AFRICAN DEVELOPMENT BANK
ARAB REPUBLIC OF EGYPT
2007-2011 COUNTRY STRATEGY PAPER
NB : This document contains errata or corrigenda (see Annexes)
REGIONAL DEPARTMENT NORTH I
(ORNA)
JANUARY 2007
TABLE OF CONTENTS
I. INTRODUCTION ...... 1
II. COUNTRY CONTEXT...... 2 2.1 Political Context...... 2 2.2 Macroeconomic and Structural Context Issues...... 2 2.3 Sectoral Context Issues...... 6 2.4 Priority Cross-cutting Issues...... 9 2.5 Poverty and Social Context Issues...... 14 2.6 Medium Term Economic Outlook and External Environment Challenges...... 17 2.7 Private Sector Business Climate and Issues...... 18
III. NATIONAL DEVELOPMENT AGENDA AND MEDIUM TERM PROSPECTS...... 19 3.1 Key Elements of the Government’s Development Agenda...... 19 3.2 Assessment of Implementation Progress of the Agenda...... 21 3.3 The Partnership Framework...... 22 3.4 Challenges and Risks ...... 24
IV. BANK GROUP COUNTRY ASSISTANCE STRATEGY ...... 25 4.1 Portfolio Management and Lessons from Previous CSP...... 25 4.2 Assessment of Previous Strategy...... 26 4.3 CSP Results Framework ...... 27 4.4 CSP Pillars or Areas of Focus...... 27 4.5 Bank Group Assistance: Lending & Non-Lending Scenarios, Triggers and Resource Implications...... 31 4.6 Partnership and Harmonisation...... 34
V. RESULTS-BASED MONITORING AND EVALUATION ...... 35 5.1 Monitoring of CSP Outcomes and Bank Group Performance...... 35 5.2 Managing Risks...... 35 5.3 Country Dialogue Issues...... 35
VI. CONCLUSIONS AND RECOMMENDATION ...... 36 6.1 Conclusions...... 36 6.2 Recommendation ...... 36
ANNEXES
1. Map of Egypt 2 Bank Group Operations 3. Bank Group Strategic Framework Matrix 4. Comparative Socio-economic Indicators 5. Macroeconomic Indicators 6. National Accounts (Current prices) 7. National Accounts (Constant prices) 8 Public Finance 9. Monetary Survey 10. Balance of Payments 11. Progress towards Millennium Development Goals
Boxes
Box 1 : Key Features Box 2 : Key goals expected and outcomes of the Government’s medium-term Development Agenda Box 3 : Donor activities in Egypt at a glance Box 4 : Results of the 2000-2002 CSP Box 5 : Expected Outcomes of 2007 – 2011 CSP Box 6 : Consultative process for the Bank’s Strategy
Tables
Table 4.1 : Performance Benchmarks
Figures
Figure 1 : Real GDP, inflation and broad money growth Figure 2 : Sources of Growth Figure 3 : Fiscal balance, current account balance and exchange rate and net international reserves Figure 4 : Selected External sector indicators Figure 5 : Sales of companies/Assets 2000/01 – 2005/06 Figure 6 : Bank Group Operations in Egypt by sector, 1974 – 2006 Figure 7 : Illustrative Results Framework Figure 8 : 2005 CPIA Ratings
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ACRONYMS AND ABBREVIATIONS
ADB : African Development Bank ADF : African Development Fund AIDS : Acquired Immune Deficiency Syndrome ANSDK : Alexandria National Iron & Steel Company APPR : Annual Portfolio Performance Report BOT : Build-Operate-Transfer BOOT : Build-Own-Operate-Transfer CAPMAS : Central Authority for Public Mobilisation and Statistics CBE : Central Bank of Egypt CIDA : Canadian International Development Agency CMA : Capital Market Authority COMESA : Common Market for East and Southern Africa CSP : Country Strategy Paper DAG : Development Assistance Group DANIDA : Danish International Development Agency DECODE : Development Cooperation Database for Egypt DRC : Democratic Republic of the Congo EBB : Egyptian British Bank EEAA : Egyptian Environmental Affairs Agency EEHC : Egyptian Electricity Holding Corporation EGFO : Egypt Field Office (of the African Development Bank) EGP : Egyptian pound EPZs : Export Processing Zones ERSAP : Economic Reform and Structural Adjustment Programme ESE : Egyptian Stock Exchange ESW : Economic and Sector Work EU : European Union FATF : Financial Action Task Force FDI : Foreign Direct Investment FGM : Female Genital Mutilation FHF : Family Health Fund FTA : Free Trade Agreement GAFI : General Authority for Investment GALAE : General Authority for Literacy and Adult Education GASC : General Authority for Supply of Commodities GDI : Gender Related Development Index GDP : Gross Domestic Product GOE : Government of Egypt GWh : Gigawatt hour HIES : Household Income and Expenditure Survey HIO : Health Insurance Organisation HIV : Human Imnuno Virus HSBC : Hongkong and Shanghai Banking Corporation HSRP : Health Sector Reform Project IFAD : International Fund for Agricultural Development ILO : International Labour Organisation IMF : International Monetary Fund IMP : Industry Modernisation Program ii
IPO : Initial Public Offering IPR : Intellectual Property Rights IT : Information Technology JBIC : Japan Bank for International Co-operation KFW : KfW Development Bank (German) Kwh : Kilowatt hour LOCs : Lines of Credit MENA : Middle East and North Africa MDGs : Millennium Development Goals MIC : Ministry of International Cooperation MICs : Middle Income Countries MOFT : Ministry of Industry and Foreign Trade MOHP : Ministry of Health and Population Services MSEA : Ministry of State for Environmental Affairs MW : Megawatts NBE : National Bank of Egypt NBI : Nile Basin Initiative NCCM : National Council for Children and Motherhood NCW : National Council for Women NEAP : National Environment Action Plan NEPAD : New Partnership for Africa’s Development NIB National Investment Bank NGO : Non-Governmental Organization NSGB : National Societé Generale Bank NTP : National Tuberculosis Country Program ODA : Official Development Assistance OECD : Organization of Economic Cooperation and Development ONCB : Country Operations Department, North, East and South Region OPEV : Operations and Evaluation Department PAFTA : Pan Arab Free Trade Agreement PBDAC : Principal Bank for Development and Agricultural Credit PE : Public Enterprise PHC : Primary Health Care PIU : Project Implementation Unit PLWAs : People Living With HIV/AIDS QIZ : Qualified Industrial Zone SMEs : Small and Medium Scale Enterprises SIS : Social Insurance System SIF : Social Insurance Fund TAF : Technical Assistance Fund UA : Unit of Account (Bank’s unit of account is equivalent to the SDR) UNDP : United Nations Development Programme UNFPA : United Nations Fund for Population UNICEF : United Nations Children's Fund UPS : Unified Power System USAID : United States Agency for International Development US$ : United States dollars WHO : World Health Organization WTO : World Trade Organization iii
EXCHANGE RATES
(December 2006)
US$ 1 = EGP 5.6998 UA 1 = US$ 1.50440 UA 1 = EGP 8.47427
FISCAL YEAR
July 1 - June 30 iv
EXECUTIVE SUMMARY
1. Introduction
This Country Strategy Paper (CSP) for Egypt covers the period 2007-2011. The design of the assistance strategy is underpinned by the country’s vision 2022 and the fifth Five-Year Plan (2002-2007) and the Ten-point Action Plan, whose objectives are to promote private sector-led growth, modernize the Egyptian economy and integrate it into the global economy. Given that the CSP period extends beyond the fifth Five-Year Plan, the short- to medium-term business plan would cover the period 2007-2008, corresponding to the end of the fifth Five-Year Plan period. The business plan will be updated thereafter to take into consideration priorities under the next five-year plan.
2. Recent Economic Developments
Egypt is an economically diversified middle-income country with a private sector share of GDP estimated at 61.5% in 2005/06. During the period 2001/02-2005/06, the real GDP growth rate averaged 4.4% per annum. This rate is far below the 6% real GDP growth required for the attainment of the Millennium Development Goals (MDGs). Money supply growth averaged 14.5%, while inflation rate averaged 5.2% over the same period. Savings and investment rates remain low (17.7% and 18.7% of GDP respectively in 2005/06), while the overall fiscal deficit was 7.9% in 2005/06. Unemployment is high. It has remained above 10% in the last five years. In terms of external performance, the current account balance recorded surpluses throughout the period.
3. Potential for Growth
The prospects for medium term growth are good but could be further enhanced by accelerating structural reforms. There are substantial natural resources, including oil and gas, which are important sources of foreign exchange earnings. The country is also sufficiently diversified in terms of its agriculture and industry and can therefore expand its agro-based production and light manufacturing. Egypt can also capitalise further on its strategic location to increase revenue from the Suez Canal, and on its historic, cultural and geographic endowments to attract tourists.
4. Government Development Agenda
The main elements of the Development Agenda of the Government are: (i) export promotion; (ii) deepening and modernisation of the industrialization process focusing on capital goods and high value production; (iii) reducing unemployment through labour-intensive techniques and promotion of small- and medium-scale enterprises (SMEs); (iv) directing development towards desert land and correcting spatial imbalances; (v) poverty reduction and equity consideration; (vi) gender equality and women empowerment; and (vii) environmental protection The pursuit of this development agenda and the achievement of the expected outcomes are being guided by the Ten-point action programme contained in the Government’s Statement presented to Parliament by the Prime Minister in December 2004 and re-affirmed in the Government’s Policy Statement issued in January 2006. The Ten-point program covers the following areas: (i) Investment and Employment; (ii) Enhancing Economic Performance; (iii) Support to Social Development; (iv) Developing Education and Scientific Research; (v) Developing Health Services and Controlling Population Growth; (vi) Protection of Natural Resources; (vii) Developing the Civil Service; (viii) Developing Basic Public Services; (ix) Building an Information Society; and (x) Developing the Political and Legislative Environment. v
5. Bank Group Assistance Strategy
5.1 The objective of the Bank’s assistance strategy in Egypt during the period 2007-2011 would be to support the implementation of Government’s development agenda indicated above. Thus, the proposed strategy will have two thematic strategic objectives aimed at achieving (i) promoting private sector development and (ii) promoting social development and protection. The sectors of focus of the strategy are:
(i) support for private sector development through direct lending for viable private sector projects and lines of credit (LoCs) to financial intermediaries for on-lending for exports promotion, tourism and SMEs development, so as to enhance foreign exchange earnings, employment generation and poverty reduction; (ii) support for infrastructure development (in energy, water resources development and transport sectors), critical for enhancing the efficient functioning of the private sector; (iii) support for the financial sector reform program needed to provide the necessary anchor for growth and poverty reduction; (iv) support to the social sector particularly the Social Fund for Development which is the Government’s main vehicle for addressing poverty reduction; and (v) Non-lending activities.
5.2 In addition, economic and sector work (ESW), focusing on a private sector country profile and a country governance profile commenced in 2005 and drafts had been prepared provided inputs into the CSP. In order to increase the Bank’s knowledge in the water resources and irrigation sub-sector, it is also envisaged that the Bank will undertake a number of feasibility studies and a master plan of the 64 grand barrages and 150 regulators on the Nile will also be prepared.
6. Bank Group Assistance Program
Support to the private sector would involve direct lending for viable projects and LoCs to banks for on-lending to private investors, while support for infrastructure development would target energy, water resources development and transport sectors. Bank assistance will also focus on promoting social development and protection. The Government has also launched a financial sector reform program which the Bank is supporting. The financial sector reforms are expected to provide the necessary anchor for economic growth, private sector development and poverty reduction. Non-lending assistance would focus on economic and sector work (ESW) so as to deepen knowledge on the Egyptian economy with a view to enhancing policy dialogue with the Government.
7. Areas Requiring Dialogue
In July 2004, a clear change in the direction of economic policies was ushered in with the appointment of a pro-reform cabinet. The Government put in place a number key trade, foreign exchange, and tax policy reforms. The government also embarked on restructuring the financial sector and privatisation of state owned enterprises while at the same time taking steps to modernise fiscal accounts and strengthen monetary policy. In this regard, dialogue with the Government would focus on two main areas: macro economic reforms and portfolio management. In the area of macroeconomic reforms, dialogue would focus on: (i) the need to maintain fiscal sustainability; and vi
(ii) the reform of the banking and non-banking financial sub-sectors, to be undertaken in the context of the financial sector reform programme. In the area of portfolio management, dialogue would centre on the need to respect the reporting covenant, namely regular submission of project progress reports and annual audit reports, and the acceleration of loan signatures and project implementation.
8. Conclusion and Recommendation
8.1 Since 2004, Egypt has taken considerable strides in its reform efforts which are yielding positive dividends in the form of impressive growth rates of GDP. However, unfavourable external shocks tend to slow down growth. The prospects are good that the country can again stay the course of reform. The decision to float the Egyptian pound in January 2003 and to embark on tariff, tax and financial sector reforms is a pointer in this direction.
8.2 The Board is requested to approve the proposed 2007 - 2011 Bank’s assistance strategy for Egypt, focusing on support for private sector development, infrastructure development, financial sector reform, social sector development and non-lending operations focusing on ESW. The Board is also invited to note the recommended annual sustainable lending limit of UA 545 million, under the country risk base-case scenario.
I. INTRODUCTION
1.1 The Board approved the last Country Strategy Paper (CSP) for Egypt (Doc. ADB/BD/ WP/2000/148), covering the period 2000 - 2002, in November 2000. The objective of the Bank’s strategy for the country during the period was fostering employment-creating economic growth and sustainable poverty reduction, through investments in the private sector, human resources development and physical infrastructure. In discussing the document, the Board commended the authorities for maintaining sustained economic growth. However, the Board also expressed concerns about the low domestic savings rate and vulnerability to external shocks and urged the country to address these constraints in order to further enhance the economic growth In this connection, the Board encouraged the authorities to create incentives to attract foreign direct investment, diversify exports and stimulate domestic savings. The Board further urged the Government to more vigorously tackle the problems of poverty, income inequality and unemployment in the country.
1.2 Since the approval of the CSP, the Government has made efforts to address some of these concerns especially putting in place measures to attract foreign direct investment. The Government prepared the fifth Five-Year Plan for Socio-Economic Development, 2002-2007, based on its Vision 2022, outlining its strategy for modernising and integrating Egypt into the global economy through the process of diversification and private sector-led economic growth. A significant development, with implications for trade liberalisation, was the signing of the EU/Egypt Association Agreement in June 2001. The Agreement was ratified by Parliament in April 2003. After its entry into force in 2004, a phased free trade zone is to be implemented over 12-15 years. The adoption of a floating exchange rate regime in January 2003 was another major policy reform. Over the past year, the Government has also undertaken tariff and tax reforms which would have positive impact on trade and investment, and hence poverty reduction. The ADB also approved two lines of credit in 2002and another in 2005 for on-lending to SMEs, to contribute towards employment creation and poverty reduction. The Government has also reinvigorated the privatisation programme.
1.3 This CSP reviews Egypt’s development challenges and assistance requirements and articulates the Bank’s assistance strategy for the country covering the period 2007 - 2011, in the form of lending and non-lending activities. The CSP is underpinned by the country’s fifth Five- Year Plan, the Vision 2022 and the Ten-point Action Plan which underpins the medium-term agenda of the Government.. The analyses in the CSP are based on data collected by the CSP Mission, which visited Egypt in May 2004, a dialogue mission undertaken in January/February 2005 and an update mission undertaken in July/August 2006. The CSP also benefited from publications by the Government and the Development Partners, namely the World Bank, IMF, and UNDP. The document is divided into six chapters. After this introduction, chapter 2 analyses recent economic, structural and sectoral developments; chapter 3 presents and evaluates the Government development agenda; chapters 4 and 5 articulate Bank’s strategy and assistance program respectively; while chapter 6 gives the conclusions and recommendations. Box 1 below presents the country snapshot.
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II. COUNTRY CONTEXT
2.1 Political Context
One of the major political developments since the last CSP was approved, was the appointment of a new Prime Minister in July 2004. Fourteen new appointees also joined the 34- member cabinet. In March 2005, Parliament approved a constitutional amendment that would usher in major reforms towards democratisation in the country. The amendment to article 76 of the constitution allowed for direct, multi-candidate presidential elections for the first time in Egypt’s history. A referendum undertaken on 26 May 2005 approved the constitutional changes. The first multi-candidate presidential elections were held on 7 September 2005. Parliamentary elections were held in three stages between 9 November and 1 December 2005. Two major exogenous political events also impacted on Egypt since the last CSP was approved. These were the September 11 (2001) event and the war in Iraq in 2003. Both events had negative impacts on the global economy and Egypt, particularly its tourism sector.
Box 1 Egypt: Key Features
Egypt is located in North Africa, bordering the Mediterranean Sea and lying between Libya and the Gaza strip on the west and the Red Sea on the east. It is north of Sudan and provides, the only land link between Africa and the Eastern Hemisphere. It has a total area of 1,001,450 square kilometres of which 995,450 sq. km is land and 6,000 sq. km is water. Only 2.85% of land area is arable.
The country consists essentially of a vast desert plateau cut through by the Nile Delta and the Nile Valley. It has a Mediterranean climate characterised by dry hot summers and moderate winters. Its natural resources include petroleum, natural gas, iron ore, phosphates, manganese, limestone, gypsum, talc, asbestos, lead, and zinc.
Poverty in Egypt decreased significantly during the latter half of the 1990s. The poverty profile based on the Household Income and Expenditure Consumption Surveys (HIECS) for the two periods 1995/96 and 1999/2000 suggests that absolute poor (those consuming less than EGP 1,000 to EGP 1,100 equivalent to US$ 161 to US$ 177 a year) represent around 17 percent of the population in 1999/2000 compared with 24% 1995/96. Poverty remains more prevalent in the rural areas, although the number of the urban poor is increasing as the country becomes urbanized; labour market outcomes, in particular lack of well paying jobs, little education and illiteracy are all associated with poverty. The distribution of the poor is uneven across regions, with almost 54% living in Upper rural Egypt. The population estimate in 2006 was 73.6 million, with a population growth rate of 2.3%. Egypt has a per capita income of about US$1,250.
2.2 Macroeconomic and Structural Context Issues
2.2.1 Egypt is an economically diversified middle-income country with a private sector share of GDP estimated at 61.5% in 2005/06. Services contributed the highest share of GDP (33%) in 2004/05, followed by industry and mining (18%), agriculture including fisheries (15%), and petroleum products (12%). In the early 1990s the Government adopted a long-term Vision 2022, which spelt out its economic reform and liberalisation policies. The Government has continued to manage the economy in line with the Vision through the framework of five-year development plans, supplemented with annual plans, and has realised robust dividends in the form of fairly rapid economic growth.
2.2.2 GDP growth rate has accelerated following several years of sluggish growth although it is still below the level required to reduce unemployment. GDP growth rate accelerated to 4.1% in 2003/04, 4.5% in 2004/05 and 6.9% in 2005/06 (see Figure 1). It is estimated that in order to make a dent on the unemployment rate, real growth needs to be in the 7-9% range. The pick-up in growth has been driven by strong export performance and an increase in private consumption (see 3
Figure 2). Economic growth is expected to remain buoyant in response to economic reforms being implemented by the Government.
Figure 1 Figure 2 Real GDP, Inflation, and Broad Money Growth Sources of Growth
18 8
16 7
14 6
12 5
10 4 3 8 2 6 1 4 0 2 2001/02 2002/03 2003/04 2004/05 2005/06 -1 0 2001/02 2002/03 2003/04 2004/05 2005/06 -2
Real GDP Growth Rate A verage A nnual Inf lat ion M2 Growth Domestic Demand Trad e balance GDP growth
Source: Ministry of Planning/Central Bank of Egypt. Source: Ministry of Planning/Central Bank of Egypt
2.2.3 Inflation has been brought under control. The inflationary pressure that emerged since the beginning of 2004 reaching a record high of 18.2% in October 2004 in response to the initial large depreciation of the exchange rate following the floating of the Egyptian Pound in 2002/2003 and the excess liquidity generated by the lax monetary policy existing during the end of the fiscal year has subsided. Based on the consumer price index (CPI), inflation fell to 3.1% in December 2005 compared to 17.3% in December 2004. Subsequently, reflecting the consequences of the outbreak of bird flu on food prices and increases in fuel prices in July 2006 inflation increased to 11.8 percent in October 2006.
2.2.4 Monetary policy aims at inflation targeting. Broad money (M2) growth rate increased from 11.6% in 2000/01 to 16.9% in 2002/03 but declined to 13.2% in 2003/04 and edged up slightly to 13.6% in 2004/05. Increases in import prices following the liberalisation of the Egyptian pound as well as increases in both narrow money and quasi-money contributed to the growth in money supply. Recent decline is indicative of the fact that the Central Bank is moving towards a policy of inflation targeting. In this regard, internal reorganisation and capacity building within the bank have begun. The ability of the Central Bank to run an independent monetary policy is therefore important if it is to keep inflation down. Accordingly, a new Central Bank and Banking Sector Law was passed in June 2003 granting the Central Bank enhanced autonomy and the legal framework for conducting monetary policy based on inflation targeting. The framework for monetary policy was enhanced in 2005 as the CBE established a monetary policy committee. Inter- bank rates fluctuate between a floor for the overnight lending rate and a ceiling for the overnight deposit rate set by the Central Bank. Based on inflationary pressures, the CBE on 14 December 2006 raised the overnight deposit and overnight lending rates by 25 basis points from 8.5% and 10.5% to 8.75% and 10.75% respectively.
2.2.5 Fiscal deficits are declining but still remain high. The consolidated fiscal operations of general government show an overall budget deficit declining from 10.2% of GDP in 2001/02 to 7.9% in 2005/06 and (see Figure.3). The fiscal deficit resulted from a combination of rapid growth of recurrent expenditures against weak revenue performance and the impact of the exchange rate 4 depreciation following the floating of the Egyptian Pound. In addition, in September 2004, the Government enacted customs tariff reforms involving cutting the weighted average tariff rate from 14.6% to 9.1%; the streamlining of tariff bands from 29 to 6, the elimination of surcharges, reduction of tariffs on some food imports, and the removal of various distortions and exemptions in the customs system. These measures were intended to simplify the system and improve revenue collection and compliance. From 1 July 2005, a new Income Tax Law came into effect. Under the new law, which is intended to encourage foreign direct investment, the tax rate has been reduced by half from 40% to 20%, income tax brackets restructured, tax incentives rationalised and tax administration is being improved.
2.2.6 The adoption of floating exchange rate enhances the competitiveness of the Egyptian economy. The Government floated the Egyptian Pound on 29 January 2003. During the initial phase, there was a sharp depreciation in the exchange rate, drifting towards the parallel market rate close to 7 Egyptian pounds to the dollar. Alarmed at this development and hoping to avert capital flight, the Government quickly reintroduced some form of control1. On the whole, the switch to a floating exchange rate and the subsequent currency depreciation has enhanced the competitiveness of the Egyptian economy, thus improving the country’s ability to adjust to external shocks. To enhance the operation of the foreign exchange market and ensure a successful operation of the system, the Government in December 2004 established a self-regulatory inter-bank foreign exchange market thus completing the transition to a unified and flexible exchange rate system. The establishment of a formal well functioning inter-bank market for foreign exchange assisted in creating a liquid foreign exchange market. The Egyptian pound has thus stabilised and the official and parallel market rates have been unified. In January 2005, Egypt accepted obligations to ensure convertibility of the pound for current transactions under the IMF Article VIII.
2.2.7 External sector performance improved. Exports of goods increased as a percentage of GDP from 8.2% in 2001/02 to 17.2% of GDP by 2005/06. The recovery reflects the impact of the exchange rate depreciation and the gradual recovery in the global economy. On the other hand, imports of goods also rose (in value terms) from 16.6% of GDP in 2001/02 to 28.3% in 2005/06 reflecting higher prices of imports. The merchandise trade balance remains in deficit on account of the higher import payments. However, the current account balance has been improving, recording surpluses since 2001/02 as service exports as tourism and Suez Canal revenues recovered. It was 1.6% of GDP in 2005/06 down from 4.3% and 3.2% of GDP in 2003/04 and 2004/05 respectively (see Figures 3 and 4). The capital account however weakened due to reduced foreign borrowing and larger outflows through the banking system, thus indicating overall balance of payments deficits. The situation was reversed in 2004/05 as the new government instilled confidence in the management of the economy. Net foreign direct investment reached US$6.1 billion in 2005/06 up from US$3.9 billion in 2004/05.
1 Such as the imposition of surrender requirements. Government issued a decree stipulating that earners of foreign exchange must exchange 75% of their proceeds through accredited banks and that tourist companies must pay hotels in foreign currency 5
Figure 3 Figure 4 Fiscal balance, Current account balance, Selected external sector indicators Exchange rate and Net int. reserves
6 30 6 30
4 4 25 25 2 2
0 0 20 20 -2 2001/02 2002/03 2003/04 2004/05 2005/06 -2 2001/02 2002/03 2003/04 2004/05 2005/06 -4 15 -4 15
-6 -6 10 10 -8 -8
-10 -10 5 5 -12 -12
-14 0 -14 0
Trad e balance/ GDP Current A ccount B alance/ GDP Trade b alance/ GDP Current A cco unt B alance/ GDP Export s/GDP Imports/ GDP Export s/ GDP Import s/GDP
Source: Central Bank of Egypt Source: Central Bank of Egypt
2.2.8 Higher oil prices are a double-edged sword for Egypt. On one hand, higher oil prices mean that the country will earn more from its oil exports and (as gas prices tend to track oil prices) from its increasingly important gas exports. On the other hand, high oil prices also push up the fuel import bill, as Egypt still imports some of its domestic fuel needs because of limited domestic refining capacity. Egypt is a net exporter of refined products in volume terms, but needs to import key consumer fuels. The country also began exports of liquefied natural gas (LNG) from its first terminal in January 2005. As an oil and gas producing country, Egypt stands to benefit from higher crude oil prices which will push Egypt's oil revenues upward. It is estimated that in 2005/06 petroleum exports amounted to US$10.2 billion, an increase of 93% compared to 2004/05 whereas imports amounted to US$5.4 billion representing an increase of 35%. Egypt also stands to benefit indirectly from the Gulf’s windfall in the form of increased remittances from Egyptians working in the oil-rich Persian Gulf states. This could lead to more investment in Egypt. Domestic oil prices in Egypt are price controlled. Higher oil prices have thus not translated into higher inflation. They may, however, exert a toll on the budget deficit owing to increased subsidies on oil. However, in July 2006, prices of some petroleum products were increased. The Government intends to use the savings in subsidy for poverty reduction, especially in Upper Egypt.
2.2.9 Increasing domestic public debt threatens fiscal sustainability. The pattern of public debt shows that it is predominantly domestic and long-term. The ratio of public debt to GDP has risen by about 9 percentage points in the past five years as domestic debt increased from 54% of GDP in 2000/01 to 63.0% in 2004/05. There is therefore the need to speed up corrective measures to cap the rise of domestic debt. This includes accelerating tax reform, revisiting the safety-net system and better targeting to ensure that they benefit the poor, as well as adopting more prudent expenditure management. External debt indicators are however moderate, as Egypt has maintained sustainable external debt ratios since the debt rescheduling of the 1990s. The ratio of total external debt to GDP was 28.5% in 2000/01; but rose to 31.4% of GDP in 2004/05. Total interest payments averaged 6.04% of GDP between 2001/02 and 2005/06. The level of external debt has been manageable as a result of cautious borrowing policy and prudent external debt management. Total external debt service ratio is also modest, declining from12.2% in 2001/02 to 8.9% in 2004/05.
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2.3 Sectoral Context Issues
2.3.1 Agriculture: Agriculture’s share of GDP was about 14% in 2005/06 and this share has been fairly constant since 1999/00. It employed about 35% of the labour force, and accounted for about 20% of foreign exchange earnings. Sectoral growth rate averaged 8% from 2001/02-2005/06. The main agricultural regions are the Delta, Middle Egypt, Upper Egypt, and the New Lands. Cotton, wheat, rice, maize and berseem (clover) jointly account for 80% of the cultivated area. Horticulture is also becoming an important aspect of the sector. The sector has played an important role in the recent development of the Egyptian economy, since the reform and price liberalization programme started in the sector and were extended to the rest of the economy. Given the limited arable land and water resources of Egypt, efficient utilization of these resources is a prerequisite for sustained development of the sector. Thus irrigation resources and water management are important aspects of agricultural development in Egypt.
2.3.2 Despite a huge land area, land suitable for agriculture is a constraint in Egypt. As a result, conscious effort is being made to reclaim land from the desert and convert it to suitable agricultural use. Area expansion through land reclamation is therefore an important contributing factor to enhance agricultural production. The Government plans to reclaim a minimum of 150,000 feddans (63,000 ha of land) annually. The demand for agricultural products is increasing due to population growth and the need for more export earnings. The country’s plan is to bring to cultivation a total of 1.38 million ha from the desert area up to the year 2017. This would be achieved through mega projects such as the South Valley Development project of which the Toshka and East Oweinat are considered the most important phases.
2.3.3 Manufacturing and Industrial Sector: The industrial sector has on average contributed about 20% of GDP during the period 2001/02 - 2004/05 making it one of the main contributors to the GDP in Egypt. Overall, the industrial sector grew on average by 10% annually during the period 2001/02 - 2005/06. Major constraints to further development of manufacturing relate to business and institutional environment. Improving the transparency and credibility of public policy and strengthening regulatory structures are necessary. Industrial upgrading and technology transfer are now priorities. In this connection, the Government has embarked upon an Industrial Modernization Programme (IMP) with support from the European Union. Through this programme, Egypt seeks to upgrade its industrial base and diversify the economy to compete effectively in global markets. The IMP is an initiative of the Government to help prepare the industrial sector for the challenge that will follow the introduction of free trade conditions and exposure to global markets after the implementation of the EU/Egypt Association Agreement that will enter into force after a transition period of 12 years. Assistance is being provided to industry through the Industrial Modernisation Centre. Eligible SMEs are also being assisted to modernise and upgrade their operating systems and methods and to have improved access to markets.
2.3.4 Petroleum and Natural Gas: The share of petroleum and natural gas in GDP has increased from 8% of GDP in 2001/02 to 16% of GDP in 2005/06. Proven oil and gas reserves are estimated at about 3.7 billion barrels and 1850 billion cubic metres respectively, and the Government is encouraging international oil companies to expand their exploration activities in Egypt. The main hydrocarbon rich zones are the Gulf of Suez, the Sinai Peninsula, the Western Desert and the Nile Delta. Recent explorations focus more on Upper Egypt. To encourage further active exploration and better recovery methods, the authorities have offered attractive terms to foreign companies. The attractive terms, such as extended tax holiday, also cover gas development. Currently, crude oil production averages about 760,000 barrels/day out of which 73.5 percent is refined domestically. Efforts are being made to increase refinery capacity. In this connection, a private sector refinery 7 project with an investment of about US$1.5 billion is underway in Alexandria. When completed, it will yield an output of 5 million tons (100,000 barrels/day) much of which will be exported. Gas discoveries have greatly encouraged the substitution of gas for oil products in domestic households, industrial usage, and for power generation. Because of the abundant gas reserves, it is Government policy to implement effective natural gas development and domestic utilization strategy to reduce domestic oil consumption with a view to becoming at least self-sufficient in oil supply. Crude oil exports provide about 52.0 percent of foreign exchange receipts from commodity exports. Egypt started exporting gas in January 2005.
2.3.5 Financial Sector: The financial system is dominated by the banking sector, which accounts for about 75% of total assets. The other main participants in the financial system are the insurance and private pension funds, and the securities market.
2.3.6 A comprehensive assessment of the financial sector, carried out in 2002 in the context of the WB/IMF’s Financial Sector Assessment Program (FSAP), found the banking system to be basically sound, and is projected to remain stable. The FSAP assessed the compliance with the core principles of effective regulation by the various sectors of the financial system as being generally positive. It also identified key reform issues relating to the functioning of the foreign exchange and money markets, efficiency of the banking sector, functioning of the credit market and access to credit, and capital market development. Some reforms relating to improved banking supervision, recapitalisation of banks and the management of public sector banks have been implemented.
2.3.7 Despite the progress that has been made to date in transforming the Egyptian financial system, important challenges remain if the system is to efficiently perform its role in economic development. For instance, the rate of maturity transformation in the banking system is very low, thereby depriving the real sector of medium to long-term funding resources. The insurance sector is relatively small, limiting its role in risk management and transfer, while the securities market has also been limited in its role of providing equity capital for investment purposes. The biggest challenge facing the banking sector is to get a lid on the level of non-performing loans, which has increased from about 14% of gross loans in 1997 to about 22% in 2005. Furthermore, reforms are required in the sector to enhance competition, and improve the infrastructure for credit management. In this connection, the Government in September 2004 announced a comprehensive Financial Sector Reform Program (FSRP). The overall objective of the FSRP is to improve the soundness and efficiency of the financial sector in order to enhance the sector’s contribution to economic development and poverty reduction. In this regard, it comprises three main components namely : (i) reforming the banking sector, through the privatisation of one of the four public sector commercial banks, restructuring and preparing the remaining three public sector banks for privatisation, divesting public sector shares in joint venture banks, mergers and acquisitions of six of the small banks and establishing a mechanism at the central Bank of Egypt to deal with defaulting clients and non-performing loans; (ii) reforming and developing non-bank financial institutions, including the insurance sector, the stock exchange, the mortgage market, and financial leasing; and (iii) strengthening of the regulatory bodies in order to ensure effective enforcement. At the request of the Government, the Bank is collaborating with other development partners in providing assistance for the implementation of the FSRP. In this regard, a loan of US$500 million was approved in July 2006.
2.3.8 Tourism: Tourism is one of the pillars of the Egyptian economy. It is also very susceptible to changes in the regional and international economy. There was a drop in tourism arrivals and hence tourism receipts following the events of September 11 in the USA and also the outbreak of the second Gulf War between Iraq and the USA in 2003. Fortunately, the downturns were both very 8 short-lived and subdued as the sector quickly recovered. Tourist arrivals rose from 4.8 million in 1999 to 5.5 million in 2000, dropping to 4.6 million in 2001 and then picking up again to 5.2 million and 6.0 million in 2002 and 2003. The rising trend has continued reaching 8.6 million and 9 million in 2005 and 2006 respectively. Total number of tourist nights have also shown remarkable improvement after the decline from 32.8 million in 2000 to 29.8 million in 2001, following the events of September 11, rising to 32.7 million and 53.1 million in 2002 and 2003 respectively and 85.1 million and 89.3 million in 2005 and 2006 respectively. This reflects the improvement in average number of tourist nights from 7.1 between 1999 and 2001 and 6.8 in 2002 to 10.6 and 10.4 in 2004 and 2005 respectively. Receipts from tourism amounted to US$4.3 billion in each of 1999/00 and 2000/01, dropped to US$3.4 billion in 2001/02, and recovered to reach US$5.5 billion in 2003/04. They increased further by 16% and 11.8% to reach US$6.4 billion and US$7.6 billion in 2004/05 and 2005/06 respectively. The sector has benefited from the depreciation of the Egyptian pound, by enhancing the competitiveness of the sector. The Ministry of Tourism has prepared a short-term plan for development of tourism. This plan aims to achieve the following by 2011: (i) increase the number of tourists from 8.6 million to 14 million; (ii) increase tourist nights from 85.5 million to 140 million; and (iii) increase the capacity of hotels from 175,000 to 240,000 rooms.
Infrastructure
2.3.9 Electricity: Electricity consumption has on average represented about 1.6 percent of the GDP over the past five years (2000/01-2004/05) and, currently almost the entire population has access to electricity. Over the same period, the electricity generation demand in the Egyptian Unified Power System (UPS) increased from 75, 599 gigawatt hour (GWh) to 100,093 GWh, registering average annual growth rate of 6.6 percent. In the same period, the peak load grew from 10,919 Megawatt (MW) to 14,735 MW with average annual growth rate of 7.9 percent. The energy demand is forecast to grow at the rate of 7% while the peak load is forecast to grow at 7.5% p.a. up to the year 2011/12 to reach 162,552 GWh from the present demand of 94,067 GWh. In order to meet the rising demand for electricity, which currently stands at 16,454 MW, another 13,009 MW is scheduled to be in service by the year 2011/12 at a projected cost of US$2.5 billion. This increased supply will be generated from natural gas, liquid fuels, hydro-sources, as well as solar and wind- power sources.
2.3.10 To complement the government’s efforts to meet the increasing demand for electricity, the private sector has been invited to participate in Build-Operate-Transfer (BOT) power projects. In this regard, three projects under BOT financing were tendered in 1997 and have already been implemented. There was a slow down in implementing the BOT projects to allow the Government to study the impact of the already operational projects on the operation of the system. However, it is anticipated that the private sector will be allowed to continue playing a role in the expansion of the generation capacity in the country. In the meantime, Egyptian Electricity Holding Company (EEHC) is continuing with the expansion of the generation capacity to ensure that the system continues to grow without supply disruptions.
2.3.11 In the West, the UPS is interconnected with the Libyan power system, which in turn is interconnected with the Maghreb countries (Algeria, Tunisia and Morocco) that are also connected to Spain. In the East, the UPS is interconnected to Jordan, which is extended to Turkey via Syria. Although the Syrian-Turkey Interconnection is complete, power flow through the network has not yet started. There is a plan to strengthen the existing interconnections in the short-to-medium term in order to increase electricity exchange among countries in Northern Africa, the Middle East and Europe. Furthermore, there is plan to link Egypt with the other sub-regions of the African continent through the development of Grand Inga in Democratic Republic of Congo (DRC).
9
2.3.12 Transport: The transport sector contributes about 10% to GDP in Egypt. The strategy for the transportation sector is to achieve an integration and coordination between the different transportation modes to better satisfy increasing demand in the most efficient and safest ways, improve efficiency of the transport infrastructure and maximize their benefits. The Government will also encourage electricity- and natural gas-based transport means as a substitute for gasoline and diesel oil. It will expand opportunities for the private sector to participate in implementing, managing and operating the sector’s projects. A major constraint facing the sector is the aging transport infrastructure and low maintenance budget. In this respect, the Ministry of Transport is preparing a comprehensive plan for reforming the railway sector that is estimated to cost about EGP8.5 billion (US$1.5 billion). The plan aims at improving safety standards, upgrading and purchasing new locomotives and carriages and providing more automation in the rail traffic control system. Urban transport in greater Cairo is being developed by constructing a thirds underground metro line. Other contemplated projects in the sector include expanding and improving the road network with emphasis on Upper Egypt, improving river transportation, modernising and constructing new airports with significant contributions from the private sector, and continuing the development of the sea ports.
2.3.13 Information and Communication Technology: With regard to information and communication technology, the Fifth Five-Year Plan provides for improving private sector participation, and expanding the utilisation of mobile phones by establishing a third network. Some of the highlights of recent achievements were the programmes to interconnect the ministries and departments of government to the internet, expand the establishment of information centres, and improve radio and television transmission and reception, as well as train personnel in information technology. In July 2006, the Etisalat/Egyptian consortium won the bid for the third Egyptian mobile network licence, with a bid of 16.7 billion Egyptian pounds.
2.4 Priority Cross-cutting Issues
Population
2.4.1 Egypt with a total population of 73.6 million in 2006, has one of the largest population sizes in the Middle East Region and Africa. Males were 51.1% while the females constituted 48.9% of the population. Though Egypt has an area that is approximately one million square kilometres, majority of the people are living in only 6% of the country’s land area on both sides of the Nile River and in the Delta Region. This has resulted in one of the highest population densities in the world. In 2006, Egypt’s population density was 75.3 per km2 compared to 60.6 per km2 for the developing world and 30.5 per km2 for Africa. The fertility rate has decreased from 5.3 children per woman in 1980 to 3 children in 2006. Crude Death Rate between 1990 and 2006 decreased from 8.6 to 5.7 per 1000 population. Between 1990 and 2006, life expectancy at birth increased from 61 years to 70.9 years. The average population growth rate between 2002 and 2005 has been estimated at 2.0% by UNFPA. Mortality decline has been attributed to: improved immunization; reduced incidence of diarrhoeal diseases through public health measures; and some degree of improvement in living standards. Fertility changes were observed to have been due to changes in age of marriage, which has increased over the past 25 years to between 18 and 23 years and which is constant at 18 years in the rural areas (World Bank); decline in the desire for large family size; urbanization; education; and increased contraceptive use. Egypt’s population remains largely young with 33.3% under 15 years and only 4.8% are greater than or equal to 65 years.
2.4.2 Population growth is one of the main challenges to be addressed in order for Egypt to achieve the millennium development goals (MDGs). If the 2% growth rate persists, Egypt’s 10 population is expected to reach 83 million by 2015 and will negatively affect the country’s ability to sustain progress towards achieving the MDGs. The implied increase in the size of the labour force has been the concern of the Government because of the unlikelihood that it will be matched with the required investment in human resources development viz: education, health and provision of gainful employment. The percentage of inhabitable and arable land has also not grown at the same pace despite the Government’s efforts to implement land reclamation projects and reduce population pressure along the Nile valley. GOE has thus formulated a national Population Policy to set goals and strategies in order to decrease total fertility from the current 3.29 to 2.1 per woman by 2017. Similarly, the Population Action Plan has been formulated. The targets set by GOE include reduction (between the base year 2002 and 2007) of mortality rate from 6.2 to 5.9 per 1000 population, and of population growth rate from 2.0% to 1.75% in 2007 and further to 1.0% by 2022.
Environmental conditions
2.4.3 Some of the environmental issues facing Egypt relate to management of its limited freshwater resources and water pollution; air pollution; land pollution, including human settlement encroachment on agricultural land, soil degradation and contamination and erosion; population pressure on the land; environmental pressure on Egypt’s cultural heritage and antiquity; desertification, management of the marine environment; solid waste management, including municipal, agricultural, industrial, and other wastes and residues; degradation of bio-diversity; and natural environmental hazards such as earthquakes, flash floods, dust and sand storms and desertification. Factors aggravating the environmental impact include the production of hydrocarbons, tourism, population growth, intensive and extensive use of irrigation for agricultural purposes, industrial development and the demand for energy, transportation and human settlements, particularly fringe settlements in urban areas. The country is addressing these issues through the National Environmental Action Plan 2002/2017 which is currently being implemented. The five-year plan 2002/2007 includes 9 programmes namely: waste management; pollution abatement; environmental education, training and awareness; transferring clean technologies and promoting Egyptian exports; environmental information and monitoring systems; nature protection and national parks management; Egyptian Environmental Affairs Agency (EEAA) capacity building, EEAA Regional Branch Offices (RBOs) , and Environmental Protection Fund (EPF) programme. Specifically, Egypt is utilising 80 - 90% natural gas for power generation. This has contributed to reduction in respiratory diseases and hospital/bed admission, emission of greenhouse gases and global warming.
Gender
2.4.4 Egypt has made progress in addressing some aspects of gender disparity, for instance in terms of lowering illiteracy; reducing fertility rate; and reducing maternal mortality ratio. The 2006 Human Development Report ranks Egypt 73 among 177 countries, with a gender empowerment measure of 0.262. There are however still gender gaps with access to social and economic opportunities, especially gainful employment. Furthermore, political participation of women is low. Women held only 2.4% of all the seats in Parliament, as compared to 6.0% average for Arab States and 11.5% in Tunisia2. In 2004/05, primary school enrolment ratio was 100% but 98.0% for girls; while the gap is closer for secondary school enrolment, which recorded 87.0% and 84.0% respectively. Adult illiteracy rate as of 2006 was 28.6% for the country but 40.6% for women. With regard to university and higher education, female total enrolment ratio increased from 44% in 1996/97 to 47% in 2000/2001. Maternal Mortality ratio reduced by over 50% from 170 in 1993 to 75 per 100,000 life births in 2002. Female life expectancy at birth increased from 66.5 years in 1996 to 73.1 years in 2006. Labour force
2 Inter-parliamentary Union, 2004 11 participation rate by women is still low, 31% in 20013. Females have limited access to credit or land holdings. Most females heading households are widowed and disadvantaged in terms of employment opportunities and severity of poverty. Estimated earned income on a purchasing power parity basis for women in 2002 was $1,963 compared to $5,216 for men or 37.6% of male earned income. For all professional and technical jobs in 2001, women constituted 30% of the senior officials and managers; which proportion is close to their level of participation in economic activities (35.7%) in 2002. Women are however, disproportionately represented in agricultural and service jobs where female employment as a percentage of males was 144% and 112% in 1995 and 2002 respectively.
2.4.5 In terms of institutional framework gender mainstreaming, the National Council for Women (NCW) was established by GoE in 2000 with branches in the 26 Governorates of Egypt allowing the institutionalization of gender mainstreaming. It has equal opportunities gender focal point in the Department of Planning and in each Ministry. NCW, in partnership with USAID, established the Women Business Development Centre in 2000; conducted Country Gender Assessment in collaboration with the World Bank in 2003; and is in the process of formulating the National Action Plan. Furthermore, the NCW has signed a protocol of cooperation with the Ministry of Environment to ensure gender mainstreaming and raise awareness of women in environmental protection. The Council has started training women in political participation; and is advising on draft laws. GoE is also implementing some poverty alleviation programs with emphasis on women, for example ADF-funded Support to Women Economic Empowerment in the New Land. Through the Health Sector Reform, also ADF-supported, the Basic Benefit Package of the Family Health Model introduced for the first time in Egypt, is focusing on increasing access and improving quality and scope of Maternal Health and Reproductive Health (among others areas). The Micro and Small Enterprise Support Project approved by the Bank in 2006 focuses on fostering job creation, community economic development and poverty reduction in which women beneficiaries would constitute about 60%.
Labour Market
2.4.6 As at 30 June 2006, the labour force was estimated at 22.34 million. It is dominated by men who represent 78% and women making-up the remaining 22%. The labour market is highly segmented. The government remains a major source of non-agricultural employment and the informal sector continues to be the main refuge for low-productivity and low-income employment, especially for women. A major characteristic of the Egyptian labour market has been the mismatch between the skills needed by the labour market and what the educational system is producing. The education and training system is providing the labour market with graduates taking little or no account of the actual demand for labour and skills requirements. The growth performance of the economy has hitherto failed to create sufficient jobs to match the rapid increase in the labour force of 2.7% per year. With about 10.9% of the labour force unemployed as at 30 June 2006 and job creation not keeping pace with population and labour force growth, the problem is getting worse. Women are the worst affected with the unemployment rate for women estimated at 24.9% compared to 6.9% for men.
2.4.7 Egypt has ratified all eight fundamental ILO conventions, including the Freedom of Association and Protection of the Right to Organize Convention, 1948 (No.87), the Right to Organize and Collective Bargaining Convention, 1949 (no. 98) the forced labour convention of 1930 (no. 29), the abolition of forced labour convention, 1957 (no. 105), the discrimination (employment and occupation) convention, 1958 (no. 111), the equal remuneration convention, 1951 (no.100), the minimum age convention, 1973 (no. 138), and the worst forms of child labour convention, 1999 (no.182). To streamline the relationship between workers and employers, and
3 World Bank / NCW Gender Assessment, 2003 12 improve the process of wage determination the country has also passed the unified labour law. The law protects workers, their rights to work under equitable and satisfactory conditions and the guarantee of fair treatment. The law provides for arbitration and settlement of labour disputes. The constitution and labour laws guarantee the individual the right of association, including membership of labour unions. The policies of the Egyptian government therefore meet the core labour standards.
Regional Integration
2.4.8 Egypt has been a champion of regional integration, both in Africa and in the Arab world. Under the New Partnership for Africa’s Development (NEPAD), Egypt is responsible for agriculture. It has integration arrangements with the Arab, Maghreb, Common Market for Eastern and Southern Africa (COMESA), EU, Africa Union (AU), and the Nile Basin Initiative (NBI). The country joined the 21- member COMESA in June 1998 and reduced tariffs with the other COMESA countries by 90%. Egypt is one of the nine members of COMESA that launched the first Africa’s Free Trade Area4 (FTA) on 31 October 2000. This move guarantees free movement of goods and services produced within COMESA and removes all tariff and non-tariff barriers among the member states, with a view to creating a customs union and a monetary union. The actual level of trading however has been modest.
2.4.9 In July 1999, Egypt and the United States of America signed a trade and investment free trade agreement (TIFA) to enhance trade and cooperation between the two countries and facilitate access to their respective markets through the removal of non-tariff and other barriers to trade and investment. In January 2001, Egypt signed a partnership agreement with the European Union, in June 2001 and it was ratified by the Egyptian Parliament in March 2004. The agreement is framed in a perspective of reaching a Euro- Mediterranean Free Trade Zone by 2010. The Egypt-EU agreement provides for a 12-year transitional period during which tariffs and non-tariff barriers between both parties will be phased out. Besides trade issues, and because of a competitiveness gap between the two economies, the agreement includes technical cooperation commitments aimed at modernising the Egyptian industry. On 14 December 2004, the Egyptian Government signed a free trade agreement with Israel and the United States of America creating seven qualifying industrial zones (QIZs) in Cairo, Alexandria and Port Said. Under the QIZ agreement, products produced in these free trade industrial zones could be exported duty- and quota-free to the United States as long as they contain at least 11.7% of raw material from Israel. The agreement is expected to have a great impact on Egypt’s textile industry. Thus Egypt is positioning itself to benefit from an export-led growth by taking full advantage of these cooperation agreements.
2.4.10 During the period 1981-1992, Egypt concluded economic and commercial cooperation agreements with 29 African countries. In June 1995, Egypt acceded to the World Trade Organization (WTO). It is an active partner in the Doha negotiation round particularly in agriculture, market access for non-agricultural products and anti-dumping. Egypt created a bloc with Nigeria and South Africa aimed at lifting the African presence in multilateral trade negotiations. Egypt also has a joint project with Democratic Republic of Congo (DRC) on power generation and transmission from Inga Dam in Democratic Republic of Congo. Egypt has good relations with its neighbours, particularly, Sudan and Libya. It has successfully negotiated free trade agreements with Jordan and Lebanon. A treaty of economic integration was signed with Sudan in 1974. Although the agreement had little success, the theme was kept alive through numerous joint committees and skeleton frameworks for integration in each country. In December 1990, Egypt signed ten separate protocols with Libya, including one for economic integration, one for investment promotion, one for freedom of movement of labour between the two countries and one on customs. There is also a joint project between the two countries on electric power links.
4 The other countries are Djibouti, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia and Zimbabwe. 13
2.4.11 Egypt is a member of Nile Basin Initiative, a comprehensive arrangement for cooperation among all the countries5 in the basin whose basic objective is to achieve sustainable socio-economic development through the equitable utilization of, and benefit from the common Nile basin water resources.
2.4.12 As the largest Arab country, Egypt is at the centre of regional economic initiatives. Most importantly, in November 1996, Egypt hosted the Middle East and North Africa (MENA) Economic Conference, which was designed as a follow-up to the 1995 Amman and the 1994 Casablanca meetings aimed at promoting private sector engagement in the region. On January 1 1998, Egypt and other Arab countries started implementing the Pan Arab Free Trade Agreement (PAFTA). In January 2003, Egypt initialled the Aghadir Agreement designed to establish a free trade area with Tunisia, Morocco and Jordan. Egypt has separate bilateral trade and economic cooperation agreements with several of its neighbours, including Lebanon, Syria, Morocco, Tunisia, Libya, Jordan, and Iraq.
Governance
2.4.13 Egypt is constitutionally a democratic republic based on a multiparty system. It possesses a popularly elected legislature, fourteen (14) political parties and an independent judiciary. Egypt is prepared to improve its governance situation and good governance and is undoubtedly proceeding in the right direction. Positive developments include improvements in human rights, election procedures, functioning of the legislature, and judiciary procedures. Indeed it has signed the African Peer Review Mechanism, which is the centrepiece for good governance under the NEPAD. The Bank prepared a Country governance Profile in 2006. The CGP notes that Egypt has taken a number of reform initiatives in improving the political, legal, economic, and financial accountability by enacting a number of laws and by undertaking institutional reforms. In March 2005, Parliament approved a constitutional amendment that would usher in major reforms towards democratisation in the country. The amendment to article 76 of the constitution would allow for direct, multi-candidate presidential elections.
2.4.14 Accountability and transparency: In the area of political accountability, amendment was made to the Egyptian Constitution that gave political parties the right to field candidates to directly contest presidential elections and the people to vote directly for the candidates contesting the presidency, rather than have the candidates first vetted by parliament; and there was independent supervision of parliamentary elections that allowed more openness, increased demands for, and greater accountability by government officials and functionaries regarding the conduct of the affairs of the State, and the policies and programmes of the government. As a consequence of these significant strides, there is gradually emerging a new political culture in Egypt where political accountability is being accorded increasing prominence Significant progress has been made in public access to information about government’s activities, budgets, and the economy. However, this needs to improve significantly in terms of quality and timeliness of information to the public. The legal and administrative framework for the budget establishes sound basic principles of fiscal management with emphasis on compliance. Steps have recently been taken to improve fiscal transparency and the regularity of general government financial operations. Budget and accounting data are compiled in a way that is comparable with IMF and other international standards. The ex- post review of the final Budget execution is carried out by the Central Accounting Office which reports its findings to the parliament. As regards corporate governance, a joint World Bank – IMF assessment6 of Egypt’s policy framework, enforcement and compliance noted that while there have
5 Burundi, Democratic Republic of Congo, Egypt, Ethiopia, Kenya, Rwanda, Sudan, Tanzania, Uganda, 6 Report on the Observance of Standards and Codes (ROSC), Corporate Governance Country Assessment, March 2004. 14 been a number of major reforms undertaken in the recent past, the implementation and enforcement of the rules remain weak. In this regard, the report recommends that there is need to (i) build institutional capacity in order to ensure effective regulation of the market and strong enforcement of rules; and (ii) implement legal reform in order to bring the policy reform into greater conformity with international standards and rules.
2.4.15 Rule of Law and Legal and Judicial Reform: The Egyptian judiciary continues to exhibit high levels of improvement in both competence and the exercise of judicial independence. The authorities have, in the recent past, passed either new or revised legislations in quite a number of areas. These areas include: (i) Financial Leasing Law; (ii) Mortgage Law; (iii) Intellectual Property Rights Law (IPR); (iv) Anti-Money Laundering Law; (v) Unified Labour law; (vi) Unified Banking Law, and (vii) a revised Investment Law. The IPR law brings Egypt closer in line with its obligations under the WTO. The Labour law makes important improvements in the flexibility of the labour market while the Banking Law, inter alia, strengthened banking supervision and clarifies the process of monetary policy formulation. The revised investment law provides tax reductions and exemptions for up to 20 years for investors in priority sectors such as infrastructure, oil field services, tourism, manufacturing and all export-oriented activities. Good implementation of these laws will go a long way towards improving the business environment and ensuring the effectiveness of the legal system.
2.4.16 Participation: Egypt has a vibrant civil society. There are about 18,500 registered NGOs in Egypt. Currently, the country is divided into 26 governorates or provinces, headed by governors appointed by the president. Local councils are elected to assist the governors in carrying out their functions. However, the government is highly centralised; the local communities are not fully involved in determining the programmes and projects in their respective areas. Projects and budgets are mostly determined by the central government and executed at the local levels. Hence, there is a need for decentralisation of services and resources so that the local people, through their councils and public meeting are fully involved in designing and implementing projects affecting their communities.
2.5 Poverty and Social Context Issues
2.5.1 Poverty: Egypt experienced a reduction in both the absolute number and percentage of the poor since the 1990s. The rapid economic growth of the second half of the 1990s and early new millennium years resulted in an increase in incomes and consumption, as well as availability of jobs and ability to get them. Thus the ranks of the poor shrank by about 0.6 million persons between 1995/96 and 1999/2000. The reason for the drop in poverty was due to the rapid growth in income and employment during the period. However, the geographical incidence of poverty also changed. Whereas in the earlier period, poverty patterns had reflected urban-rural variations, in the latter period, it also reflected a geographical or regional variation. Not only was poverty more prevalent in the rural areas, but it was also more in Upper Egypt. This implies a strong correlation between limited education and poverty. The Government/World Bank study7 concluded that the poverty rate in Egypt stood at 16.7% in 1999/2000. It also found that the distribution of the poor was uneven across regions. In rural areas, poverty rates reached 22.1% and most of the poor, 34.9% were concentrated in Upper Rural Egypt. More recent data in the 2006 UNDP Human Development Report (HDR) put the percentage of the population in the period 1990-204, living on less than $1/day at 3.1%. The Report ranked Egypt number 111 out of 177 in terms of Human Development Index (HDI).
7 Poverty Reduction in Egypt, Diagnosis and Strategy, 29 June 2002 15
2.5.2 Health: The Health Sector Reform introduced in a phased manner, in the past six years, has started to show prospects for improvement in health status, though measures for sustainable health financing still need to be further addressed. Immunization coverage increased for all antigens to above 98% by 2005 and thus resulted in reduction in mortality rate. Infant mortality rate has decreased from 65 per 1000 live births in 1992 to 31.4 per 1000 in 2006. Under-5 mortality rate reduced by 42.8% between 1992 and 2002, from 84 per 1000 live births to 36.4 in 2006; while maternal mortality ratio reduced from 174 in 1993 to 75 per 100,000 life births in 2002. The Health Sector Reform Program (HSRP) focuses on has been improvement in health status and the MOHP is currently engaged in addressing the issue of sustainable health financing through a structured family health model put at the centre of new expanded health insurance system. The main objective is to ensure universal access to a defined cost-effective, basic package of quality Primary Health Care (PHC) and Public Health Services by the population of Egypt. The basic strategy of the HSRP for delivery of efficient Basic Benefit Package (BBP) of PHC to the population is the new Family Oriented Model of Health Care. As at the end of June 2004, one hundred and thirty-four (134) Family Health Facilities were accredited by the Quality Improvement Department of the Ministry of health and Population Services (MOHP in 5 Pilot Governorates and they started to operate the Family Health Fund (FHF).
2.5.3 While the service aspect has successfully taken off and is receiving positive responses from users, there is still need to: (i) further articulate the directions for the Reform; (ii) conduct rigorous analysis of evaluation of the current status of the reform in the 5 Pilot Districts; (iii) map out strategies for nation-wide replication – a comprehensive change approach; (iv) formulate and implement Health Personnel Resources policy in regard to reward strategies and placement; (v) estimate the required financial resources; and (vi) identify sources of future funding, including plans for sustainable financing.
2.5.4 In addition to direct financial investment by GOE, the National Health Insurance Scheme is expected to spread the burden of health care financing across a wide group of people. The two main organs for implementation of the Health Insurance scheme are the Health Insurance Organization (HIOs) and the Family Health Fund (FHF) systems. The HIO system has evolved from the time it was established in 1964, to the point that through its network of branches, it covers 50% of the population as of 20048. Within the health insurance system GOE needs to explore sources of funding the FHF and HIOs, to reduce and finally eliminate subsidy inherent in the system e.g., by further taping on out-of-pocket expenses; by effecting separation of provider/purchaser roles; address concern to restructure organizational framework and the relationship between HIOs and the FHF; and enact the new Insurance Law. Outside the insurance scheme, GOE would also need to re- evaluate the roles and financial implications of the MOHP, Teaching Hospitals and other health institutions financed by Government on the one hand, vis-à-vis the health insurance system on the other; intensify analysis of public sector (health) revenue possibilities in general; intensify development of the national Health Accounting System and commence development of the Governorates and Districts Health Accounts.
2.5.5 HIV/AIDS: Low prevalence rate of HIV/AIDS has been recorded in Egypt. It is estimated that less than 0.1% of the population, adults and children were living with HIV/AIDS9. Despite the
8 MOHP, 2004 9UNAIDS: 2006 Report on the Global AIDS Epidemic.
16 low prevalence rate, the Government has put in place national strategies designed to prevent the spread of the pandemic including: improved epidemiological surveillance; information/education/communication to increase public awareness on transmission and to reduce risk to exposure; and effective blood screening. HIVAIDS prevention and control has also been introduced into curriculum at all levels of education.
2.5.6 Education: During the 1997 – 2002 plan period, GOE's investment in education increased significantly (thirteen fold) to LE 15.6 billion, from LE 1.2 billion in the First Five year Plan (1982 – 1987). It is projected to double at the end of the Fifth Five-Year development plan period (2007) to LE 32.2 billion. Consequently, there has been appreciable improvement in performance indicators. Primary school enrolment increased from 63.2% in 1960 to 100% in 2004/2005. Literacy rate increased from 25.8% in 1960 to 71.4% in 2006, though still relatively lower for women at 59.4%. GOE, the private sector and Al Azhar (religious based) provided 85.8%, 7% and 8.2% of primary and secondary educational facilities in Egypt respectively. For university education, female enrolment ratio increased from 44% in 1996/97 to 47% in 2000/2001.As of 2003/2004 financial year, class density for primary and secondary education recorded 40.85 and 40.95 students per class respectively; while student teacher ratio for primary and secondary education stood at 22.19 and 13.66 respectively10. However, the system requires structural and functional changes such that the knowledge base of the economy would be aligned with the quest for modernisation of the economy. In this respect, one of the main achievements during the 1997 – 2002 plan period was the inclusion of Communication and Information Technology (IT) in the educational system and provision of IT equipment. Also 78.5 % of schools were provided with science laboratories.
2.5.7 With effect from August 2003, implementation of the following five elements to improve quality education commenced: (i) enhancement of the educational system through policy and curriculum improvement; (ii) management of schools; (iii) students’ performance to emphasize critical thinking and problem solving; (iv) supply of teachers and teaching materials, continuing training of teachers for knowledge and skills improvement including application of technology to teaching; and (v) encouraging community, NGOs and private sector participation. In the current plan period (2002 - 2007), Government is paying more attention to educational services by providing necessary infrastructures to increase access and cope with increasing population growth, for example by increasing gross primary school enrolment rate to 100% and decreasing adult illiteracy from 30.6% to between 3.0% and 7.0% by the year 202211; by improving curricula; ensuring appropriate quality elements by setting and maintaining national standards for evaluation; encouraging technical education; further bridging the gap in enrolment between the female and male students, and between urban and rural areas; reducing drop-out rate; and intensifying adult functional literacy. GOE’s intervention in tertiary education is planned to be selective, in critical skill shortages including teacher training, and Information Technology (IT), Research and Development.
2.5.8 Prospects for Achieving MDGs: As regards progress towards the achievement of the Millennium Development Goals (MDGs), the 2005 MDG Country Report reveals that the country is on track in achieving all MDG targets by 2015. The pace of progress is fast and sustained as it relates to the areas of child mortality, maternal health, water and sanitation coverage but progress is slower in women empowerment and environmental sustainability. As regards poverty and education, the status is at acceptable levels. The under-representation of women in parliament and the workforce is evident. Egyptian women only occupy 2% seats in the People’s Assembly and 8%
10 Ministry of Education Cairo, May 2004 11 Fifth Five – Year Plan for Socio-Economic Development (2002 - 2007) 17 in the Shura Council. The report also shows that there has been improvement in reducing the gender gap in education (see Annex 11). However, Egypt will have to increase its efforts and investments in order to consolidate progress achieved to date.
2.6 Medium Term Economic Outlook and External Environment Challenges
2.6.1 The main challenges to sustainable growth and poverty reduction at the macroeconomic level are low and stagnant savings and investment ratios, vulnerability to external shocks, increasing fiscal deficits, growing domestic debt, and lack of employment opportunities. At the sectoral level, the major constraints in agriculture are shortage of water and land. Although water scarcity is a concern and a growing problem in Egypt, the country offers an example where irrigation water is provided free of charge to the farmer. Water pricing and similar incentives could be used to conserve this scarce resource, mobilize funds to maintain and expand the irrigation infrastructure, and to allocate water among competing uses. The pillars of growth in the Egyptian economy are its manufacturing industry (mainly textiles and manufactures), agriculture and tourism, all of which face short- and medium-term constraints, both external and internal. A major constraint that Egypt faces is the technology constraint, and ability to compete effectively with low cost Asian textiles producers who sell to the same market. This calls for modernisation of production techniques to promote productivity and cost reduction. Other constraints include skills mismatch, inadequate cost recovery for maintenance, expansion and modernisation of the infrastructure and public utilities, and inadequate credit to the SME sector. In addition, the country has to improve its technology and production system sufficiently to be able to compete with domestic producers in its European and American markets for manufactured products while being able to compete with their imports into Egypt. This constraint is being addressed through its Industrial Modernisation programme. Improved technology is also required in the agricultural sector to increase productivity.
2.6.2 High unemployment coexists with shortage of skilled labour for the manufacturing exports that the country is trying to promote. With job creation not keeping pace with population and labour force growth, the problem is getting worse. Further compounding the problem is the high degree of urbanisation in Egypt, which means that available jobs in the urban areas are limited and shortage of agricultural land may preclude the unemployed from taking to agriculture. More resources to relevant education and skills training, land reclamation and spatial diversification will ameliorate the problem in addition to targeted action towards the poor unemployed and marginalized groups. The amount already spent on education and social welfare is high enough. What is required is allocative efficiency in educational spending as well as proper targeting of safety net programmes to the actual poor and the unemployed.
2.6.3 Vulnerability to external shocks, particularly for the tourism industry affects the balance of payments and hence results in macroeconomic imbalance that affects the performance of the economy. Low domestic savings rate also means that there is excessive reliance on external resources for development, which means that growth and development could be unsustainable in the face of external shocks. The vulnerability of the tourist industry to regional and other external instabilities results in frequent contraction of the tourist industry as the number of tourists dwindles in response to new disturbances, particularly in regions from Egypt’s neighbours.
Prospects
2.6.4 The prospects for medium-term growth and poverty reduction in Egypt are good and would be further enhanced by the intensification of the ongoing economic and structural reforms. The reinvigoration of stalled policy reforms by the current cabinet has continued to enhance the business 18 environment and bolster confidence thereby creating an environment that is conducive to higher economic growth. Customs reforms, non-tariff barriers, income tax reforms, renewed impetus to the privatisation of state-owned companies have contributed to creating a more favourable climate for private sector investment. There are substantial natural resources, including oil and gas that can be important sources of foreign exchange earnings. The country has a well-irrigated agriculture and is moving into high value products, including horticulture that can serve the nearby European market and deliver fruits and flowers on a daily basis. Agriculture has a great potential for poverty reduction by generating rural employment and rural income. Egypt also has a network of EPZs and can further capitalise on its location to increase revenue from the Suez Canal as a major waterway to and from the Indian Ocean. The country is also strategically placed historically, culturally and geographically to be able to attract tourists. Several measures are already being introduced to improve economic management, improve tax revenue and collections, streamline expenditures and plan them objectively.
2.6.5 The country is sufficiently diversified in terms of its agriculture and industry and it can expand its agro-based production as well as expanding light manufacturing. Its network of economic cooperation arrangements provides both advantages and costs in meeting its development objectives. In the first place, it benefits from concessionary entry of its products into those markets, but at the same time has to forego revenues from reciprocal concessions. Given these set of circumstances, the country will be in a position to implement policies that will not only promote growth of GDP which will reduce poverty, but will also be able to implement indirect measures that will target poverty generally, and the very poor and most vulnerable in society, in particular.
2.7 Private Sector Business Climate and Issues
2.7.1 The private sector business climate has continued to improve overtime, thus permitting the sector to grow into a position of dominance in the economy. In tandem with CBE’s monetary, exchange rate and banking reforms, a number of economic legislations were also amended to increase the interaction between the Egyptian and global economy, to enhance foreign direct investments (FDI) and increase Egyptian exports. In addition to improving macro-economic environment and legal infrastructure, several amendments were made to existing laws governing foreign investment, listing of securities, mergers and acquisitions, banking and insurance, investments in telecommunications and power and reduction in bureaucratic procedures when registering a company. Similarly, Investment Law Number 8, the enabling legislation for the General Authority for Investment (GAFI), which regulates and administers investments in Egypt, offers several guarantees, privileges and exemptions that are beneficial to private sector investors.
2.7.2 The private sector has responded positively to the economic reforms and is increasingly becoming the driving force for economic growth. The share of the private sector in the GDP stands at 61.5% in 2005/06. Net foreign direct investment in 2005/06 amounted to US$6.1 billion (5.8% of GDP) from US$3.9 billion (4.3% of GDP) in 2004/2005. The quality of attractiveness of the business environment is, however, still impeded by shortcomings in the country’s public services delivery. In the World Bank’s 2006 Doing Business, Egypt was ranked 141 out of 155 countries reviewed in the ease of doing business indicating that substantial constraints still exist in areas such as: contract enforcement, legal rights, rigidity of employment, financing costs etc. However, Egypt was among the top 12 reformers in 2004 by improving in four of the 10 areas covered by the World Bank’s Doing Business through making it easier for new business to open, registering property, getting credit and trading across borders (the establishment of a single window for trade documentation, merging 26 approvals into 5, and simplifying inspection procedures at the border). The Economist Intelligence Unit’s Business Environment Index ranked Egypt tenth in 19 attractiveness among the seventeen Middle East/African countries12 during the period 2001-2005. This ranking is estimated to improve to 8 during 2006-2010. Likewise, Egypt’s global rank is expected to improve from 68 to 63 during the same period.
2.7.3 The business environment is, however, expected to improve in the near future, due to the renewed momentum of the new Government in the implementation of reforms. There is still a need to reinforce private sector skills and technology upgrading to better ensure competitiveness in terms of price and quality of their products at the international markets’ level particularly the European market.
2.7.4 Privatisation: The Government Figure 5 : Sale of Companies/Assets (2000/01- launched a privatisation programme with the 2005/06) issuance of law 203 of 1991, establishing 16 0 0 0 60 legal foundation for the divestiture from state- 14 3 0 5 14 0 0 0 53 owned companies. As of 27 March 2006, the 50 net proceeds from the programme were EGP 12 0 0 0 40 37.76 billion. The pace of the programme 10 0 0 0 picked up in 2004/05 to capitalise on the 8000 30 recent improvements in business environment 28 that is conducive to foreign direct investment. 6000 5643 19 20 State-owned companies were divided into 4000 13 three categories for this purpose namely: 10 10 2000 7 profitable companies; those that are not 952 542 381 113 profitable due to either stiff competition or 0 0 management problems; and those to be 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 liquidated outright. Revenues of EGP5.6 S a le Va lue number of transactions billion in 2004/05 nearly doubled those raised in the pervious five years. Source: Ministry of Investment
2.7.5 As of 27 March, 2006 the total privatisation proceeds for 2005/06 had reached EGP14.3 billion - including the sale of a 20% stake in Telecom Egypt which was worth about EGP5.12 billion) (see Figure 5). This process will contribute to the cleaning of the portfolio of banks and hence contribute towards preparing them for privatisation. Under the financial sector reform programme, Government is divesting its shares in joint-venture banks. On 17 October 2006, Sanpaolo IMI Bank of Italy got an 80% stake in Bank of Alexandria at US$1.6 billion (EGP11.6 billion). This represents the biggest auction of state assets and will create the largest private sector bank.
III. NATIONAL DEVELOPMENT AGENDA AND MEDIUM TERM PROSPECTS
3.1 Key Elements of the Government’s Development Agenda
3.1.1 The government's development agenda is presented in its Long-Term Development Vision 2022 within which 5-year medium-term plans and annual plans are implemented. The current five- year plan covers the period 2002-2007. The document reiterates government's determination to continue the strategy of private sector-led growth and modernisation of the Egyptian economy and its integration into the global economy. The main elements of this strategy are: (i) export promotion to enhance balance of payments and augment job opportunities; (ii) deepening and modernisation of
12 Algeria, Bahrain, Egypt, Iran, Israel, Jordan, Kuwait, Libya, Morocco, Qatar, Saudi Arabia, Tunisia, UAE, Angola, Kenya, Nigeria and South Africa. 20 the industrialisation process focusing on capital goods and high value production in accordance with Egypt’s competitive advantage; (iii) reducing unemployment and focusing on employment- oriented, labour-intensive techniques and promotion of small and medium sized enterprises; (iv) directing development towards desert land and correcting spatial imbalances; (v) poverty reduction and equity consideration; and (vi) gender equality and women’s participation in the development process. The fifth five-year plan is underpinned by key goals and expected outcomes summarised in Box 2 below:
Box 2 Key goals and expected outcomes of the Government’s Medium-term Development Agenda
• Attaining an annual average real GDP growth rate of 6.2% during the plan period; • Increasing the investment rate from 16.9% of GDP in 2000/2001 to 20% by 2007; • Raising the saving rate to reach 17.3% of GDP by 2006/2007; • Reducing the domestic resource gap (budget deficit) from 6.5% of GDP in 2001/02 to 2.5% by 2006/07; • Reducing the trade deficit from EGP38.8 billion in 2001/02 to EGP 34.8 billion in 2006/07 by boosting exports at an average annual growth rate of 13% against 5.3% for imports; • Achieving a current account surplus of EGP 4263 billion (3.4% of GDP) in 2006/07 • Creating 750,000 job opportunities per annum between 2002 – 2007.
3.1.2 The pursuit of this development agenda and the achievement of the expected outcomes are being guided by the Ten-point action programme contained in the Government’s Statement presented to Parliament by the Prime Minister in January 2006 and re-affirmed in the Government’s Policy Statement issued in January 2006. The Ten-point program covers the following areas: (i) Investment and Employment; (ii) Enhancing Economic Performance; (iii) Support to Social Development; (iv) Developing Education and Scientific Research; (v) Developing Health Services and Controlling Population Growth; (vi) Protection of Natural Resources; (vii) Developing the Civil Service; (viii) Developing Basic Public Services; (ix) Building an Information Society; and (x) Developing the Political and Legislative Environment.
3.1.3 Export Promotion Strategy: The objective of the export promotion strategy is to enhance the trade balance by boosting export revenues to surpass import payments and expand high value manufacturing exports, including technology-intensive products, within Egypt’s comparative advantage. The strategy involves increasing production of high value agricultural products for export, including fresh and frozen vegetables, medicinal and floral plants and capturing lost markets for cotton and open up new ones. It aims at providing export-oriented industries with effective marketing, transportation, financial services, market/technology information services and other incentives. Overall, the plan aims at an annual increase of 13% in commodity exports and 7.3% annual increase in services exports to 2006/07.
3.1.4 Deepening the Industrialisation Process: The strategy entails promotion of agro- processing industries, elimination of idle capacity (particularly in public enterprises), and development of human skills through training, and skills and technology upgrading both on-the-job and in schools and universities. The strategy envisages an annual growth rate of 8.1% for industry during the fifth Five-Year Plan period.
3.1.5 Reducing unemployment by focusing on employment-generating and labour-intensive activities and techniques: In view of the growing problem of unemployment in Egypt, the objective is to promote private investment especially in small scale labour-intensive enterprises, 21 improve labour skills by matching skills to the requirements of the labour market and through modernising skills, upgrading and training, as well as improving the overall educational system. It will pursue human resources development and employment generation so as to attain full employment, thereby reducing open employment to 3-5% of labour force by creating 750,000 jobs per annum during the plan period. In this way the strategy will assist in alleviating and reducing poverty.
3.1.6 Directing development efforts towards desert land and non-congested areas and rectifying spatial imbalances: As a matter of deliberate policy, the Government has been directing agriculture development towards desert land and the policy has given further impetus to agricultural growth and development along with the accompanying export growth. It will also lead to better quality of life for the citizenry. The policy strategy can also be seen in the context of redirection of urban growth towards desert land as a means of alleviating poverty.
3.1.7 Poverty Reduction through asserting equity considerations, extension to social security schemes and improving basic services: The strategy entails poverty reduction and equity considerations directed at lowering poverty rates from 21% to 18% of total population and narrowing the urban-rural income gap to 10% or less so as to curtail urban migration and improve rural living conditions. Social development is geared towards improving social services, including reducing the illiteracy rate from 30.6% to 22.6% by 2006/07, and improving the quality of health services to international standards at reasonable cost for low income groups. The agenda also aims at human resources development through affordable and quality education and health care and reduction of the discrepancies between urban and rural areas in the quantity; and improvement in the quality of service provision in the social sector, as a means of reducing poverty. Direct measures such as extension of social security schemes and improvement of basic services across geographical, social and income boundaries will be a goal pursued by the government of Egypt. The government plans to reduce health service costs and make them affordable, given the levels of income and the needs of the most vulnerable. It will also aim to balance expenditure on curative and preventive health services.
3.1.8 Ensuring Gender Equality by increasing women's participation in the development process: The Government seeks to ensure gender equality by eliminating discrimination against women and enshrining equality of opportunities; improved living conditions for children with improved health care and education. In addition, it will promote equal access for male and female alike and correct the gender differences that exist in education, the labour force and social services. Accordingly, the GOE plans to develop and raise the percentage of women participating in different economic fields, provide training and rehabilitation programmes for women and develop their capabilities in order to cope with the requirements of the labour market, increase their role in setting the development strategies, fully absorb rural girls at the school age in basic education, widen the dissemination of literacy programmes for rural women who did not enrol in formal education, and issue legislation guaranteeing the protection of women’s and children’s health and extending the health care insurance coverage to include rural and unemployed women.
3.2 Assessment of Implementation Progress of the Agenda
3.2.1 The Government’s agenda as articulated in its Fifth Five-Year Plan and the long-term perspective plan is both comprehensive and relevant to the development needs of Egypt. Substantial progress in implementation of the agenda was achieved since July 2004 in terms of implementation of the much-needed economic and institutional reforms. The thrust of the Government’s development agenda has thus been given a boost by recent policy initiatives implemented to address 22 long-standing structural reforms. Customs procedures and the tariff system have been overhauled. A new Income Tax Law that halved personal and corporate tax rates, and simplified the tax structure came into effect on 1 July 2005. The privatisation programme was revived and it has now been extended to the banking and insurance sub-sectors as part of a broader financial sector reform programme that is already in progress. Some important subsidies have also been cut. In addition, the parallel market, which had thrived in the period following the floatation of the Egyptian pound in January 2003, has since been eliminated given a combination of increased tourist receipts, and exports which have boosted foreign exchange reserves. A number of either new or revised legislations have been passed in quite a number of areas. These measures continue to boost business confidence and there has been a remarkable increase in net foreign investment from US$407 million in 2003/04 to US$3.9 billion in 2004/05. If sustained, the renewed progress in the implementation of structural reforms combined with growth in exports and fiscal sustainability in the medium-term is expected to provide an environment conducive to higher economic growth. The Government’s commitment to implement a financial sector reform program and privatisation programme will provide an additional impetus to growth. The Government thus needs to consolidate the substantial progress it has made in this respect over the past year.
3.2.2 The emphasis on the private sector as the main engine of growth in the economy is a correct one, but Government needs to ensure that all major impediments to successful private sector-led growth are removed. This would entail modernisation of the public service and removal of bureaucratic impediments to trade, investment and growth. A movement to public private partnership in provision of infrastructure services is also a wise decision. In this way, BOT and BOOT projects will provide a way to expand the economy. The government has also embarked on an industrial production modernisation programme with the help of the EU that would increase the level of productivity. The Government has continued to give attention to critical areas of development such as health and education, access to water and sanitation as well as improving the livelihood of the most deprived segments of the population. The educational programme is geared towards producing some of the human capital that would be needed to implement the Five-Year plan.
3.2.3 The programme envisages growth rates of over 5 - 6% for GDP based on savings and investment ratios indicated in the plan. In view of the current low savings and investment rates, substantially higher savings and investment ratios would be required to achieve the growth target. The financial sector reform programme is expected to lead to an improvement in the financial system and ensure effective intermediation of savings, and the access of SMEs to credits. Following a resurgence of GDP growth to 4.1% in 2003/2004, GDP growth picked-up to 5% in 2004/2005. Currently, the estimate is that GDP grew by 6.9 % in 2005/06. If sustained, this could translate into reduction in poverty and employment and facilitate the achievement of the MDGs by 2015, which would require a sustained average GDP growth rate of 6.0 % per annum.
3.3 The Partnership Framework
3.3.1 The Ministry of International Cooperation is responsible for coordinating external assistance in Egypt. It is the main representative of the Government of Egypt as a borrower and is responsible for ensuring compliance with loan conditions and covenants.
3.3.2 All major donors are represented in Egypt and have a strong partnership for development under the umbrella of a Donor coordination group known as the Donor Assistance Group (DAG). The group, which comprises both bilateral and multilateral institutions represented in Egypt, has been established under a rotating chairmanship. Currently, the Group meets monthly. In addition, a number of DAG sub-groups have been formed for specific issues, including the Social Fund for 23
Development, Gender & Development, Environment & Energy and Food Supply etc. These also regularly hold meetings under a rotating chairmanship among key donors. The ADB Country Office in Cairo has made it possible for the Bank to effectively participate in the activities of the DAG.
3.3.3 Through the DAG, the development partners coordinate their activities to ensure donor harmonization and effectiveness. Currently, UNDP is supporting the Ministry of International Cooperation to set up a database on external assistance to Egypt. The Development Cooperation Database for Egypt (DECODE) has been serving as a key planning and management tool and is aimed at maximizing the benefits of donors’ assistance to the country.
3.3.4 Egypt has a strong partnership for development with the Donor Assistance Group (DAG) and is one of the world's largest recipients of official development assistance. Another avenue for donor coordination is through the World Bank Consultative Group meetings, which last met in February 2002.
3.3.5 Co-financing: The Bank is currently co-financing some projects and programmes with other development partners. These include the Social Fund for Development, Phase II (with EU, World Bank, EU, KFW, UNDP, and Japan Bank of International Cooperation, Arab Funds) and the Health Sector Reform Programme (EU, World Bank, Italy and USAID). The Bank will continue to seek co-financing opportunities with other donors within the framework of Egypt’s debt management policy. In this context, the World Bank, EU and USAID have provided financing for some elements of the Financial Sector Reform Programme. The third phase of the Social Fund for Development will also provide opportunities for co-financing. The Bank’s investment in the energy sector will also be complemented by other investments by the World Bank and EIB. Box 3 presents the donors active in the various sectors. 24
Box 3 Donor Activities in Egypt at a Glance
Banking and Financial Services: The major donors in this sector include the World Bank, Arab Monetary Fund, USAID, Germany, EC and ADB.
Agricultural Sector: In agriculture donors supported the following activities: acquisition of agricultural inputs, agricultural water resources, agricultural policy and administrative management, agricultural financial services and agricultural research. The main donors are: ADB, USAID, Germany, Japan, World Bank, Islamic Development Bank and France.
Water supply and Sanitation: The main sub-sectors that have received ODA include water supply and sanitation, water resources policy and administrative management, water management, waste management and disposal, water resource protection. The major donors in the water sector are: USAID, Abu Dhabi Fund, France, the European Investment Fund, Netherlands, Kuwait Fund and the Arab Fund.
Industrial sector: The main sub-sectors that befitted from ODA were: Industrial Development, Basic Metal Industries, small and medium enterprises development, technological research and development. The major donors in the sector are: USAID, Arab Fund, EU, Japan and CIDA. The LoCs by the ADB also help to promote SME development.
Education Sector: The main sub-sectors that benefited from ODA are: education facilities and training, primary education, teacher training, education policy and administration management, higher education and vocational training. The major donors in these sub- sectors have been: USAID, EC, Germany, World Bank, Abu Dhabi Fund and UNICEF.
Health Sector: The African Development Bank is co-financing a health sector adjustment programme with the World Bank and the European Union.
Energy: The main sub-sectors which benefited from ODA are: Power generation, Electrical power transmission and Wind power: The main major donors have been: USAID, Germany, Kuwait Fund, EIB, ADB and DANIDA.
Transport Sector: The main sub-sectors that have been benefiting from the ODA are: Railway transport, Road transport, transport policy and administrative management, water transport, air transport, education and training in transport: The major donors in transport have been: Spain, Japan, France and Germany.
Multi Sector and Cross Cutting Issues: The main sub sectors that have been receiving ODA are: Environmental policy and administrative management, biosphere protection, biodiversity, women in development and environmental education and training. The main donors of the sub-sectors are: USAID, World Bank, DANIDA, Netherlands, CIDA and Japan.
ADB’s Role in Donor Coordination: ADB is involved in aid coordination through its country office’s membership of DAG. EGFO attends the DAGs monthly meetings, and, DAG sub-group meetings, including the sub-group on Health and Population, Poverty/Social Fund for Development/Micro Enterprises and Natural Renewable Resources (Agriculture and Water).
3.4 Challenges and Risks
3.4.1 The customs and tariff reforms enacted in September 2004 and the income tax reforms that became effective on 1 July 2005 combined with high levels of public spending are expected to result in a higher fiscal deficit. The reduction of the budget deficit is a major challenge. Another challenge is the vulnerability of the Egyptian economy to international and regional economic, financial, and socio- political developments. Although it has so far been remarkably resilient in the face of these developments, a more prolonged and serious disruption could adversely affect the implementation of the development agenda.
3.4.2 Other challenges include: (i) generating sufficient new jobs to absorb the growing unemployed while at the same time producing the required high level and skilled personnel to drive the industrial modernisation and competitiveness programme; (ii) providing adequately for the poor and most vulnerable in the society at a time of increasing budget deficits; (iii) raising the savings ratio as well as the investment ratio sufficiently to restore growth of GDP to forecast levels and hence be in a position to reduce poverty; and (iv) coping with globalisation in the form of loss of preferential market access as a result of such issues as the phasing out of the Multi Fibre agreement in January 2005, and the other agreements which have to be WTO compatible.
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3.4.3 The risks are: (i) declining official development assistance (ODA); (ii) external shocks could last for a long time and derail implementation of the development agenda or make it difficult to achieve the poverty reduction objectives of the government; (iii) inability to reduce the budget deficit may result in a crisis of confidence, which will undermine the relatively good debt profile and affect the exchange rate and lead to inflation; and (iv) a hiatus in reform could erode confidence and impact negatively on economic recovery and exacerbate fiscal imbalances.
IV. BANK GROUP COUNTRY ASSISTANCE STRATEGY
4.1 Portfolio Management and Lessons from Previous CSP
4.1.1 The Bank Group started its lending operations in Egypt in 1974 and has so far approved 49 operations comprising 34 projects, 3 studies, 1 policy based loan, 2 institutional support projects, 2 emergency operations and 6 lines of credit. As at 31 December 2006 (see Annex 2), the Bank Group's total loan approvals to Egypt amount to UA 2,240.38 million, comprising UA 2,047.78 million from ADB resources, UA 179.68 million from ADF resources, and UA 12.92 million from TAF resources. In addition, a multinational study grant of UA 3.056 million was approved for a study of Power Interconnection between Egypt and Democratic Republic of Congo (DRC). Out of the total amount approved to date, UA 318.87 million has been cancelled consisting of UA 314.71 million from ADB resources, UA 3.82 million and 0.34 from ADF TAF resources respectively. Thus, the cumulative Bank Group commitments net of cancellations in Egypt amount to UA 1,921.51million.
4.1.2 The sectoral distribution Figure 6 of the approved operations is as follows: power sector (39%), Egypt - Bank Group Operations by Sector Finance (37%), social sector (10%), agriculture and rural 5% development (6%), private Private Sector sector (5%), 3% for multi- Multi-sector 3% sector operations and 1% for Social 10% industry (see figure 6). In the Industry 1% transport sector, one study has Finance 37% been financed. 39% Power 4.1.3 The implementation of Agriculture 6% Bank Group projects in Egypt 0% 10% 20% 30% 40% has undergone remarkable improvement. Source: African Development Bank
4.1.4 The recently approved operations have become effective within a year compared to an average of two years for a loan to become effective and another six months to a year before disbursement starts. Project implementation progress had also been affected by procurement and disbursements delays due to inability of some PIUs to comply with Bank Group’s rules of procedure and, in the opinion of the Government, delays in responding to communications by the Bank, especially those relating to procurement and disbursement issues. Another problem area has been non-adherence by some PIUs to reporting requirements relating to quarterly progress and annual audit reports. An audit of all the on-going operations in Egypt undertaken in 2003 confirmed that PIUs were not submitting audit reports regularly as required by the Bank.
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4.1.5 Assessment under the 2004 APPR revealed that there were no problem projects but that 4 out of 8 ongoing projects were at risk. A Country Portfolio Review (CPPR) completed in May 2005, has indicated that the overall performance of the portfolio has improved with only 2 projects at risk. The improvement in performance as assessed in the CPPR is attributed to the completion of the institutional support project and a marked improvement in the rate of disbursement for the LoC to PBDAC. As part of 2004 CPPR, a Country Portfolio Improvement Plan (CPIP) was prepared. The focus of the CPIP is on improving poor procurement performance, enhancing adherence to reporting requirements, strengthening PIU performance and improving the quality of disbursement applications.
4.1.6 Ongoing operations: There are seven on-going operations with a commitment amounting to UA720.61 million. The disbursement rate for the ongoing projects currently stands at 1.49%. This is explained by the fact that about 96% of the commitment is accounted for by three projects of which two were approved in the second half of 2005 and one in 2006. The loan agreements for those approved in 2005 were declared effective in May and June 2006 and they will start disbursing soon while the loan agreement for the latter was signed in November 2006.
Role of the Egypt Field Office
4.1.7 This portfolio improvement plan is being continuously monitored by the Egypt Field Office (EGFO). The opening of EGFO in September 2000 has contributed significantly to the improved performance of the Bank’s portfolio and has facilitated improved communication between the Bank on the one hand and the Government and PIUs on the other. EGFO’s interventions were central to PIUs enhanced adherence to reporting requirements and hence the clearance of overdue audit reports, and improvement in the quality of disbursement applications. To further enhance its effectiveness, EGFO was, in 2005, strengthened by the recruitment of three local professionals (socio-economist, private sector expert and infrastructure specialist) and four GS staff (executive secretary, disbursement, procurement, and information technology specialists), a measure that will go a long way towards further improving portfolio quality. As a result of its strengthened staffing position, EGFO is one of the three pilot field offices to benefit from delegated powers with respect to procurement and disbursement, a measure that will further minimise procurement and disbursement delays and hence improve portfolio performance significantly. Furthermore, EGFO has contributed to the strengthening of the Bank’s lending programme in Egypt and improved follow-up and supervision of on-going operations.
Assessment of Previous Strategy
4.1.8 The Bank’s strategy for Egypt during the period 2000-2002 aimed at contributing to poverty reduction. In pursuit of this strategic focus, the Bank directed its interventions in the public sector at projects in the agriculture, social and financial sectors (Lines of Credit). The size of the lending programme during this period amounted to UA393.1 million for four projects under the public sector window. The Bank financed two lines of credit (LoC) to the National Bank of Egypt and the Export Development Bank of Egypt, totalling UA220 million; the Buhiyyah Canal Irrigation Improvement project (UA 9.86 million); and the Upgrading of Industrial Secondary Schools (phase II) project. However, the agriculture and education projects were subsequently cancelled at the request of the Government. The private sector strategy aimed at assisting small and medium scale enterprises through lines of credit to the private financial intermediaries, so as to enhance employment opportunities and poverty reduction. One private sector project, First LoC to Suez Canal Bank, was approved in October 2001. In view of the foregoing cancellations of projects which could have contributed to poverty reduction, skills development and employment generation, the objectives of the CSP were not fully achieved. 27
Box 4 Results of the 2000 – 2002 Country Strategy Paper and subsequent Updates
1. Support to private sector development, especially SMEs: Good progress was made towards promoting private investment. Support to SMEs was provided through Lines of Credit (LoC) to the National Bank of Egypt, Export Development Bank of Egypt and Suez Canal Bank. The LoC to NBE financed 76 sub-projects to enterprises in the tourism (46%), manufacturing (39.5%), services (9.2%) and social sector (5.3%) resulting in the creation and/or sustenance of about 8,063 jobs. As regards the LoC to EDBE, the resources, were extended to 67 enterprises in the agriculture, food industry, engineering and electrical industry, home appliances, tourism, textile industry and dairy farming in support of both export promotion and import substitution industries resulting in the creation of at least 5,519 jobs. The LOC to the Suez Canal Bank financed 12 sub-projects in agriculture, textile, chemical, energy, tourism and pharmaceuticals among other sectors.
2. Support to human resources development: This goal was only partially achieved. Following a change in Government policy, the project which was intended to contribute to the realisation of this objective namely the Upgrading of Industrial Secondary Schools was cancelled on Government request. However, projects approved under previous CSPs namely the Social Fund for Development, Women economic Empowerment and Health Sector Reform project but were still ongoing during this period, contributed to this goal.
3. Improve physical infrastructures: The only infrastructure project that was approved under the previous CSP was the El-Kureimat Combined Cycle Power project. The project was approved in 2005 and its implementation has just commenced.
4.3 CSP Results Framework
The illustrative results framework (Figure 7) seeks to indicate intended outcomes of the Bank’s strategy in line with Egypt’s national development goals. It identifies: (i) two pillars drawn from the Fifth Five-Year Plan for Socio-economic Development; (ii) four sectors of intervention; and (iii) associated outcomes that the Bank can directly contribute to realising. In addition, the strategic framework matrix (Annex 2) outlines the related indicators that will be monitored to measure achievement of the outcomes and the programmes and activities that are intended to best contribute to these outcomes.
4.4 CSP Pillars or Areas of Focus
4.4.1 The objective of the Bank’s intervention strategy in Egypt during the period 2007-2011 would be to support the Government’s development agenda aimed at promoting private sector-led growth and the modernisation of the Egyptian economy and its integration into the global economy. Thus, the Bank’s strategy, developed in a participatory manner (see Box 6), would seek to support two strategic pillars namely (i) promoting private sector development; and (ii) promoting social development and protection In this connection, it would focus on provision of direct investments to viable private sector projects and lines of credit (LoCs) to the banking sector to promote exports, tourism and SMEs development. It will also support the social sector and infrastructure development critical to poverty reduction and the enhancement of the competitiveness and efficient functioning of the economy. In collaboration with the other development partners, the Bank would also continue to provide support for the implementation of the financial sector reform program. This assistance strategy would complement those of other development partners who are in a position to provide grants and softer loans to Egypt for necessary human resource development (education, training and health). This strategic focus is further elaborated upon below.
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Figure 7 : Illustrative Results Framework
Strategic Pillar 2: Strategic Pillar 1: Promoting private sector development Promote social development and protection.
Support for Support for financial Support of direct Support for social sector infrastructure sector development private sector development development development
Expansion of Provide credit Promote further Absorb new Increased access power generation for export development of entrants into the to social services capacity and the promotion and SMEs. labour force by and the social improvement of the industrial generating new jobs. protection of the electricity production. Improved poor. transmission efficiency and total Reduced network. Enhance factor productivity transaction costs Enhanced commercial bank growth both in through removal of capacity of SFD to Expansion and performance and agriculture and administrative and plan and execute modernisation of develop non-bank industry. bureaucratic poverty-focused railways and financial services impediments to projects. seaports. business performance.
4.4.2 Support for infrastructure development: The industrial modernisation, the development of high value production and spatial diversification of the population agenda of the Government would require heavy investments in infrastructure development, especially energy, transport, water resources development, and telecommunications. Infrastructure improvement would enhance efficiency and total factor productivity growth both in agriculture and industry, as well as in the economy as a whole. The Bank’s strategy in the infrastructure sector would therefore focus on the expansion and modernisation of the energy, water resources development and transport infrastructure. More details on the expected support to these three infrastructure sub-sectors are provided below.
(i) Energy: The sectors of Industry, tourism and agriculture that are vital for the rapid economic growth of Egypt all rely heavily on steady and sufficient supply of electricity. The strategy in the energy sub-sector would therefore aim at expanding the infrastructure that is needed to support these fast growing sectors of the economy. While power generation is being undertaken partly by the public sector and partly by the private sector, the Government intends to keep the transmission system in the public domain. The Government has also embarked on a rural electrification program to supply power to low-income rural communities. Internally generated funds, grants and soft loans are being used for this purpose. The Bank’s strategy in the energy sub-sector would therefore focus on providing support for the expansion of power generation capacity and the improvement of the electricity transmission network to partly meet the electricity demand in the short-to-medium term and thereby contribute towards making available sufficient and reliable power to the various consumers including the households, agriculture, business and industries to improve the quality of life of the population and promote economic growth; 29
(ii) Water Resources Development: Egypt’s expanding population, industrial growth and agricultural expansion have continued to place increasing pressure on the country’s limited water resources. All agricultural production in Egypt depends on irrigation from the Nile and a major limitation to increased production is the limited and irregular supply of irrigation water of sufficient quality. Problems stemming from outdated water delivery structures and the degradation of water quality from sewage and drainage water salinity have reached such proportions that the GoE is placing increased priority on the resolution of these constraints to water availability for agricultural production. Policies are also being simultaneously put in place to encourage private sector investment in agriculture and related industrial and commercial activities. The Bank’s strategy in the sector would focus on supporting the Government to increase irrigation water availability primarily through: i) increasing the efficiency of water use and simultaneously minimising water loss through the upgrading of water delivery and drainage systems, and ii) improved drainage water reuse programs.
(iii) Transport: An efficient transport sector is important in ensuring access of the population to goods and services and relieving bottlenecks that could undermine efficient production if supplies cannot reach producers or producers cannot get their products to the market on time and at low cost. It enhances economic competitiveness and subsequently generates economic opportunity and prospects for job creation. The Bank will build on its experience in financing the transport sector and work with other partners in providing support to this sector. The focus of the Bank’s support would be on the expansion and modernisation of the road network, railways and seaports.
4.4.3 Support for financial sector development: The Bank’s strategy in the financial sector would take two forms namely, provision of lines of credit (LoCs) to the banking sector and support for the financial sector reform program. Restricted access to credit for business operations is a constraint on economic growth. The Bank has previously financed LoCs to the Industrial Development Bank, Principal Bank for Development and Agricultural Credit (PBDAC), National Bank of Egypt and the Export Development Bank of Egypt, as well as LoCs to private financial intermediaries (HSBC and Suez Canal Bank). These have been helpful in providing needed finances to investors both for export promotion, domestic agriculture and industrial production, which have assisted in generating gainful employment in various sectors, thus helping in alleviating poverty. The Bank has been requested to extend this type of operations to other viable banks. In the area of banking sector reforms, the Government has prepared a comprehensive reform program, and clear issues of reforms have been identified and quantified.
4.4.4 The World Bank, EU/EIB, IMF, and USAID are providing support for this important reform effort. The elements of the reform programme that have already been undertaken include: (i) enhancing the capacity of the Central Bank of Egypt in terms of separating the monetary policy and bank supervision functions, and creation of new departments to deal with banking sector restructuring and auditing of banks; (ii) introduction of an inter-bank foreign exchange market; (iii) the privatisation of Bank of Alexandria; (iv) restructuring of the remaining public sector banks through institutional and operational restructuring and commissioning of independent audits; (v) divestiture of public shares in joint venture banks by end 2006. Thus, stakes in Egyptian American Bank, National Societe Generale Bank, Cairo Barclays Bank, Misr American Bank, Misr International Bank have been sold while others are being prepared for sale; and (vi) some small 30 banks have been merged including Misr Exterior with Bank Misr, Credit Agricole with Credit Lyonnais as part of the banking sector consolidation. In September 2005, the Government announced the merger of Bank Misr and Banque du Caire, the country’s second and third largest commercial banks.
4.4.5 The need for resources is mainly in the area of recapitalisation of public sector banks. The Bank will also examine the possibility of issuing long-term bonds in the local market and introducing local currency loan product as a way of helping to deepen the capital market, mobilise local savings and reduce concerns about exchange rate risk. Discussions with various stakeholders have also revealed that another important area in which assistance will be required is that of asset management. The Bank will thus seek to provide technical assistance in this area during the CSP period. Special attention will be given to the financial sector because of its crucial role in private sector development.
4.4.6 Provision of direct Support for private sector development: Egypt is an economically diversified middle-income country with a private sector share of GDP estimated at more than two thirds. The private sector is therefore the major engine of growth of the Egyptian economy. Egypt has a strong potential for an increased investment program. In this regard, the Bank prepared a Private Sector Country Profile in 2005 and identified the strengths, constraints, and opportunities for private sector development. Within this context, specific areas of focus have been identified. The main goal is to support the efforts of the Government in promoting private sector development. Within this context, the Government has suggested that the ADB should coordinate the organisation of a workshop involving all development partners of Egypt.
4.4.7 Special attention will be given to the financial sector because of its crucial role in private sector development. The private sector window is considering a second line of credit (LOC) to Suez Canal Bank for US$60 - 70 million, and will carry out further selected analyses in the banking sector, with a view to assist in the privatisation path of selected institutions.
4.4.8 The second sector is the energy/petrochemical industry. Egypt has significant hydrocarbon (crude oil/natural gas) resources, which can be competitively exploited. A private sector refinery is thus under consideration. In addition, the Bank will explore opportunities for Public Private Partnership projects in infrastructure, which could include power generation based on domestic energy resources as well as port infrastructure. Opportunities for non-sovereign guaranteed operations will also be investigated and pursued.
4.4.9 In the medium-term, assistance to develop the franchising approach for SMEs development is envisaged, in view of the growing presence of franchisors in the country. In this regard, the Bank in November 2005 undertook a national conference on franchising development and an assessment mission in Egypt with a view to determining the potential for a support programme. In order to support enterprise competitiveness, a key direction for Bank assistance would be to target capacity building of relevant associations of producers/exporters and chambers of commerce. The Bank assistance will also seek to enhance Corporate Governance through specific mechanisms that will be based on the Bank’s Corporate Governance strategy. Such support would assist the private sector to take advantage of the ongoing industrial modernisation programme, development of high value production and the export promotion agenda of the Government.
4.4.10 Support to the social sector: One of the objectives of the fifth Five-Year Plan for Egypt is to reduce poverty and to improve equity in the distribution of income. Development of SMEs is one of the Government’s priorities for socio-economic development given the growing need for generation 31 of employment. Several support programmes already exist for this purpose including the Social Fund for Development (SFD) one of whose objectives is to facilitate the operation of micro and small enterprises. The Bank has an ongoing operation involving the Social Fund for Development. A recent multi-donor mid-term review concluded that the SFD needs to be continuously supported because of its impact on income and employment generation and hence poverty reduction. The report also highlighted some challenges that the SFD is still faced with. These include the need for the SFD to: (i) be more poverty focussed in its interventions; (ii) use more participatory approaches; (iii) pay more attention to sustainability issues; (iv) strengthen its regional offices in order to facilitate the decentralisation of the project management activities; and (v) set up an integrated monitoring and evaluation system which will support community level monitoring. In this regard, the Banks strategy would be to support the creation of long-term jobs through encouraging the development and expansion of micro-and small enterprises in the third phase of the SFD (Micro and Small Enterprise Support Project). The Banks intervention will focus on the objectives of: (i) supporting 30,000 to 35,000 SME’s and thereby contribute to creating about 110,000 new jobs per annum; (ii)developing the Small enterprise development Organisation and its partner financial intermediaries institutional capacity to support and sustain the activities of the SME sector and provide cost recoverable business development services; and (iii) support the creation of a simpler regulatory and operational environment that would enable the SME and micro-finance sector to grow and expand.
Box 5 Expected Outcomes of 2007 – 2011 CSP
1. Support for infrastructure development: Supply of 750MW generation capacity to the Unified Power System by end 2011 thereby contributing to the enhancement of energy generating capacity and making available adequate energy at minimum cost to the various economic sectors to promote economic growth and improve the standard of living of the population and improved access to markets through the upgrading of the transportation network and water use.
2. Support for financial sector development: This would be achieved through the assistance provided to commercial banks through LoCs and the Financial Sector Reform Programme. The Bank would assist the Government to improve the performance of commercial banks and develop the non-bank financial services. This will also have links with the development of SMEs and hence contribute towards the creation of 750,000 new job opportunities required under the Fifth Five-year Plan for Socio-economic Development 2002 - 2007.
3. Direct Investments in the private sector: Enhance private sector development by supporting small and medium enterprises (SMEs). This would be achieved through the provision of financial resources to viable SMEs, the industrial, tourism and service sectors in order to expand their lead role in economic growth, employment creation and poverty reduction in Egypt. It is anticipated that SME sub-projects would be financed through Bank lending to public and private sector financial institutions. In addition, support will be provided to the Government’s PPP programme.
4. Support to the Social Sector: The broad objective would be to: (i) increase access to social services and the social protection of the poor; (ii) increase access to financial services for the poor; and (iii) build the capacities of SFD and local institutions to plan and execute poverty focussed projects at the grassroots level. The Bank’s intervention would support 30,000 to 35,000 SME’s thereby contribute to creating about 110,000 new jobs per annum
4.5 Bank Group Assistance: Lending & Non-Lending Scenarios, Triggers and Resource Implications
4.5.1 In line with the proposed strategy outlined above, the 2007-2011 Bank Group assistance program for Egypt would combine lending and non-lending activities. In the short- to medium-term covering 2007-2008, the strategy will concentrate on private sector operations, the development of infrastructure in the energy, transport and water sectors, and support for the financial sector. The non-lending activities would concentrate on economic and sector work as well as continued dialogue on policy reforms and portfolio management. There will be a mid-term review of the 32 strategy in 2009 to incorporate possible shifts in the government’s development agenda during the Sixth Five-Year Development Plan.
Box 6 Consultative Process for the Bank’s Strategy
The CSP was prepared in a three-step participatory manner according to the Bank Group’s procedures. The first step was a preparation mission undertaken in May 2004 to gather data and other information for writing the first draft of the CSP. This was followed by a second step in which two follow-up missions were fielded in November/December 2004 and the draft CSP was reviewed extensively with representatives of the Government. During the third step, a two-day participatory seminar was organised in collaboration with the Ministry of International Cooperation, and was held on 31 January and 1 February 2005. The seminar was well-attended (113 participants) by Government officials, some of the Bank’s development partners, representatives of civil society organisations and other stakeholders. The event was also well covered by the local media including television, radio stations and newspapers. Another mission was undertaken in August 2006 for final review of the draft CSP.
During the seminar, the mission made two presentations on: (i) the draft CSP 2007 – 2011; and (ii) the activities of the Private sector window of the Bank covering, among other things, eligibility for financing, strategic areas of activities and tools, types of financial instruments, and sectors of intervention. The participants were later divided into three break-out groups to examine three themes in more detail: (i) macro-economic issues; (ii) public/private partnerships; and (iii) operational issues. The conclusions of the seminar have been incorporated in the CSP.
The seminar endorsed the Bank Group’s lending strategy for Egypt for the period 2007-2011 and its sectoral focus as described in section 4.4.
Lending Activities
4.5.2 The Business Plan for the 2007-2008 Period: The business plan for the short to medium term will focus on investments in the financial sector in order to improve performance and soundness of the financial sector thereby facilitating private sector development and promote economic growth; transport sector, i.e. to enhance access to markets for farmers and transportation of industrial goods thereby facilitating trade and supporting a favourable investment climate; and provision of LoCs to promote further development of SMEs.
4.5.3 The Business Plan would include more lines of credit to banks in both the private and public sectors. In terms of potential private sector projects, a number of pipeline and pre-pipeline projects have been identified. For the envisaged public and private sector operations, the financing requirements could range from UA 600 to UA 900 million for the two-year period, an annual average of UA 300 - UA 450 million.
4.5.4 In the longer term, beyond 2008, there could be more operations, especially in the energy sector and water resources sector, including the West Cairo Power Generation Station Project, the Eyyoun Moussa Power Generation Station, and the El Weleedeya Power Generation Station. In order to expand its operations and take full advantage of the potentials in Egypt which is a diversified but highly competitive economy, the Bank would continue to explore various options including: (i) the possibility of issuing debt instruments in local currency and (ii) taking necessary steps to sharpen its competitive edge in financial product offering and pricing as well as quality of service delivery. 33
4.5.5 Sustainable Lending Limits: Figure 8: 2005 CPIA Rating The country risk assessment is based First First First First First First First Quintile Quintile Quintile Quintile Quintile Quintile Quintile on 5 clusters measuring: (i) Second Second Second Second Second Second Second macroeconomic fundamentals, Quintile Quintile Quintile Quintile Quintile Quintile Quintile Third Third Third Third Third Third Third policy implementation and Quintile Quintile Quintile Quintile Quintile Quintile Quintile performance; (ii) the sustainability Fourth Fourth Fourth Fourth Fourth Fourth Fourth Quintile Quintile Quintile Quintile Quintile Quintile Quintile of external debt; (iii) socio-political Fifth Fifth Fifth Fifth Fifth Fifth Fifth outlook; (iv) conduciveness of the Quintile Quintile Quintile Quintile Quintile Quintile Quintile Cluster Cluster business environment for private Cluster Cluster C- D- Country A- B- Policies Govern. Overall sector development; and (v) Bank Public Portf. Econ. Struct. for Factor Rating Sector Perform Group portfolio performance as it Managt. Policies Social Managt. relates to debt service record and Inclusion project implementation. Source: African Development Bank
4.5.6 In 2005, Egypt was rated as a low risk country and adjudged to be performing well above the African average on all clusters. Furthermore, at 3% of the existing sustainable portfolio, the Bank’s exposure to the country is currently low. Based on this assessment, Egypt’s sustainable annual lending limits range from UA 261 million (for low case scenario) to UA 372 million (for base-case scenario) and UA 541 million (for high case scenario). If the above projects materialise, then a substantial amount would be required. With regard to the 2005 CPIA rating exercise, Egypt was ranked in the second quintile among the countries with medium policy performance as shown in figure above. It was considered a moderate performer in terms of all the four clusters relating to economic management, structural policies, policies for social inclusion/equity, and public sector management and institutions. The main area of concern relates to the budget deficit and the concomitant public debt which remains high and poses the risk of compromising the country’s economic potential.
4.5.7 The Government is already taking measures to improve public financial management and accountability. Thus in the context of the CPIA exercise, these efforts to strengthen public financial management will be measured in terms of the progress being made to introduce a single treasury account, implementation of a computerised accounting and reporting system and its planned inventory management and control system and preparation of a multi-year fiscal and expenditure framework to guide future budget preparation activities. These performance benchmarks indicators are summarised in Table 4.1.
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Table 4.1
Performance Benchmarks
Weakness Identified Structural Reforms Benchmark 2007 CPIA 2005 Public Financial The Public Financial Management system is Implementation of a management in a transition phase. computerized accounting and reporting system and its planned inventory management and control system.
Transparency and The 2004/05 budget was made public, Progress towards the accountability encouraging public discussion and debate; the introduction of a single 2005/06 budget covered quasi-fiscal activities treasury account. for payments to state enterprises and consumers; and an IMF GFS-2001-compliant chart of accounts is being implemented in the same budget, including an 8 chapter classification structure. Quality of budgetary and Improving tax policy analysis, and revenue Macro-fiscal unit in the financial management estimation, control on tax collection, Ministry of Finance to modernisation of budget process including prepare a multi-year fiscal cash management and expenditure policy, and expenditure framework to guide future establishment of a debt management unit budget preparation activities
Non-lending Activities
4.5.8 There are two key non-lending activities that will be completed during the course of 2006. These relate to the Country Governance Profile (CGP) and a Private Sector Country Profile (PSCP). Report preparation is in progress. In addition, there are various areas that the Bank can engage in Economic and Sector work, but these would need further discussions with the Government to identify priority ESW that would enhance dialogue and policy advice. A study of the Incentive Structure in the Civil Service with a view to rationalising it could be helpful for the Government to decide on what works and what does not, and at what cost. With a view to increase its knowledge in the sector and assess possible areas of intervention, the Bank also envisages undertaking a number of studies in the water resources and irrigation sub-sectors. The Bank will continue discussing with Government additional areas of possible ESW taking advantage of the MIC Trust Fund to finance a number of studies that will strengthen the pipeline.
4.6 Partnership and Harmonisation
Through the DAG framework, the Bank will continue to cooperate with other development partners and explore avenues for co-financing of projects, particularly with development partners with softer terms than the Bank. In this way, the Bank will leverage its years of experience in financing projects in Egypt and continue its policy advice to the Government. The Bank has participated in co-financing projects in Egypt in the past and will continue to do so in the 35 prospective projects mentioned above. Greater harmonisation will be sought through upstream collaboration on the programmes to be co-financed and where possible through joint analytical work. The support for the Financial Sector Reform Programme is a recent manifestation of development partner coordination in Egypt.
V. RESULTS-BASED MONITORING AND EVALUATION
5.1 Monitoring of CSP Outcomes and Bank Group Performance
Monitoring of CSP outcomes and performance will be two pronged namely: (i) macroeconomic indicators and (ii) portfolio performance. Annex 3 contains the yardstick and criteria for monitoring outcomes in the CSP. Macroeconomic performance would be measured against the outcomes for macroeconomic indicators as provided by the authorities and the IMF. Portfolio performance would be based on the results of country portfolio reviews, the bank-wide annual portfolio performance review (APPR) and OPEV country reviews, in line with the criteria spelt out in Annex 3 and against Bank-wide standards of evaluation. Task managers, under the umbrella of the Country Team, will monitor progress in project/programme outcomes using the CSP and specific project/programme outcomes. The Egypt Field Office will provide a useful link in monitoring CSP outcomes.
5.2 Managing Risks
There are two possible risks, which could affect the pace of implementation of the proposed Bank’s strategy. External shocks, such as the September 2001 event and the war in Iraq, which tend to put government reform programme on hold because of uncertainties, could slow down reforms necessary for effective implementation of Bank’s projects and programs. For example, the delay in the recently implemented tariff reforms, had affected the pace of the processing of the Bank’s energy project given the insistence of the Bank on such reforms before Board presentation. In addition, delays in the implementation of the financial sector and investment reforms, now in progress, had in the past affected the business climate, which had limited the number of private sector projects that the Bank could have financed. Recent momentum on the pace of reforms by the current Government would mitigate this risk. Furthermore, inadequate ESW on Egypt by the Bank could lead to lower lending to Egypt than envisaged. Current emphasis by the Bank on ESW in its middle-income countries would help to mitigate this risk.
5.3 Country Dialogue Issues
The Bank’s ability to engage in effective dialogue with the Government and other development partners on issues relating to on-going operations, and development issues in general, has been enhanced since the opening of a Country Office in September 2000. In the short- to medium-term, the areas of focus for dialogue on policy reforms will be in the following areas: (i) fiscal sustainability; and (ii) financial sector reform which the Government has already embarked on with a view to, inter alia, restructure the banking system through mergers, capital increase and privatisation. In addition, the Bank has prepared a Private Sector Country Profile and a Country Governance profile. The finalisation of the Private Sector Country Profile and the Country Governance Profile will engender new opportunities for dialogue between the Bank and the authorities in the area of private sector development and good governance. The newly approved initiatives designed to enhance the framework and delivery of the Bank’s development assistance in the MICs, in particular reduction in commitment fee and enhanced economic and sector work (ESW), also opens up new avenues for dialogue on building the pipeline of projects and programmes. ESW will give new opportunities for dialogue based on knowledge of the sectors and 36 issues. The Bank’s enhanced competitiveness is likely to generate new programmes/projects for Bank support.
VI. CONCLUSIONS AND RECOMMENDATION
6.1 Conclusions
Egypt has made great strides in its development programme over the past two decades. It posted impressive growth rates of GDP following its bold and comprehensive reform programs in the 1990s. Unfavourable external shocks and temporary wavering over the need to continue the reform agenda resulted in the slow down of growth. The prospects that the country can again stay the course of reform are good. There are indications to this effect, particularly the decisions to float the Egyptian pound in January 2003 and to embark on tariff, taxation and financial sector reforms. The privatisation programme has also been reactivated. These measures are aimed at stimulating the economy through the reduction of barriers to investment and production. Egypt’s program to modernise its industrial sector and enhance its efficiency and competitiveness; diversity the economy; and implement an export-led, private sector dominant growth; are steps in the right direction, which deserve the Bank’s support.
6.2 Recommendation
The Board is requested to approve the 2007 - 2011 Bank’s Strategy for Egypt, focusing on support for private sector development, the extension and modernization of infrastructure in the energy, water resources development and transport sectors, and support for financial sector development, so as to enhance growth and poverty reduction. The Board is also requested to note the recommended sustainable lending limit amounting to UA 372 million per year, under the country risk base-case scenario.
Annex 1 COUNTRY STRATEGY PAPER 2007 - 2011 Map of Egypt
This map was provided by the African Development Bank Group exclusively for the use of the readers of the report to which it is attached. The names used and the borders shown do not imply on the part of the Bank and its members any judgment concerning the legal status or a territory nor any approval or acceptance of these borders.
Annex 2 Page 1 of 3 EGYPT SUMMARY OF BANK GROUP OPERATIONS 31 December, 2006 APPROVALS DATE DISBURSEMENTS DEAD LINE AMOUNT ( UA Million.) NET DATE DATE ENTRY AMOUN % FINAL INTO T ADB ADF TAF COMMIT- APPROVE SIGNED FORCE (UA MIL) DISB. STATUS MENT D AGRICULTURE (8) El-Beheira 10.00 0.00 0.00 0.23 9.77 12-Dec-81 26-Jan-82 28-Dec-84 9.77 100.00 30-June-97 Completed. Rural Dev. 0.00 7.37 0.00 0.00 7.37 12-Dec-81 26-Jan-82 09-Jun-85 7.37 100.00 30-June-97 Completed Drainage v 18.62 0.00 0.00 1.41 17.21 20-Nov-85 04-Apr-86 06-May-88 17.21 100.00 31-Dec-98 Completed. 0.00 9.21 0.00 0.50 8.71 20-Nov-85 04-Apr-86 06-May-88 8.16 93.69 31-Dec-98 Completed 2nd Agric. Dev 31.15 0.00 0.00 22.08 9.07 20-Nov-85 04-Apr-86 08-Dec-88 9.07 100.03 31-Dec-98 Completed. 0.00 9.21 0.00 0.44 8.77 20-Nov-85 04-Apr-86 14-Dec-88 8.77 100.05 30-Jan-98 Completed Drainage Water Study 0.00 0.00 2.03 0.17 1.86 01-Dec-92 12-May-93 10-Feb-94 1.86 100.22 30-Jan-98 Completed Reh. of Agric. Drainage Systems. 0.00 19.34 0.00 0.00 19.34 15-Dec-92 13-May-93 27-Apr-94 19.19 99.22 31-Dec-02 Completed LOC to PBDAC 9.28 0.00 0.00 0.00 9.28 24-Mar-99 01-Dec-00 22-Apr-02 9.28 100.00 31-Dec-05 Completed 0.00 6.00 0.00 0.00 6.00 24-Mar-99 01-Dec-00 22-Apr-02 6.00 100.00 31-Dec-05 Completed 0.00 0.00 1.00 0.00 1.00 24-Mar-99 01-Dec-00 22-Apr-02 0.86 86.00 31-Dec-06 Ongoing El_Beheira II 4.91 0.00 0.00 1.18 3.73 26-Nov-97 07-Mar-98 19-Dec-00 3.73 100.00 31-Dec-05 Completed 0.00 6.52 0.00 0.00 6.52 26-Nov-97 07-Mar-98 19-Dec-00 3.85 59.05 31-Dec-06 Ongoing 0.00 0.00 1.00 0.00 1.00 26-Nov-97 07-Mar-98 19-Dec-00 0.60 60.00 31-Dec-06 Ongoing The Buhiyyah Canal Irrigation Improvement 9.86 0.00 0.00 9.86 0.00 28-Nov-01 30-Sep-02 n.a. 0.00 0.00 30-Dec-08 Cancelled Sub-Total 83.82 57.65 4.03 35.88 109.62 105.72 96.44
TRANSPORT (1) Two Canals Study 0.00 0.00 1.57 0.10 1.47 06-Jan-93 12-May-93 18-Jan-94 1.46 99.32 12-Oct-95 Completed
Sub-Total 0.00 0.00 1.57 0.10 1.47 1.46 99.32
POWER (14) Power I 5.00 0.00 0.00 0.00 5.00 22-Nov-74 08-Dec-74 09-Jun-75 5.00 100.00 09-Jun-77 Completed. Power II 5.00 0.00 0.00 0.03 4.97 14-Oct-75 26-Feb-76 30-Jun-77 4.97 99.98 20-Jan-86 Completed. Power III 5.00 0.00 0.00 0.00 5.00 31-Dec-77 30-Mar-78 25-Aug-78 5.00 100.00 22-Dec-82 Completed. Rural Elect. I 0.00 7.37 0.00 0.00 7.37 26-Sep-79 01-Feb-80 24-May-81 7.37 100.00 30-Dec-85 Completed. Shoubrah El-Kheima 10.00 0.00 0.00 0.00 10.00 23-Sep-80 19-Dec-80 18-Nov-81 10.00 100.00 31-Dec-86 Completed. Rural Elect. II 0.00 7.37 0.00 2.87 4.50 25-Jun-81 09-Jul-81 30-Mar-82 4.50 100.00 31-Dec-95 Completed. Shoubrah El-Kheima Interc. 21.39 0.00 0.00 0.21 21.18 26-May-83 16-Oct-83 26-Apr-84 21.18 100.00 02-Jan-90 Completed. Shoubrah El-Kheima (Unit 4) 43.50 0.00 0.00 7.46 36.04 28-Aug-85 10-Mar-86 16-Feb-87 36.04 100.00 31-Dec-89 Completed. Damietta Power 103.00 0.00 0.00 2.74 100.26 19-Dec-86 30-Oct-87 07-Jun-88 100.26 100.00 31-Dec-97 Completed. Cairo West 210.00 0.00 0.00 0.01 210.00 23-Aug-88 19-Dec-88 21-Dec-89 208.83 99.45 30-Jun-99 Completed. Cairo West Supplementary 42.10 0.00 0.00 10.85 31.25 27-Jan-92 01-Sep-92 12-Jul-93 31.25 100.01 30-Jun-99 Completed 2 Annex 2 Page 2 of 3 El-Arish Power 53.53 0.00 0.00 3.52 50.01 18-Dec-89 07-Mar-90 10-Mar-91 50.01 100.01 31-Jan-98 Completed. El-Kureimat Power 250.00 0.00 0.00 127.92 122.08 17-Dec-90 30-May-91 03-Mar-92 122.07 99.99 31-Dec-00 Completed Solar Thermal Energy Power Study 0.00 0.00 1.57 0.05 1.52 06-Jan-93 12-May-93 14-Feb-95 1.51 99.34 30-Jun-03 Completed El-Kureimat Combine Cycle power 145.92 0.00 0.00 0.00 145.92 27-Jul-05 18-Oct-05 05-May-06 0.00 0.00 31-Dec-10 Ongoing Sub-Total 894.44 14.74 1.57 155.66 755.09 607.99 80.52
FINANCE (8) 1st Line of Credit to IDB 5.00 0.00 0.00 0.01 4.99 18-Aug-77 04-Oct-77 15-Apr-78 4.99 99.91 30-Jun-82 Completed. 2nd Line of Credit to IDB 10.00 0.00 0.00 0.12 9.88 25-Apr-80 20-Jun-80 30-Dec-80 9.88 99.99 30-Jun-94 Completed. 3rd Line of Credit to IDB 10.00 0.00 0.00 0.00 10.00 12-Dec-81 26-Jan-82 02-Aug-82 10.00 100.00 30-Jun-94 Completed. 4th Line of Credit to IDB 60.00 0.00 0.00 19.20 40.80 12-Dec-84 11-Feb-85 20-Aug-85 40.80 100.00 31-Dec-90 Completed. Line of Credit to NBE 102.65 0.00 0.00 0.00 102.65 23-Oct-02 27-Mar-03 22-May-03 102.65 100.00 31-Dec-06 Completed. Line of Credit to EDBE 58.65 0.00 0.00 11.73 46.92 23-Oct-02 27-Mar-03 22-May-03 46.92 80.00 31-Dec-06 Completed. 2 nd Line of Credit to NBE 140.25 0.00 0.00 0.00 140.25 04-Oct-05 21-Nov-05 09-Jun-06 0.00 0.00 31-Dec-09 On-going Financial Sector Reform Programme 347.39 0.00 0.00 0.00 347.39 26-Jul-06 27-Nov-06 0.00 0.00 On-going Sub-Total 733.94 0.00 0.00 31.05 702.89 215.24 30.62
INDUSTRY (3) Polyester Filament 8.00 0.00 0.00 1.49 6.51 20-Aug-79 04-Oct-79 28-Jul-81 6.51 99.98 31-Dec-81 Completed. Polyester Filament II 10.45 0.00 0.00 1.35 9.10 29-Dec-86 14-Mar-88 10-May-89 9.10 99.98 Completed. Inst. Sup. to NIS & EOS 0.00 0.00 1.57 0.02 1.55 25-May-92 01-Sep-92 15-Mar-93 1.54 99.35 30-Jun-00 Completed.
Sub-Total 18.45 0.00 1.57 2.86 17.16 17.15 99.92
SOCIAL (11) Ind. Voc. Training 0.00 7.37 0.00 0.00 7.37 22-Nov-78 31-Jan-79 11-Jun-81 7.37 100.00 31-Dec-84 Completed. Bilharzia Control I 0.00 7.37 0.00 0.00 7.37 18-Dec-80 18-Mar-81 15-Feb-82 7.36 99.88 30-Jun-94 Completed. Bilharzia Control II 0.00 7.37 0.00 0.01 7.37 10-Jun-82 07-Jan-83 26-Aug-83 7.36 99.97 30-Jun-00 Completed. Bilharzia Control III 0.00 6.20 0.00 0.29 5.91 23-Mar-89 01-Dec-89 10-Jul-90 5.91 100.00 30-Jun-00 Completed. Upgrading Industrial Sec. School 17.33 0.00 0.00 0.28 17.05 23-Mar-89 01-Dec-89 01-Dec-90 17.05 100.01 30-Jun-00 Completed. 0.00 22.11 0.00 0.00 22.11 23-Mar-89 01-Dec-89 01-Dec-90 22.11 100.00 30-Jun-00 Completed 0.00 0.00 0.68 0.00 0.68 23-Mar-89 01-Dec-89 01-Dec-90 0.67 98.53 30-Jun-00 Completed Emergency School Recon. 0.00 24.87 0.00 2.44 22.43 23-Jun-93 26-Nov-93 07-Oct-94 22.43 100.00 30-Jun-02 Completed Social Fund II 0.00 15.00 0.00 0.00 15.00 26-Nov-97 07-Mar-98 19-Dec-00 15.00 100.00 31-Dec-06 Completed Women Empowerment 0.00 6.00 0.00 0.00 6.00 26-Nov-97 07-Mar-98 19-Dec-00 2.00 33.33 31-Dec-06 Ongoing 0.00 0.00 0.20 0.00 0.20 26-Nov-97 07-Mar-98 19-Dec-00 0.17 85.00 31-Dec-06 Ongoing Health Sec Reform 0.00 11.00 0.00 0.00 11.00 29-Oct-98 11-Jul-00 14-Nov-01 2.67 24.27 30-Jun-07 Ongoing 0.00 0.00 1.00 0.00 1.00 30-Oct-98 11-Jul-00 14-Nov-01 0.93 93.00 30-Jun-07 Ongoing Upgrading Industrial Schools (Phase II) 9.31 0.00 0.00 9.31 0.00 28-Nov-01 30-Sep-02 n.a. 0.00 0.00 31-Dec-08 Cancelled Micro & Small Enterprises Support 60.00 0.00 0.00 0.00 60.00 11-Oct-06 0.00 0.00 31-Dec-08 Ongoing Sub-Total 86.64 107.29 1.88 12.33 183.48 111.03 60.51 MULTI-SECTOR (2) SAL 100.00 0.00 0.00 50.00 50.00 24-Sep-91 21-Apr-92 30-Nov-92 50.00 100.00 30-Jun-94 Comp. with 50% loan cancelled. 3 Annex 2 Page 3 of 3 Inst. Sup. to MIC 0.00 0.00 2.30 0.00 2.30 27-Jan-92 21-Apr-92 14-Oct-93 2.30 100.00 31-Dec-05 Completed 31.00 Sub-Total 100.00 0.00 2.30 50.00 52.30 52.30 100.00 EMERGENCY ASST. 0.40 0.00 0.00 0.00 0.40 26-Nov-92 N/A N/A 0.40 100.00 N/A Completed. EMERGENCY ASST. (Locust Control) 0.33 0.00 0.00 0.00 0.33 02-Feb-05 N/A 0.35 0.00 Completed Sub-Total 0.73 0.00 0.00 0.00 0.73 0.75 102.79
PRIVATE SECTOR OPERATIONS (5) (USD million) Car Assembly Plant (JAC) 14.00 0.00 0.00 14.00 0.00 24-Feb-94 N/A N/A 0.00 0% N/A Cancelled Windsor Turin Garden City Hotel 14.00 0.00 0.00 0.00 14.00 21-May-97 11-May-99 04-Feb-00 14.00 100% 30-Jun-00 On-going Alexandria National Iron & Steel Company 33.00 0.00 0.00 33.00 0.00 15-Dec-98 27-May-99 0.00 0% 25-Oct-01 Cancelled 15.82 0.00 0.00 0.00 15.82 - do - - do - - do - 15.82 100% 25-Oct-01 Divested LoC to HSBC 50.00 0.00 0.00 0.00 50.00 08-Dec-99 06-Jul-00 06-Jul-00 50.00 100% 30-Apr-01 Completed Loc to Suez Canal Bank 70.00 0.00 0.00 0.00 70.00 18-Oct-01 29-Jan-02 20-Mar-02 70.00 100% 30-Jun-03 Completed Sub-Total 196.82 0.00 0.00 47.00 149.82 149.82 100% 129.76 0.00 0.00 30.99 98.77 98.78 100% Grand Total 2047.78 179.68 12.92 318.87 1921.51 1210.42 62.99
MULTINATIONAL
DRC/Egypt Power 3.04 3.04 12-Jun-90 10-Jul-90 16-Mar-93 2.20 72.37 31-Dec-95
NET COMMITMENTS: ADB = 1733.07 2240.38 DISB. = 1041.09 60.07 691.98 NET COMMITMENTS: ADF = 175.86 DISB. = 157.42 89.52 18.44 NET COMMITMENTS: TAF = 12.58 DISB. = 11.90 94.62 0.68 NET COM.: GRAND TOTAL = 1921.51 DISB. = 1210.42 62.99 711.09
Annex 3
Challenges for Government Bank group Bank Group Activity Other Benchmarks the Country Agenda Strategy Recent & Proposed strategies/Bilateral & MDG Goals End of CSP Strategy/Programme (NDP/PRSP) ongoing Multilateral Period Implementation until Goals 2011 Pillar 1: Promoting Private Sector Development Sustain Achievement of Provide El Kureimat World Bank, USAID, Eradicate 750MW 2011 economic high and support to the Combined EIB, KFW extreme increase to growth sustainable expansion of Cycle Power poverty UPS supply rates of GDP power Plant capacity; growth; generation Increase industrial capacity and electricity modernisation; the supply to the improvement UPS by development of of the 4,843GWh; high value electricity Increase production; and transmission electricity spatial network generation diversification capacity of the from population 98,067GWh to 134,803GWh Industrial Provide None Feasibility World Bank, EIB, Signalling 2011 modernisation support to the studies for the French, JICA, Arab equipment and expansion Sohag- Funds modernised enhancement of and Hurghada on the 62km competitiveness modernisation road project stretch of the of road and Safaga-Al rail line; network, Kossier Ports. efficiency of railways and El Mansoura the rail line sea ports Damietta increased by railway reducing signalling passenger equipment trip ad modernisation freight trains time. Provide None Irrigation World Bank Eradicate Water supply 2011 support for development extreme to some upgrading of in the West poverty and 42,000 water Delta Area hunger hectares delivery and improved drainage through 2 Challenges for Government Bank group Bank Group Activity Other Benchmarks the Country Agenda Strategy Recent & Proposed strategies/Bilateral & MDG Goals End of CSP Strategy/Programme (NDP/PRSP) ongoing Multilateral Period Implementation until Goals 2011 systems and irrigation improvement Ensure in drainage environmental water re-use sustainability programmes Inadequate Creating a Provide (i) Financial LoCs to other World Bank, USAID, Eradicate Contribute 2011 credit to the sound financial support to the Sector Commercial EU, EIB, KFW extreme towards the SME sector system through Government’s Reform Banks poverty and creation of the financial Programme; hunger 750,000 jobs; enhancement of sector (ii) LoC to increased commercial reforms and National access to bank the provision Bank of credit; performance of lines of Egypt and privatisation and credit (LOCs) (iii) Small of at least 2 development of to the banking and Medium state owned non-bank sector Enterprise banks, financial Support Loan divestiture in services all joint venture banks; consolidation in the banking sector; reaching undeserved areas, bringing in new clients; Slow growth of Create an Fostering the ANSDK, Soukhna EIB, IFC, KFW Contribute 2011 the private improved growth of Windsor private port; towards the sector business private Turin Garden Soukhna creation of environment in enterprise City Hotel private 750,000 new order to refinery jobs. enhance Private sector competitiveness Second LoC not large and support for to Suez Canal enough to SME Bank absorb new development entrants into the 3 Challenges for Government Bank group Bank Group Activity Other Benchmarks the Country Agenda Strategy Recent & Proposed strategies/Bilateral & MDG Goals End of CSP Strategy/Programme (NDP/PRSP) ongoing Multilateral Period Implementation until Goals 2011 labour force Pillar 2: Promoting social development and protection Generating Reduce poverty Support Social Fund Integrated Arab Fund for Eradicate Contribute 2011 sufficient new and improve increased for Community Economic and Social extreme towards the jobs equity in the access to Development Development Development; EU; poverty and creation of Providing distribution of social Phase (III); Project JBIC; Kuwait Fund; hunger 750,000 jobs 2011 adequately for income services and Micro and KFW; World Bank; the poor and social Small UNDP etc. most vulnerable protection for Enterprise in society the poor Support through Project increased access to financial services and enhancement of capacities for the SFD
Annex 4 Egypt COMPARATIVE SOCIO-ECONOMIC INDICATORS
Develo- Develo- Year Egypt Africa ping ped Countries Countries
Basic Indicators GNI per capita US $ Area ( '000 Km²) 1 001 30 307 80 976 54 658 Total Population (millions) 2006 73.6 924.3 5 253.5 1 211.3 2000 Urban Population (% of Total) 2006 42.1 38.4 43.1 78.0 1500 Population Density (per Km²) 2006 75.3 30.5 60.6 22.9 1000 GNI per Capita (US $) 2005 1 250 955 1 154 26 214 500 Labor Force Participation - Total (%) 2005 38.8 42.3 45.6 54.6 0 Labor Force Participation - Female (%) 2005 33.2 41.1 39.7 44.9 2000 2001 2002 2003 2004 2005 Gender -Related Development Index Value 2002 0.635 0.475 0.694 0.911 Human Develop. Index (Rank among 174 countries) 2004 111 n.a. n.a. n.a. Egypt Africa Popul. Living Below $ 1 a Day (% of Population) 2000 16.7 45.0 32.0 20.0
Demographic Indicators Population Growth Rate - Total (%) 2006 2.3 2.1 1.4 0.3 Population Growth Rate - Urban (%) 2006 2.4 3.5 2.6 0.5 Population < 15 years (%) 2006 33.3 41.3 32.4 18.0 Population Growth Rate (%) Population >= 65 years (%) 2006 4.8 3.4 5.5 15.3 2.3 Dependency Ratio (%) 2006 61.8 80.8 57.8 47.8 2.2 Sex Ratio (per 100 female) 2006 100.5 99.9 102.7 94.2 Female Population 15-49 years (% of total population) 2006 29.6 26.8 27.1 25.0 2.1 Life Expectancy at Birth - Total (years) 2006 70.9 51.4 64.1 76.0 2.0 Life Expectancy at Birth - Female (years) 2006 73.1 52.2 65.9 79.7 1.9 Crude Birth Rate (per 1,000) 2006 25.3 36.5 22.8 11.0 1.8 Crude Death Rate (per 1,000) 2006 5.7 14.9 8.7 10.4 1.7 Infant Mortality Rate (per 1,000) 2006 31.4 82.5 59.4 7.5 2001 2002 2003 2004 2005 2006 Child Mortality Rate (per 1,000) 2006 36.4 137.7 89.3 9.4 Total Fertility Rate (per woman) 2006 3.0 4.7 2.8 1.6 Egypt Africa Maternal Mortality Rate (per 100,000) 2002 75.0 622.9 440.0 13 Women Using Contraception (%) 2005 59.2 26.6 59.0 74.0
Health & Nutrition Indicators Physicians (per 100,000 people) 2004 53.0 38.2 78.0 287.0 Nurses (per 100,000 people) 2004 202.0 110.7 98.0 782.0 Life Expectancy at Birth (years) Births attended by Trained Health Personnel (%) 2005 74.1 43.7 56.0 99.0
Access to Safe Water (% of Population) 2004 98.0 62.3 78.0 100.0 71 Access to Health Services (% of Population)* 2000 99.0 61.7 80.0 100.0 61 51 Access to Sanitation (% of Population) 2004 70.0 44.2 52.0 100.0 41 31 Percent. of Adults (aged 15-49) Living with HIV/AIDS 2005 0.01 4.5 1.3 0.3 21 Incidence of Tuberculosis (per 100,000) 2004 27.0 310.2 144.0 11.0 11 1 Child Immunization Against Tuberculosis (%) 2005 98.0 78.1 82.0 93.0 2001 2002 2003 2004 2005 2006 Child Immunization Against Measles (%) 2005 98.0 68.0 73.0 90.0 Underweight Children (% of children under 5 years) 2005 11.2 39.0 31.0 … Daily Calorie Supply per Capita 2004 3 286 2 435 2 675 3 285 Egypt Africa Public Expenditure on Health (as % of GDP) 2002 1.8 5.6 1.8 6.3
Education Indicators Gross Enrolment Ratio (%) Primary School - Total 004/05 101.0 96.7 91.0 102.3 Infant Mortality Rate Primary School - Female 004/05 98.0 90.4 105.0 102.0 ( Per 1000 ) Secondary School - Total 004/05 87.0 43.1 88.0 99.5 Secondary School - Female 004/05 84.0 36.5 45.8 100.8
Primary School Female Teaching Staff (% of Total) 003/04 55.0 47.5 51.0 82.0 100 Adult Illiteracy Rate - Total (%) 2006 28.6 43.3 26.6 1.2 90 80
Adult Illiteracy Rate - Male (%) 2006 17.0 34.5 19.0 0.8 70 Adult Illiteracy Rate - Female (%) 2006 40.6 52.4 34.2 1.6 60 50
Percentage of GDP Spent on Education 2000 4.6 4.7 3.9 5.9 40
30
20
Environmental Indicators 10
0
Land Use (Arable Land as % of Total Land Area) 2005 2.8 6.0 9.9 11.6 2001 2002 2003 2004 2005 2006 Annual Rate of Deforestation (%) 2000 -3.4 0.7 0.4 -0.2 Annual Rate of Reforestation (%) 2000 2.0 10.9 … … Egypt Africa Per Capita CO2 Emissions (metric tons) 2005 2.2 1.0 1.9 12.3
Source : ADB Statistics Division Databases; January 2007 World Bank Live Database; UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports
Note : n.a. : Not Applicable ; … : Data Not Available; * : latest data available within 1995-2000
Annex 5 EGYPT - SELECTED ECONOMIC AND FINANCIAL INDICATORS, 2001/02 - 2005/06 2001/02 2002/03 2003/04 2004/05 2005/06
Prelim.
Population (million) 67.9 69.2 70.5 71.9 73.6 Population Growth (%) 1.9 1.9 1.9 1.9 2.3
Real Economy (change in %) Real GDP 3.2 3.2 4.1 4.5 6.9 CPI (year on average) 2.4 3.2 4.9 11.4 4.1 Unemployment rate (in %) 10.2 11.0 10.3 11.2 10.0 Gross Domestic Savings (% of GDP) 13.6 14.3 15.6 15.7 17.7 Gross Domestic Investment (% of GDP) 18.0 16.9 16.9 18.0 18.7
Public Finance (% of GDP) Total Revenue and Grants 20.7 21.4 21.0 20.6 24.2 Overall expenditure 30.5 30.5 30.1 30.0 33.1 of which:- Current Expenditures 24.1 24.5 25.1 24.4 24.4 - Capital Expenditures 4.0 4.0 3.9 3.7 3.7 Overall/Deficit/Surplus (10.2) (10.5) (9.5) (9.6) (7.9)
Money, Interest Rate and Exchange Rate M2/GDP (in %) 86.8 92.0 89.6 91.7 90.7 M2 (annual change in %) 15.4 16.9 13.2 13.6 13.5 Money Multiplier 4.46 4.63 4.61 4.89 4.83 Velocity of circulation 1.151.091.121.091.06 Interest rate (in %) 7.79 8.31 8.41 10.25 10.25 Nominal exchange rate (LE/US$) average 4.338 5.195 6.163 6.006 5.747
Balance of Payments (in % of GDP) Exports of Goods 8.2 10.20 13.3 15.4 17.2 Imports of Goods 16.8 18.40 23.2 27.0 28.3 Balance on Goods (8.6) (8.2) (9.9) (11.6) (11.2) Current Account 0.7 2.4 4.3 3.2 1.6 International Reserves (in months of imports) 11.6 12.0 9.7 9.6 9.0
Public Debt Domestic Debt (% of GDP) 54.3 58.4 60.4 60.3 64.8 Total External Debt Stock (EDT) in USD million 28,661 29,396 29,872 28,949 28,949 EDT/GDP (in %) 32.8 36.1 38.0 31.2 31.2 EDT/Exports of Goods and Services (in %) 171.2 157.6 127.5 104.8 104.8 Total Debt Service/Exports of Goods & Services (in %) 11.0 11.8 10.8 9.4 9.4
Source (s): Ministry of Finance, Ministry of State for Economic Development, & Central Bank of Egypt
Annex 6 Egypt - Gross Domestic Product at Market Prices, 2001/02 - 2005/06 (LE Million) 2001/02 2002/03 2003/04 2004/2005 2005/2006
Agriculture, Irrigation & Fishing 76,713.7 83,949.1 90,935.3 75,291.2 81,766.2 Mining 32,569.2 46,830.5 66,738.8 64,025.9 89,833.9 Oil 20,027.0 29,884.4 39,014.0 35,623.0 40,586.0 Gas 11,371.0 15,729.3 26,392.0 27,555.0 48,311.0 Other 1,171.2 1,216.8 1,332.8 847.9 936.9 Manufacturing Industry: 195,089.9 201,646.5 234,243.8 89,980.9 98,693.4 Oil refining 14,515.0 16,348.5 21,285.0 4,965.0 5,601.0 Other 180,574.9 185,298.0 212,958.8 85,015.9 93,092.4 Electricity 9,628.7 10,358.3 10,992.5 7,837.5 8,879.9 Water 2,174.6 2,339.9 2,555.9 1,940.6 2,157.9 Construction and Building 40,687.3 41,034.3 45,271.6 20,106.0 23,763.0 Transportation & Storage 29,119.7 30,185.8 32,945.9 21,578.9 24,518.5 Communications 7,301.9 8,398.5 9,940.7 10,182.0 11,974.0 Suez Canal 8,487.7 11,564.9 16,388.2 20,154.4 23,399.3 Wholesale and Retail Trade 60,818.3 62,371.6 71,543.8 56,365.7 63,582.7 Financial Intermediation & Subsidiary Activities 23,447.8 24,743.4 27,091.6 26,427.8 28,798.3 Insurance & Social Insurance 9,861.2 10,640.2 11,526.3 11,455.2 12,496.7 Restaurants & Hotels 12,938.4 15,437.5 25,073.8 16,712.8 18,797.9 Real Estate Activities 14,566.1 15,229.4 16,776.2 17,579.7 19,055.6 Real Estate Property 7,839.0 8,139.9 8,884.6 9,186.0 9,948.4 Business Services 6,727.1 7,089.5 7,891.6 8,393.7 9,107.2 General Government 47,714.6 54,013.0 61,889.2 51,754.6 56,930.1 Education, Health & Personal Services 24,169.3 25,531.3 27,889.0 15,117.8 16,497.5 Education 4,440.0 4,894.0 5,400.0 3,190.0 3,496.2 Health 10,618.4 11,206.8 12,446.6 6,020.7 6,562.6 Others 9,110.9 9,430.5 10,042.4 5,907.1 6,438.7 Total GDP 595,288.4 644,274.2 751,802.6 506,511.0 581,144.9
Source: Ministry of Economic Development
Annex 7 Egypt - Gross Domestic Product at Constant Prices, 2001/02 - 2005/06 (LE Million at 2001/02 prices) 2001/02 2002/03 2003/04 2004/2005 2005/06 Agriculture, Irrigation & Fishing 58,369.0 60,000.3 62,067.0 64,088.0 66,170.0 Mining: 29,359.5 30,206.0 30,916.0 31,098.0 37,571.0 Oil 18,222.0 18,148.0 17,623.0 16,759.0 16,399.0 Gas 10,391.0 11,296.0 12,515.0 13,544.0 20,338.0 Other 746.5 762.0 778.0 795.0 834.0 Manufacturing Industry: 70,084.2 71,689.6 72,990.3 76,220.5 80,640.9 Oil refining 2,949.0 3,037.0 2,834.0 2,936.0 3,001.0 Other 67,135.2 68,652.6 70,156.3 73,284.5 77,639.9 Electricity 5,933.0 6,395.0 6,750.0 7,209.5 7,839.9 Water 1,522.2 1,598.4 1,677.4 1,745.1 1,849.8 Construction and Building 16,560.0 15,770.0 16,438.8 17,265.0 19,687.2 Transportation & Storage 17,333.8 17,836.3 18,731.2 19,846.0 21,335.8 Communications 6,419.0 7,070.0 7,857.0 8,598.0 9,487.5 Suez Canal 8,199.1 10,090.5 11,228.8 13,030.8 14,262.0 Wholesale and Retail Trade 42,958.8 43,774.0 44,697.6 46,095.0 49,096 Brokerage & Subsidiary Activities 21,122.0 21,602.4 22,250.1 23,168.6 24,396 Insurance & Social Insurance 9,146.1 9,417.7 9,662.6 10,051.5 10,579.0 Restaurants & Hotels 6,457.0 7,673.4 11,218.5 13,580.0 14,169.9 Real Estate Activities 13,923.0 14,028.7 14,573.9 15,009.4 15,577.4 Real Estate Property 7,575.0 7,584.7 7,713.6 7,871.6 8,165.5 Business Services 6,348.0 6,444.0 6,860.3 7,137.8 7,411.9 General Government 35,269.3 36,121.6 37,096.9 38,227.6 39,546.0 Education, Health & Personal Services 11,907.8 12,274.0 12,845.2 13,295.0 13,941.3 Education 2,440.0 2,584.0 2,730.0 2,884.0 3,013.8 Health 4,678.1 4,857.8 5,175.3 5,356.1 5,596.8 Personal Services 4,789.7 4,832.2 4,939.9 5,054.9 5,330.7 Total GDP 354,563.8 365,547.9 381,001.3 398,528.0 426,149.9
Source: Ministry of Economic Development
Annex 8 Actual Actual Actual Actual Preliminary Total Revenue and Grants 78,318.0 89,347.0 102,044.0 110,864.0 149,520.0 Total Revenues 74,053.0 86,057.0 96,986.0 108,011.0 147,936.0 Tax Revenues 50,801.0 55,707.0 67,147.0 75,759.0 98,029.0 Other Revenues 23,252.0 30,350.0 29,839.0 32,252.0 49,907.0 Grants 4,265.0 3,290.0 5,058.0 2,853.0 1,584.0 Total Expenditure 115,542.0 127,320.0 145,988.0 161,611.0 204,463.0 Wages & Salaries 30,516.0 33,816.0 37,266.0 41,545.0 45,918.0 Purchase of Goods & Services 8,651.0 8,548.0 9,342.0 12,613.0 13,746.0 Interest Payments 21,752.0 25,848.0 30,700.0 32,780.0 36,761.0 Subsidies, Grants & Social benefits 18,051.0 20,567.0 24,787.0 29,706.0 68,751.0 Other expenditures 16,797.0 18,290.0 21,042.0 21,692.0 19,600.0 Purchases of Non-financial assets 19,775.0 20,251.0 22,851.0 23,275.0 19,687.0 Cash Deficit 37,224.0 37,973.0 43,944.0 50,747.0 54,943.0 Net Acquisition of Financial Assets 1,262.0 5,671.0 2,036.0 896.0 (5,974.0) Overall Fiscal Deficit 38,486.0 43,644.0 45,980.0 51,643.0 48,969.0 GDP 378,900.0 417,500.0 485,300.0 538,500.0 617,700.0 Percentage of GDP Overall Deficit 10.2% 10.5% 9.5% 9.6% 7.9% Total Revenue and Grants 20.7% 21.4% 21.0% 20.6% 24.2% Total Expenditure 30.5% 30.5% 30.1% 30.0% 33.1%
Source : Ministry of Finance, The Financial Monthly, September 2006, Volume 1, No.11
Annex 9 Egypt - Monetary Survey, 2001/02 - 2005/06 (LE Million) 2001/02 2002/03 2003/04 2004/05 2005/06
Net Foreign Assets 17,285 25,429 45,241 80,913 133,389 Net International Reserves 69,363 99,373 123,696 152,356 201,564 of which: Central Bank Reserves 61,894 86,287 88,313 108,737 129,481 Net Other Assets (52,078) (73,944) (78,455) (71,443) (68,175)
Net Domestic Assets 311,443 358,833 389,670 412,971 426,967 Net Claims on Government Sector1 95,423 103,518 126,343 159,889 185,300 Claims on public business Sector 31,143 34,987 35,588 37,421 32,888 Claims on private Sector 233,524 248,941 260,109 269,461 292,513 National Currency 188,271 195,210 204,705 209,773 221,772 Foreign Currency 45,253 53,731 55,404 59,688 70,741 Other items (net) (48,647) (28,613) (32,370) (53,800) (83,734)
Money plus Quasi Money 328,728 384,262 434,911 493,884 560,356 Money Supply 59,805 67,212 77,606 89,685 109,274 Quasi-money 268,923 317,050 357,305 404,199 451,082
Memorandum item Velocity of circulation 1.2 1.1 1.1 1.1 1.1
Source: Central Bank of Egypt 1 Includes net claims on central & local government, public and economic authorities
Annex 10 EGYPT - BALANCE OF PAYMENTS, 2001/02 - 2005/06 (US $ Million) 2001/02 2002/03 2003/2004 2004/2005 2005/2006 Actual Actual Actual Actual Prelim. Trade Balance (7,517) (6,615) (7,834) (10,360) (11,986) Export Proceeds 7,121 8,205 10,453 13,833 18,455 Petroleum 2,381 3,161 3,910 5,299 10,222 Other Exports 4,740 5,045 6,542 8,534 8,233 Import Payments (14,637) (14,820) (18,286) (24,193) (30,441) Petroleum (2,477) (2,313) (2,570) (3,975) (5,359) Other Imports (12,161) (12,507) (15,717) (20,218) (25,082) Sevices (net) 3,878 4,949 7,318 7,843 8,191 Receipts 9,618 10,441 12,981 15,030 17,438 Transportation, of which 2,715 2,965 3,755 4,260 4,947 Suez Canal dues (1,820) (2,236) (2,848) (3,307) 3,559 Travel 3,423 3,796 5,475 6,430 7,235 Investment Income 938 641 485 911 2,002 Government Services 188 253 179 157 358 Other 2,354 2,786 3,086 3,272 2,896 Payments 5,740 5,493 5,663 7,187 9,247 Transportation 420 393 668 902 1,215 Travel 1,208 1,372 1,315 1,438 1,620 Investment income, of which 842 749 692 1,164 1,471 Interest paid (689) (626) (586) (584) 587 Government Expenditures 660 455 489 657 1,320 Other 2,609 2,524 2,499 3,026 3,622 Balance of Goods and Services (3,638) (1,666) (516) (2,517) (3,795) Transfers 4,252 3,609 3,934 5,428 5,547 Private (net) 3,109 2,946 3,046 4,372 4,975 Official (net) 1,144 664 888 1,056 572 Current Account Balance 614 1,943 3,418 2,911 1,752 Capital & Financial Account (964) (2,734) (5,016) 3,378 3,511 Capital Account - - - - (38) Financial Account (964) (2,734) (5,016) 3,378 3,549 Direct investment abroad (15) (30) (156) (39) (145) Direct investment in Egypt (net) 428 701 407 3,902 6,111 Portfolio investment abroad (3) (16) 113 541 (729) Portfolio investment in Egypt (net), of which 999 (405) (226) 831 2,764 Sovereign bonds 954 (218) (148) 26 2,690 Other investment (net) (2,373) (2,983) (5,155) (1,856) (4,452) Net borrowing (71) 144 1,509 1,001 1,426 Medium and Long-term loans (585) (587) (642) (784) (928) Drawings 340 645 791 728 796 Repayments (925) (1,231) (1,433) (1,512) (1,723) M. T. Suppliers' Credit (207) (340) 68 (526) (101) Drawings 261 43 550 86 625 Repayments (468) (383) (482) (612) (727) S. T. Suppliers' Credit 721 1,070 2,083 2,310 2,455 Other assets (1,862) (3,068) (5,705) (3,180) (5,103) CBE 21 (32) (21) 23 3 Banks 227 (493) (2,593) (2,172) (4,198) Other (2,110) (2,542) (3,090) (1,031) (908) Other Liabilities (439) (59) (959) 323 (775) CBE 7 4 (17) - 2 Banks (446) (63) (943) 323 (777) Net errors and Omissions (107) 1,337 1,440 (1,812) (2,010) Overall Balance (456) 546 (158) 4,477 3,253 Change in Reserve Assets (increase - ) 456 (546) 158 (4,478) (3,253) Trade balance/GDP -8.6% -8.2% -9.9% -11.6% -11.2% Current account/GDP 0.7% 2.4% 4.3% 3.2% 1.6% Overall balance/GDP -0.5% 0.7% -0.2% 5.0% 3.0%
Annex 11 EGYPT - Progress Towards Millennium Development Goals Goals/Target 1990 1995 2002 1. Eradicate extreme poverty and hunger 2015 target = halve 1990 $1 a day poverty and malnutrition rates Population below $1 a day (%) 4 2.6 Prevalence of child malnutrition (% of children under 5) 10.4 16.8
2. Achieve universal primary education 2015 target = net enrollment to 100 Net primary enrollment ratio (%of relevant age group) 83.7 93 Youth literacy rate 61.3 65.6 73.2
3. Promote gender equality and empower women 2015 target = education ratio to 100 Ratio of girls to boys in primary & secondary education (%) 83.2 86.9 94 Ratio of young literate females to males (% ages 15 - 24) 72 77.2 85 Share of women employed in non agricultural sector (%) 20.5 18.9 20.3 Proportion of seats held by women in national parliament (%) 4 2 2
4. Reduce child mortality 2015 target = reduce 1990 under 5 mortality by two thirds Under 5 mortality rate (per 1,000) 104 71 39 Infant mortality rate (per 1,000 live births) 76 56 33 Immunization, measles(% of children under 12) 86 89 97
5. Improve maternal health 2015 target = reduce 1990 maternal mortality by three-fourths Maternal mortality ratio (per 100,000 live births) 170 170 .. Births attended by skilled health staff (% of total) 36.5 46.3 61
6. Combat HIV/AIDS, malaria and other major diseases 2015 target = halt, and begin to reverse spread of AIDS, incidence of malaria & other major diseases Prevalence of HIV, female ((% ages 15 - 24) .. .. 0.1 Contraceptive prevalence rate (% of women ages 15 - 49) 47.6 47.9 .. Incidence of tuberculosis (per 100,000 people) .. .. 38 Tuberculosis cases detected under DOTS (%) .. 38 53.1
7. Ensure environmental sustainability 2015 target = reverse loss of environmental resources & improve access to safe drinking water and sanitation Forest area (% of total land area) 0.1 .. 0.1 Nationally protected areas (% of total land area) .. 0.8 1 GDP per unit of energy use (PPP $ per kg oil equivalent) 3.9 4.6 .. CO2 emissions (metric tons per capita) 1.4 1.6 .. Access to an improved water source (% of population) 94 .. 98 Access to improved sanitation (% of population) 54 .. 68
8. Develop a global partnership for development 2015 target = Youth unemployment rate (% of total labour force ages 15 - 24) ...... Fixed line and mobile telephone (per 1,000 people) 30.2 46.8 177.2 Personal computers (per 1,000 people) .. 4.3 16.6 Source : World Development Indicators, World Bank & UNDP, Millennium Development Goals Country Report 2004
Annex
CONFIDENTIAL
AFRICAN DEVELOPMENT BANK ADB/BD/WP/2007/10/Corr.1 3 April 2007 Prepared by: ORNA Original: English
Probable Date of Board Presentation: FOR CONSIDERATION 04 April 2007
MEMORANDUM
TO : THE BOARD OF DIRECTORS
FROM : Modibo I. TOURE Secretary General
SUBJECT : EGYPT: 2007-2011 COUNTRY STRATEGY PAPER
CORRIGENDUM*
Please find hereafter a corrigendum relating to the above-mentioned document.
In paragraph 8.2 on page (vi) of the Executive Summary, the base case sustainable lending level which is indicated as UA545.00 million should read UA372.00 million in line with the figure in paragraphs 4.5.6 and 6.2 in the main body of the document and the recommendation section respectively.
Cc : The President
* Questions on this document should be referred to: Mr. J. M. GHARBI Ag. Director ORNA Extension 2060 Mr. S. A. OLANREWAJU Lead Economist ORSA Extension 2157 Mr. E. SHAAELDIN Lead Economist ORNA Extension 2118 Mr. V. C. NDISALE Principal Economist OREB Extension 3104 SCCD:C.H.