlook for 2007-08 The Economist Intelligence Unit is doubtful that the constitutional amendments passed by referendum on March 26th 2007 represent a genuine advance in the process of political reform.
the ruling National Democratic Party controls 255 seats September 2005 (presidential). its members won 88 seats in the 2005 election). parliament can pass a motion of no confidence in the prime minister National Democratic Party (NDP. November-December 2005 (legislative). The president is responsible for appointing and dismissing ministers. most recent amendments were passed in March 2007 Formally bicameral: the Majlis al-Shaab (People!s Assembly.4 Egypt Political structure Official name Legal system National legislature Arab Republic of Egypt Based on the constitution of 1971. The Majlis al-Shura (the Consultative Council. Following a change to the constitution in March 2007. directly elected. MPs serve a five-year term. Democratic Nasserist Party (no seats in 2005 election) Prime minister Key ministers Administrative development Agriculture Communication & information technology Defence Economic development Education Electricity & energy Finance Foreign affairs Health Housing & new communities Interior Information Investment Justice Local development Manpower & immigration Parliamentary & legal affairs Petroleum Public works & water resources Social solidarity Tourism Trade & industry Transport Farouk al-Okdah Ahmed Nazif Ahmed Darwish Amin Abaza Tarek Kamel Mohammed Hussein Tantawi Osman Mohammed Osman Youssry al-Gamal Hassan Ahmed Younes Youssef Boutros-Ghali Ahmed Abul Gheit Hatem al-Gabaly Ahmed al-Maghrabi Habib al-Adli Anas al-Feki Mahmoud Mohieddin Mamdouh Marei Mohammed Abdel-Salem Mahgoub Aisha Abdel-Hadi Abdel-Ghani Mufid Shehab Sameh Fahmy Mahmoud Abdel-Halim Abu Zeid Ali al-Sayed al-Moselhi Zoheir Garana Rashid Mohammed Rashid Mohammed Mansour National elections Head of state National government Main political parties Central Bank governor Country Report May 2007 www. al-Ghad (one). or upper house) was established in 1980 and has 264 members: 176 are directly elected and 88 are appointed.eiu. The People!s Assembly can require a minister to resign if it passes a motion of no confidence. the ruling party. the Muslim Brotherhood (officially banned: standing as independents.com © The Economist Intelligence Unit Limited 2007 . Next elections are due in 2011 (presidential) and November 2010 (legislative) President. The president may dissolve the Assembly at any time. who was elected for a fifth six-year term in Egypt!s first multi-candidate elections in September 2005 Council of Ministers headed by the prime minister. two). New Wafd Party (six). National Progressive Unionist Party (Tagammu. without needing the backing of a referendum. or lower house) has 444 directly elected members and ten additional members nominated by the president. Currently. 324 seats). Current president is Hosni Mubarak.
3 c 9.156 3.586 3.2 3.3 8.7 69. c Economist Intelligence Unit estimates.589 31.0 US$ m 5.3 4.8 7. textiles & garments Pharmaceuticals Agricultural products Main destinations of exports 2005 US Italy Spain India % of total 18.274 -21.1 11.0 c 2.1 6.688 % of total 10.9 7.84 2004 a 485.731 24.3 6.5 4.9 11.0 Components of gross domestic product 2004/05 Private consumption Government consumption Gross fixed investment Exports of goods & services Imports of goods & services Changes in stocks Principal imports cif 2004/05 Intermediate (semi-processed) goods Investment (capital) goods Petroleum & products Consumer goods Raw materials (excl petroleum) Main origins of imports 2005 US Germany China France % of total 71.2 14.273 30.6 6.com © The Economist Intelligence Unit Limited 2007 .0 9.20 2005 a 538.8 6.eiu.5 3.0 10. which ends on June 30th.3 72.9 84.609 34.723 13.7 107.9 74. iron & steel Raw cotton.3 7.8 5.2 4.975 3.6 30.073 -27.5 93.6 12. paid (%) Exchange rate (av) E£:US$ 2002 a 378.4 Country Report May 2007 www.207 20.803 4.2 4.202 2.237 14.546 -33. Origins of gross domestic product 2004/05 Manufacturing Mining (incl oil & gas) Agriculture Trade General government Transportation & communication Principal exports 2004/05 Petroleum & products Aluminium.7 6.6 7. yarn.895 3.987 -15. b Data for fiscal year.0 16.2 16.104 2.1 US$ m 6.73 a Actual.276 915 858 215 209 % of total 13.6 0.4 c 20. %) Population (m) Exports of goods fob (US$ m) Imports of goods fob (US$ m) Current-account balance (US$ m) Foreign-exchange reserves excl gold (US$ m) Total external debt (US$ bn) Debt-service ratio.3 c 5.462 31.9 6.3 4.50 2003 a 417.5 71.5 -30.250 -14.7 5.8 6.Egypt 5 Economic structure Annual indicators GDP at market prices (E£ bn) GDP (US$ bn)b Real GDP growth (%) Consumer price inflation (av.4 9.8 13.3 78.709 849 13.5 71.7 75.4 11.78 2006 a 617.8 7.3 12.242 30.200 2.
7 149. year on year) HFI stockmarket index (end-period)a Sectoral trends Crude oil production (m barrels/day) Foreign trade (E£ bn) Exports fob Imports cif Trade balance Foreign reserves Reserves excl gold (end-period.788 14.9 9.66 -31.69 13.169 0.466 4 Qtr 145.2 173.0 12.5 4.867 21.3 148.2 10.734 24.0 479.2 9.737 6.4 43.7 4. Oil Market Report.2 48.69 19.988 13.7 5.0 9.4 5. E£ m) M2 (% change.5 41.772 0.0 12.41 19.752 6.9 5.9 165.858 11.766 14.6 Egypt Quarterly indicators 2005 1 Qtr Prices Consumer prices (2000=100) Consumer prices (% change.633 13.0 12. 2 Qtr 127.822 17.70 12. Bloomberg.16 18. Oil Market Intelligence.5 55.30 -13. year on year) Wholesale prices (2000=100) Financial indicators Exchange rate E£:US$ (end-period) Deposit rate (av.077 0.69 20.93 21.792 4 Qtr 130.732 6.66 16.2 154. Sources: International Energy Agency. %) M1 (end-period.com © The Economist Intelligence Unit Limited 2007 .0 12.0 34.732 5.0 13.4 522.268 15.0 535.799 20.91 24.8 151.50 -12.6 101.046 0.2 494.2 151.9 5.876 Country Report May 2007 www.6 10.66 20.44 -29.0 5. %) Lending rate (av.6 109. year on year) M2 (end-period. E£ m) M1 (% change.27 -29.72 21.64 -26.8 12.704 5. %) Discount rate (end-period.0 3.eiu.68 20.609 2006 1 Qtr 131.85 22.60 -16.788 7.92 -7.9 9.68 -14.6 159.6 117.4 90.1 515. International Financial Statistics.280 2 Qtr 134.6 10.9 5.059 0.349 3 Qtr 140.7 561.21 -10. IMF.6 103.136 20.160 13.1 5.66 18.20 -27.043 3 Qtr 128.779 7.11 -8.30 -31.528 16.291 0.6 57.5 10.84 20.4 86.27 -29.0 13.0 12.9 5.3 7.360 0. US$ m) a Hermes Financial Index.0 13.752 7.0 8.8 5.0 582.774 0.6 n/a n/a n/a n/a 61.302 11.52 -8.1 100.0 3.59 -28.69 15.0 57.462 126.
The amendments are ostensibly intended to strengthen legal opposition parties and enable them to participate more actively in the political process. more than half of those they contested. as one of the changes removes judicial monitoring of elections. and which the government has argued will promote democracy. Hosni Mubarak. In fact. the reduction of judicial oversight of elections. was seen as heralding a possible future threat to the stability of the regime. The government will continue to clamp down on any dissenting voices. many of the amendments impose more restrictions on civil liberties. which were proposed by the president. organising public protests and street demonstrations. it appears to be an attempt by the regime to enhance its legitimacy and set up an apparently transparent framework to secure the succession of an approved candidate when Mr Mubarak dies or retires"possibly the president!s younger son. when they won 88 out of the 454 seats in the Majlis al-Shaab (People!s Assembly. one of the recently enacted constitutional amendments cements the ban on religion in politics. A rising pro-Islamist trend in Egyptian society is making the government particularly concerned to contain the Brotherhood. which remains the only opposition force able to mobilise substantial popular support. and the weakening of associations in which the Brotherhood has historically played a Country Report May 2007 www. despite the referendum on March 26th on 34 constitutional amendments. including the independent judiciary. which is likely to reinforce the NDP!s power at a local level. Although the movement!s leadership still seems to support a more circumspect.Egypt 7 Outlook for 2007-08 Political outlook Domestic politics There are few signs that political reform will make genuine progress in Egypt. At the same time. especially. it is possible that younger elements within the Brotherhood could seek a more imminent clash with the regime. as well as confronting the ruling NDP"which still holds around 70% of parliamentary seats"more openly in the People!s Assembly. The government clampdown on the movement is therefore likely to continue. However. the left-wing activists identified with the kifaya (enough) movement and. the banned Muslim Brotherhood.eiu. Gamal Mubarak. the Brotherhood has become increasingly assertive. with periodic arrests of key leaders. despite official denials. long-term strategy. the credibility of Egypt!s legal opposition is at a low point following years of failure to weaken the regime!s grip. Other means include the use of party lists in parliamentary elections. and there is also an increased risk of election-rigging. the opposition press. or the lower house of parliament). various legal expedients will be used to limit the group!s role in political life"for instance. The strong performance of affiliates of the Brotherhood in the parliamentary election in November and December 2005. Moreover.com © The Economist Intelligence Unit Limited 2007 . The Economist Intelligence Unit believes that the amended constitution is unlikely to lead to a loosening of the stranglehold of the president and his National Democratic Party (NDP) over the Egyptian political process. which will prevent individuals from standing as independent candidates. Since then.
although these are likely to come under more frequent strain if the situation in the Palestinian Territories continues to deteriorate.3% in 2004/05. Future reform is expected to continue along similar lines. and his reform-minded cabinet took office in July 2004. The country will maintain diplomatic relations with Israel. with new policy initiatives to fight poverty. partly owing to one-off costs attached to economic reforms. the government will only gradually reduce the general government budget deficit. although at a measured pace. In particular. Measures introduced so far have included sharp cuts in income tax rates and customs duties. the government will take note of popular concerns about privatisations.9% of GDP in 2005/06. but Egypt will also seek to strengthen its links with new allies such as Russia and China. As a result. the provision of social services. and begun to overhaul commercial legislation. Fiscal policy The central government deficit narrowed to 7. which is standard accounting practice in Egypt.8 Egypt leadership role. Country Report May 2007 www. Expenditure growth will remain strong in the outlook period. in an attempt to encroach on one of the traditional territories of the Brotherhood. and more moderate reductions in fuel subsidies. sustainable economic growth to reduce the relatively large public debt burden and to bring down the high level of unemployment.eiu. further igniting growing popular anger in Egypt and weakening the government!s ability to play its traditional role of regional mediator. especially in the more economically deprived areas of the country. The EU will remain an important partner in both trade and diplomacy. The US seeks Egyptian support in implementing its key Middle East policies. acknowledging the need for rapid. Ahmed Nazif. taking into account extraordinary revenue from asset sales. as the government is aware of the risk of social dislocation if its liberalisation programme moves too quickly. although the relationship will come under periodic pressure. encourage investment and improve access to social and health services. International relations Ties between Egypt and the US will remain strong. This is officially around 10% of the population. owing to such factors as US demands to liberalise the polity and Egyptian alarm at the strongly ideological nature of US policies under the presidency of George W Bush. To achieve this target the government will push ahead with economic reform and liberalisation. in part to improve access to finance for the private sector. The cabinet has also initiated consolidation in the troubled banking sector. although actual unemployment is likely to be closer to 20%. Economic policy outlook Policy trends The government!s five-year plan for the period from fiscal year 2007/08 (July 1st-June 30th) to 2011/12 includes an ambitious target for annual real GDP growth of 8%. of vested interests opposed to reform within the bloated state bureaucracy and"most importantly"of the effects on the poor of the proposed phasing-out of blanket subsidies on fuel and basic foodstuffs.com © The Economist Intelligence Unit Limited 2007 . the government will seek to enhance its own appeal. Finally. especially if the benefits of reform fail to !trickle down! to the general population. and Egypt relies heavily on US financial assistance and trade links. a process that began when the prime minister. from 8.
the measures are taking time to work appropriately. will start to fall again as a proportion of GDP.eiu.2 1. we forecast that the CBE will have to raise interest rates again in 2007 and 2008. However.5% of GDP.3 116.7 1. Given the government!s historical caution over contracting foreign debt.7 2.640 Country Report May 2007 www.7 3. This means that the domestic debt stock.75% and 10.2 115. rising inflation and high energy prices will continue to prevent the government from rationalising its payments on its social safety net (principally on basic subsidies).4% in 2007/08. On December 14th the overnight deposit and lending rates were raised by 25 basis points to 8.6 2.3% at end-June 2008.1 1. to a projected 96.2 110.246 0.com © The Economist Intelligence Unit Limited 2007 . However.75% respectively. Strong expansion in expenditure will be underpinned by increases in public-sector wages"driven by pledges made during the 2005 presidential and parliamentary election campaigns.5 104.3 3. Spending will also be pushed up by higher interest payments on the public debt stock.Egypt 9 In addition. However. Economic forecast International assumptions International assumptions summary (% unless otherwise indicated) 2005 Real GDP growth World EU27 US Exchange rates ¥:US$ US$:€ SDR:US$ 4. Coupled with windfall privatisation receipts. we forecast that the budget deficit will widen to 7. As inflationary pressures are likely to remain strong in the medium term. However. to around 5. Monetary policy The Central Bank of Egypt!s (CBE) monetary policy framework has been more coherent since the appointment of Farouk al-Okdah as governor in 2003. to partly offset expenditure growth. the budget deficit is likely to narrow substantially in 2006/07.680 2007 4.8% at end-June 2007 and 95.651 2008 4.9 1. which was an estimated 101% of GDP at end-June 2006.5 1.677 2006 5.3 2. and part of the proceeds will be used to pay down domestic debt.360 0. stronger growth in income tax revenue following the sharp cut in the rates of corporation and personal income tax in 2005/06 will combine with an expansion in customs receipts (owing to a rise in import volumes and despite a reduction in tariffs in February). privatisation will continue.0 3. even though private-sector activity is picking up.256 0. and rising expenditure growth. which has increased sharply in recent years.383 0. with fewer privatisations expected in the next 12 months. Under Mr Okdah the CBE has introduced a range of more sophisticated policy instruments and has begun to move towards targeting inflation as its main policy goal. A strong upsurge in inflation in the second half of the year prompted the CBE to increase its key intervention rates twice in 2006. we expect the deficits to be largely financed by local borrowing.5 2.
2 2006 0. as high inflation is eroding purchasing power.07 63. Over the next two years.2 6. after expanding at 7% in the first quarter. Although this is slower than the buoyant pace of growth in 2004-06.8% in 2005/06.3 62. World growth will. Prices will therefore not fall much below the average for 2006. it marks one of the better performances in recent decades. A much sharper and more prolonged fall in the dollar!s value is possible.47 4. thanks to the increasing weight in the world economy of dynamic emerging markets such as China and India.36:#1 in 2007 and US$1. We expect the price of the benchmark dated Brent Blend to average US$63.5 10. Despite an economic slowdown in the US. which are helping to lift the global economy as they continue to expand rapidly.3 58.9 2007 0.95 60. Bolstered by strong domestic demand. Economic growth Our outlook for Egypt!s growth prospects is generally positive.10 Egypt International assumptions summary (% unless otherwise indicated) 2005 Financial indicators ¥ 3-month repo rate US$ 3-month commercial paper rate Commodity prices Oil (Brent. and as privatisation of smaller state-owned companies continues.00 3.6 16. and income tax cuts have lifted private consumption. US$/b) Cotton (US cents/lb) Food & beverages (% change in US$ terms) Industrial raw materials (% change in US$ terms) 0. expansion will be substantially constrained by buoyant import growth. we expect investment to continue to be supported by buoyant business confidence. we forecast that the dollar will weaken against the euro (as well as against other major currencies) to an average of US$1.38:#1 in 2008"an important consideration given the prominent role that the Egyptian pound!s value against the US currency plays in Central Bank calculations. as the government presses on with its efforts to improve the business environment. remain strong.8 10. helped by continued. The robust performance of tourism and the government!s economic reforms are providing a boost to investment growth. spurred on by consumer and investment demand.28 5. recent data indicate that real GDP growth slowed to 6. However. oil-driven liquidity in the Gulf. A number of large-scale infrastructure projects will also sustain investment.1 49. we forecast that the world economy will expand by an annual average rate of 4.2 -14.eiu.66 5. However.3/b in 2008.3 2008 1. even if the increase in purchases of capital goods bodes well for the general strength of the economy.03 65. some modest cuts in production by OPEC and the return of the geopolitical risk premium.6% in the second quarter of 2006/07 (October-December).3/barrel in 2007 and US$60. real GDP grew by 6. The forecast assumes that prices will remain high this year on the back of strong demand. As the US economy slows.7% in 2007-08 (measured using purchasing power parity"PPP"weights). Regional GDP growth rates weighted using purchasing power parity exchange rates.7 55.2 Note. A small dip in consumer demand as purchasing power is eroded by Country Report May 2007 www. leading to a deceleration in household consumption growth.3 66. however.2 -0.com © The Economist Intelligence Unit Limited 2007 .38 54.8 0.
In 2007. the current-account surplus will narrow from 2. We therefore forecast that economic growth will rise marginally to 6. the recent imposition of export duties on steel and cement is likely to have a slightly negative impact on export growth in 2007. we are sceptical about whether the authorities will be able to bring the average rate of inflation down as far as we previously expected. buoyed by still-high oil prices and rapid economic growth. to an average of E£5. much of which will be related to the gas sector. as a proportion of GDP.72:US$1.3% in 2006 to 2% in 2008.com © The Economist Intelligence Unit Limited 2007 . before easing slightly to 6.8% this year and will fall to around 5. Even so.6% in 2007/08. which should result in an average exchange rate of E£5. We expect the authorities to attempt to manage a slight depreciation in 2008 for the benefit of non-oil exports. leading to another round of price increases. The expansion in the invisibles surplus will just be sufficient to offset the widening trade deficit. will just offset a rise in hydrocarbons export earnings from gas as well as an increase in non-oil export revenue.7% for the year. Despite a much-improved monetary framework. and we expect consumer prices to remain high in the first half of 2007. to 12. However. to an average of around US$13bn. as the rise in tourism revenue.eiu.8% year on year. fuel prices would rise. inflation rose again in February-March. on the back of strong domestic demand and rising food prices.9% in 2006/07.73:US$1 in 2006. Price growth in the second half of 2007 and in 2008 should be constrained by the stability of the pound against the dollar (and other major currencies) and by a favourable base-effect as last year’s price increases fall out of the year-on-year comparison. Moreover. the Egyptian pound appreciated for most of 2006. the competitiveness of Egyptian exports has not been significantly dented. from an average of around E£5. Consequently. averaging 7. if the government succeeds in cutting energy subsidies. The trade deficit will widen in 2007-08. However. held back by slower expansion in international trade and high domestic interest rates. As a result of strengthening foreign-currency inflows and major improvements in the policy framework. workers! remittances and receipts from the Suez Canal more than offsets the increase in profit repatriation. leading to a small increase in the current-account surplus in US dollar terms. After stabilising in January. Exchange rates External sector Country Report May 2007 www. Inflation Inflation rose strongly in 2006. we forecast that inflation will average 8.8% in 2008. robust import growth means that real economic expansion is likely to slow gradually from the second half of calendar 2007. with confidence in the currency robust and continued inflows of foreign capital. The non-merchandise surplus will widen gradually. However. owing to the extent of the wider depreciation of the pound since the start of 2000. However. we forecast a small further appreciation. Strong import spending.69:US$1. growth rates will still be almost twice as high as in the early part of the decade.Egypt 11 high inflation in 2007 and 2008 will be offset by strong investment demand in both years.78:US$1 in 2005 to an average of E£5.
2 2.9 13.2 34.4 31.47 7.7 12.0 3. and a full ten days earlier than the date initially set for the referendum (February 2007. as many believe the amendments are designed to further entrench Country Report May 2007 www. Most of the opposition parties ended up simply calling for voters to boycott the referendum. less than a week after parliament had finalised the text of the amendments.2 2.12 Egypt Forecast summary (% unless otherwise indicated) Real GDP growth Industrial production growth Gross agricultural production growth Consumer price inflation (av) Lending ratec Government balance (% of GDP) Exports of goods fob (US$ bn) Imports of goods fob (US$ bn) Current-account balance (US$ bn) Current-account balance (% of GDP)d External debt (year-end. With no time to prepare a campaign.91 a Actual.19 2007 b 6.9 -5.0 1.0 4. Gross domestic product (% change.93 7.3 -7.2 7.6 -7.9 20. d Ratio based on calendar year GDP.75 2008 b 6.0 6. US$ bn) Exchange rate E£:US$ (av) Exchange rate E£:¥100 (av) Exchange rate E£:€ (av) 2005 a 4.com © The Economist Intelligence Unit Limited 2007 08 0.0 30.1 31.8 2.3 e 5.1 2. e Economist Intelligence Unit estimates. The short notice with which the referendum was brought forward took most observers (and the opposition) by surprise.5 33.0 6.eiu.6 5.1 -8. year on year) Egypt (a) Middle East & North Africa Consumer price inflation (av.4 2.72 5.0 5.0 2002 03 04 05 06 07 08 2002 03 04 05 06 07 (a) Fiscal years ending June 30th.78 5.2 4.9 10.25 7. The political scene Controversial referendum is brought forward A raft of 34 amendments to the Egyptian constitution was passed in a referendum on March 26th. the opposition was left powerless to oppose the government!s pro-constitution publicity campaign. national accounts use fiscal year.7 3.0 8.0 3. urging the population to vote !yes!. The political scene).8 10.1 5. which culminated the day before the referendum when cars with loudspeakers were spread out across the country.0 2.8 12.7 2.69 4. %) Egypt Middle East & North Africa 8.0 7.0 10.2 5.20 2006 a 6. b Economist Intelligence Unit forecasts.6 7.0 4.0 2.0 12.5 26.92 7.7 5.8 45.3 31.73 4.0 2.1 27.5 5.5 3.0 .2 3. c Annual average.5 39.3 16.5 8.3 4. and in effect prevented a public debate on the amendments.8 13.
The day after the referendum. but these were mostly prevented or cut short by the government. However. including the creation of the NCHR. a UK-based non-governmental organisation. with even the state-sponsored National Council for Human Rights (NCHR). backed up by anecdotal evidence of near-empty polling stations. On March 18th around 100 MPs left parliament and joined groups of protesters on the streets outside. which estimated that the turnout ranged from 2% to 5%. the opposition!s boycott was largely a token gesture. including members of the outlawed Muslim Brotherhood. Mamdouh Marei. refused to investigate the claims. in 2005 the NCHR had been responsible for election monitoring and. a redistribution of some powers among the president. preventing them from voting. as the security forces on the day of the referendum were reported by the local press to have kept known members of the opposition.eiu. Activists who had attempted to stage a protest in downtown Cairo were met with riot police who attacked demonstrators and arrested 13 individuals. The debate in the People!s Assembly provoked particular controversy. and followed the endorsement of the proposed text by the Majlis al-Shura (the Consultative Council. a former UN secretarygeneral and former foreign affairs minister. or lower house) on March 19th. some civil society monitors were prevented from observing polling stations. issuing a statement that !voter lists were inaccurate. a number of activists have taken legal action to contest the referendum results. but the police sealed off the surrounding roads. Before the final vote in parliament. in their homes. the justice minister.com © The Economist Intelligence Unit Limited 2007 .Egypt 13 the dominant position of the ruling National Democratic Party (NDP). Amnesty International. However. Various human right groups also criticised the fairness of the referendum. which is chaired by Boutros Boutros-Ghali. the prime minister and parliament. entitled Egypt—Systematic abuses in the name of security in mid-April that condemned the constitutional amendments as the !greatest erosion of human rights in 26 years!.9% of those who did vote approved the amendments. The government responded by saying that it has taken several steps to improve democracy in Egypt. local authorities in some provinces organised mass voting.1% of registered voters and that 75. As a result. and some electoral officials intervened in the voting process and sometimes filled in ballots!. several attempts were made by opposition groups to stage public demonstrations in order to alert the wider public to the nature of the amendments. despite eye-witness descriptions of fraud. these figures were strongly disputed by a number of human rights groups. preventing the demonstration from going ahead. The main changes to the constitution include a removal of the references to Egypt being a !socialist state!. changes to the rules governing Presidential powers remain largely unchanged Country Report May 2007 www. announced that the turnout had been 27. or upper house of parliament) on March 13th and by the Majlis al-Shaab (the People!s Assembly. In the end. released a report. with opposition MPs"including 88 independents affiliated to the banned but tolerated Muslim Brotherhood and a number of representatives from the much smaller legal opposition parties"boycotting much of the session. although these are unlikely to achieve much. Police crack down on opposition protests The referendum was the final stage in the process of passing the amendments into law.
democratic norms. However. making the passing of budgets a formality with little prior discussion.! With regard to the redistribution of powers in government. (Previously. If the Assembly is dissolved over a particular matter. the speakers of the Majlis al-Shaab and the Majlis al-Shura [the lower and upper houses of parliament respectively]!. Article 127.) Changes to the executive and legislature Article 74. the changes are largely cosmetic. the president is incapacitated. and the two chambers cannot be dissolved while these powers are being exercised. for example. which will have to find additional revenue to balance the budget. Emergency powers The president can invoke emergency powers only !after consulting with the prime minister. Article 136. The People!s Assembly no longer needs the endorsement of a popular referendum to force the prime minister to resign against the president!s wish. Delegation of presidential powers If the president is incapacitated or impeached. the new Assembly cannot be dissolved over the same matter. in a significant change.14 Egypt political parties and elections. even though the proponents of the reforms may be factually correct when they argue that the amended constitution is more in line with Western. and the laying of the groundwork for future antiterrorism legislation. Hosni Mubarak) if. and really serve to entrench the dominance of the president in the political system. not on individual items. critics Country Report May 2007 www.! If it requests a change that would increase expenditure. the president can now dissolve the lower house without having to resort to a referendum. and the prime minister can assume the role of vice-president (a post that has long been left unfilled by the current president. Article 115. this must be approved by the government. the prime minister and the People!s Assembly has changed slightly. it could only vote on the budget as a whole. given the massive and unassailable majority of the NDP in both houses of parliament. who appoints and dismisses him. The balance of power between the president.com © The Economist Intelligence Unit Limited 2007 . the president must accept it. As a result. Articles 82 and 85. and the People!s Assembly is unlikely to confront the government. the prime minister can deputise for him if there is no vice-president.eiu. Dissolving the Majlis al-Shaab !The president shall not dissolve the Majlis al-Shaab unless it is necessary and after consulting with the prime minister. Another change gives parliament more power over fiscal policy. This is likely to change following the amendment. Voting on the budget !The Majlis al-Shaab can change the items of expenditure in the draft budget except for those used to repay a specific obligation on behalf of the state. as the People!s Assembly can now amend the state budget article by article. The prime minister remains unlikely to oppose the president. Dismissing the prime minister If the Majlis al-Shaab votes to dismiss the government !with a majority of one-third of its members!. The president is now required to consult the prime minister in a wider range of circumstances.
Changing the electoral law !The law can stipulate a system combining an individual and party slate system. Parties and elections Article 5. Political activities cannot be religious !Any political activity or political parties cannot be based on a religious frame of reference or religious basis. which not only gives parties just ten years to increase the number of parliamentary seats they control to 3% of the total in order to allow them to nominate Country Report May 2007 www. The candidate must have been a member of the party!s senior leadership !for at least one continuous year!. in practice the small secular parties may prefer to co-operate with the NDP in order to expand their narrow bases of support. The political scene). The amendments will further reduce its freedom of manoeuvre. as it did in 1980s. which unnerved the government by winning 88 seats in the 2005 parliamentary election"far more than any other opposition grouping. An existing law forbidding political parties based on religion already prevents the Brotherhood from gaining party status.! Article 76. however. Since then. The law can also stipulate a minimum quota for the representation of women.eiu. with around 220 members in custody in April. or on the basis of race or gender. or the equivalent in one of the two chambers!. The new wording of Article 62 strongly suggests that a fresh electoral law will be drafted to bring in a mixed system of party lists and individual candidacies for parliamentary elections. for the next ten years. The use of the latter term is significant as it has been extensively adopted by mainstream Islamist parties elsewhere. in accordance with a proportion to be defined by law. any party with at least one parliamentary seat can field a candidate.! Article 62. Muslim Brotherhood is disadvantaged by changes The constitutional changes are likely to have a negative impact on the future electoral prospects of the Muslim Brotherhood.Egypt 15 point out that the overall effect will be to reinforce the political status quo in Egypt. according to the movement!s deputy leader. legal (and secular) opposition parties. but the incorporation of this prohibition in Article 5 of the constitution rules out any prospect of challenging it in court. which is tolerated by the authorities. which"depending on the proportion"could severely limit the number of seats the Brotherhood would be able to contest. preventing !any political activity! based on religion or even with a religious !frame of reference!. However. Mohammed Habib. such as the Parti de la justice et du développement in Morocco. Although in theory the Brotherhood could seek partners among the legal opposition parties. on presidential elections. New system of party lists is another obstacle New changes to the voting system are also likely to disadvantage the Muslim Brotherhood to the benefit of the other. it has faced a gradually tightening security crackdown (February 2007. This difficulty is underlined by the new wording of Article 76. Nomination of presidential candidates Parties putting forward nominations must have !at least 3% of elected seats in each of the Majlis al-Shaab and the Majlis al-Shura [the lower and upper houses of parliament respectively]. It is also framed in much broader terms.com © The Economist Intelligence Unit Limited 2007 .
told Al-Ahram Weekly. will still need substantial support from within the NDP itself: they must be supported by at least 230 MPs and members of municipal councils. elections were held over several days to ensure that a judge could be present at each polling station). Independent presidential candidates. announcing that the movement was !studying the issue!. Tahani al-Gebali. and argue that women cannot be judges because. Government attempts to divide the judges Country Report May 2007 www. The removal of full judicial supervision comes in the context of an ongoing deterioration in relations between the judges and the government (February 2006.eiu. However. The Muslim Brotherhood currently has only 88 of the former and none of the latter. ruling out the option of endorsing a popular independent candidate.) A Muslim Brotherhood spokesman. has taken full advantage of the opportunity to display its more liberal credentials.com © The Economist Intelligence Unit Limited 2007 . filed a lawsuit against a judge. a local English-language newspaper. Abdel-Monim AbulFotouh. and although ultimate oversight will be managed by a judicial commission. This is virtually impossible to achieve for an independent candidate. already sits on the Supreme Constitutional Court. A committee belonging to the Cairo Judges! Club (the judiciary!s independent professional association) is already preparing a report on alleged vote-rigging incidents during the constitutional referendum itself. that the raising of the issue had been timed to !divert the attention of judges away from their battle for reform and for complete judicial supervision of elections! and !help the state redirect its own confrontation with judges into a superficial conflict between male and female judges!. Hamdi Wafiq. according to sharia (Islamic law). In March the justice minister. A spokesman for the Muslim Brotherhood parliamentary bloc.16 Egypt presidential candidates. Mr Abul-Fotouh expressed concern that the lack of full judicial supervision was likely to result in electoral abuses. However. accusing him of libelling the president" although Mr Mubarak later intervened to ask the minister to withdraw the case. Hamdi Hassan. although one woman. individual polling stations will no longer be supervised by judges. The judges' political role is reduced Opposition groups have also expressed concern over the changes to the role of the judiciary instituted by the constitutional amendments. meanwhile. the government appears to have divided the ranks of the reformist judges by its move in March to appoint a group of 31 female judges"the first who will actually be able to hold hearings in Egypt. as in 2001 and 2004. Article 88 of the constitution now specifies that elections must be conducted in one day (previously. The electoral implications of the change will be put to an early test on May 10th. The political scene). a woman!s legal testimony is worth only half that of a man. The government. Mr Marei. likely to boycott the election. by contrast. A number of the most critical judges have Islamist leanings. in which the polling stations were not supervised by judges. refrained from giving an opinion in April. announced in early April that the movement will be fielding candidates. but also stipulates that nominees must have been senior party figures for at least a year. Ahmed Mekki. (The secular opposition parties are. One reformist judge. in the election of one-third of the Consultative Council. however.
this suggestion has not quelled the criticisms from those who suggest that the new anti-terrorism legislation is likely to be used against the government!s non-violent political opponents. In a recent report condemning Egypt!s human rights record. ruled that the decision to refer the Muslim Brotherhood members"all of whom are civilians"to a military court was not valid. 44 and 45. was also detained on suspicion of !membership of an illegal organisation! and !defaming Egypt!s image!. Article 173 now makes it clear that these are to be treated as separate and independent from the civil judiciary. Although neither of these two persons had participated in any demonstration or public protest. in early May. the civilian courts are still being used against anyone who openly criticises the regime. New anti-terrorism legislation is likely to make it even harder to voice dissent. should be referred to a military tribunal on terrorism-related charges. This article lays the ground for new anti-terrorism legislation. was sentenced to four years in prison for !inciting hatred of Islam! and !insulting the president! (whom he called a !symbol of dictatorship!) online. according to the parliamentary and legal affairs minister. the donation of funds to organisations suspected of links with !terrorist groups!. The new legislation is currently being drafted by the Legislative Committee of the People!s Assembly.com © The Economist Intelligence Unit Limited 2007 . At the same time. one of Egypt!s appeals courts. privacy and dissent. However. which protect the rights to free speech. They point to Mr Mubarak!s order in early February that 40 senior Muslim Brotherhood members. Mufid Shehab. the certification of preachers and the building of mosques. including the movement!s third-in-command. It will regulate police powers to detain suspected !terrorists!. the Economist Intelligence Unit did not know whether the government would appeal the ruling. In February an Egyptian blogger.Egypt 17 New 'terrorism' crimes can be tried in military courts The role of the judiciary will also be limited by new constitutional provisions for military and state security tribunals. while Article 179 allows the president to refer unspecified crimes of !terrorism! to such tribunals. As this report went to print. Dissenters are brought to court Country Report May 2007 www. anti-terrorism co-operation between Egypt and international bodies. it is proposed that appeals should be considered by a new Supreme Military Appeals Court made up of five military judges.eiu. Abdel Karim Soliman. overriding constitutional articles 41. whereby only the president can overturn military tribunal rulings. Abdel Moneim Mahmoud. Concern over the planned law is being further fuelled by ongoing reports of torture and other endemic abuses within the state security system. the rights of suspects in custody. and stated that the 40 members" 33 of whom are in custody. posting their criticism on the Internet was sufficient to receive prison sentences. In April a Muslim Brotherhood online activist. with seven others being tried in absentia"must be tried before a civilian court. and is expected to be ready within six months. Mr Mubarak in late March asked the government to change the law to allow suspects tried before military courts to have the right of appeal. However. the Administrative Court. Khairat al-Shater. Amnesty International expressed its fear that the new law would !entrench patterns of abuse witnessed in the past 40 years!. Instead of the current procedure. Apparently in response to criticism of the proposals to increase the role of military courts in trying suspects.
This ongoing. an Egyptian holding Canadian citizenship. political and security co-operation between the two countries is unlikely to be seriously affected by periodic public disagreements over regional issues. and Egypt has a long-standing role as a mediator in the dispute between Israel and the Palestinians. Mohammed al-Beltagui. This followed the detention in January of Mohammed al-Attar. provoked an outcry in Egypt. made in an Israeli television documentary in February. as part of a crackdown on crossborder smuggling in response to Israeli complaints. the Qualified Industrial Zone agreements (giving Egyptian goods made with Israeli inputs preferential access to US markets) cancelled and supplies of natural gas to Israel ended. and investment expenditure by 15% to E£35. these demands in themselves demonstrate the extent to which Egypt!s economic relations with Israel have created common interests between the two countries. Separately. Moreover. total revenue is projected to be E£184. According to a local newspaper. several incidents have increased tensions since the start of 2007. causing the Egyptian head of intelligence. to cancel a planned meeting at the Israeli Ministry of Defence. press reports suggest that current expenditure will increase by just over 14% compared with the 2006/07 budget. In mid-April it was announced that a nuclear engineer at Egypt!s Atomic Energy Agency.1bn is tax receipts. Economic policy Expenditure is projected to increase by 14% in 2007/08 The draft budget for fiscal year 2007/08 (July 1st-June 30th) is currently under discussion in the National Assembly (parliament). on similar espionage charges. the two countries are co-operating closely on security issues related to the Sinai border. However. of which E£120. quiet economic. to E£242bn (US$42bn). Mohammed Sayyid Saber Ali. including by members of the NDP. These were universally criticised in Egypt.7bn. who has long acted as a mediator between Israel and the Palestinians. The final budget deficit for 2006/07 is in fact expected to be smaller Country Report May 2007 www. the draft budget projects a widening of the central government budget deficit compared with the estimated outturn for 2006/07. As a result. Egypt asked the International Committee of the Red Cross to investigate claims that Israeli forces executed Egyptian prisoners-of-war during the 1967 conflict between the two countries. and caused one Egyptian MP affiliated to the Muslim Brotherhood.18 Egypt Popular feeling against Israel rises Although Egypt is one of the only Arab countries to maintain normal diplomatic relations with Israel. Although full details have not yet been published. expenditure on subsidies is projected to increase by 26% to E£64.com © The Economist Intelligence Unit Limited 2007 . Al Ahram. In February Egyptian police were reported to have detained a Palestinian crossing into Egypt from the Gaza Strip and planning to set off suicide bomb among Israeli tourists in a southern Sinai resort.eiu. Tensions had also been raised earlier in the month by the controversy over Israeli excavations near the Al Aqsa Mosque in Jerusalem. had been arrested on suspicion of spying for Israel. in early April.5bn (both in comparison with the 2006/07 central government budget). The allegations.5bn. Omar Suleiman. In addition. In early April Egyptian security officials also uncovered two new tunnels from Rafah in Sinai into Gaza and arrested one man. to demand that diplomatic relations be broken off.
projects total government investment spending of E£1.eiu. the government!s principal source of income. by 53% (compared with a figure of 11% for the full-year in the budget). Mahmoud Mohieddin.4bn. predicted in March that the fiscal deficit in 2007/08 would move back up to about 7% of GDP. The budget projects a rise in investment spending that will be focused on the health.4% in 2005/06 (and compared with a projected deficit of around 7-7.2trn (US$210bn) over the five-year period. Osman Mohammed Osman. This is in line with the priorities set out in Egypt!s 2007/08-2011/12 five-year plan. Given the seasonal nature of income tax collection. These windfall receipts are expected to have reduced the central government budget deficit to around 5.5% of GDP. also announced in late February that the new five-year plan called for the private sector to channel E£720bn into investment projects. Rising subsidies on basic consumer products. this remained in line with the government!s stated long-term policy of reducing the overall fiscal deficit by an average of 1% of GDP annually over the next five years. in terms of the longer-term trend. Income tax proceeds climbed especially sharply. as Mr Boutros-Ghali acknowledges. which rose by just over 39% compared with the same period of the previous fiscal year.4bn. Mr Boutros-Ghali added that the expected tax returns would be E£7. tend to accompany market reforms. This compares with a projected year-on-year increase in the original 2006/07 budget of just under 10%. likely to be lower than the six-month figure. which sets an ambitious target of 8% real GDP growth a year. Youssef Boutros-Ghali. underlining the unexpectedly rapid impact of recent fiscal reforms.Egypt 19 than budgeted owing to windfall receipts. This reflects the success of a major publicity and outreach campaign designed to raise awareness about the fiscal reforms. housing and pensions are intended to offset the widening income disparities that. Country Report May 2007 www. In spite of Egypt!s large fiscal deficit.000 new jobs. which lowered the income tax rate to a flat 20% for all incomes above a minimum level (August 2005.5% for 2006/07). Fiscal revenue rose strongly in the first half of 2006/07 Data published by the Ministry of Finance covering the first six months of the current fiscal year (July-December 2006) show a strong increase in government revenue. The economic development minister. Economic policy). such as Upper Egypt. according to the investment minister. The plan. especially in relatively deprived areas. According to Mr Boutros-Ghali. compared with 9. by early May a total of 3m taxpayers were estimated to have filed tax returns for 2006/07. which would provide up to 750. This reflects the government!s response to criticism that the benefits of recent economic reforms and buoyant economic growth have not resulted in an improvement in the living standards of the poorer strata of Egyptians. education and infrastructure sectors. the total percentage increase in tax receipts for the full fiscal year are. (presumably from the privatisation of Bank of Alexandria in late 2006 and the sale of a third mobile-phone licence). which was discussed by the cabinet in early March. The finance minister. government expenditure is set to continue to increase despite the government!s assurances that it intends to tackle the deficit. He argued that.com © The Economist Intelligence Unit Limited 2007 . Total income tax returns in the previous fiscal year had brought in E£4. which rose by 25% year on year to E£43. however.4bn. Much of this increase came from tax revenue.
810 Actual % change 25. Expenditure on subsidies. largely driven by a doubling in expenditure on goods.8 1.351 Overall. by contrast.3 68. Jul-Dec (E£ m unless otherwise indicated) 2005/06 Revenue Taxes Income tax Property tax Taxes on goods & services Taxes on international trade Other taxes Grants Other revenue Returns on financial assets Proceeds on sales of goods & services Other Total revenue Expenditure Wages & salaries Purchases of goods & services Interest payments Subsidies.2 124. Nevertheless.381 6.4 17.2 20. Source: Ministry of Finance.685 2.4 -0.805 76.0 6.0 -15.8 7. despite a 500% year-on-year surge in the net acquisition of financial assets.0 53.371 2.411 2.2 -7.8%.6 -19.8 9.5%. Over 90% of these payments were on domestic debt.002 9. The sharpest rise was in interest payments. As a result. This could be an indication of a much-needed increase in capital spending to upgrade dilapidated equipment in the public sector. Purchases of goods and services increased in value by nearly 50% (compared with an anticipated 12%).1 14.5%"compared with a 6.860 27.223 9.8 6.0 6.6 38.045 504 397 19.8 18.079 84.8 2.373 620 16.5 - Budgeted % change a 7.482 9.715 71.980 17.6 12. which went up by more than 83% to constitute 21% of total spending. Economic policy). in line with the 2005 election promise of the president.985 21.285 5.027 4.4 -45.4 83.3 18. Spending on wages and salaries rose by 18.3 2. grants & social benefits Other expenditure Purchases of non-financial assets Total expenditure Net acquisition of financial assets Budget balance a Between 2006/07 budget and 2005/06 budget. to increase publicsector pay.592 22.576 20.472 2. 2006/07 43.7 119. spending rose more rapidly (or contracted less sharply) than the full-year projections in the 2006/07 budget. largely as a result of the cuts in petrol subsidies implemented in mid2006 (August 2006.406 21.875 16.3% rise in the 2006/07 budget.5 49. to nearly E£3bn.962 495 15.7 -3.1 0. fell by 7.713 13.8 10.3 n/a - 34. the overall budget deficit Country Report May 2007 www.1 65.1 10.707 4. just overtaking subsidy spending to become the largest single expenditure category.8 9.587 24.2 39.4bn in December 2006"a substantial 65% of GDP. in both cases.1 25.20 Egypt The deficit narrowed despite strong spending growth The finance ministry data for July-December 2006 also show a strong increase in expenditure of around 17. with gross domestic public debt standing at E£476.eiu. the rise in expenditure in the first six months of the fiscal year was more than offset by the higher than forecast increase in government revenue over the same period. State finances.com © The Economist Intelligence Unit Limited 2007 .0 12.913 5.046 4. grants and social benefits.251 54.5 504.152 1. Hosni Mubarak.881 486 321 32.6 -0.986 -10.842 494 -17.
5% of GDP at the half-year mark. are also intended to reduce domestic prices in the face of international price increases. the government will now focus on the sale of a number of smaller state-owned firms. The reduction in tariffs on food products. Over the past three months. 20% of its shares could be put up for sale. Although government officials estimate that initial revenue losses could reach E£1. and the sale of a majority stake in EgyptAir. The government also recently announced a moratorium on privatisations in the cement sector"largely to stem the rising price of cement (see The domestic economy: Manufacturing)"and it has also made it known that neither public banks nor national press institutions would be put up for sale in the near term. Between July 2006 and March 2007 the sale of 15 companies and stakes in five others earned the government around E£3. which generated E£9. Instead of large-scale privatisations. which is a lengthy process. the stateowned airline. including foods. according to Mr BoutrosGhali. to reduce import tariffs by around 25% on average.8bn"the equivalent of around 1. especially in key public services sectors such as the health sector. The move. Of the remaining large state-owned firms. The pace of the government!s privatisation programme. raw materials. The privatisation programme appears to be stalling Country Report May 2007 www. is to sell off some 45 companies this year.3bn. Despite the good performance. cutting duties on a variety of goods.4bn. capital goods and some medicines. the government has announced the indefinite postponement of several high-profile divestments. which began in 1999. The government!s policy is to not sell monopolies. on account of its !strategic importance!. the timing of tax collection and projected year-end expenditure are likely to result in a wider deficit for the overall fiscal year. many are loss-making and cannot be sold until they have been restructured. The number almost trebled in 2005/06.Egypt 21 narrowed sharply. to E£10. Tariff adjustments aim to stabilise domestic prices One reform that is likely to have an impact on government revenue in this fiscal year and the next is the government!s decision. brings the weighted average of tariffs down from 9% to 6. excluding the massive one-off sale of an 80% stake in Bank of Alexandria. The Bank of Alexandria sale seems set to be the last high-profile privatisation for some time. the state-owned monopoly. However. including the longawaited sale of a stake in Eastern Tobacco. generating E£15. with priority given to EgyptAir employees. taken in early February. particularly as the government is keen to avoid redundancies in order to maintain public support for its privatisations.eiu. In 2004/05 a total of 28 sales brought in receipts of E£5. including staples such as wheat and sugar. however. speaking in London in March. The target. the cuts" especially those on raw materials"are ultimately expected to boost economic activity and investment. In addition.3bn. the government is attempting to speed up the ongoing process of public-sector restructuring and encourage new public-private partnerships (PPPs). as indicated by Mr Boutros-Ghali in March. has started to slow.9%. textiles. to 66 sales. the sale of a minority stake in the Middle East Oil Refinery (Midor). in October 2006. which followed a 40% reduction in late 2004.1bn.com © The Economist Intelligence Unit Limited 2007 . resulting in total projected receipts of around E£15bn-20bn.6bn.
in the form of subsidies on utility bills. in order to avoid destroying an important social security net.22 Egypt Government wants to boost private-sector investment The government is also seeking to encourage PPPs in public services sectors such as education. Mr Mohieddin said in March that the government hopes to raise around US$2. and the legislation is expected to be passed by parliament in its current session. according to Mr Mohieddin. but also through direct incentives to qualified investors. As investment remains focused on the more industrialised north of the country. Therefore. The purpose of the zones"which have no special tax privileges and can be easily set up by privatesector firms"is to allow investors to deal with a single state entity for all purposes. The laws creating the government!s long-promised special economic courts. FDI reached US$3. which will speed up the judicial process for businesses (August 2006.com © The Economist Intelligence Unit Limited 2007 . as discussed by the cabinet in March. Public-sector reform will progress only slowly The government is also seeking to address the problem of inefficient and overstaffed public administration. a one-stop shop. Even so. The plan aims to encourage the building of 150 new factories to create 60. and Mr Mohieddin said that he expects it to rise to as much as US$8bn over the full twelve-month period. was launched in mid-February. this initiative is also aimed at increasing foreign direct investment (FDI) in the Egyptian economy. health and infrastructure. The zones were approved by the cabinet in late March. including for wastewater treatment plants and for the upgrading of the railway network. This was cited as one of the most important remaining obstacles to higher growth in a March 2007 IMF working paper. which concluded that !reforms in this area should continue to have high payoffs!. The government is nonetheless seeking to insulate investors from the slow pace of public-sector reform by creating new !investment zones! that will largely negate the need for investors to have to deal with cumbersome bureaucracy. reducing the number of public-sector employees through dismissals carries significant political risks. The emphasis is especially on deprived areas such as Upper Egypt (February 2007. Economic policy). The first tender. These are likely to attract more investor interest.000 new jobs.5bn within 18 months through PPPs. for the construction and management of 300 schools. are also due to be approved by parliament this quarter. through natural wastage and a hiring freeze. and the government!s rather ambitious target is to have nearly 2. which is the focus of a new three-year plan launched by the government in early April.2bn in the first quarter of the current fiscal year. labour charges and customs dues. the government would like to open up new areas for investors by improving the infrastructure and utility coverage.eiu. Country Report May 2007 www. Economic policy). not only through projects to improve road links and social services. including a more reliable supply of gas. As well as boosting the domestic private sector. which are co-ordinated through a special unit in the finance ministry. Other tenders.000 more schools tendered by the end of the year. are also expected to be offered soon. the government will attempt to reduce the size of the 5m-strong bureaucracy only gradually.
a local non-governmental organisation. the Central Bank of Egypt!s Monetary Policy Committee (MPC) has kept interest rates stable since the latest increase in December 2006 (February 2007. although annual rates would remain high until the base-effects from last year!s increase in fuel prices levelled off. close down the offices of the Centre for Trade Unions and Workers Services.Egypt 23 Small-scale labour strikes continue in manufacturing Since late 2006 Egyptian firms have been facing a growing number of strikes in the manufacturing sector. Many of these strikes are still on a relatively small scale.6% year on year in February.and second-round effects of the bird flu crisis and mid-2006 subsidy cuts" and price growth should therefore ease without further intervention. in favour of more informal leadership. Despite strong pressure on the MPC to raise Country Report May 2007 www. heads the Council for Coordinating Monetary Policy (CCMP) makes monetary tightening more difficult.com © The Economist Intelligence Unit Limited 2007 . in late March. In a press release published on March 22nd. The mood is also spreading to other workers in other sectors. However.eiu. this does not seem to be of great concern to the government. the MPC justified its decision to keep the overnight deposit rate at 8. This claim was strongly rejected by the Central Bank which pointed out that monetary policy decisions were made by the MPC on a !confidential and discretionary! basis without involving or informing the prime minister. and will start publishing the core measures of inflation discussed in MPC meetings (which are expected to be lower than the headline figures).75% on the grounds that it believed inflation was likely to be nearing its peak. the industrial action has been bypassing the official trade unions. the bank intends soon to move to a formal inflation-targeting regime with the assistance of the IMF. The MPC argues that the recent rise in inflation is partly due to supply shocks"including the first. which was a result of the government!s expansionary fiscal policy. the role of the CCMP is to discuss general policies and to agree an !implicit inflation target!. an investment bank. a two-year high. Although the strikes have been seen as a rejection by the workers of the privatisation programme. Central Bank keeps interest rates on hold. some analysts dispute this interpretation. however. which has in any case made it a policy to safeguard jobs at privatised firms. which are largely controlled by the ruling National Democratic Party. a country with a relatively underdeveloped civil society and a lack of independent (non-state) trade unions. the strikes are technically illegal under Egypt!s 2003 Unified Labour Law"although for now the government appears to be avoiding cracking down too hard on the strikers. Morgan Stanley also noted that the fact that the prime minister. Tareq Amer. The most prominent demonstrations and sit-ins have been led by textile workers. industrial action is unusual in Egypt. As a result. At the end of March. published a report claiming that current inflation levels were a symptom of economic overheating. Morgan Stanley. despite criticism Although consumer price inflation rose to 12. It did. working hours and healthcare.75% and the overnight lending rate at 10. and have been kept under control by a series of concessions over questions of pay. Economic policy). provoking protests from Egyptian and international civil society organisations. According to the deputy governor of the Central Bank. However. Ahmed Nazif. By contrast. especially in factories in Al Mahalla al-Kubra and in Kafr al-Dawar. including train drivers and flourmill employees. Moreover.
the foreign balance turned negative.8 6. b Contribution to GDP growth.1 4.6 7.6% year on year from 7% year on year in the first quarter.2 14.8 2.0 32.8 12. As a result.1% year on year.8 23.5 3.1 -4.8 3. Export growth also slowed in the second quarter. overall growth remained buoyant.9 Year 4.7 4.3 7.0 0.6 2005/06 1 Qtr 3. although it is too early to determine whether this is the main reason.0 -1. Nonetheless. to 13% year on year.eiu.7 7.8 33.1 42.6 4 Qtr 5.4 22. the Egyptian economy continues to post robust growth. a Including inventory building.6 Year 6.5 19. import growth continued to rise. constant prices.4 -2.0 4. Buoyed by strong demand.1 13.5 3 Qtr 4.2 17. subtracting 4.3 22.3% in the first quarter.2 26.4 21. Country Report May 2007 www.1 26.1 17.8 1.0 2006/07 1 Qtr 3. imports of capital goods continue to increase and therefore the Economist Intelligence Unit is confident that the largest share of the increase in investment spending continues to be capital formation.9 6. to 26. but we remain concerned that high inflation may have continued to erode purchasing power in the third quarter.6 14.5 14.1 -1.5 10.3 14. unless otherwise indicated.9 29.6 10.9 43.4% in the first quarter.8 -1. fiscal year 2001/02) 2004/05 2 Qtr 3. Gross domestic product by expenditure (% change.6 Household consumption Public consumption Investmenta Exports Imports Foreign balanceb Total GDP (factor cost) Source: Ministry of Economic Development.1 49. boosted by strong growth in real fixed capital formation (investment) and a pick-up in government consumption.8 10.8 percentage points from overall economic growth.0 6. to 6.8 4.3 2 Qtr 6.2 0. The continued appreciation of the Egyptian pound against the euro may account for part of the slowdown.6 -3.7 8.7 0.6 7.9 4 Qtr 10.2 0. The increase in government consumption is mainly due to higher capital spending (see Economic policy).3 20.0 2 Qtr 3.com © The Economist Intelligence Unit Limited 2007 .0 3 Qtr 5. Household consumption on the other hand remained subdued as rising inflation continued to undercut disposable incomes. The ministry does not disaggregate the national accounts data. Overall.4 -1. and hence it is not possible to give a breakdown of investment spending between capital formation and inventory building.3 9. especially in the construction sector.1 18. However.8 6.1 1. arguing in its press statement that it believes that inflation has currently peaked.3 0.1 3. year on year.24 Egypt rates.8 23.3 7. real GDP growth slowed slightly in the second quarter of fiscal 2006/07 (October-December 2006). The domestic economy Economic trends GDP growth slows in the second quarter According to the most recent quarterly data from the Ministry of Economic Development. following expansion of 21.1 28.9 4. following strong expansion of 22.8 -0. at its meeting on May 10th it decided to leave its rates unchanged.9 2.2 23.7 5. Export growth is likely to have remained subdued in the third quarter (January-March 2007) owing to the export duties imposed by the government in late February (see Manufacturing).
4 0. the Central Bank has kept interest rates on hold.4 Consumer price index % change. on the contrary.2 Apr 140. but M2 growth remains strong Country Report May 2007 www.4 Jun 144.8 3. have continued to rise strongly. among others.9% a year earlier. to 16% year on year in the third quarter.4 1. as a result of the impact of bird flu on domestic food prices.0 Oct 153. in late April parliament began discussing a proposal from the government to steadily reduce fuel and energy subsidies. but. appears to have been broken. with the aim.7 Sep 149. However. The domestic economy: Economic trends). which has been the long-term average growth rate for the past two years.7 4.4 0. the link between Egyptian pound liquidity and foreign-currency deposits (a proxy for dollarisation). However.6 5. Inflation (fiscal year 2001/02=100) 2006 Mar 138.5 Jul 146. as the deceleration in Egyptian pound liquidity was not M1 growth slows.7 Nov 154. we are sceptical about whether this will be the case. averaging 12. a rate of 17% remains high.8 0. month on month Source: Central Agency for Public Mobilisation and Statistics.3 Mar 156.5 Dec 154. the result would be even higher inflation in the remainder of the year. Food prices.com © The Economist Intelligence Unit Limited 2007 . Even so. is pushing inflation up in a price-wage spiral.4 1. stating that it is confident that price growth will start to ease once the base-effect of the increases during 2006 falls out of the year-on-year comparison.3 1. The rising inflation is a result of the pass-through effect of these increases on the wider economy. Second. and of a general increase in food prices across the region because of a poor harvest in many areas of North Africa in the second half of 2006. The rising inflation rate in the second half of 2006 was also underpinned by robust money supply growth.9 0.4 May 142. Domestic energy prices could rise again this year Despite rising inflation.7 0. from 21. growth in Egyptian pound liquidity continued to decelerate. For the first time. at 13% year on year. The rate of inflation has been rising steadily since March 2006. but underlying money supply growth figures point to still-strong expansion in both narrow and broad money.5 11.Egypt 25 Inflation continues to rise in the third quarter Inflation continued to rise in the third quarter of 2006/07 (January-March).9 8. Broad money supply (M2) remained virtually unchanged in the same period. however.5 Feb 155. year on year % change.5 1.7% in the previous quarter. which account for almost 39% of the basket of goods on which the consumer price index is based.7 12. The IMF!s International Financial Statistics releases data with some delay. because of the government!s decision to reduce fuel subsidies. as a result both of the ongoing epidemic of bird flu. to 17% year on year. a steady decrease from the peak rate of 28. Narrow money supply (M1) growth slowed slightly in the third quarter of 2006 (July-September). If these price increases were to take effect.8 7. of raising the price of electricity used by industry to the real cost of production.6 0. month-on-month inflation has also continued to rise.9 12. indicating robust economic activity and substantial upward pressures on inflation.5 12. by July 2007.8 2.4 1. implying that the effect of previous increases is not subsiding.5 Aug 147.2 12.6 12.4 9. First.9 8. which led to a sharp increase in the prices of petrol and diesel (November 2006.3 2007 Jan 155.6%. but accelerated after July 2007.eiu.1 0.
0 Sep 117. the exploration will start in the Kom Ombo concession area in Upper Egypt (around 40 km north of Aswan) in mid-2007.243 22. a web-based news agency. Turkey and ultimately western Europe will be completed by the fourth quarter of 2007 at a cost of US$400m.822 17.2 141. a distance of 342 km. This third stage will link the Jordanian city of Rehab to the Deir Ali power station in Syria.5 418.8 2005 Mar 86. World Oil and Environment Company.633 13.0 582.453 35.986 25. underlining the government!s policy to establish close trading relations with its Russian counterpart (see Manufacturing).8 468.9 305. rig and pipeline. This would be a worrying trend. a 393-km stretch linking the Husain power station in the Jordanian seaport of Aqaba to Rehab on the Syrian border.2 380.4 142.2 494. has signed an agreement with a Kuwaiti firm.799 20.com © The Economist Intelligence Unit Limited 2007 BP steps up its investment in Egypt Exploration and development in Egypt's energy sector to rise Country Report May 2007 . end-period) 2004 Sep 81. year on year Source: IMF.5 398.1 515. owing to rising inflation.146 -11.5 142.787 14.5 146.7 561. year on year Foreign-currency deposits % of total Egyptian pound liquidity % change.894 28.0 148.5 373.3 Dec 83. Egypt!s largest single foreign investor. Having announced plans to invest heavily in the Egyptian oil and gas sector over the next five years (February 2007. costing US$230m. and then on to Turkey and western Europe.0 151. The first phase from El Arish in Egypt to Aqaba was completed in July 2003.6 328.097 17. has announced that an additional US$600m will be spent in 2007-11 on upgrading work at the Gulf of Suez Petroleum Company (Gupco).9 Dec 101.841 34. a private company.439 25.174 20.118 17.766 14. near Homs (close to the Syrian coast). where it plans to build an offshore platform. was completed in January 2006 at a cost of US$300m.3 M1 % change. BP of the UK.4 Jun 109.599 24.734 24. a sister www.303 11.857 11.959 15.893 27.988 13.727 25. to carry out oil and gas exploration in Egypt. The second stage of the pipeline. The upgrading work is on top of the US$366m being spent by Gupco to develop the Sakkara marine field.136 20.528 16. The domestic economy: Oil and gas).4 522.6 136.2 Sep 100.576 21.194 29.8 290. According to ISI Emerging Markets.6 348. year on year M2 % change.26 Egypt matched by an acceleration in foreign-currency deposits.6 Jun 90.867 21. The UAE-based Dana Gas. Dana Petroleum. as it indicates a lack of confidence in the banking sector.160 13. From there the gas will be routed to Rayan.1 451.0 479.4 434.990 -13. a joint venture between BP and the stateowned Egyptian General Petroleum Company.268 15.7 2006 Mar 103.661 16. Strointransgas.523 31.0 535. The third stage is to be built by a Russian company. International Financial Statistics. Syria. Money supply (E£ m unless otherwise indicated.1 161. Oil and gas Arab gas pipeline will be completed by end-2007 The government has announced that the third stage of the Arab gas pipeline supplying Egyptian gas to Jordan.258 27.550 15. This may be caused by consumers switching away from deposits into holding cash.1 163. and US$150m on a major upgrading programme for its pipelines.327 25.eiu.
000 b/d and from the Western Desert by 40. Manufacturing Agreement with Russia to boost inward investment In early April the Egyptian and Russian governments signed a Memorandum of Understanding to create a new specialised Russian industrial zone (RIZ) aimed specifically at attracting Russian (and joint Egyptian-Russian) investment. announced in late April that the Ministry of Petroleum would encourage existing oil companies.eiu.000 t/y of caustic soda and 30. The move reflects a drive by the government to diversify its trading partners. west of Alexandria.000 tonnes of magnesium chloride and 32.000 tonnes of magnesium to be produced each year. The government is hoping to increase output from the Gulf of Suez by 60.000 t/y of hydrochloric acid. in late February the Ministry of Trade and Industry introduced export duties on cement and steel with immediate effect. Cairo. to speed up the development of new discoveries already made in those sectors. will be located on the Mediterranean coast at Borg el-Arab. Sameh Fahmy. Europe and the Middle East via Egypt!s preferential trade arrangements. Construction at the plant will take place in two stages. The industrial zone is also believed to be a precursor of future co-operation with Russia over Egypt!s civilian nuclear power programme. according to a local newspaper.000 barrels/day (b/d) by 2008.000 t/y of sodium sulphate. especially in the Gulf of Suez and in the Western Desert. north of the Nile Delta. with a total output of 38m tonnes of Export duties are imposed on cement and steel Country Report May 2007 www. 220. the majority of which will be exported. 66. The block is close to the site of major discoveries made by BP and BG Group of the UK. The petroleum minister. The government estimates that the new zone could attract around US$550m in investment and generate around US$700m of exports over five years.000 b/d.Egypt 27 company. covering 1m sq metres. Egypt is the largest producer and exporter of cement in the region. and will target inward investment in manufacturing assembly plants in the automobile. has received approval from the Ministry of Environmental Affairs. in this case capitalising on wealthy Russian industrialists and manufacturing expertise. New petrochemical plant to be built at Fayoum The Kuwait-based MA Kharafi Group has announced details of a new chemical and petrochemical plant to be built in Egypt!s Fayoum oasis. aircraft and engineering industries (among others). In a bid to prevent shortages of construction materials in the domestic economy.000 tonnes/year (t/y) of sodium chloride. Al Ahram. while offering in turn a duty-free gateway to Africa.000 tonnes of calcium. The increased exploration activity goes hand in hand with the government!s policy to boost Egypt!s oil production by 100. When the first phase is completed the plant is expected to produce 250. The RIZ.com © The Economist Intelligence Unit Limited 2007 . Egypt is known to favour Russian involvement in the project. west of the capital. 150. announced in late April that it plans to start drilling in the offshore West el-Burullus Block in late 2007 or early 2008. which is satisfied that its salt extraction procedures meet minimum standards. The second phase will enable 232. which is projected to cost US$675m. This ambitious project. Having announced in September 2006 that it would resume its peaceful nuclear development programme by building three 600-mw nuclear power plants.
The Egyptian Propylene and Polypropylene Company announced in late March that it has secured US$450m from a consortium of four banks (Commercial International Bank. The firm has a 9% market share and is planning to upgrade two of its production lines. The NCC reported a 36% year on year rise in net income.000 tonnes were exported in 2006. but many producers in fact raised prices in the weeks following the duty increase. officials at the Chemical Industries Holding Company (its owners) believe that a sale could go ahead later in the year. Construction of the plant is due to begin at some point in 2007 with a target New propylene plant to be constructed in Port Said Country Report May 2007 www. in the short term. probably to make up for the loss incurred through lower exports. cement was trading at between E£330 and E£380 per tonne.000 tonnes in the weeks following the increase. are excluded from the rise. by early February most cement merchants had raised their prices to an average of around E£345 per tonne. to an average of 70. which prompted the government intervention. which account for the majority of steel exports. to E£111m (US$20m).4 at current exchange rates) per tonne for cement and E£160 per tonne for steel. from 114. in late March. which is testament to major restructuring in recent years.800 tonnes the week before the increase. Steel production was 4. which is 95% owned by the government. The Cement Merchants League has recently agreed with the government to open up ten outlets for distributing cement in Cairo to prevent supply bottlenecks in order to try to restrain domestic prices. the increased export duties did not appear to have had the desired effect: in the weeks following the duty rise. The export duties were initially fixed at E£65 (US$11. although the government has officially denied that it intends to privatise the NCC. However. of which 900. However.000 tonnes. The government justified its decision to impose export duties by referring to a similar decision by India (also in February) to impose duties on iron ore exports in a bid to boost competition in the domestic market. Even so. in the second half of 2006. the government increased the duty on selected steel products to E£180 per tonne. as flat steel and rebars. Banque Misr and National Societe Generale Bank) to build a new processing plant in Port Said. The National Cement Company increases capacity The National Cement Company (NCC). has announced plans to increase its capacity by 30% to 3.28 Egypt cement in 2006. The increase in capacity and the upgrade of the production lines will help pave the way for the company!s eventual privatisation. However. Cement exports have fallen gradually since the duty increase. while total production has risen to just under 778.eiu.9m t/y.com © The Economist Intelligence Unit Limited 2007 . and has imposed a moratorium on all sales in the cement sector until prices have stabilised.3m tonnes. In 2006 the government had set targets for cement retail prices at E£330 per tonne and for cement factory wholesale prices at E£300 per tonne. The impact of the steel export duty increase is likely to be limited.000-75. The government has also asked steel manufacturers to submit weekly reports of their selling prices. The imposition of export duties was also designed to limit domestic price rises by increasing the cement supply on the domestic market. however. The National Bank of Egypt (NBE). a regulation that is already enforced in the cement sector and is aimed at monitoring price developments more closely. The impact on the cement industry has been more significant.
with around 65% to be exported. Gruppo Sanpaolo IMI (Intesa Sanpaolo). first introduced in the US and Argentina. but the NBD incurred a loss of E£150m in 2006 after taking provision charges of E£159m. Upon acquiring the majority share in the NBD the consortium has an obligation to raise the paid-up capital to a minimum of E£500m (from E£282m). pending an increase in the share value of the NBD. This in itself will dilute the government!s share in the bank. but the government decided not to sell its stake. the National Bank for Development (NBD). the plant will be able to produce 350.86% stake. Although the government is keen to complete the sale. The government is likely to sell its remaining shares at a later date through the stock exchange. In mid-April the Central Bank approved the sale. This was less than onethird of its market price. The parent company of Bank Audi. has been acquired by a consortium of investors from the UAE. private investors agreed to sell a total share of 53% to the UAE consortium. for US$1. valuing the NBD at E£310m (US$54m). and including Abu Dhabi Islamic Bank and the Emirates International Investment Company. However. or directly to the consortium. leaving the remaining 5% to be allocated to the bank!s now slimmed down workforce of 7. The consortium initially offered to purchase 100% of the bank!s shares for E£11 (US$2) per share. When finished. Bank Audi arrives in Egypt Acquiring a bank is virtually the only way foreign investors can guarantee a foothold in the Egyptian financial sector owing to the difficulty of obtaining a trading licence.eiu. It will also become the first plant in Egypt to use the !steam active reforming process!. led by the Abu Dhabi ruling family. One of Egypt!s commercial banks. subject to prevailing market conditions. a Lebanese-owned banking group. which is 35%-owned by the Egyptian brokerage EFG-Hermes. The government intends to offload a further 15% of the company in an initial public offering (IPO) on the Cairo & Alexandria Stock Exchanges (CASE) at a date still to be confirmed. helping to fulfil the Abu Dhabi Islamic Bank!s plans to expand and diversify its asset base. Financial and other services Final stake of Bank of Alexandria to be sold in 2007 The government announced in late February that it intends to sell a further portion of its remaining shareholding in Bank of Alexandria. which was partly privatised in October 2006 in the country!s first ever sale of a state-owned bank.com © The Economist Intelligence Unit Limited 2007 . and the lower valuation no doubt reflected this. but presumed to be in the fourth quarter of 2007.000 t/y of propylene and polypropylene.Egypt 29 completion date of 2010. which has announced its intention to continue to buy up the remaining 29% privately owned shares on the stock exchange. in which the government has a 17. Instead.000. privatisation of the other state-owned banks has stalled (see Economic policy).6bn. The consortium intends to convert part of the NBD into an Islamic bank. already The National Bank for Development is sold Country Report May 2007 www. there are signs that banking sector competition will continue to be enhanced with the arrival of Bank Audi. which officially launched its Egyptian operations in mid-March with US$100m of capital and US$1bn of assets. The government successfully sold an 80% stake to Italy!s largest financial institution.
announced that the aim was to ease the burden not only on around 13. stated in March that the authorities do hope to divest the remaining four state holdings in joint-venture banks (the NBD. which should allow mortgages to be offered at 11% and thus below the current range. Arab Investment Bank. Mahmoud Mohieddin. worth a total of US$1m. with the authorities anticipating that a further three mortgage finance companies will be licensed by the end of 2007. according to the investment minister. Qatar and the UAE) and in France and Switzerland. Economic policy). This would increase the number of mortgage finance companies from four to seven following the creation of the latest of these.30 Egypt operates in other countries in the region (Jordan and Syria). Tareq Amer. In addition to improvements in the banking system.5%. with the aim of reducing this to 34 by end-2007.eiu. the NBE and Bank Misr (which finally merged in March with the former third-largest bank. The governor of the Central Bank. the government has already indicated that the ECMR will offer long-term finance to banks and other institutions at a rate of 9. A newly established government institution. These two banks are unlikely to be privatised. which began trading in the first quarter of 2007. but also on the judicial system.7bn) at present. In early April the Majlis al-Shaab (the People!s Assembly. although the deputy governor of the Central Bank. approved two loans to fund banking sector reform from the World Bank and the African Development Bank. Farouk al-Okdah. in addition to the sale of the state!s 20% remaining stake in Bank of Alexandria. the Egyptian Company for Mortgage Refinance (ECMR).000 (US$90. Egypt!s fledgling mortgage market continues to expand. in late February the Central Bank announced that the large state-owned banks would cancel 75% of debts worth less than E£500. in the Gulf (Saudi Arabia.and middleincome borrowers.000)"and 70% of debts worth less than E£1m"if borrowers repaid the remaining amount in cash before the end of June. Banking sector consolidation moves forward Egypt's mortgage market takes off Country Report May 2007 www. These loans will be used to boost the capital of Egypt!s two largest state-owned banks.com © The Economist Intelligence Unit Limited 2007 .8bn (US$1. will enable the mortgage finance companies to offer more competitive terms. or lower house of parliament). the government!s policy of encouraging consolidation among smaller state-owned banks has already reduced their number from 57 to 39. Misr Iran Bank. The government starts to tackle problem of NPLs The government has made progress in resolving the non-performing loan (NPL) problem afflicting the banking system. and hopes to have around 40 branches open countrywide by the end of 2007. and Export Development Bank) some time in 2007. which is greatly exacerbated by the borrowing of state-owned entities. High lending rates of between 12% and 14% are a major impediment to low. Indeed. NPLs have fallen from a peak of E£31bn (US$5bn) in 2004 to around E£9. More broadly. Banque du Caire"January 2007. which will see their cashflow improve substantially. The elimination of public-sector NPLs forms part of a broader US$50m programme to improve the health of the Egyptian banking sector. In an effort to deal with the problem of small-scale defaulters.000 small and medium-sized enterprises (SMEs). but expansion of the sector will greatly enhance competition. an Islamic financing company set up by the Egyptian-Gulf Consortium (led by Amlak Finance of the UAE). which incurs costs associated with chasing up non-payment.
5% for cargo vessels. and receipts continue to rise Country Report May 2007 The Suez Canal Authority (SCA) implemented another increase in its shipping transit fees with effect from April 1st. initially driven by a significant sell-off in China and other Asian equity markets reacting to concerns over the strength of the Japanese yen and a possible end to China!s economic growth miracle. Stockmarket index (Feb 2nd 2003=1. Stockmarket remains strong The CASE index of 30 leading shares reached 65. Despite the strong overall performance over the period. Over the first quarter. Market sentiment recovered swiftly. a commodities exchange by early 2008 and the prospect of a derivatives market. The new exchange should be ready by the end of 2007 and is part of a major expansion drive by the Egyptian bourse that is also leading to a slowly evolving securitisation market. and property taxes from 46% to 10%.583 at the end of April. the strongest performer in March (its share value rose by 19%). According to Mr Mohieddin.Egypt 31 The expansion of the mortgage financing industry has been helped since 2005 by a lowering of property registration fees from 12% to 3% of the purchase price (or a maximum flat fee of E£2. The Ministry of Investment in March also began a new initiative to develop the insurance sector. Total mortgage lending reached E£1bn in 2006 and was E£1. It has drafted amendments to a number of existing insurance-related codes. The !domino effect! caused a sizeable fall of 253 points (3. Later in 2007 new legislation will be introduced to prevent real estate developers from granting credit on new homes in order to encourage borrowers to go to mortgage lenders. construction and property sectors were the strongest performers.4%) in the CASE 30 index on February 27th. companies in the consumer. end-period) 2006 2007 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr 56. the market received a boost from a rumoured takeover bid for Al Watany Bank. intended to raise efficiency.000).025 54. Suez Canal increases fees.8%.eiu. which facilitates the use of assets as collateral.233 58.059 58.000.832 57.7% since the beginning of the year.3bn by end-March 2007. the government!s target is to reach E£2.974 59. 3. boosted by gains for Orascom Telecom (one of the largest telecommunications companies in the Middle East) ahead of its full-year report released in mid-March. The entry of new mortgage lending companies should establish a more competitive residential housing market and challenge the traditional shortcomings of informal lending agreements and (mostly) unregistered property trading. which coincidentally were announced the day before. Fees rose by 3.5bn in outstanding loans by end-2007. an increase of 10.382 65. Cement and steel shares were also affected by the government!s decision to introduce export duties.987 63.046 50.73% www.786 47. A new law is also making it easier to prove ownership of property.583 CASE 30 Index Source: Cairo & Alexandria Stock Exchanges.327 57.364 43. By contrast.220 62.com © The Economist Intelligence Unit Limited 2007 . The CASE is planning to set up a new exchange aimed at attracting listings from SMEs. just a day after the Shanghai index fell by 8. Egyptian share values succumbed to bearish sentiment in late February when emerging-market bourses were rocked by deteriorating confidence. partly by increasing private-sector participation.
b Includes navigation services.5bn in 2005. Receipts from the Suez Canal amounted to US$3.) Tonnage (m) Receipts (US$ bn)b Source: Suez Canal Authority. the company is in urgent need of a capital injection. including online booking and e-ticketing for all domestic routes and some international services. who intimated that an IPO was not suitable at the current juncture and that it could be as much as two years before privatisation could proceed. Around 60% of Chinese exports to Europe use the Suez Canal.14% for passenger ships and 2.eiu. Higher exports of liquefied natural gas (LNG) from Qatar and other Gulf countries to Europe are also likely to lead to an increase in transit though the Suez Canal. EgyptAir is expected to face fierce competition as the !open skies! policy is fully implemented at Cairo International Airport.664 445 567 621 672 743 1.com © The Economist Intelligence Unit Limited 2007 . EgyptAir operates 40 aircraft and signed a deal in September to take delivery of six medium-range Brazilian-made Embraer aircraft for a new budget carrier service to be named Express. boosting the EgyptAir fleet to 52.82 2007 Jan 1. but security concerns remain Country Report May 2007 www. on the CASE in 2007. Ahmed Shafiq. However. enabling EgyptAir to compete effectively. including naval vessels. The company is also committed to a deal signed in 2005. helped by an 11% year on year increase in the number of ships passing through the Suez Canal.35 Vessels (no.09 3. up from US$326.193 18. possibly in return for offering reduced transit fees. gas shipments through the canal will increase fivefold to 40m tonnes by 2010 when Qatar is expected to start shipping LNG. EgyptAir. This contradicts an earlier announcement made in December 2006 by the aviation minister.667 16.6m in March.33 a Calendar year.96 2. Feb 1.32 Egypt for oil tankers. due to start in June 2007.61 3. The planned stockmarket flotation would raise approximately the amount required to fulfil that first agreement.447 15. and the authorities are attempting to boost this figure even more. 1. In the wake of an influx of seasonal tourism due to Easter and the Jewish Passover holiday. worth US$900m. The March receipts were 21.511 24 0. Recent data show that the Suez Canal earned US$352. to purchase 12 new Boeing 737-800 series jets for delivery in 2009. The increase in fees was announced in December and was the second to take effect this year.850 18. following an earlier rise in fees implemented on January 1st. Suez Canal 2002 a 2003 a 2004 a 2005 a 2006 a Year Year Year Year Year 13. According to the SCA. which also attracts holidaymakers from across the border in Tourist arrivals increase.8bn in 2006. EgyptAir has partly responded by implementing new procedures. and that figure is likely to be surpassed in 2007 because of the rise in fees and the robust nature of global sea trade spurred by Chinese and Indian exports.4m in February. up from US$3.46 3.84% for other ships.629 67 0. a process that is expected to be completed later this year or by 2008 at the latest.8% higher than those in March 2006. Tourism Small share in EgyptAir likely to be sold on stock exchange The government has indicated that it will proceed with the sale of a 20% stake in the national carrier.
093 4 Qtr 2. is optimistic about the prospects for tourism earnings in 2007.000.154 1. with the number of visitors totalling 2. Sources: Ministry of Tourism. However.836 744 No. Latest figures show healthy trends for the tourism sector.125 2. The first phase of the plan (2007-09).668 761 3 Qtr 2. tourism receipts are calculated using a multiplier of US$85 per tourist night.265 1.911 1. The government also unveiled plans to upgrade the Country Report May 2007 www. and has launched an ambitious programme to expand the number of hotel rooms.390 2. and security continues to be tightened around the most popular tourist destinations on the Red Sea. The government also announced in March that it would purchase a total of 40 new locomotives from General Electric. especially in Sharm el-Sheikh. both in Sinai and in the rest of Egypt. predicting a rise to US$9bn from US$6.912 1.com © The Economist Intelligence Unit Limited 2007 .467m in the fourth quarter of 2006 compared with 2. the government has been keen to dispel any lingering concerns over the country!s security. This represents 35% of all tourism projects currently under construction in Egypt.321 691 3 Qtr 2. the crash merely underlined the fact that restructuring of the ageing railway system is long overdue.111 883 4 Qtr 1. Despite tourism arrivals recovering quickly from the bomb attacks in the Red Sea resort town of Dahab in April 2006. A top government meeting was also held in Sharm el-Sheikh in April to review security.300 hotel rooms and generate 225. Ambitious growth targets lead to expansion of capacity The government has set a target of attracting 16m tourists a year by 2014. Zoheir Garana. in addition to another consignment of 40 ordered in February. which represents 40% of the total number of hotel rooms in Egypt. the government is acutely aware of the potential impact of a further spate of bombings on this increasingly important source of foreign-currency earnings. these projects are expected to add 46. At present.634 759 2 Qtr 2.8bn) are currently under construction. The Egyptian tourism minister.265m in the fourth quarter of 2005.467 1. Sinai has a room capacity of 61. Central Bank of Egypt. Central Agency for Public Mobilisation and Statistics.453 1.eiu. Infrastructure Railway upgrade progresses The government!s plans to upgrade and expand the railway made headway during the first quarter of 2007 following ministerial approval of a new fiveyear plan.081 4 Qtr 2. involving improvements to services and safety standards on the Egyptian National Railways (ENR). According to Mr Garana. The new trains will be delivered in batches of ten starting in September 2008.193 1. was sparked by a tragic train crash in Qalyoub in August 2006 that killed 58 and injured many more (November 2006.401 733 2005 1 Qtr 2.160 1.Egypt 33 Israel.7bn in 2006 based upon a forecast of 10m tourist arrivals. When finished.611 711 2006 1 Qtr 2.468 680 3 Qtr 2.269 2. 184 tourism projects worth a total of E£10bn (US$1. This meant that total visitor numbers rose by 5% year on year in 2006 to just over 9m. The domestic economy: Infrastructure). Tourism 2004 2 Qtr 1.000 local jobs. of visitors ('000) Receipts (US$ m)a Receipts/tourist (US$) a From January 2006.101 1.450 690 2 Qtr 2.322 1.
which means it should be finished in six years rather than eight.eiu. raising the amount of freight using the railways and selling more advertising space at stations. The government is also making concerted efforts to improve the power infrastructure in the wake of significant growth in electricity consumption in recent years. which links Helwan.com © The Economist Intelligence Unit Limited 2007 . Plans for an electrified rapid rail link between Alexandria and Borg el-Arab on the northern Mediterranean coast also appear to be back on track. which continues to make substantial losses and has escalating debts (estimated at up to US$3bn). but was forced to delay its launch because of public concerns over health and safety. will also add 750 mw of annual capacity. Other plans include upgrading some of the country!s railways stations and raising salaries for railway employees. Etilsalat Egypt. There are also plans to speed up the completion of a third metro line by combining the first and second phases of the project. The company successfully bid E£16. believed to be at fault in the Qalyoub crash. the focus has moved to building two new electricity power stations at Al Atf and Sidi Krir.7bn for a licence in July 2006.5G mobile-phone services (allowing multimedia communications) on May 1st after a postponement of the launch in February. with a further E£10bn allocated for the upgrading of the distribution network.34 Egypt railway signalling system. which targets an increase in power generating capacity to 7. Cairo metro is modernised Modernisation of the Cairo Metro system is also proceeding with the announcement that E£1bn is being allocated by the metro authorities to a modernisation programme for Line 1. a UAE-owned company. The government originally intended a resumption of its civilian nuclear energy programme as part of a plan to boost power generation capacity. Egypt!s third mobile telecommunications operator. launched both 2G (second-generation) and 3. Upgrading of the El Kremat 3 station. in the meantime. a southern suburb. which will incorporate Global Positioning System (GPS) technology to reduce the risk of another accident occurring. the Ministry of Electricity and Energy has allocated E£36bn for upgrading work and new construction. but the project would incur high costs and is unlikely to be implemented within the next five years. following completion of a study of the project. the government is known to favour the public-private partnership model for raising finance. one of the country!s largest power producers. In its five-year plan for 2007-12. Hence. opened in 1987. The second stage of the plan aims to improve the financial viability of ENR. The Ministry of Transport is to spend E£3bn (US$530m) over two years on the signalling system. The scheme is expected to cost US$80m and will involve upgrading parts of the existing railway line with a detailed planning process for the project now due to take place by July 2007. and El Marg. which will increase capacity by 1.000 mw per year by 2012. Initial ideas include further increases in ticket prices (firstclass ticket prices were raised by 15% in September 2006). which set back the installation of its Power generation to be boosted as demand grows Launch of new 3G mobile service goes ahead after delay Country Report May 2007 www.500 mw per year at a combined cost of E£5bn. Privatisation is probably the ultimate aim but remains unlikely until the financial situation is improved. The plan is to deliver a profitable railway system by 2012 by boosting revenue.
4%) to US$10. with MobiNil holding a 51. rising to 10m by 2010 when it expects a market penetration rate of 40%. to US$17. there is ample scope for future growth given that the mobile-phone penetration rate is only around 23%.3% year on year respectively. despite indicating that these would take place during the first quarter of 2007. This has enabled Telecom Egypt to build up a stake in Vodaphone Egypt.7bn. Etilsalat Egypt has a budget of E£6bn for its first year of operation as it aims to compete for market share with the incumbent operators Vodaphone Egypt (partly owned by Telecom Egypt) and MobiNil. but nonpetroleum goods. by 8. accounting for the vast majority (about 88%) of total merchandise imports. The rise in merchandise exports mainly stemmed from a 45. offer discounts on international calling and seek to expand its reach in the region beyond its current involvement in Algeria. The increase in the surplus on the current account was mainly a result of larger surpluses on net services trade and private transfers (that is.1bn from US$2. Although Telecom Egypt!s monopoly on international calls officially ended in December 2005. which is substantially below neighbouring countries. remittances from Egyptians working abroad). A second fixed-line licence could be offered In addition to developing the mobile-phone industry.6bn. However. Hence. the government has repeatedly delayed offering two international calling licences. The number of mobile-phone subscribers rose strongly to nearly 18m by the end of December 2006.eiu.3bn. the government!s attempts to liberalise the telecoms sector are proceeding slowly. Bolstered by high global oil and gas prices. there was an even larger rise in merchandise imports of US$2. increased to US$15. This stems from strong domestic demand and export growth.6bn. as Egypt was slower in liberalising the market and relatively low incomes limit usage.com © The Economist Intelligence Unit Limited 2007 . the country ran an overall current-account surplus of US$1.Egypt 35 mobile-phone masts.1bn (or 24. which in turn creates demand for imported goods and supplies.2%. Foreign trade and payments Current-account surplus widens in first half of 2006/07 According to preliminary figures released by the Central Bank of Egypt. Although merchandise exports increased by US$2. However.6bn. Country Report May 2007 www.6% share of the market. This was considerably above the US$1bn surplus recorded for the first half of 2005/06. Etilsalat Egypt is targeting 3m customers in its first year of operation. export earnings from crude oil and natural gas rose during the first half of 2006/07.7bn. consisting mainly of finished and semifinished manufactured goods. or 18.6bn to US$6.2bn from US$12bn. The rise is encouraging for diversification of Egyptian trade. the government has signalled its intention to offer a second fixed-line licence as well as to privatise another 20% stake in Telecom Egypt in 2009. Petroleum imports fell to US$2.9bn during the first half of fiscal year 2006/07 (July-December). although petroleum export earnings also remained buoyant. the merchandise trade deficit widened by US$0.6% and 15.9% year-on-year rise in non-oil goods to US$5.
boosted by the privatisation of Bank of Alexandria (accounting for US$2.2 1.3 2.3 104. which totalled US$1.244.com © The Economist Intelligence Unit Limited 2007 . strong global trade growth and rising transit fees boosted Suez Canal receipts by 14.3 1.0 2.7 280.532.4bn.4% year on year to US$10bn.8bn. principally among European holidaymakers.775.8 1.3 9. travel receipts also rose (by 9.8 4.018. with growth in the services import bill for transportation. Net inward foreign direct investment (FDI) more than doubled in value to US$7.1% year on year) to US$4.36 Egypt Current account.443.666.4 4.9 979.9bn in the first half of 2005/06. This large decline was evident throughout the region.967.4bn compared with US$0. 2005 -6.8 -1.1 8.558.6 10.0 3.495.725.7 1.0 3.6bn of the increase).6 -2. whereas net inward portfolio investment (largely comprising bond investments) shrank to US$56.5 4.744.7 2.732. on the other hand. Rising global interest rates boosted receipts on investment income. compared with a surplus of US$2.6 -2.257.5 968.035.594.410. In addition.1 8.5 -17. travel and investment income offset by falls for government transfers and !other! services.5bn in the first half of fiscal year 2006/07.9 551.8 -12.2 1. but was Country Report May 2007 www.8 4.317.9 47.7 804. Owing to the fading effects of the April 2006 bombings in the Sinai and growing interest in Egypt for adventure and package holidays.175.5 3.1 969.eiu.5 630.5 5.6 1.5 -15.788.762.609.7 -1.7 565.3 242.1 591.318.949. Services payments.591.5 4.8bn in the year-earlier period. total receipts increased by 14.194.063.423.740.9m from US$2.932.6 720.843.5 -14.6 301.575.3bn. which recorded a deficit of US$0. The corollary of such a large rise in the current-account surplus is a significant deterioration in the capital and financial account.056.0 1.7 2006 -6.3 2.074.0 2.997.0 Surplus on services account widens On the services (invisibles) account.4% year on year to US$2bn.7 2.573.0 5.6 852.019.288.2bn.2 300.1 5. Jul-Dec (US$ m) Trade balance Exports Petroleum Other exports Imports Petroleum Other exports Services (net) Receipts Transportation Suez Canal Travel Investment income Government receipts Other Payments Transportation Travel Investment income Interest paid Government expenditures Other Balance of goods & services Transfers Private transfers (net) Official transfers (net) Current-account balance Source: Central Bank of Egypt. remained broadly stable at around US$4.015.
349 4 Qtr 24.185 712 8. or 25% of GDP. Country Report May 2007 www.2 3 Qtr 28.3bn by the end of 2006 according to data from the IMF!s International Financial Statistics (excluding gold and special drawing rights).363 4. debt servicing has also eased.692 4 Qtr 20.7 4 Qtr 28.8bn by the end of April 2007. This reflects a deliberate attempt on behalf of the Central Bank to increase its reserves in a very liquid market to support the currency. which reached US$24.023 11.eiu. by the end of the first quarter of 2006/07 (September 2006) compared with 27.9 14.1 15.6 15. The external debt burden is shrinking The governor of the Central Bank governor.939 26.273 869 10. around 43% of debt is denominated in euro.0 14. has recently confirmed that diversification of the foreign-currency reserves has taken place over the past 18 months with a reduction in US dollar holdings from 90% of the total to around 57% at present.com © The Economist Intelligence Unit Limited 2007 .7 2005/06 1 Qtr 29.3bn. to 7.949 31. Public external debt (US$ m unless otherwise indicated) 2004/05 3 Qtr 30.734 4.6% a year earlier.951 25. This represents a rise of US$3. This has been achieved to broadly match the reserves position with the currency composition of Egyptian trade and debt. According to the Central Bank.593 27. Farouk al-Okdah.172 2 Qtr 21.118 4.6 15.502 757 10.692 27. fuelled by a tripling of the shortfall on banking assets.508 2006 1 Qtr 21. having declined to US$29bn.6 2006/07 1 Qtr 28.5 16.373 4.341 Foreign exchange Source: IMF.299 814 7. The deficit on net !other! investment also exhibited a marked widening from US$2.221 1. Foreign reserves (US$ m) 2005 1 Qtr 16. yen and British pounds.8bn over the space of a year and is equivalent to 6. Foreign-exchange reserves continue to rise Rising external surpluses have helped bolster the foreign-exchange reserves.4 months at the end of 2005. and above the IMF!s recommended minimum level of three months. reaching a provisional total of US$27. With the reduction in foreign debt.7 months of import cover. International Financial Statistics.6% of exports from 10% over the same period.236 3 Qtr 22. compared with 6.674 27.296 437 4. The external burden of public debt is shrinking.8bn to US$7.0 2 Qtr 29.6 Total external public debt % of GDP Rescheduled bilateral debt Other bilateral debt Debt service (public debt) % of exports Source: Central Bank of Egypt.3 4 Qtr 29. !net international reserves! continued to rise in the first months of 2007.Egypt 37 not sufficient to explain the deterioration of the financial account alone.6 15.226 32.950 3 Qtr 19.965 4.782 2 Qtr 17.291 752 9.229 4.923 4.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.