Country Profile 2000

COUNTRY PROFILE 2000

Egypt

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Comparative economic indicators, 1999

EIU Country Profile 2000 © The Economist Intelligence Unit Limited 2000 1

Contents

Egypt

3 Basic data

4 Political background 4 Historical background 6 Constitution and institutions 7 Political forces 10 International relations and defence

12 Resources and infrastructure 12 Population 13 Education 14 Health 14 Natural resources and the environment 15 Transport and communications 19 Energy provision

20 The economy 20 Economic structure 21 Economic policy 29 Economic performance 31 Regional trends

32 Economic sectors 32 Agriculture and fishing 34 Mining and semi-processing 36 Manufacturing 37 Construction 39 Financial services 41 Other services

42 The external sector 42 Trade in goods 44 Invisibles and the current account 46 Capital flows and foreign debt 47 Foreign reserves and the exchange rate

49 Appendices 49 Sources of information 51 Reference tables 51 Population 51 Population, labour force and unemployment 51 Number of workers by sector 52 Transport statistics 52 Suez Canal traffic 52 Electricity generation 53 Electricity consumption by sector 53 Government finances 53 Money supply

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54 Interest rates 54 Gross domestic product 54 Gross domestic product by expenditure 55 Gross domestic product by sector 55 Prices 55 Agricultural production 56 Cotton production 56 Major agricultural imports 56 Petroleum and natural gas production and consumption 57 Minerals production 57 Industrial production 58 Principal stockmarket indicators 58 Tourist arrivals by region of origin 58 Foreign trade 59 Exports 59 Imports 59 Main trading partners 60 Direction and composition of trade 61 Balance of payments, IMF series 61 Balance of payments, national series 62 External debt, World Bank series 62 Net official development assistance 63 US aid to Egypt 63 Foreign reserves 63 Exchange rates

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Egypt

Basic data

Land area 997,739 sq km, of which only 4% is inhabited and cultivated territory

Population 65.21m (63.31m resident; 2000 census)

Main urban centres Urban population in ‘000, 1996 census (excluding nationals abroad)

Cairo (capital)a 6,789 Alexandria 3,328 Port Said 469 Suez 418

Climate Hot and dry, with mild winter

Weather in Cairo (altitude Hottest month, July, 21-36°C (average daily maximum and minimum); coldest 116 metres) month, January, 8-18°C; driest months, July, August, 0 mm average rainfall; wettest month, December, 5 mm average rainfall

Language Arabic

Measures Metric system. Local measures are also used, especially for land area: feddan=0.42 ha or 1.04 acres; cereal crops: ardeb=198 litres or 5.6 US bushels; 8 ardebs=1 dariba; cotton: Egyptian bale=720 lb (325.5 kg), qantar (metric)= 50 kg (replacing the traditional qantar equivalent to 44.93 kg)

Currency Egyptian pound (E£)=100 piastres. End-1999 (Dec 31st) exchange rate: E£3.44:US$1. Exchange rate on November 28th 2000: E£3.78:US$1

Time 2 hours ahead of GMT (summer time, 3 hours ahead)

Public holidays 2001 January 1st, March 6th (Eid al-Adha—Feast of the Sacrifice), March 26th (Islamic New Year), April 25th (Sinai Liberation Day), May 1st (Labour Day; Sham al-Nasim), June 4th (Birth of the Prophet), June 18th (Liberation Day), July 23rd (Revolution Day), October 6th (Armed Forces Day), October 15th (Ascent of the Prophet), October 24th (Suez Day), November 17th (beginning of Ramadan), December 16th (Eid al-Fitr—end of Ramadan), December 23rd (Victory Day)

a Cairo (capital) 7.2m and Greater Cairo 15.8m (2000 census)

Political background

Egypt is an Arab republic with a limited democratic system, headed by the president, Hosni Mubarak, who was re-elected to his fourth six-year term in September 1999. The government, under the prime minister, Atef Obeid, is supported by the majority party in parliament, the National Democratic Party (NDP).

Historical background The present borders of Egypt are almost identical to those in pharaonic times, the country’s heartland being the Nile valley and the delta where Egyptian civilisation emerged over 5,000 years ago. The pharaonic era lasted for around 30 centuries, until the Assyrian conquest in 671 BC. Persian conquest followed, and then rule by the Greek, Roman and Byzantine empires. With the advance of Islam in the seventh century AD, Arab armies conquered Egypt, unopposed by the country’s Coptic Christians, and Egypt gradually became Arabic- speaking and Islamic. Ottoman Turks conquered Egypt in 1517.

By the late 18th century Egypt had become involved in the war between Britain and France. Napoleon invaded in 1798 but by 1801 the French had surrendered to British and Ottoman forces. After a power struggle, Mohammed Ali, an Albanian officer in the Ottoman army, took control. Widely regarded as the founder of modern Egypt, he opened up the country to the West. With the crushing of a nationalist coup in 1881 Egypt was effectively controlled by British officials, becoming a British protectorate in 1914. Nominal independence was secured in 1922, although Britain reserved the right to protect the Suez Canal and defend Egypt. Widespread anti-British strikes and riots finally led to the evacuation of British troops in 1947. In 1948 Egypt joined Iraq, Syria and Jordan in military action to protect Arab Palestine after the declaration of the state of Israel. The conflict left the coastal Gaza Strip of Palestine under Egyptian administration.

After 1952 After the 1952 revolution, when a group of young army officers sent King Farouk into exile, Gamal Abdel-Nasser moved quickly to assert his leadership of the new republic, and replaced General Neguib, Egypt’s first president, in 1954. By the time Nasser died in office, in 1970, his authoritarian rule had transformed the country through the introduction of state central planning and ownership, social welfare services, the promotion of industrial development, land redistribution, and the nationalisation of banks and companies and of the Suez Canal Company. Egypt was the recognised leader of the Arab world, and Arab unity became the main plank of the country’s foreign policy. Dependent on Soviet economic and military support, as the West, especially the US, intensified its support for Israel, Egypt under Nasser fought two major wars against Israel, in 1956 and 1967, which resulted in the loss of the Gaza Strip and Sinai.

The Camp David accords Nasser was succeeded by his vice-president and fellow revolutionary, Anwar Sadat, who went to war against Israel in co-operation with Syria in October 1973. Egypt’s military gains—an initial withdrawal by Israel from part of Sinai—brought the US into action to broker a solution. Sadat proceeded to

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renew relations with the US in 1974, after a seven-year break, and terminated Egypt’s treaty of friendship with the Soviet Union in 1976. Despite considerable criticism from other Arab countries, he took the unprecedented step of visiting Israel in 1977 to revive the peace process. This resulted in a summit meeting in the US in September 1978 and the Camp David accords. These provided the basis for the comprehensive peace treaty between Egypt and Israel signed in Washington in March 1979, which led to an Israeli withdrawal from Sinai, finally completed in April 1982. However, the second part of the accords, widening the peace process to include other Arab parties, failed to be implemented following Arab condemnation of Egypt’s separate peace, and Egypt was expelled from the Arab League.

Internal unrest Despite the implementation of a more liberal regime, discontent led to the outbreak of riots in January 1977, when the withdrawal of food subsidies was proposed. Much of the unrest was inspired by the Islamic revival, which spread after the 1979 Iranian revolution. In September 1981 the president ordered a crackdown on dissent. On October 6th 1981 Sadat was assassinated by members of the Islamist group, Al-Jihad. Eight days later his vice-president, Hosni Mubarak, was sworn in as Egypt’s fourth president.

International realignments Mr Mubarak has maintained the major thrust of his predecessor’s policies, including limited political liberalisation, but has tried to overcome some of their costs. He has made it a priority to end Egypt’s relative isolation within the Arab world while remaining committed to the peace treaty with Israel. This approach has resulted in occasional diplomatic distancing from the US, which nevertheless remains Egypt’s chief ally and source of foreign aid. Diplomatic relations with the Soviet Union were resumed in 1984. Rebuilding ties with the Arab world took much longer but Egypt rejoined the Arab League in May 1989. Egypt’s pivotal role in forging an Arab coalition to counter Iraq’s invasion and annexation of Kuwait in August 1990, and its deployment of around 32,000 troops in the Gulf (the second largest foreign contingent after that of the US), strained relations with Jordan, Yemen, Sudan, Algeria and Tunisia, but Egypt has painstakingly rebuilt ties with all of them including, in 1998-99, the Islamist regime in Sudan.

Renewed authoritarianism At home, the maintenance of law and order has been a priority as the government has pushed through an IMF-regulated economic reform programme and concentrated its energies on crushing Islamist militancy. Between March 1992 and March 1999 over 1,200 people were killed in attacks by militant groups. However, although the militant threat has receded, the state is determined to retain tight political control and has proved intolerant of meaningful public participation in political life.

Islamist violence has forced the government to pay more attention to the underlying causes of popular discontent: poverty, unemployment, social injustice and a rigid and underfunded education system. Nevertheless, there is concern that Egypt’s traditionally tolerant secular society is being threatened by the government’s reversion to a more authoritarian rule and tendency to pander to the conservative religious trend in the name of containing militant Islam.

Important recent events

September 1993: Egypt signs a three-year IMF extended fund facility.

November 1993: Militants of the Islamist group, Al-Jihad (Holy War), attempt to assassinate the prime minister, having already made attempts on the lives of the information and interior ministers earlier in the year.

May 1995: Egypt refuses to endorse the indefinite extension of the Nuclear Non-Proliferation Treaty at a UN conference, owing to Israel’s refusal to sign the treaty.

June 1995: The president, Hosni Mubarak, survives an assassination attempt en route to an Organisation of African Unity summit meeting in Addis Ababa. Gamaat Islamiya (Islamic Groups) claim responsibility a week later.

November 1995: The trade counsellor at Egypt’s UN mission in Geneva is assassinated. The Group for International Justice (GIJ), an offshoot of Gamaat Islamiya, claims responsibility. A suicide bomb inside the Egyptian embassy compound in Islamabad, Pakistan, kills 16 people and wounds 60. Gamaat Islamiya, the GIJ and Al-Jihad all claim responsibility. Mr Mubarak visits Israel for the first time as head of state to attend the funeral of the assassinated Israeli prime minister, Yitzhak Rabin.

April 1996: Gamaat Islamiya militants kill 17 Greek tourists and an Egyptian, and wound 15 people.

June 1996: Egypt hosts the first pan-Arab summit for six years, having pushed strenuously for it to be held.

October 1996: Egypt signs a two-year IMF stand-by arrangement.

November 1997: Gamaat Islamiya militants kill 58 foreign tourists and four Egyptians in Luxor in the bloodiest and most brutal attack on Egypt’s tourism industry to date.

March 1999: Gamaat Islamiya leaders, at home and abroad, announce an unconditional ceasefire .

January 2000: Twenty-one Coptic Christians and one Muslim are killed and over 40 people injured in armed attacks triggered by a minor dispute in the Upper Egyptian village of Al Kosheh.

May 2000: Hundreds of students at Cairo's Islamic University, Al Azhar, riot over the state reprinting of a reportedly blasphemous book. The Islamist- oriented Labour Party is suspended after its newspaper, Al Shaab, is widely blamed for inciting the violence.

Constitution and institutions

The 1971 constitution provides for the separation of powers between the executive, the legislature and the judiciary. Islamic law is officially the principal source of legislation but the Napoleonic code is a more significant progenitor. The head of state is the president, nominated by a two-thirds majority of the

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People’s Assembly (Majlis al-Shaab) and elected by referendum. He has executive powers, including the ability to veto legislation, and enjoys vast powers of patronage. Presidential appointees include the vice-presidents, the prime minister and ministers, provincial governors, armed forces and security heads, major religious figures and High Court judges. The president is supreme commander of the armed forces.

The People’s Assembly The People’s Assembly comprises 444 directly elected members (half of whom are in theory farmers and labourers, although in practice this is not observed) and ten members nominated by the president, and exercises legislative power. Presidential decrees also have the force of law. The president may dissolve the Assembly only if he gains the support of the people in a referendum, and the Assembly can require a minister to resign if it passes a vote of no confidence in him. Should a motion of no confidence in the prime minister be passed against the president’s wishes, the matter may be put to a referendum. The Assembly’s ability to change the government or amend legislation is severely limited. In a poll marred by violence and allegations of fraud, the ruling NDP emerged from the 1995 parliamentary election with its commanding majority intact. Under a new three-stage system, allowing full judicial supervision for the first time, the 2000 election ran from October 18th for a month.

The president appoints one-third of the members of the Shura Council, a 264- member consultative body; half of its elected members face election every three years and all members sit for six years. Elections for the council, which the NDP dominates, were last held in June 1998.

The judiciary Egypt’s overloaded judiciary is independent, but the government tends to circumvent rulings not to its liking, for example by employing the state of emergency regulations that have been in force since Anwar Sadat was assassinated. These allow the police virtually unlimited powers of search and arrest, and control of the media. “Fast track” military courts are used to try Islamist cases; these are considered more effective in achieving convictions than civilian trials, which can take years, in part because of the complexities of legislation.

The executive Although formally accountable to parliament, the prime minister is the president’s primary lieutenant and is responsible for implementing his policies throughout the bureaucracy. Important decisions are made by the president in consultation with ministers and advisers. The key ministries are defence, foreign affairs, information, economy and the interior.

Political forces

The ruling party The NDP has been in power since it was established by Sadat in 1978. It holds large majorities in both the People’s Assembly and the Shura Council, and effectively controls local government, the mass media, organised labour and the massive public sector. There are 15 recognised opposition parties but to date these have posed little challenge to the NDP. This is more a reflection of the ineffective and unrepresentative nature of the traditional opposition parties

than a strong mandate from the people for the ruling elite, which is widely regarded as remote and tired, and is beset by allegations of corruption, cronyism and incompetence.

Legal opposition groups The main opposition party is the centre-right New Wafd, founded in 1978 by members of the original Wafd, which was outlawed in 1952. New Wafd has evolved into a party of professionals championing the advancement of the private sector and political liberalisation, including open election of the president. The Socialist Labour Party (SLP), established by Sadat in 1979 as a tame opposition party, soon moved into outright opposition, championing the public sector, and criticising alliance with the West and peace with Israel. In 1987 the party entered into an electoral pact with the Muslim Brotherhood and today is Egypt’s only legal Islamist-oriented political party. The application of sharia (Islamic law) is the central plank of its policy.

The future of the Socialist Liberal Party, which was formed from a right-wing faction of the Arab Socialist Union (ASU) on Egypt’s return to a multiparty system in 1976-77 and was originally the leading party of the loyal opposition, is now in doubt following the death of its founder and charismatic leader, Mustafa Kamel Murad, in August 1998 and the still unresolved, bitter succession battle. It has embraced most political tendencies during its history and is currently vaguely Islamist. The left-wing National Progressive Unionist Party (Tagamu) also originated in the ASU. In the past the party has based its platform on opposing rapprochement with Israel and strengthening the public sector, but recently it has focused on attacking privatisation. The Democratic Arab Nasserist Party, licensed in 1993, is a more radical version of Tagamu. The first new party licence for 22 years was awarded to the National Accord Party in March 2000. Lacking a coherent platform and mainly comprised of discontents from other opposition parties, its formation highlights the government's usual tactic of "divide and rule".

The Islamic trend The main challenge to the regime comes from the Islamic trend, which draws on a significant groundswell of popular support. The largest, best-funded and organised Islamic group is the Muslim Brotherhood, founded in 1928 and dissolved by Nasser in 1954. The group is illegal, as the constitution bans political parties based on religion or race, but in the past has generally been tolerated. However, since January 1995 the government has moved against it, accusing it of in effect being the civilian wing of the militant Islamist groups. With the government firmly rejecting any assimilation of the Islamist opposition into the political process, there is concern that repression of the mainstream may merely breed a more violent fringe. The Brotherhood seeks to work within the existing political system to make Egypt a strict Islamic state based on sharia. But its effectiveness has been undermined by a major schism between its younger, radical activists and its ageing, conservative and passive leadership. A significant number of Brotherhood activists have left to join the new, unlicensed Centre Party (Wasat), formed in 1996, whose founders have since gained a licence to establish an Islamist non-governmental organisation.

It is the extremist Islamists, generally from Gamaat Islamiya and Al-Jihad, that have been responsible for the intensification of violence since March 1992,

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aimed at overthrowing the regime and instituting an Islamic state. Drawing their followers mainly from the young lower and middle classes, the powerbase of the militants lies in the slums of Cairo and in Upper Egypt, where poverty and unemployment are widespread. The new, more targeted security policy in the aftermath of the November 1997 Luxor massacre, in which Gamaat militants killed 58 foreign tourists and four Egyptians, has resulted in a notable termination of violent incidents. Weakened by public revulsion over Luxor, ruthless and sustained state attack, improved co-ordination between Egypt and the West for the tracking and extradition of militant leaders in exile, and major internal divisions over the wisdom of pursing a policy of terror, Gamaat Islamiya announced an unconditional ceasefire in March 1999. This has lasted and in June 2000 Al-Jihad also announced its commitment to the halt in military operations in Egypt. The main bodies of both Gamaat Islamiya and Al- Jihad now appear to have chosen to emulate the Muslim Brotherhood and have supported the formation, by their activists, of the Islamist Reform Party and Sharia (Islamic Law) Party respectively—both of which have failed to gain official recognition.

Main political figures

Hosni Mubarak: Egypt’s president is the central figure in domestic and foreign policy. A cautious politician, emphasising stability and only incremental change, he has boosted Egypt’s standing abroad. At home he has recently indicated a desire to reform the ruling party and widen political participation—suggesting that he may be changing his long-held belief that political liberalisation is not a necessary adjunct to economic reform—but he remains determined not to allow the Islamists any political foothold.

Atef Obeid: Appointed prime minister in October 1999, the former minister of public enterprise has been in the cabinet since 1984. Like his predecessor, Kamal al-Ganzouri, he is a consummate political insider and therefore a safe choice for premier, but possesses a more urbane and liberal disposition. Appointed to promote team work and ministerial responsibility after the divisive and dictatorial rule of Mr al-Ganzouri, the new prime minister has devolved most of the additional portfolios accumulated by his predecessor to the relevant ministers. However, he faces charges of a lack of strong and innovative leadership.

Habib al-Adli: Appointed as interior minister in the immediate aftermath of the Luxor massacre, the former director of state security has proved to be more efficient than his predecessors, in part because of the greater competence of his team of aides. The government’s prime strategist in the fight against the Islamists, Mr al-Adli’s success will be judged by his ability to contain Islamist violence, muzzle the opposition and avoid provoking an international outcry at the methods used.

Mohammed Hussein Tantawi: A Mubarak loyalist, the defence minister has remained in the background politically. Despite holding the top armed forces post, he is deemed unlikely to succeed the president: he is reportedly in ill-health and is personally reluctant to seek the highest office. He may

therefore be overlooked in favour of another top officer, notably the air force chief, Ahmed Shafik.

Omar Suleiman: The state security chief is one of the most powerful figures in the country, and is often sent by the president to resolve problems with Egypt’s neighbours. This has the useful side-effect of precluding the establishment of any rival power base.

Amr Moussa: The outspoken foreign minister is close to the president. He has imbued his ministry with a clearer sense of purpose, toughened up foreign policy, especially in relation to Israel, and pioneered the use of diplomacy to promote trade.

Osama al-Baz: One of the president’s closest advisers, particularly in foreign affairs, the Nasserist-leaning first under-secretary at the foreign ministry and director of the Presidential Bureau of Political Affairs wields immense influence and has ensured Egypt’s continued political dominance in the Arab world. Less outspoken by nature, it is he rather than Mr Moussa who tends to deal with Israeli affairs.

Youssef Wali: The deputy prime minister has been minister of agriculture and land reclamation since 1982. He has been a controversial figure, enforcing policies of privatisation and close co-operation with Israel, but his political skills have ensured his survival in his long-standing and highly influential position as secretary-general of the National Democratic Party.

Fathi Sorour: Second in protocol terms to the president, the speaker of the People’s Assembly would, under the constitution, assume power if the president were incapacitated or killed, until a successor was chosen. A shrewd lawyer and former minister of education, Mr Sorour is charged with keeping the People’s Assembly in line with the government, a task at which he appears to excel.

The armed forces The armed forces, though less prominent in political life under Mr Mubarak, are still the ultimate arbiter of power. They have shown strong backing for the regime, ruthlessly crushing a mutiny in February 1986 by some 20,000 conscripts of the Central Security Forces, and have indicated their willingness to act should Islamist violence seriously threaten the status quo. But because the military sees its role as essentially that of guarantor of the state, it has so far refused to become involved in the confrontation between Islamist militants and the security forces. Mr Mubarak has resisted pressure to nominate a vice- president (always previously from the military), but has been careful to ensure that the military has retained its privileges.

International relations and defence

Close neighbours Egypt sees itself as a regional powerbroker and following the recent demise of a number of influential leaders in the Arab world, Mr Mubarak has become the unquestioned senior Arab statesman. Relations with Libya have become closer during Mr Mubarak’s tenure as Egypt has worked to break Libya's isolation. Despite concern over the nature of Colonel Muammar Qadhafi’s rule, Egypt

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views Libya as an important source of employment for its excess labour force and a useful buffer against Islamist extremism in the region. Relations with Sudan, tense in the wake of the latter’s alleged complicity in an assassination attempt on Mr Mubarak in June 1995, have warmed lately in response to the ousting of Islamist leader and parliamentary speaker, Hassan al-Turabi, from the inner circle of power. Egypt has consistently accused him of backing its radical Islamist groups. Moreover, concerned by the prospect of a destabilising partition of the country, Egypt has joined with Libya to work for inter- Sudanese reconciliation. In an effort to reduce regional volatility, Egypt has improved its relations with both Turkey and Iran. Egypt’s role in the 1990-91 Gulf crisis, as a result of which it once again became a major Arab political force, considerably strengthened its relationship with the Gulf states, in particular Saudi Arabia. Egypt’s entry into the Common Market for Eastern and Southern Africa (Comesa) in June 1998 serves to highlight its push to revive neglected trade ties with Africa. A major focus of foreign policy is to open up new export markets. The stress on upgrading African relations also has another dimension: Egypt’s sole source of fresh water, the Nile, runs through nine other riparian states, and Cairo is likely to have to make water agreements with all of them eventually.

Western powers Egypt’s key international relationship is with the US, its largest aid donor, although a perceived US bias towards Israel and hardline US policies towards Sudan and Iraq has led to tensions. Ties with Europe are gaining higher priority as Egypt looks for a balance to the US and negotiates terms for an economic partnership agreement with the EU, which will allow membership of the proposed EU-Mediterranean free-trade zone, to be established by 2010.

Security concerns Israel is still perceived as the main external threat to Egypt’s security. Egypt is deeply concerned about the security implications of the Israeli-Turkish military co-operation agreement of February 1996, and fears that the tensions resulting from the continuing impasse in the Middle East peace process, or from the completion of an unjust peace, could usher in conditions conducive to terrorism. Nevertheless, another major war against Israel appears unthinkable.

Relations with Israel Progress on peace talks between Israel and other Arab states since October 1991 helped to strengthen Egyptian-Israeli diplomatic and trade ties, and joint projects, often including the Palestinian self-rule areas and Jordan, moved ahead, particularly in the hydrocarbons and tourism sectors. Progress stalled during the tenure of a hardline Likud government in Israel, which rejected the land-for-peace formula that has been the basic tenet of regional peace negotiations since 1991. However, since the election of Ehud Barak as Israeli prime minister in May 1999 Egypt has continued to provide technical assistance and diplomatic support to the Palestinian Authority in peace negotiations, while also pushing for progress on the Syrian track. Egypt attended the revival of multilateral peace talks in February 2000 but has made any progress on disarmament and regional security conditional on Israel allowing international inspection of its nuclear arsenal.

Aware that this is a crucial period for peace negotiations, Egypt has encouraged greater Arab integration. It is an enthusiastic participant in the projected 17- member Arab common market by 2007.

Military modernisation Egypt launched the first of three five-year military modernisation plans in 1983, which aim to replace the Soviet-dominated inventory with Western, primarily US, equipment by 2005. The first plan concentrated on rebuilding military infrastructure destroyed in the 1973 war. The second and third plans focused on improving aerial strength and producing a leaner and more mechanised army. The US has assisted in the creation of an automated air defence command and control system, which became operational in October 1994. Egypt is in the process of upgrading its ageing fleet. These modernisation plans, which made Egypt the second largest arms importer in the region in 1996/97 (July-June), are being funded largely by the US$1.3bn in annual military assistance that the US has allocated to Egypt in the past decade, and which the US has announced will not be subject to cuts.

The armed forces As at August 1999 the active armed forces numbered some 450,000, according to the London-based International Institute for Strategic Studies. Some 320,000 were conscripts, the majority of them (250,000) in the army. Conscription is selective, and service is for three years. The army numbered 320,000 in total. The navy numbered 20,000 (of whom 10,000 were conscripts), the air force 30,000 and the air defence command 80,000. Reserves numbered 254,000, while the paramilitary included 150,000 in the Central Security Forces and 60,000 in the National Guard.

Resources and infrastructure

Population

A falling birth rate Egypt’s population stood at 65,2057,000 in January 2000, according to the latest census. This total included 63.31m resident citizens and some 1.9m working abroad. Egypt’s population is expected to reach 123m by 2029. Nevertheless, reducing the population growth rate is one of the great social achievements of the government of Hosni Mubarak. The annual rate had fallen to 1.9% in 1999 as a result of intensive and well-financed family planning campaigns combined with a growing shift from rural to urban life. The UN Development Programme (UNDP) forecasts the population growth rate in 1995-2015 at 1.6% per year. Even so, roughly one-half of the population is under 20 years of age and 39% under 15, which puts constant pressure on the labour market and social services. The crude death rate had fallen from 19 per 1,000 in 1965 to 6.2 per 1,000 by 1996. The crude birth rate had also dropped: from over 40 per 1,000 in the mid-1960s to 27.6 in 1996. Life expectancy at birth is currently around 65 years. According to the latest census for which figures are available, in 1986, 94.1% of the population were Muslim (almost all of them Sunni Muslims) and 5.9% Coptic Christians. However, it is generally accepted that Copts account for around 10% of the population. In addition,

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roughly 50,000 Egyptians belong to other Christian sects. There is also a small and declining Jewish community. (For historical data regarding the population, see Reference table 1; for data on the resident population, labour force and unemployment, see Reference table 2; for number of workers by sector, see Reference table 3.)

Migration Expatriate remittances are a major source of foreign-exchange receipts. According to the 2000 census, 1.9m Egyptians live abroad as temporary migrants, compared with 2.18m in 1996 and 2.25m recorded in 1986. This reflects the mid-1990s economic downturn in the Arab oil-producing countries, the exodus from Iraq and Kuwait during the 1990-91 Gulf conflict, and the subsequent decline in job opportunities in the Arab states. There were 720,000 permanent migrants in 1996.

Education

Enrolment success In 1960 there were only 2.7m primary school students but by fiscal year 1996/97 (July-June) this had risen to 8.2m. Enrolment at the secondary level, meanwhile, rose from 550,000 to 2.7m and that at university level from 134,000 to 875,611 over the same period. While the increase can partly be accounted for by population growth, it also reflects the government’s commitment since the 1960s to provide free education for all (although in recent years some payment has been necessary). In 1997 the percentage of six- year-olds enrolled for the first time in the first year of primary school was 95% overall, compared with 72% in 1980. However, the number of Egyptians with university degrees, although up from 4.3% in 1986, is still small at 7.3% of the population. There are 12 state universities, five private universities and the Islamic university of Al Azhar.

High population growth has placed severe demands on the underfunded education sector. According to the UN Children’s Fund (UNICEF) the average number of students per class in primary schools is 45, and can be up to 100 in densely populated and poor areas. The government’s bias towards high-cost urban and tertiary education has resulted in unequal access to education for different groups within the country; women in Upper Egypt are the most deprived.

Skills shortage The rigid education system is also failing to supply the labour market with the necessary skills. Illiteracy has fallen gradually but still remains high at 35% for men and 58% for women in 1998. Private firms rate the shortage of skilled technicians as a severe obstacle to business operations and, since graduates are in general reluctant to accept less prestigious blue-collar jobs, the government is attempting to channel more secondary school graduates into the country’s 125 technical institutes.

Health

Egyptian nationals have a constitutional right to free healthcare and all communities are served by some kind of health institution. However, the UNDP contends that health services are severely underutilised. For example, only 14% of women receive regular pre-natal care and only 55% of children under five years of age have any medical attention. According to the World Bank there were 2.1 doctors per 1,000 people in 1990-98, compared with 1.1 in 1980. In the same period hospital beds numbered 2.0 per 1,000 people.

Health campaigns The infant mortality rate dropped from 150 per 1,000 live births in 1970-75 to 49 per 1,000 live births in 1998, according to the World Bank. Much of the decline can be attributed to the drop in diarrhoea-associated deaths, with the use of oral rehydration therapy increasing by 34% between 1990 and 1994 as a result of a massive project funded by the US Agency for International Development (USAID) and launched in 1984. More than 90% of children are immunised against common childhood diseases.

Uneven distribution of The vast majority of Egypt’s health institutions are in the public sector, under services the supervision of the Ministry of Health, and services are to a large extent still free or subject to nominal fees irrespective of income. However, rapid population growth has swallowed most of the country’s health resources. Priority has been given to curative programmes and the construction of large hospitals, especially in major cities, although child vaccination and anti- epidemic programmes have also been given prominence. But the lack of resources has resulted in inefficiency and inequitable distribution of services: some 30% of Egypt’s 119,463 hospital beds are in Cairo, while outlying villages in Upper Egypt and the urban slums of Cairo and Alexandria are poorly served.

Natural resources and the environment

Land use The total area is just under 1m sq km, of which only 35,190 sq km is settled and cultivated. About 95% of the land is uninhabitable desert and over 97% of the population live in the narrow strip of the Nile valley, which runs the length of the country, and in the Nile delta. Population density in non-desert areas is therefore high at 872 per sq km. Greater Cairo, with an estimated 15.8m inhabitants in 2000, has a population density of 31,697 per sq km, and in some urban districts the density reaches more than 100,000 per sq km. Government concerns about overcrowding in the Nile valley, and the destabilising social problems that could result, have been the main impetus behind the Southern Valley Development Project (Toshka; see Economic sectors).

Environmental protection The government and the public are slowly becoming aware of the need for environmental protection, and the country’s first environmental action plan was produced in 1992 with assistance from the World Bank. With very little rainfall, the country relies on the Nile to meet nearly all of its water needs. Egypt is currently categorised by the Bank as under “water stress” and heading

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towards water scarcity; the action plan notes that about 90% of Egypt’s used water goes untreated while 80% of industrial wastewater is probably discharged unmonitored. Air pollution is also appalling: Cairo has the world’s highest lead-content levels in its air, according to the World Bank, at eight times the internationally accepted safety level. Egyptian industries are estimated to dump at least 10 tonnes of solid waste per minute (1% of of which is hazardous), one- third of which goes into uncontrolled landfills, canal banks and drains.

The action plan paved the way for the passage in January 1994 of a new Environmental Conservation Law (Law 4 of 1994), which amalgamates existing legislation and penalties, and adds new sections on hazardous waste and environmental management. After a lengthy grace period, it came into effect at the end of February 1998. The law also enhanced the powers of the Egyptian Environmental Affairs Agency (EEAA). The EEAA’s priority is combating industrial pollution but limited resources, weak political power and official concern that jobs may be lost if regulations are too strictly enforced have reduced its effectiveness. Law 4 makes environmental impact assessments mandatory for all proposed projects but, owing to a shortage of manpower, these are to be introduced gradually, with priority areas including oil, tourism, large industrial projects and infrastructure.

Transport and communications

Railways Egypt’s railway system, which has 9,400 km of track, is the oldest in the region, and is badly in need of modernisation if it is to realise its potential for containerised transport from Egyptian ports to continental Africa and increase its share of domestic freight transport (currently 7%). Egyptian National Railways receives about 40% of its costs in government subsidies but, generally considered underfunded, the railway sector is now to be opened up to private investment (see The economy).

Cairo’s 4.5-km metro line opened in 1987. It completes a 45-km regional line between El-Marg and the industrial centre of Helwan, which by 1997 was carrying up to 1.4m passengers a day, making it one of the most intensively used systems in the world. Work began in June 1993 on a second, 18.8-km line from Shoubra El-Kheima to Tahrir Square and under the Nile to Giza. In April 1999 the third phase of this extension, which runs from Cairo’s central Tahrir Square, under the Nile to Cairo University, in the west of the city, was completed. The fourth and final phase of the second line, a 3-km stretch from Cairo University to the Giza suburbs, near the pyramids, is due to be completed by 2001, by which time the metro is expected to transport 2.5m passengers a day. A third, 29-km line will run from Imbaba to Cairo airport, while a 45-km metro system for Alexandria is under serious review.

Roads Following an extensive modernisation and expansion programme in the 1980s, Egypt now has 44,000 km of paved roads, but many are in poor condition. A 113-km Greater Cairo Ring Road is under construction, and the government is pushing ahead with a number of build-operate-transfer (BOT) road projects (see The economy). Japan is financing the main section of the four-lane 9.5-km

bridge over the Suez Canal, due for completion in 2001, with a US$92m grant. The Mediterranean coastal road is also under renovation as part of a link between North Africa and Europe’s Mediterranean road network via the Gibraltar crossing. Egypt’s roads transport some 85% of domestic freight and 60% of passenger movements. Road safety is of major concern: Egypt reports the highest incidence of traffic fatalities in the world: 44.1 deaths per 100,000 km driven in 1994.

Air services EgyptAir, the state-owned airline, carried some 4.6m passengers and 87,240 tonnes of freight in 1999. However, its share of international air traffic through Egypt is at most 25%, owing in part to a reputation for poor service and unreliability, while the high cost of air freight has limited its expansion. The downturn in tourism in the aftermath of the Luxor massacre affected performance, and EgyptAir leased out a number of its newer aircraft to pay for its US$1.6bn modernisation and expansion plan. A revival in tourism in 1999, however, increased international traffic by nearly 10%. To improve efficiency, the government has announced that EgyptAir is to be restructured into a holding company with 12 affiliates. Its domestic monopoly has also been curtailed by the January 2000 decision to allow international airlines to operate direct scheduled flights to all Egyptian airports.

Airports exist in major tourist and population centres, and five build-own- operate-transfer (BOOT) airports will be established in the tourist areas of El Alamein, Ras Sidr, Marsa Alum, Farafra and Bahariya (see The economy). Cairo airport is being upgraded to increase annual capacity from 9m passengers to 11m, and there are also plans for a third US$400m terminal.

Waterways and ports Egypt’s navigable waterways total about 3,100 km, divided almost equally between the Nile and the canals, and carry about 4% of domestic freight. Alexandria is the main port, handling about 22m tonnes/year (t/y) with a total cargo handling capacity of 50m t/y. Port Said and Suez are the second and third ports.

In August 1999 a consortium led by ECT International of the Netherlands and Maersk of Denmark signed a 30-year concession agreement with the government to equip and operate the new East Port Said container terminal, at the mouth of the Suez Canal—one of Egypt’s major national infrastructure projects. The project, the infrastructure for which has recently been delayed by state budget constraints, aims to capitalise on the port’s strategic location— every container ship on the Asia-Europe route passes through Egypt’s catchment area—to make East Port Said the transshipment hub of the eastern Mediterranean. The first phase of infrastructure development, including a 2,300-metre breakwater and 2,400-metre dock, is to be completed by March 2001, with the container terminal operational by September 2001. An industrial zone, which will have free zone status although inland projects can be located there, is under establishment on 12,000 feddans (50 sq km) adjoining the new port, and will have a 20-year tax exemption.

Egypt’s first private port operation contract was signed in May 1999 with a consortium led by the US’s Stevedoring Services, for the equipment and

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operation of the new Ain Sukna port on the Red Sea south of Suez. This began limited operations in September 2000. (For historical data on transport, see Reference table 4.)

The Suez Canal The Suez Canal is an important source of foreign exchange, with 13,490 ships passing through it in 1999 (see Reference table 5). However, revenue has slipped to US$1.82bn in 1999 from a record US$1.96bn in 1993 because of increased competition from the Suez-Mediterranean (SUMED) pipeline, a drop in the number of tankers from the Gulf transporting oil to the US, a fall in traffic passing through the canal to and from Asia due to the financial crisis in the region, and a decline in the value of IMF special drawing rights (SDRs), in which canal tolls are denominated, against the dollar. Oil traditionally represents 25% of Suez Canal revenue, the rest being dry cargo. Following the deepening of the canal in the late 1970s to allow it to take supertankers, the canal area and its important urban centres of Suez, Ismailia and Port Said have been developed as major industrial, agricultural and residential areas, as well as focal points for the establishment of tax-free zones. A new US$441m expansion project, to deepen the canal to allow for ships with a draught of 72 ft by 2010, was announced in August 2000.

SUMED In operation since January 1977, the SUMED pipeline provides an alternative to the Suez Canal route for oil between the Red Sea and the Mediterranean. Owned jointly by Egypt (which has a 50% share but also receives transit dues estimated at 27% of the crude transport costs), Abu Dhabi, Saudi Arabia and Kuwait (15% each), and Qatar (5%), the pipeline takes the loads of tankers up to 500,000 dwt with draughts of up to 75 ft, which are too deep to pass through the Suez Canal. The pipeline’s operating capacity was expanded to 2.3m barrels/day, or 117m t/y, in 1994. Storage capacity had increased to 7m barrels by mid-1996 and the pipeline has been working at full capacity ever since. Egypt has an extensive network of oil product pipelines for domestic distribution. There are also crude lines to supply refineries and convey oil to export terminals, as well as gas links connecting producing fields to consumers.

Telecommunications Modernisation, expansion and liberalisation of Egypt's telecommunications services and infrastructure has become a national development priority and a three-year US$1.1bn masterplan, to make Egypt a regional information technology (IT) hub, is near completion. Egypt’s telephone system has undergone extensive modernisation in recent years. Between 1981 and 1999 exchange capacity increased from 510,000 to 6.5m lines, and the intention is to add some 1m lines annually. However, the masterplan aims to increase teledensity from the current level of 10% to 14% and tele-accessibility from 40% to 90% by 2010. Local usage accounts for 91% of calls—only 3% of users have international dialing facilities. MobiNil—a consortium comprising France Telecom Mobile International, the US’s Motorola and four local partners: Orascom Technologies, the Al Ahram press group, Motorola’s agent in Egypt, Systel, and Alcatel’s agent, Raouf Abdel Messih—took over the state mobile phone network from TelecomEgypt in May 1998. The consortium inherited 83,500 subscribers and a waiting list of some 25,000. By mid-September 2000 subscriptions had risen to almost 900,000. A second private consortium called

Click global system for mobiles (GSM)—comprising Vodafone of the UK, AirTouch of the US, the UK’s Mobile Systems International, CGSAT of France, the local Alkan Group, state Banque du Caire and investment house EFG- Hermes—launched its operations in November 1998. By mid-September 2000, from a base of zero, it had 700,000 subscribers. TelecomEgypt is expected to run Egypt's third mobile operator once the period of exclusivity for MobiNil and Click GSM ends in November 2002.

Law 19 of 1998 removed TelecomEgypt’s monopoly and made it a joint-stock company. Officially valued at US$6bn-7bn, an initial public offering of 20%, plus 5% to the company's Employees Shareholder Association, was scheduled for October 2000, but has been delayed. The local Alkan trading group introduced a satellite telecommunications system in October 1996. Egypt's IT industry is one of the fastest growing in the world at 35% annually. But there are only 1m personal computers in Egypt and around 300,000 Internet users (a 0.5% population penetration rate which is officially projected to grow to 3% by 2002). There are over 60 local private Internet service providers. Under the IT masterplan, the government is aiming to increase Internet users to 1m within 12 months; raise software exports from US$15m to US$1bn within three years and to US$2.5bn by 2009; and establish a series of dedicated IT parks or "smart villages" starting with Giza, Mansoura, Alexandria and Assiut.

Mass media Under the President, Hosni Mubarak, the opposition press has enjoyed more freedom of expression, although journalists have been imprisoned for their views. However, in line with its recourse to greater authoritarianism in recent years, the government attempted to pass a new press law in May 1995 toughening penalties for offences such as libel and publishing “false” information. With a circulation of around 850,000, the semi-official daily Al- Akhbar is Egypt’s best-selling newspaper, closely followed by the more establishment-oriented Al-Ahram, with a circulation of 800,000. Although the press is subject to the control of the Higher Press Council, Egypt’s four main publishing houses, Al-Ahram, Dar al-Hilal, Dar Akhbar al-Yom and Dar al- Gomhouriya (which control most of the press), compete as commercially independent units. Of the opposition press, comprising some three dailies and 40 magazines or periodicals, Al-Wafd, the mouthpiece of the New Wafd party, is by far the most popular, with a circulation of 150,000-180,000. Al-Shaab, the Socialist Labour Party’s paper, is the voice of the Islamists, while Al-Ahali represents left-wing and often satirical views, and Al-Ahrar the liberals. Economic news and views are covered in the state Al-Ahram al-Iqtisadi or private Al Alum Al Yom.

The Arab Television Service started broadcasting in 1960 and there are currently two national and six regional channels. In December 1990 the Egyptian Satellite Channel, using the pan-Arab satellite Arabsat, began transmission of Egyptian programmes throughout the Arab world. In 1991 the US Cable News Network started transmission in Egypt on a subscription basis. In April 1996 Egypt launched its first satellite, Nilesat, which offers 84 television channels and 400 radio stations. A second satellite was launched in August 2000. There are eight state-run radio networks. A new duty-free media city has been established since January 2000 in 6th October City near Cairo, as

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part of Egypt’s plan to challenge the dominance of Saudi and Western satellite broadcasters.

Energy provision

The switch to gas Although electricity subsidies are gradually being removed, the demand for power has continued to rise rapidly as a result of demographic and economic growth (see Reference tables 6 and 7). The shortcomings of hydroelectric power, which used to provide over 25% of Egypt’s electricity, were highlighted in 1988 by the water crisis which resulted from eight years of drought in the Nile’s catchment areas. In response, the government launched a crash programme to build power stations dependent mainly on locally produced natural gas, which would have the bonus of saving more oil for export. Egypt’s installed capacity now stands at 15,000 mw, of which 80% is based on natural gas and the rest split between hydroelectric and thermal power. Another 1,950 mw is to be added by 2002 at a projected cost of US$1.22bn, while the Ministry of Electricity and Energy states that around 600-1,000 mw needs to be added to the network annually. It projects that investment of E£25bn will be necessary over the next ten years to meet growing power demand.

Energy balance, 1999 (m tonnes of oil equivalent) Elec- Oil Gas Coal tricity Other Total Primary supply Production 42.0 13.2 0.2 3.3a 1.3 60.0 Imports 2.0 0.0 0.7 0.0 0.0 2.7 Exports 16.0 0.0 0.3 0.0 0.0 16.3 Stock change 0.0 0.0 0.0 0.0 0.0 Total 28.0 13.2 0.6 3.3a 1.3 46.4 1.1b 44.2 Processing & transformation Input to refining 28.5 0.0 0.0 0.0 0.0 28.5 Input to transformation 5.5 8.2 0.0 3.3a 0.0 17.0 Refining/transformation output 28.5 0.0 0.0 5.6b 0.0 34.1 Energy industry fuel/loss 3.5 1.0 0.0 0.9b 0.0 5.4 Final consumption Transport fuels 8.0 0.0 0.0 0.0 0.0 8.0 Industrial fuels 6.8 1.6 0.6 2.2b 0.7 11.9 Residential etc 2.9 1.1 0.0 2.5b 0.6 7.1 Non-energy uses 1.3 1.3 0.0 0.0 2.6 Total 19.0 4.0 0.6 4.7b 1.3 29.6

a Expressed as input equivalents on an assumed generating efficiency of 33%. b Output basis.

Source: Energy Data Associates.

Domestic consumption of electricity is around 61bn kwh, 39% of which is used by industry. Electricity demand has been increasing by 5.6% per year during the past decade and is forecast to reach 86.5bn kwh by 2005. Egypt’s first BOOT power plant is going ahead at Sidi Kreir and is due to be commissioned in 2001 (see The economy). Work is going ahead on a US$384m

project to link the power grids of Egypt, Jordan, Syria, Iraq and Turkey by 2000; Egypt then hopes to act as a billing centre for the region. The US$150m link from Egypt to Jordan, via a Taba-Aqaba submarine cable, was completed in October 1998. The wider grid will join up later with the unified European electricity grid and that of the six Gulf Co-operation Council states.

Other energy sources Since 1981 there have been plans to build eight nuclear power plants to meet 40% of Egypt’s energy needs. Plans in 1986 for a US$1bn nuclear power station at El-Dabaa were shelved. Announcements were made in 1994 concerning the proposed production of heavy water from Lake Nasser for use in nuclear power reactors and, in 1995, the opening of the nuclear sector to private investment, owing to high costs. In November 1997 an Argentinian-built US$100m, 22-mw research nuclear reactor became operational, replacing the 2-mw facility built by the Soviet Union at Inshas, north-east of Cairo, in 1961.A US$50m World Bank loan has been approved for Egypt’s first solar-gas combined-cycle power station at El Kuriamat. Egypt’s first power station using wind energy to generate electricity is operating in Hurghada, with a capacity of 5 mw. A 300- mw wind farm at Zaafarana will be offered for private investment in 2000 on a BOOT basis.

The economy

Economic structure

Main economic indicators, 1999

Real GDP growtha (%) 6.0 Consumer price inflation (av; %) 3.1 Current-account balance (US$ m) –1,698 External debt (US$ bn) 31.6b Population (m) 67.2a

a Fiscal year ending June 30th. b EIU estimate.

Sources: IMF, International Financial Statistics; EIU.

Egypt has the largest population and the second largest economy (after Saudi Arabia) in the Arab world. The economy is dominated by the services sector, which, including public administration, accounts for almost one-half of GDP. Within this, tourism and the Suez Canal are important sectors. They have both suffered in recent years as a result of militant Islamist violence and the substantial decline in oil traffic. However, tourism has recovered strongly from the November 1997 Luxor attack, which sent the sector into sharp decline, and Suez Canal revenue has recently benefited from the upturn in world trade.

Agriculture remains an important activity, even though only 3% of the total land area is arable land, accounting for 17.4% of GDP and 29% of total employment in 1998/99, according to Ministry of Planning figures. Industry and mining are also important, accounting for 20% of GDP and over 13% of

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total employment in 1999/2000, and are heavily concentrated in Cairo and the Nile delta. Petroleum and natural gas are mainstays of the economy, accounting for 7% of GDP in fiscal year 1999/2000 (July-June), as high oil prices ensured crude oil continued to comprise over 50% of total exports (the exact 1999/2000 breakdown has not yet been released). In addition, there is a large informal sector, for which no reliable data exist but which may account for as much as 30% of total economic activity.

Consumption is a major expenditure component of GDP, accounting for 66% of the total in 1999/2000, compared with 21% for fixed capital formation and 13% for exports of goods and services.

Comparative economic indicators, 1999

Egypt Saudi Arabia Jordan Israel GDP (US$ bn) 89.0 139.4 7.6 100.8 GDP per head (US$) 1,324 7,000 1,170 16,470 Consumer price inflation (av; %) 3.1 –1.4 0.6 5.2 Exports of goods (US$ bn) 5.2 48.5 1.8 25.6 Imports of goods (US$ bn) 15.2 25.7 3.3 30.0 Current-account balance (US$ bn) –1.7 –1.7 0.4 –1.9 Source: EIU CountryData.

Economic policy

Egypt’s economic Since the days of Gamal Abdel-Nasser, Egypt has produced five-year development plans development plans. But these have become increasingly irrelevant as the country moves towards a market-driven economy. In April 1997 the government set out its socioeconomic development plans for the next 20 years. These aim to expand Egypt’s populated area from 4% to 30% by 2017 through the establishment of new industrial and agricultural communities in the Sinai and the Southern Valley of the Western Desert (see Economic sectors). The private sector is to be responsible for 75% of the E£100bn (US$29.5bn) annual investment expected over the next 20 years. Other targets include: a rise in GDP growth to an average of 6.8% per year until 2002, and 7.6% until 2017; an improvement in the standard of living by 2% per year in real terms; the creation of 550,000 jobs a year; and an increase in annual industrial growth from 9% to 11%.

Economic imbalance Hosni Mubarak inherited chronic economic problems when he became president in 1981. With repayment arrears mounting on its massive foreign debt, Egypt had no choice but to seek rescheduling. In 1987 the government concluded an 18-month SDR250m (US$350m) stand-by arrangement with the IMF, and the Paris Club agreed to reschedule US$6.5bn, with a separate arrangement for Arab lenders. However, the accords faltered owing to a lack of political will to carry through the required economic reforms. In 1991 vast cash infusions from donors and the promise of debt relief in the aftermath of the Gulf war gave the government the confidence to embark on a comprehensive economic reform and structural adjustment programme. In

May 1991 a three-year, SDR400m stand-by accord was signed with the IMF, followed by a US$300m structural adjustment loan from the World Bank. A Paris Club agreement was concluded the same month, covering an estimated US$27bn-28bn in official and government-guaranteed civilian and military debt, which linked debt relief to progress on economic reform.

Economic policymakers

Hosni Mubarak: The president has shown an increasing interest in economic matters in recent years and has charged his new government with speeding up the pace of economic reform, while stressing social justice, upgrading technology and integrating Egypt into the global community. Mr Mubarak’s particular concern is to complete the series of massive infrastructure projects, the most ambitious of which is the Southern Valley Development Project (Toshka), on time and on budget.

Atef Obeid: The post of prime minister is, in essence, an economic one. Backed by a presidential mandate for change, Mr Obeid has been expected to accelerate the pace of economic reform and privatisation in particular but, in practice, progress has proved slow. Having headed Egypt’s missions to the IMF and the World Bank the prime minister has a greater understanding than his predecessors of the needs of international investors and once freed from the policy constraints of an election year, is expected to quicken the pace of liberalisation in 2001. He does, however, have to contend with entrenched vested interests.

Youssef Boutros-Ghali: The foremost proponent of liberalism in the cabinet is now the most powerful minister on the economic team, having gained the portfolio of foreign trade to add to his previous economy post in the 1999 cabinet reshuffle. A major architect of Egypt’s macroeconomic success, he plays an indispensable role as the government’s main economic strategist and technical interlocutor with the donor institutions. Increasingly close to Mr Obeid in the past few years, Mr Boutros-Ghali has been given the power to initiate reform which he previously lacked, particularly as he now sits on the general secretariat of the National Democratic Party (NDP). But concern exists that the country's myriad trade problems have left the minister little time to focus on Egypt's macroeconomy.

Medhat Hassanein: The new finance minister, formerly professor of economy and finance at the American University in Cairo, is typical of the new intake of economic ministers. A technocrat, he has studied abroad and has a good command of languages but lacks political power. Having worked as a commercial consultant and established his own commercial ratings agency, Mr Hassanein has a superior grasp of financial economics, planning and presentation compared with his recent predecessors. He also appears to possess a more rigorous approach to fiscal discipline.

Ismail Hassan: The Central Bank governor and former head of the state- owned Bank of Alexandria, remains hampered in policy decisions by a monolithic and highly conservative Central Bank structure. Favoured by Mr Mubarak, he has survived sharp criticism from both local and international businesses over his indecisive and “statist” handling of the persistent US dollar

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liquidity crisis. A new and more liberal Central Bank board and the return of the Central Bank portfolio from the prime minister to the Ministry of the Economy, is expected to lead to greater flexibility in monetary policy.

Business leaders: A group of leading local businessmen exemplify the strengthening alliance between government and big business. Often close to the president’s younger son, Gamal, who is influential with his father and can take much of the credit for interesting the president in economic liberalisation and global integration, the businessmen have direct access to the president, sit in parliament and on the leadership bodies of the NDP, serve on the business councils set up with the US and the UK, participate in most of the foreign joint ventures, and wield more real power than most ministers.

The Social Fund for To alleviate the impact of privatisation, public-sector reform and price Development deregulation on the poor, a US$613m Social Fund for Development (SFD) was established in 1991. A US$746m second phase began in January 1997. Regulated by the World Bank and funded by the EU, the UN Development Programme (UNDP) and bilateral donors, the SFD is designed to support labour-intensive projects for specific groups and provide physical infrastructure and public services in Egypt’s poorest regions. The SFD’s labour mobility programmes, directed at displaced public-sector workers, have expanded as government sensitivities over privatisation have reduced. But with government hiring virtually frozen, the SFD’s small loan and public works programme has become the only “government” job-creation scheme and has created 50,000- 70,000 jobs a year, almost one-quarter of all non-agricultural jobs created each year in Egypt.

Macroeconomic success, The reform programme led to a successful stabilisation of the macroeconomy. 1991-98 In addition, a framework was developed for public-sector reform and privatisation and liberalisation of trade and investment policies, although progress was halting. Egypt completed its IMF and World Bank programmes in March 1993 and a new three-year IMF extended fund facility (EFF), concentrating on structural reform, was approved in September that year. Progress on the economic reform programme was hindered by a major disagreement over IMF demands for a 20-30% devaluation of the Egyptian pound, but the stand-off was resolved in late 1995 when the IMF chose instead to emphasise accelerated structural adjustment.

Formal negotiations resumed in March 1996 and culminated in the signing of a new two-year stand-by arrangement in October 1996, which focused on continuing prudent macroeconomic policies—including a budget deficit below 1% of GDP and inflation stabilised at around 5%—and deepening structural reform, in particular the reduction of trade barriers, and the privatisation of state enterprises. One public-sector commercial bank and one state insurance company were to be privatised by end-1998 and the implicit subsidy on petroleum products was to be eliminated by July 1999, and gas and electricity tariffs raised to their long-run marginal cost.

Egypt successfully completed the IMF stand-by on September 30th 1998 although bank and insurance privatisation has yet to go ahead, and energy

subsidies remain in place. Egypt’s solid macroeconomic indicators meant that another formal IMF accord was not considered necessary.

However, by 1998 the economy was facing problems. In part this was the result of a more difficult external environment, due to the turbulence created by the 1997-98 Asian crisis, but also reflected rapid credit growth, large-scale public investment in the major national infrastructure projects, higher social spending and the slowdown in structural reform. Imports increased, owing to a sharp decline in commodity prices, while exports fell as Egypt's producers failed to compete. Meanwhile, Egypt's major sources of hard currency—oil, workers’ remittances and tourism—were hit by the downturn in oil prices, the subsequent recession in the Gulf economies and the fallout from the November 1997 Luxor massacre, respectively. The new government, since October 1999, has cut back on credit growth and tightened fiscal discipline, but the severe US dollar liquidity shortage continues. In April 2000 Mr Mubarak ordered the repayment of E£25bn (US$7.5bn) in accumulated state debts to local companies. This state delay in reimbursement has been blamed for much of the concurrent Egyptian pound liquidity problem and economic slowdown. (For historical data on government finances, see Reference table 8.)

Monetary policy Following the widening of the current-account deficit in 1998 monetary policy has been constrained by the government’s currency market interventions aimed at maintaining the value of the Egyptian pound against the US dollar. US Dollar selling by the Central Bank removed dollars from the system, causing narrow money supply growth to fall from 20.3% in 1998 to 0.8% in 1999. M1 actually contracted by 6.5% between the third quarter of 1999 and the first quarter of 2000. This tightening caused the interbank overnight rate to rise to 17.1% in January 2000. In response the Central Bank issued large repos and in several cases has refrained from rolling over maturing Treasury bills in order to provide more cash to the markets, thus easing interbank rates by May. In addition, over the last year the government has been gradually moving to a more market-based exchange-rate regime by allowing the Egyptian pound to depreciate. This may herald the start of a looser monetary stance, more in line with the government’s longer-term growth objectives. (For an historical breakdown of money supply, see Reference table 9; for interest rates, see Reference table 10.)

The Cairo interbank offered rate (Caibor), under which institutions post offers daily, should lead to a more efficient and liquid interbank market and lessen the future risk of large interest rate fluctuations following money supply movements. Traders have reported greater levels of market transparency and nar- rower bid-offer spreads since the establishment of the system in July 2000. Moves towards strengthening the money-market infrastructure should help the government to apply a more efficient and credible monetary policy.

Privatisation Privatisation will remain a major long-term economic policy issue. Law 203 of 1991 established the legal basis for privatisation by removing 314 public-sector enterprises from the control of government ministries and restructuring them as affiliates under 16 (now down to 10) independent holding companies. In

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principle the holding companies operate as private-sector companies with full financial and managerial accountability. The Public Enterprise Office (PEO), established in 1991, is in charge of overseeing public-sector reform and privatisation under the supervision of the prime minister. However, since January 1996 a ministerial-level privatisation committee has taken overall responsibility for the privatisation programme, placing it at the top of the government’s agenda.

The first majority sale, 75% of Medinet Nasr Housing and Development, was oversubscribed at its close in mid-May 1996, and was followed by a series of successful public offerings through the stock exchange in 1996, although anchor investor sales proved problematic. The programme slowed significantly in early 1997 as the government began to move to problem companies with massive overstaffing, huge debts and large unsold inventories. Debt- rescheduling agreements were reached with public banks, and an early- retirement programme initiated with union consent in March 1997. The government accelerated the pace of privatisation in the aftermath of the Luxor massacre in November 1997, and placed more stress on anchor investor transactions, in part to reassure investors but also in recognition of the need to upgrade management, technology and marketing. But since mid-1999 privatisation has been hampered by political concerns and has been mainly confined to liquidations and the sales of small firms to their employees, as well as high-profile sales of cement companies to international producers.

While a number of sectors remain off limits, notably EgyptAir, the Egyptian General Petroleum Corporation and the Suez Canal, and a 40% limit has been set for “strategic” sectors such as pharmaceuticals and flour mills, the government has relaxed its ban on the privatisation of utilities. An initial public offering (IPO) of a 20% stake in the state telecommunications monopoly, TelecomEgypt, is projected for late 2000. In 1998 the government opened up the state-run mobile phone network by licensing two private operators. Sales of the seven state electricity distribution companies have been delayed by the sector's debt burden of E£15bn, by the need to establish a regulatory authority and by disputes over valuation. But 20% tranches are expected to be offered over the next two years. Oil sector privatisation is about to begin and the privatisation of the gas distribution network has been officially approved.

By end-July 2000 the government had privatised 155 of the 314 enterprises. These transactions included the sale of majority stakes in 37 companies and minority stakes in 16 companies through a public offering, the asset sale or liquidation of 36 companies, 24 anchor investor sales, 12 companies leased and 30 companies sold to employee shareholder associations. The privatisation programme for public enterprises is projected to be completed by end-2001.

BOOT/BOT projects In an effort to improve efficiency in remaining and former state monopolies and shift some of the burden of infrastructure development on to the private sector, the government has for the first time authorised build-own-operate- transfer (BOOT) projects. Egypt’s first BOOT scheme will be an estimated US$450m 2 x 325-mw thermal power plant on the northern coast at Sidi Kreir,

the first time that private firms have been allowed to enter the power generation sector. In February 1998 the contract was awarded to the UK/Dutch- US partnership of Shell-Bechtel, operating as InterGen, and the project is expected to begin commercial operations by January 2002. The contracts for two further plants, located at the major port and industrial zone projects at East Port Said and Ain Sukna (Gulf of Suez), have been awarded to Electricité de France. The government plans to offer a further 15 power stations, with a total capacity of 7,650 mw, to the private sector between 2001 and 2010 on the BOOT model.

Contracts for Egypt's first private sector airports, under the build-operate- transfer (BOT) system—at El Alamein, Farafra, Bahariya, Marsa Alam and Ras Sidr—have been signed and another six BOT airports are planned. In May 1998 a consortium led by Stevedoring Services of the US won the contract to equip and operate Egypt's first private port at Ain Sukna. A large industrial and storage zone will be attached. ECT International of the Netherlands and Maersk of Denmark signed a 30-year concession agreement in August 1999 to equip and operate the new East Port Said container terminal which is projected to become the transshipment hub of the eastern Mediterranean.

Official approval has been granted for six road projects, which will be awarded on the basis 75-year concessions. With insufficient traffic to justify the economics of a full BOT project, investors will be allowed to undertake secondary development on the land bordering the new roads, facing government pressure to be self-sufficient within five years.

Banking privatisation The separate banking privatisation programme has been stalled by state reluctance to relinquish this profitable sector and by political considerations. In April 2000 the economy minister, Youssef Boutros-Ghali, announced that privatisation of one of the four major state commercial banks would be delayed due to hostile public opinion. Moreover, the public sector banks are important tools of government policy. They offer unprofitable banking services to remote areas, finance agricultural crops, are major partners in the large national infrastructure projects such as Toshka and are the most significant buyers of T- bills and bonds. Radical restructuring would also be necessary including tackling the problem of non-performing loans. But a phased reduction of holdings by public-sector banks in their joint ventures with foreign partners has gradually taken place while a number of international banks, including Société Générale, Credit Commercial de France and Barclays, have acquired controlling majority stakes in their Egyptian joint-venture banks. Law 155 of 1998 enables banking privatisation to take place; however, there is no state body specifically responsible for its implementation and therefore the process can be interminably delayed by bureaucratic stalling.

The 2000/01 budget The 2000/01 (July-June) budget envisages a 12.3% rise in public expenditure to proposals E£112.6bn, compared with the 1999/2000 budget figure of E£100.3bn. The budgeted expenditure increases reflect government concern to improve the conditions of lower income groups, in order to reduce social tensions, and ensure that the majority of the population begins to feel some benefits from the economic reform programme. A major part of the increase in expenditure is

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therefore a 12.9% rise in budgeted public-sector wages, accounting for over 25% of budgeted spending. The subsidy bill, mainly bread, is also due to rise to E£5.8bn, an increase of 7.4% against the 1999/2000 budget. International debt service is to fall to E£2bn, although domestic public debt service is projected to increase from E£17.4bn in 1999/2000 to E£18.4bn in 2000/01. Defence spending, at E£8.3bn in 1998/99, has not been detailed although it is usually to be found under miscellaneous current expenses. Total current revenue is projected to rise by 7.2% in 2000/01 to E£97.9bn. The main taxation categories are expected to increase compared with the 1999/2000 budget, although the government has stressed that there will be no new taxes or increases in existing taxes. Suez Canal fees are projected to rise to E£3.5bn and higher oil prices are expected to result in a 21% rise in oil revenue. Reflecting the government's greater fiscal transparency, the net final deficit is projected to increase dramatically by some 400% to E£4.07bn, compared with E£801m in 1999/2000.

Budgets (E£ m unless otherwise indicated; fiscal years, Jul-Jun) 1998/99 1999/2000 2000/01 Current budget Revenue 75,490 79,608 86,294 of which: taxes 24,200 26,000 27,788 customs dues 11,000 12,000 13,000 sales & service taxes 14,500 16,500 18,000 petroleum revenue 4,780 3,775 4,575 Suez Canal revenue 3,421 3,300 3,500 Public-sector companies/agencies 1,500 1,500 1,500 Central Bank revenue 2,500 2,700 3,200 Expenditure 70,688 77,610 86,102 of which: wages & salaries 22,594 25,458 28,867 pension fund payments 5,209 6,228 8,090 subsidies 4,906 5,387 5,789 domestic public debt service 16,372 17,435 18,400 foreign public debt service 2,624 2,300 2,000 miscellaneous current expenses 15,231 16,855 n/a Investment budget Investment revenue 3,729 4,233 3,862 Investment expenditure 10,985 12,293 14,449 Investment deficit 7,256 8,060 10,587 Capital budget Capital transfers (out) 9,854 10,400 12,063 of which: domestic public debt service 3,417 4,118 foreign public debt service 1,957 1,850 Capital transfers (in) 3,990 7,601 7,782 Capital deficit 5,864 2,799 4,281 Deficit Total expenditure 91,526 100,303 112,614 Total revenue 83,209 91,443 97,938 Total deficit 8,317 8,860 14,676 Financed by: Domestic savings 6,821 7,338 9,469 Foreign & domestic loans & credits 421 708 1,087 Net deficit 1,061 801 4,090 Source: Official Gazette.

Fiscal performance The government’s careful fiscal stance cut the budget deficit from 20% of GDP in 1990/91 to 1% of GDP in 1997/98. However, the government has revised its budget deficit figure for 1998/99 to 4.2% of GDP, from the previous figure of 1.3%. Officials state that the increase is a result of spending overruns in the investment budget which had been recorded off the balance sheet, but which the government has now decided to bring into the budget. State expenditure on the major national infrastructure projects, notably Toshka, is widely believed to have been the destination of this government overspending. But the budget does not record deficit financing for the 67 economic authorities. Citing the stricter budgetary controls now in force, the budget deficit is now officially estimated at 3.7% of GDP for 1999/2000.

Fiscal outturn (E£ m unless otherwise indicated) 1994/95 1995/96 1996/97 1997/98 1998/99a 1998/99b Total revenue 55,719 60,893 64,498 67,963 69,919 73,279 Tax revenue 34,279 38,249 40,518 43,962 45,700 48,096 Transferred profits 10,542 11,133 11,423 10,780 9,812 9,501 Other non-tax revenue 5,068 5,104 5,238 5,293 5,446 5,161 Non-central government revenuec 5,830 6,407 7.319 7,928 8,961 10,521 Total expenditure 58,256 63,889 66,826 70,783 73,919 86,009 of which: current expenditure 46,933 51,196 53,030 55,289 58,002 60,254 of which: domestic interest payments 11,177 12,231 12,337 12,219 12,772 14,081 foreign interest payments 3,613 3,796 3,114 2,724 2,624 2,325 investment expenditure 11,299 12,581 14,070 15,635 16,110 25,321 Overall balance –2,537 –2,996 –2,328 –2,820 –4,000 –12,730 % of GDP –1.3 –1.3 –0.9 –1.0 –1.3 –4.2 a Budgetary. b Actual. c Includes local governments, public services authorities, self-financing investments and privatisation proceeds.

Source: Ministry of Finance.

Domestic debt Declining budget deficits over the 1990s have led to a reduction in government borrowing as the government has increasingly chosen to fund the deficit by the sale of Treasury bills and bonds rather than by external borrowing. The government has acted to reduce its T-bill exposure and lengthen the maturity of domestic debt by issuing a series of government bonds. The first E£3bn (US$880m) issue of five-year bonds at a fixed interest rate of 12% took place in April 1995. Since then greater investor confidence in the economy has allowed the government to lengthen the maturity to seven years and reduce the interest rate to 10% in the series of monthly E£500m offerings since August 1998. Public domestic debt including claims on economic authorities and local government stood at E£182bn in 1998/99 according to the government’s calculations, which include credits with the banking sector. Removing these gives a higher figure of E£196bn, equivalent to 65% of GDP.

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Economic performance

With the start of the open-door economic policy (infitah) under Anwar Sadat in 1974, which aimed to reduce state control over the economy, GDP growth averaged 9.4% over the next five years. Estimates of real GDP growth in the 1980s vary, with the IMF recording an annual average of 7% in the first half of the 1980s and 4.3% for 1986/87-1991/92, and Egyptian sources giving a higher figure.

The impact of the Performance since the late 1980s has been erratic because of the 1990-91 Gulf structural adjustment crisis and structural adjustment. The World Bank estimates that real GDP programme growth slowed from an average of 2.5-3% per year in 1988/89-1990/91 to 0.4% in 1991-93 as demand was reined in by spending cuts, a sharp increase in real interest rates and a drop in exports as traditional markets in the former Soviet Union and eastern Europe were lost. At the same time output was hampered by uncertainty, delays in public enterprise reform and privatisation, and a reduction in subsidies on inputs. Since then, sectors such as finance, real estate, construction, exports, agriculture and, temporarily, tourism, have picked up. The IMF estimates that real GDP growth averaged around 5% from 1995-98, fuelled by local private investment and government investment in infrastructure, and rose to 6% in 1998/99 in response to expansionary macroeconomic policies, rapid credit growth and heavy state spending. (See Reference tables 11-13 for historical data on GDP.)

Gross domestic product (% real change; fiscal years ending Jun 30th) Annual average 1999 1995-99 GDP 6.0 5.3 Sources: World Bank; Central Bank of Egypt; EIU.

Performance across economic sectors has been uneven, with growth in tourism fluctuating sharply depending on the political situation. However, the sector is currently booming having shown a 48% increase in tourist arrivals between 1998 and 1999. Agriculture has grown steadily but modestly, at around 3-4% a year, ensuring Egypt has remained a large-scale food importer. In recent years growth in industry and mining has been constrained by the heavy public- sector debt burden, low productivity and generally weak demand. But official figures for growth of around 8% during 1996-98 reflect sharply increased profits in private-sector industry in response to restructuring, modernisation and the economic upturn. Sectors such as transport, communications and electricity are being opened up to private investment.

Despite liberalisation, the public sector still plays a dominant role in the economy, accounting, directly or indirectly, for over one-third of total GDP, two-thirds of non-agricultural GDP and two-thirds of manufacturing. The state employs about 35% of the total labour force (25% in central government and 10% in public enterprises) and public-sector wages account for 10% of GDP.

Inflation Consumer price inflation was modest until 1973 but rose to an annual average rate of 11-14% in 1973-80, peaking at 28.5% in December 1989. This was by no means wholly imported, and reflected the influence of domestic conditions. Inflation remained high until 1995, with prices affected by measures designed to reduce the budget deficit, such as the phased removal of subsidies and the increase in electricity prices. (See Reference table 14 for historical data on inflation.) Much can also be blamed on a rapid growth in money supply (see Reference table 9), initially driven by the government’s need to fund its budget deficits at artificially low interest rates, and subsequently by high liquidity in the economy owing to large inflows of funds. Nevertheless, weak demand, trade liberalisation, exchange-rate stability, tight fiscal and monetary policies, and continuing price controls on a range of basic commodities and, latterly, the economic downturn, have allowed inflation to fall from 7.2% in 1996 to 3.1% in 1999.

Inflation (% change) Annual average 1999 1995-99 Consumer prices 3.1 7.0 Sources: IMF, International Financial Statistics; EIU.

Subsidies The gradual elimination of subsidies and price controls is a central plank of the economic reform programme. The IMF estimates that in 1991 subsidies were costing Egypt around US$10bn per year—US$2bn for electricity subsidies alone. Subsidies have since been cut back on basic foods, leaving bread, sugar and cooking oil the only subsidised items for low-income consumers. The government has chosen not to implement its IMF commitment to raise energy prices to world levels by July 1999, while public transport also remains heavily subsidised—Egyptian National Railways has received some E£11bn in state subsidies over the past decade. Formal price controls are still in force in two strategic sectors: downstream petroleum products and pharmaceuticals. The 2000/01 budget allocates E£5.79bn to subsidies, a 7% increase on the previous budget, but as many of the subsidies are hidden, those featured in the budget do not necessarily give a true picture.

Wages and living standards With such a large public sector, the government is necessarily deeply involved in the labour market. Government estimates put the number of Egyptians employed within the country at 16.9m in 1998/99 (see Reference table 2), with another 1.9m working abroad. With around 500,000 people joining the labour market every year, finding employment is a major problem. A long-standing government guarantee to provide work for all university graduates has produced an 11-year waiting list for state jobs and a large surplus of underemployed, badly paid civil servants. Heavy reliance on income from the informal sector has created circumstances conducive to the spread of corruption at all levels. Successive budgets have raised state wages and pensions, but only recently by more than the rate of inflation. Private-sector jobs are better paid, but limited in number. Even the highest wages and salaries in Egypt are low by international standards: the minimum monthly wage,

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which applies to all workers except those undergoing vocational training, is E£84 (US$25) for a 42-hour working week. Average wages in foreign-owned firms are at least four times the average minimum wage.

With wage increases only recently keeping pace with inflation, living standards for the majority of people have declined over the past decade, a trend that is only now being reversed. According to official figures, admitted to be conservative, 20-30% of the population live below the poverty line. However, there is great affluence at the other end of the social scale. In 1994 Egypt was one of the four countries singled out in the UNDP’s Human Development Report as being “in danger of joining the world’s list of failed states because of wide income gaps between sections of their populations”.

Unemployment Unemployment remains an acute problem. Officially, the unemployment rate stood at 7.4% in 1999/2000, but independent estimates are considerably higher, at about 10%, with the majority of unemployed under 20 years of age. Underemployment is estimated to affect one-third to one-half of all workers. At present, Egypt’s rate of job creation, at 400,000 per year, falls short of the annual expansion of the workforce, at around 500,000.

Regional trends

North-south disparities Egypt is divided into a more prosperous north and a less prosperous south, the latter officially stretching from Beni Suef, 120 km south of Cairo, to the Sudanese border. Home to roughly 15m people, the southern, mostly rural, provinces of Upper Egypt have traditionally been neglected by the politically dominant north, where the major cities are located and the vast majority of economic activity takes place.

Rural immigration The UNDP estimates that 46.8% of all economic and social establishments and 23% of the total labour force are located in the governorates of Cairo and Alexandria, a concentration that has encouraged large-scale rural migration to urban centres. Concentrated government investment in a few urban centres perpetuates the imbalance not only between urban and rural regions but also between urban areas themselves. Meanwhile, the high level of both capital outflows and labour migration from the rural governorates has exacerbated their relative underdevelopment, being highly detrimental both to agricultural production and industrial development. However, the 1996 population census revealed that for the first time in contemporary history, the rural exodus to the city had slowed. Cities in 1996 were home to 43% of the population, down from 44% ten years earlier.

Local government In theory Egypt has a comprehensive system of local government, but in practice power remains concentrated in the hands of central government. The country’s 26 governorates are divided into 133 districts, of around 150,000- 200,000 people each, each of which contains one major town and between four and eight village council areas, which in turn contain a main village and several smaller satellite villages. Working parallel to the central government, every governorate, district and village council area has an appointed executive

officer; an appointed executive council composed of ex-officio advisers who control financing and administration; and a popular council consisting of representatives elected by the residents of the area. The governorates and districts have administrative staff. Because local communities depend on a central financial subsidy, the degree of local democracy hinges on individual governors. These officials, appointed by the president for an undefined period and removed from office by presidential decree, are responsible to the prime minister through the latter’s post as chairman of the Supreme Council for Local Administration. Governors of the most important provinces, notably Cairo, Giza and Alexandria, have ministerial rank. Since 1994 the government has appointed village mayors and deputy mayors.

Economic sectors

Agriculture and fishing

Production patterns Agriculture’s share of nominal GDP fell from 25.6% in fiscal year 1985/86 (July- June) to 17% of GDP in 1999/2000 but the sector remains crucial to the economy, employing 29% of the labour force and accounting for 20% of commodity exports. (See Reference table 15 for historical data on agricultural production.)

Cotton problems Egypt is a major producer of premium long and extra-long staples. Cotton is the country’s largest agricultural export and was for many years the most extensively subsidised commodity. Even so, the proportion of cultivated land sown to cotton has sharply declined from 924,000 ha in 1962 to 227,000 ha in 2000/01, while poor lint yields brought a further disastrous drop in production and exports. Exports dropped to 16,600 tonnes in 1991/92 before rising to 121,500 tonnes in 1993/94—the highest in ten years. But by 1996/97 exports totalled 45,000 tonnes reflecting the higher cost of production, as state subsidies were removed, causing farmers to switch to other cash crops. Farmers report that cotton cultivation costs have risen from E£595 per feddan (0.42 ha) in 1987/88 to about E£1,386 (US$295) per feddan in the mid-1990s.

In an effort to halt the slide, the government raised the cotton purchase price to above international market levels, which cost it E£1.5bn (US$436m) in annual subsidies and precluded private-sector involvement in exports. In March 1996 the import of lower-grade short-staple cotton from all cotton- producing countries was allowed, leaving higher-value cotton strains free for export, and in the 1998/99 season the government fully liberalised the cotton trade by refusing to set a cotton purchase price and allowing private traders to participate. After a dismal harvest of 4.8m qantars (240,000 tonnes) in 1995/96, the greater price incentives for farmers enabled cotton production to rise to 6.7m qantars in 1996/97. But as acreage continued to decline, the harvest fell to 4.7m qantars (230,000 tonnes) in 1999/2000. Export deliveries totalled 97,294 tonnes in the 1999/2000 marketing season (September to August) compared with deliveries of 97,500 tonnes in 1998/99 and 70,000

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tonnes in 1997/98. (For historical data concerning cotton production, see Reference table 16.)

The effect of reforms Since 1986 controls have been removed from virtually all crops. Controls still in place affect sugarcane in Upper Egypt, siting of the large public-sector factories, rice cultivation, which is restricted in some areas owing to water shortages, and cotton, specific varieties of which have to be cultivated in designated areas. Farmers now have an alternative to public-sector entities in marketing all crops other than sugarcane. By 1994 virtually all subsidies for fertilisers, seeds and pesticides had been eliminated, although energy continued to be provided at reduced rates. The result has been impressive gains in output, with wheat and rice crops reaching record levels and the achievement of self-sufficiency in several important commodities. Some 95% of local production goes to domestic consumption. Exports have also grown. Egypt remains one of the world’s largest food importers: agricultural imports, mainly wheat, rose by 8% in 1996/97, to US$4.1bn, representing about 26% of total imports. This figure fell slightly to US$4bn in 1997/98, or 24% of the total. (For historical data on major agricultural imports, see Reference table 17.)

Poor land use With an estimated 3.5m farmers cultivating holdings that average 2 feddans (0.84 ha) in size, production is intensive and yields are among the highest in the world despite the irregular and insufficient supply of water for irrigation. Only 3% of the total land area is arable; of this about one-third is serviced by main and secondary drains, but many are in dire need of repair. Drainage has proved insufficient to counter the waterlogging and high soil salinity that have been the unforeseen consequences of a rise in the water table following construction of the Aswan High Dam. In addition, only 2% of the 7m feddans (2.9m ha) of cultivated land are irrigated by modern methods. Irrigation water is provided free of charge by the government.

Land reclamation In response to the pressures on arable land, some 1m feddans of desert were reclaimed in the decade to 1995, bringing the surface area of cultivable desert land to about 3m feddans, and another 3.4m feddans are planned by 2017. But the area under cultivation has remained more or less constant as agricultural land is being lost to urban and industrial expansion at the rate of 30,000 feddans per year.

Fertiliser use Fertiliser use is among the highest in the world at 465 kg per feddan per year. Fertiliser production is the monopoly of six private-sector companies that produce over 6.6m tonnes/year (t/y) and supply around 90-95% of local demand. Fertiliser subsidies (with the exception of a limited subsidy on potash) have been eliminated, the government distribution monopoly has been terminated and co-operatives and private dealers are now allowed direct access to fertiliser supplies.

Livestock Livestock production has fared badly in recent years as state support to the sector has been curtailed. The supply of subsidised feed was eliminated in 1990, import restrictions have decreased and the national buffalo project, offering incentives for red meat production, was abolished in 1992, although it

was reinstated in 1996, leading to a 3% increase in the cattle herd that year. The poultry industry, in which the public sector invested heavily, is greatly affected by international supplies and prices since most of its components are imported, and sharp fluctuations in production and prices have put many producers out of business. A nine-year ban on poultry imports was lifted in July 1997 but the import duty was set at 80% to protect local industry.

Fisheries National figures give a fish catch of 432,000 tonnes in 1997. Egypt exports some 2,900 t/y of generally fine quality fish. The government is aiming to increase annual production to 700,000 tonnes by 2000, mainly by encouraging the use of the country’s inland lakes and waterways for intensive aquaculture.

Mining and semi-processing

Oil production The mining industry is dominated by the extraction of crude oil. Reserves are relatively modest, at 3.8bn barrels in July 2000, but the Ministry of Petroleum believes that advanced extraction techniques could add another 10bn barrels. Crude oil production has averaged around 880,000 barrels/day (b/d) in recent years, with some 67% refined domestically, although this proportion has been rising in line with Egypt’s strong rates of economic growth. In response to the depletion in Egypt’s ageing oilfields in the Gulf of Suez, production was cut to 840,000 b/d from July 1st 1998 and has since steadily declined to 787,660 b/d in 1999. Apart from the mature fields of the Gulf of Suez, which produce 79% of Egypt’s oil, exploration activity is focused on frontier areas such as the Western Desert near the Libyan border, the offshore Mediterranean and Sinai.

Exploration is undertaken by foreign companies in partnership with the state- owned Egyptian General Petroleum Corporation (EGPC); British Petroleum (BP) and Agip of Italy have by far the largest presence. In 1992 the EGPC awarded an exploration permit to Forum Exploration, a private Egyptian company, for the first time. Five other local companies have since gained permits but their contribution to the sector remains marginal.

Export growth has been constrained by the increase in domestic consumption and by the weakness in international oil prices in 1998 and early 1999. In 1998/99 petroleum exports are estimated to have accounted for about one- quarter of overall export earnings, down from a peak of 55% achieved in 1992/93. However, although full balance of payments figures are not yet available, the 44% increase in exports in 1999/2000 to a record US$6.4bn is expected to largely reflect the impact of recent high world oil prices.

Gas potential Natural gas reserves were conservatively estimated at 45trn cu ft in July 2000, and potential reserves could be up to 75trn cu ft. Government policy is to encourage the use of natural gas, especially in power stations, in order to free more oil for export (see Reference table 18). The natural gas share of hydrocarbon usage has risen from 12% of total consumption of 16.5m tonnes of oil equivalent (toe) in 1982 to 35% of total consumption of 35m toe in 1999. At present, 65% of Egypt’s gas production of 2bn cu ft/day, mainly from the Delta and Western Desert, is used for electricity generation, with the rest

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serving as feedstock for the fertiliser and other industries. Over the next five years the petroleum ministry intends to increase the number of gas users to 1.5m, and franchise agreements have been signed with four private-sector companies to extend the gas transmission and distribution network.

Because its gas reserves are extensive, Egypt has been looking for export markets even though domestic demand is forecast to rise to 2.5bn cu ft/d by 2000 and to 3.5bn cu ft/d by 2004. Plans to export some 250m cu ft/d to Israel have run into delays owing to the lack of Israeli gas infrastructure, political difficulties and, latterly, pressure from Israeli gas producers for the development of local gas reserves. However, Italy’s Ente Nazionale Idrocarburi (ENI) signed an agreement with the Palestinian Authority (PA) in October 1998 to supply Egyptian gas originating from ENI’s offshore concessions in the Nile Delta, to the Palestinian territories, although it now appears that the Palestinians may also have their own gas reserves. The same is true of Jordan, another market under consideration. In November 1996 Egypt signed a Memorandum of Understanding (MoU) with Turkey to export 10bn cu metres/year, equivalent to 7.3m t/y or around 1,000 cu ft/d, from 2000, but Turkey has also proved indecisive. However, the newly formed East Mediterranean Gas—a joint venture between EGPC, the Israeli Merhav Group and Egypt’s Hussein Salem Group—began preliminary talks in May 2000 with the Israeli Electric Corporation (IEC) about a proposed 780-km submarine pipeline, with a capacity of 1,500 cu ft/d, to run from El Arish in Northern Sinai, offshore along the eastern Mediterranean coast to the Turkish port of Ceyhan, with outlets in Israel to feed IEC's power plants. EGPC signed a MoU with the Spanish electricity company Union Fenosa, in July 2000, for the annual supply of 4 bn cu metres of natural gas—some 25% of Spain's current annual consumption. Under the agreement, Union Fenosa will establish a US$1bn liquefaction plant on Egypt's northern coast, with liquefied natural gas (LNG) production due to start by end-2004. Both BP and British Gas (BG) International have agreements in principle with EGPC to develop LNG export projects, mainly for the southern European markets.

Coal mining Egypt’s coal reserves, located mainly in Sinai, are estimated at 50m tonnes. The deep mine at Maghara in Sinai, which was closed during the 1967 war, was reopened in late 1996 after extensive redevelopment. However, coal quality remains poor and the project, aiming to increase output from 125,000 t/y to 600,000 t/y in five years, is now officially viewed as uneconomical.

Phosphates and other Other mining activities include the extraction of iron ore at the Baharia oasis minerals in the Western Desert, and limestone and phosphate mining near Bur Safaga and Quseir on the Red Sea (see Reference table 19). Production at the massive Abu Tartur phosphate mines, north-west of El Kharga, has been delayed by cost and management problems, and the government has now decided to seek private sector management in an effort to recoup the US$1.5bn spent on developing the mine and over twice that on infrastructure. A local company, Ademco, had been awarded a 25-year franchise to mine for iron ore, the first for a private company, and the project was also to establish an integrated iron and steel plant at the site, east of Aswan. However, the project was recently

cancelled after a state review of its feasibility, and its founders have been placed under arrest, accused of embezzlement and fraud. Egypt also possesses appreciable deposits of manganese, gold, zinc, tin, lead, copper, potash, sulphur and uranium, but their remote location and the high cost of extraction and transport has limited their exploitation.

Manufacturing

In the 1970s and early 1980s industrial production grew at an annual rate of 10% or more, after the oil price explosion of 1973-74 encouraged Gulf countries to invest in Egypt, but growth has since slowed. Anecdotal information suggests that, while industrial production in the public sector has declined in recent years, private-sector production has increased sharply in response to liberalisation. Egyptian industries produce a wide range of goods (see Reference table 20). The food-processing and textiles industries account for the bulk of Egypt’s manufacturing value added (MVA) although there has been a gradual increase in the share of MVA accounted for by the furniture, ceramic and pharmaceutical industries, and most branches of the metallurgical and engineering industries. The government has recently been keen to promote the computer software industry, capitalising on its vast pool of qualified labour.

Franchises and licences The textiles industry, based on Egypt’s position as a leading cotton producer, has been dogged by excess labour, outdated technology and a lack of quality control, owing to the state monopoly over cotton and most of the country’s spinning and weaving mills. By contrast, the ready-made garment industry, 90% of which is owned by the private sector, has boomed, with manufacturing under international franchises increasingly popular. The decision to end the public-sector monopoly on the production of passenger cars in 1991 has led to renewed growth in the vehicle assembly sector, with ten plants now operating, employing more than 75,000 workers. A number of foreign firms have begun local manufacturing either through joint ventures or licensing agreements.

Refined products Egypt is the largest producer of refined products in Africa, after South Africa, with its nine refineries producing about 35m tonnes annually. Demand has risen steadily in recent years, and capacity is set to rise considerably following the permission given in 1994 for Egypt’s first private-sector refineries. A US$1.5bn 100,000-b/d refinery, including a 25,000-b/d hydrocracker, at Sidi Kreir (near the SUMED export terminal) was to have been established by the Israeli-Egyptian Midor consortium. But with the project facing financing difficulties, the state-owned EGPC increased its stake from 20% to 60% and took charge of the project, although Israel retains a stake. It is due to come on stream in the third quarter of 2000. The state-owned Nasr Petroleum is moving ahead with a 35,000-b/d hydrocracker at its Suez refinery.

Industrial locations Major sites devoted to heavy industry include the iron and steel works at Helwan, outside Cairo, and Dikheila, near Alexandria, the aluminium works at Nag Hammadi, and the chemicals complex at Aswan. Since the late 1970s the government has attempted to relieve urban congestion by encouraging

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industrial investment in the new communities located on non-agricultural land, such as 6th October City and 10th Ramadan City, and licences for new industrial projects in Alexandria and Greater Cairo are no longer issued. There are seven operational free zones, which offer special incentives and are subject to minimal regulation.

Private-sector activity The vast majority of Egypt’s private industries are small units employing fewer than ten workers. However, as a result of nationalisation, the industrial sector as a whole is dominated by state-owned enterprises. These accounted for less than 60% of industrial output in 1992/93, but for 90% of industrial exports, around 75% of industrial employment and 73% of industrial investment. Although the privatisation programme has received new impetus since 1996, and large private-sector industrial projects are now welcomed, private-sector business still faces a restrictive regulatory environment. The private sector’s traditional realms of activity are agriculture, housing, restaurants and hotels, and trade, finance and insurance.

The arms industry Egypt has a fairly extensive defence industry, employing around 75,000 workers and producing both armaments and various industrial goods for use in the civilian sector. Arms exports peaked at US$1bn in 1982 but have since levelled off at US$300m-500m a year. The industry is divided into two branches. The Arab Organisation for Industrialisation, established in 1975 with a US$1bn contribution from Saudi Arabia, Qatar and the UAE (all of which formally withdrew in October 1994), has nine factories. The much larger National Organisation for Military Production has 24 major plants and a contract to assemble the US’s main battle tank, the M1-A1, under an arrangement with General Dynamics Corporation.

Construction

The needs of Egypt’s massive infrastructure and growing population, and the large inflows of foreign assistance since the 1980s to finance major projects, have kept a highly developed construction industry growing at an annual rate of over 20%. Nearly all the requirements for basic construction are produced locally though supply is erratic and costs have soared in recent years mainly owing to the removal of subsidies and rising fuel and energy costs. Egypt currently produces 24m t/y of cement and another 4.8m t/y are imported. The government intends to increase cement production by over 50% in the next four years through a public-sector plant modernisation scheme and the construction of three new factories. A number of private cement companies have been established although the major public sector companies, notably Arab Contractors, hold an estimated 40% market share.

Wastewater schemes and Much of the demand for construction arises from state infrastructure projects. housing The Greater Cairo Wastewater Project, at E£6bn (US$1.8bn) one of the world’s largest sewerage schemes, aims to modernise Cairo’s inadequate system with funding from the US and the UK. The EU-financed wastewater scheme in Helwan, south of Cairo, will complete the project. A US$500m US-funded

wastewater scheme in Alexandria, covering 75% of the city, was completed in August 1994. The government intends to establish 44 new cities and communities and to construct 5.3m housing units by 2017. It hopes to curb urban congestion by eventually housing around 6m people in new communities in the desert and developing the Suez Canal area, the north- western coast, the Southern Valley, and the Red Sea, Sinai and Lake Nasser regions. Substantial amounts of public money will be spent on improving urban slum areas as the government makes it a priority to attack the root causes of Islamist militancy.

Future projects The prime minister announced in September 2000 that the government’s programme to modernise and enlarge Egypt’s infrastructure, through private sector implementation, is valued at E£20bn annually. Future construction projects include the ongoing massive Southern Valley development project (see box), a number of power plants, two new build-own-operate-transfer (BOOT) ports at East Port Said and north of Ain Sukna, industrial projects in oil refining, fertilisers and petrochemicals, a third metro line for Cairo and a line for Alexandria, a US$150m Alexandria library, the Cairo Financial Centre, which will include a new headquarters for the Cairo and Alexandria Stock Exchange, Egypt’s first private-sector airports, and a possible third terminal for Cairo airport. In the private sector tourism is leading the way, with the tourism minister, Mamdouh al-Beltagi, stating in mid-2000 that over 600 tourism projects—totalling US$10bn—are under development.

Southern Valley development project

Egypt’s massive Southern Valley development project (often known as Toshka or the New Valley) was inaugurated in January 1997. Backed by the president, who views it as his main legacy, the highly ambitious plan aims to create an alternative delta, parallel to the Nile valley, involving large-scale land reclamation linked to industrial, tourism and mining projects, and the creation of new urban communities to relieve congestion in the Nile valley. When completed, the project will use 5bn cu metres/year of water from Egypt’s Nile water allowance of 55.5bn cu metres/y. It is intended to settle some 6m people, to cultivate 800,000-2.2m feddans (336,000-924,000 ha) and to increase Egypt’s inhabited land area from 4% to 25%.

The government says the project will cost E£300bn (US$88.5bn) over the 20 years to 2017 with state funds providing 20-25% of the total, for major infrastructure work, and the rest coming from the private sector. But in response to public concern about the project's cost, Toshka has been subject to much greater funding controls since the new government in October 1999. Publicly funded projects will include: the E£1.5bn-2bn pumping station, the largest in the world, at Toshka on the western shore of Lake Nasser, which will lift daily 25m cu metres of water; the E£4bn main canal, named after the ruler of Abu Dhabi, Sheikh Zayed, who has promised E£100m in finance; the intakes to the four main branches of the canal; and major roads and electricity (the project will take at least 20% of electricity output from the Aswan High Dam). In the first phase the canal will extend 30 km into the Western Desert, and another 350 km under the second phase to the Paris oasis. The Southern Valley

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scheme is part of a much larger National Land Reclamation Project, due to cover 3.4m feddans by 2017. The programme includes 150,000 rainfed feddans on the north-west coast as well as areas along the Nile, including on the border with Sudan, and others that are fed by groundwater such as East Oweinat in the Western Desert. The E£5.75bn El Salam canal, inaugurated in October 1997, will carry Nile water from near Dumyat under the Suez Canal to south of El Arish in Northern Sinai, irrigating 620,000 feddans of desert land on the way and enabling 1.5m people to settle in the currently uninhabited area.

Financial services

The Central Bank The Central Bank of Egypt controls the banking system and directs monetary, credit and general banking policies through the usual means of discount and interest rates, liquidity and reserve ratios. The bank sets the commission structure to be applied by banks on, for instance, letters of credit and letters of guarantee. Its total assets were E£140.9bn by end-September 1999. Because the sector remains overbanked, Central Bank policy is highly restrictive with regard to new entrants into the market, both foreign and Egyptian. The government maintains that it is committed to establishing an independent Central Bank with its main focus on price stability. But the need to first upgrade staff expertise, in order to ensure more stringent regulatory controls, means the required legislation may be delayed.

Banking reform In order to bring the Egyptian banking sector into line with international norms, a new banking law, Law 37, was introduced in June 1992. Banks had until the end of 1993 to conform to the resolutions of the Basle Committee. A March 1993 amendment allowed branches of foreign banks to conduct business in Egyptian pounds for the first time, provided they agreed to abide by local capital requirements. Following the mid-1991 collapse of the local subsidiary of the Bank of Credit and Commerce International (BCCI) it was decided that banks would have to contribute to a deposit insurance fund. But this has yet to be implemented owing to the reluctance of major banks to participate—an issue that highlights the still patchy quality of supervision in the sector. The restriction on foreign banks holding a majority stake in joint- venture banks was removed in June 1996. As a prelude to the privatisation of state-owned enterprises, the government revitalised its long-moribund stock exchanges in Cairo and Alexandria through Law 95 of 1992, passed in July 1992. This reorganised the sector, provided incentives to investors and granted the Capital Markets Authority wide regulatory powers. The system of individual brokers was replaced with one based on licensed stock brokerage firms and the 2% tax on capital gains arising from the disposal of shares, stipulated in Law 95, was abolished in June 1996.

Public-sector dominance There are 81 banks operating in Egypt: 28 commercial banks including the four state-owned commercial banks, the National Bank of Egypt, the Bank of Alexandria, the Banque du Caire and the Banque Misr; 32 investment and business banks—of which 21 are branches of foreign banks; and 21 specialised banks—1 industrial bank, 2 real estate banks and 18 agricultural banks based in

the local governorates, including the Principal Bank for Development and Agricultural Credit. These operate via a network of 2,223 banking units throughout the country. Commercial banks are the most important subsector, accounting for more than 75% of total capital reserves and provisions, distributing more than 75% of loans, and collecting about 90% of deposits. The four state-owned commercial banks dominate the sector, accounting for nearly 70% of total assets held by commercial banks in Egypt, and holding 60% of deposits and 49% of loans. The dominance of the public sector is even greater if the National Investment Bank (NIB) is included. The NIB holds the long-term resources mobilised by the social security system, estimated at around E£24bn, and possesses roughly 25% of total bank deposits.

Banking practices are conservative and services extended remain basic, particularly in the retail sector. There is no central clearing and Egypt remains largely a cash economy. Short-term lending makes up about 80% of the major banks’ portfolios. However, state banks generally suffer from low capitalisation; a high percentage of poorly performing loans, extended not just to public enterprises but also to well-connected individuals; massive overstaffing; and stifling bureaucracy. Nevertheless, they have benefited from the government’s reforms of the exchange-rate and interest-rate systems, and many have made substantial gains by investing in government bills and bonds. The stability of the Egyptian pound since 1991, high real interest rates and an attractive differ- ential between Egyptian pound and US dollar deposit rates, had led to a sharp rise in local-currency deposits. But the persistent liquidity crisis since 1998 has hit the banking sector hard with banks under informal Central Bank pressure to limit exchange rate fluctuations and restrict credit facilities to importers. Interest rates have therefore remained high, particularly interbank rates which have fluctuated in response to Central Bank US dollar selling and stayed above 10% in the first half of 2000. Three-month Treasury-bill rates averaged 9.09% in 1999/2000, compared with 9.8% in 1996/97 and 12% in 1993/94.

The stockmarket The passage of the Capital Markets Law has sparked a revival of the Cairo and Alexandria stock exchanges (see Reference table 21). In 1994 Egypt had one of the world’s best-performing stockmarkets, with growth of 157.9% in US dollar terms according to the independent Egyptian Financial Group (EFG) index. However, performance since then has been inconsistent, dependent mainly on the pace of the government's privatisation programme and the health of the global financial markets—a major factor for international investors. Trading and volumes were lacklustre for most of 1998 and 1999 although a late-year rally came on the back of a new more reformist government. The market rose by 42.5% during 1999 according to the broad-based independent Hermes Index. Foreign trading also rose, foreigners being buyers in 27.4% and sellers in 17.3% of transactions in 1999, compared with 18% and 22% respectively in 1998. But the difficult domestic environment—high interbank interest rates and continuing tight market liquidity—has affected bourse performance during 2000. By September 2000 the market had lost 40% of its value since the beginning of the year, standing at a price/earnings ratio on 2000 earnings of 6%, compared with a ratio of 18.4% at the market's peak in February 1997, and dividend yields of 14%.

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Market participants attribute the lack of investor confidence in the Egyptian bourse in part to a run of unfortunate events, such as the Luxor massacre and the Asian and Russian crises, to government mismanagement, notably sudden and unclear directives on tax and duty-free goods, the slowdown in privatisation, and the poor handling of a lack of US dollar liquidity, and to concerns over information disclosure and protection of minority rights. Egypt’s market is still small in global terms and not always visible to the large institutional investors. The 30 most liquid companies account for around 85% of volume traded and 93% of value traded. However, Egypt is to be included in the prestigious Morgan Stanley Capital International (MSCI) emerging market free index, the benchmark for US fund managers and a major source of global funds in May 2001, having had a stand-alone index since 1997. By then, a new automated trading system and a new capital markets law, in final draft, will have been put in place. A new Central Depository Law, improving procedures and creating a framework for custodial activity, came into force on July 1st 2000. The fixed income market remains small. Total market capitalisation for both the government and the corporate bond market amounts to E£14.5bn as of June 2000, compared with E£119.7bn in the stockmarket. The total trading value of the bond market in 1999 was E£1.08bn, representing a mere 6% of total trading value of the capital markets.

Insurance The insurance market is dominated by four public-sector insurance companies (one of which is a reinsurance company), which hold a market share of around 90%, although three joint-venture companies between the public and private sector and two local private companies also exist. Two joint ventures with foreign firms operate in the free zones. The domestic insurance market was closed to foreign companies until May 1995, although they had been able to operate as minority partners in Egypt’s eight free zones. But Law 156 of 1998, ratified on June 8th, removed the 49% cap on foreign holdings in domestic insurers, abolished the nationality stipulation for general managers and allowed the privatisation of public-sector insurers, although investors taking a stake of more than 10% need approval from the Insurance Control Authority. The market remains closed to foreign insurance intermediaries. Valuation of the four public sector insurance companies is currently underway by international investment houses Fleming and Morgan Stanley Dean Witter, although no decision has yet been made on their privatisation.

Other services

Tourism Egypt has the potential to earn large sums from tourism but the growth of the sector has been hampered by outbreaks of violence both at home and in the region. Growth has also been impeded by inadequate facilities, lacklustre marketing and the protectionist attitude of the national airline, EgyptAir. Nevertheless, tourism overtook oil as the country’s main source of foreign exchange in 1988.

Islamist violence directed against tourism caused a sharp decline in the industry after October 1992, although the sector showed a strong recovery from 1995 onwards. In 1996/97 a record 4m tourists visited Egypt, spending an

estimated US$3.7bn. The massacre in Luxor in November 1997 plunged the sector into sharp decline. However, it has recovered faster then expected: official figures show a record 4.8m visitors arrived in Egypt in 1999, spending 31m nights and generating US$4bn in receipts. Recent balance-of-payments data confirm that tourism revenue rose by 33% in 1999/2000, reaching a record US$4.3bn from an estimated 5.3m tourists. This compares with US$3.24bn in 1998/99 (July-June), US$2.94bn in 1997/98 and the previous high of US$3.6bn in 1996/97. The government expects the tourism sector to grow by an average of 12% over the next five years, to reach 9.5m visitors by 2005, spending 66.5m nights and generating around US$10bn in revenue. Western Europe is Egypt’s largest tourist market, and accounted for 48% of arrivals in 1998 (see Reference table 22). Egypt has traditionally relied on its archaeological heritage to attract tourists but is now attempting to diversify.

The external sector

Trade in goods

Foreign trade, 1997/98

Major exports % share Major imports % share Petroleum & products 33.7 Foodstuffs & beverages 23.5 Agricultural goods 4.7 Machinery & electrical appliances 19.0 Petroleum & products 8.2 Source: Central Bank of Egypt, Annual Report.

Egypt has had an external trade deficit almost without interruption since before the second world war. In the early 1970s the deficit hovered at around US$400m, but Anwar Sadat’s open-door policy proved a great stimulus to imports, causing the deficit to rise steeply, to just under US$4bn in 1981. During the early 1980s, with foreign aid increasing, oil revenue plentiful and private international credit easily available, a high level of imports could be maintained. But a severe shortage of foreign exchange, combined with the pressure of debt repayments that were starting to fall due, caused imports to drop by 29% (in US dollar terms) between 1984 and 1986. Since then growth in exports has been outpaced by the rise in import spending, although dampened demand in 1991 and 1992, largely as a result of the economic reform programme, reduced the trade deficit in dollar terms (see Reference table 23 for external trade data). Concern at the rise in the trade and current account deficits in 1998, as oil prices fell and importers stockpiled in response to cheap commodity prices, led the government to implement a series of restrictive trade measures to tighten trade financing and import clearance, and to manage closely foreign-currency allocation. But by 2000 higher global oil prices and reduced imports, notably capital goods for the major national infrastructure projects, had contributed to a narrowing of the trade gap.

The composition of exports The composition of Egypt’s merchandise exports has changed markedly in the past few decades. Between 1965 and 1990 the share of agricultural

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commodities in total exports dropped from 71% to 20% while that of fuel, minerals and metals rose from 8% to 41%, reflecting the increasing importance of petroleum and petroleum products. Manufactured goods have also increased as a share of exports, owing mainly to increased production of textiles and clothing, which accounted for 14.8% of exports in 1997/98. (For historical data on exports by commodity group, see Reference table 24.) A major thrust of the economic reform programme is to stimulate non-oil exports. The US Agency for International Development (USAID) has blamed the poor performance of exports on a lack of exchange-rate competitiveness and modern technology, poor-quality finished products, an inefficient transport system, poor marketing, low industrial capacity and labour productivity, and a poor policy environment, including a highly bureaucratic and inward-looking trade regime. However, Egypt does have some comparative advantages: a large labour force with competitive wage rates; a large local market attractive to foreign investment; an environment that is capable of supporting a wide variety of crops; proximity to Europe and the rest of North Africa; and preferential access to the EU.

Entry of the private sector Local private trading companies, especially exporters, lack international marketing experience, and foreign trading companies are banned. Until recently the private sector was barred from exporting or importing virtually all major commodities. This ban has gradually been relaxed but trading in all items, bar cotton exports, has only been open to the private sector since 1992; private-sector cotton exports were only authorised in October 1995. The private sector now accounts for about one-half of Egypt’s non-oil exports and roughly one-quarter of its imports.

Imports Egypt lacks most raw materials and continues to import large quantities of capital goods and inputs in response to increased investment and economic expansion. Food accounts for more than 20% of the total import bill (see Reference table 25).

Main trading partners, 1999 (% of total) Exports to: US 11 Italy 13 UK 7 Germany 4 Imports from: US 15 Germany 10 Italy 8 France 7 Source: IMF, Direction of Trade Statistics.

Because of its reliance on aid to finance almost half of its imports, Egypt’s shift in political alliances has been reflected in aid and trade patterns. Before 1973, when Egypt was co-operating with the Soviet Union, 55% of its exports went to Comecon countries, which supplied 30% of its imports. Today, the OECD

countries supply more than 60% of Egypt’s imports, with the EU supplying over 40% and the US 15-20%. The collapse of traditional markets in the former Soviet Union and eastern Europe has hit Egyptian exporters hard. However, trade with regional partners, particularly Libya and Saudi Arabia, has revived, reflecting Egypt’s active role in regional affairs.

The impact of the WTO Egypt acceded to the World Trade Organisation (WTO), the successor to the GATT, in June 1995. According to the Ministry of Economy, 90% of Egypt’s trade is with WTO member states. Officials argue that the WTO will not affect Egypt unduly as its economic reform programme either meets the new guidelines for trade liberalisation and the removal of non-tariff barriers or goes beyond them. Egypt benefits from a number of concessions, including better access to markets of developing countries and a longer period in which to adapt to the agreement. Nevertheless, it is generally acknowledged that there will be some negative effects. The prime concern is the likely impact of the removal of subsidies to food producers in developed countries on Egypt’s already large food import bill. The removal of agricultural subsidies, however, should help Egyptian agricultural products become more competitive in international markets. There is also concern about the effect of trade liberalisation on the long-protected industrial sector, as Egyptian products will need to become more competitive, both in price and quality, and local marketing skills will need to improve. If the necessary improvements are made, Egypt should enjoy greater opportunities and better prices for its exports of textiles, cotton and food. Egypt’s publishing and film industries should also benefit from the intellectual property rights agreement within the WTO. Fears have been expressed that the need for a new, internationally acceptable patent law will push up the price of pharmaceuticals and that local pharmaceuticals firms could find themselves in trouble over infringements of patent rights. But officials at the Ministry of Economy say that 90% of the pharmaceuticals produced in Egypt have become common property as more than 20 years have elapsed since they were introduced. Moreover, the Uruguay Round agreement allows for a ten-year transition period until January 2005.

Invisibles and the current account

Current account, 1999 (US$ m unless otherwise indicated) Merchandise exports fob 5,237 Merchandise imports fob –15,165 Trade balance –9,928 Exports of services 9.494 Imports of services –6,452 Income: credit 1,788 Income: debit –1,045 Current transfers: credit 4,564 Current transfers: debit –55 Current-account balance –1,635 Source: IMF, International Financial Statistics.

In 1990 Egypt recorded its first current-account surplus (US$185m) since 1968 and the surplus rose rapidly in the following three years, despite the large trade deficit. However, a revision in the IMF method of calculating transfers— whereby cash transfers are now recorded in the capital account rather than current account if they are linked to, or conditional upon, the acquisition or disposal of a fixed asset—led to a large drop in current transfers, from US$7bn in 1993 to US$4.6bn in 1994, and a consequent drop in the current-account surplus from US$2.3bn to just US$31m. The current account showed a deficit of US$254m in 1995, which dropped back slightly in 1996 before rising to US$711m in 1997. The deficit then increased dramatically to US$2.57bn in 1998 (3.1% of GDP), mainly owing to a sharp deterioration in the trade balance, before easing slightly in 1999 as import restrictions began to take effect. (See Reference table 28 for IMF data on the current account; Reference table 29 gives national figures.)

The main positive contributing factor to the current-account balance has been large inflows on the invisibles account and positive net transfers. The invisibles surplus has been boosted by steady growth in Suez Canal earnings (although since 1994 these have been in decline), increased payments from the Suez- Mediterranean (SUMED) pipeline and rapid growth in the tourism sector. Egypt’s comfortable financing position has been reinforced by debt forgiveness and rescheduling, new loans from international donors on both a soft and commercial basis, and increasing direct and portfolio investment inflows.

Public transfers Net public transfers have traditionally been high. Following Egypt’s devastating defeat in the 1967 war with Israel, Kuwait, Saudi Arabia and Libya agreed to provide Egypt with E£95m (US$221m) each year, and subventions from Arab oil-producing countries rose to over US$1bn per year in 1973-79. When Egypt signed a peace treaty with Israel this financial support was discontinued, but the US stepped in to become Egypt’s largest donor, awarding over US$2bn per year. After ties with the Arab world were restored in 1987, aid from the Gulf countries and lending agencies increased rapidly, and Egypt was rewarded with around US$2bn in cash injections and a US$7bn debt write-off for its pivotal role in forming the Arab coalition to liberate Kuwait in 1990. Significant grants were also received from Western countries and the EU. As a result, the level of gross development assistance from OECD and OPEC member countries soared from US$1.75bn in 1989 to a peak of US$5.4bn in 1990. Since then disbursements have contracted, reflecting Arab budgetary constraints and lower but still substantial levels of aid from the US, although EU financial support has increased in the run-up to the Euro-Med free-trade zone, to be established by 2010. In February 1999 Egypt won aid pledges from international donors of US$2.5bn over the ensuing two years—US$1bn in grants, US$500m in concessional loans and a further US$1bn in long-term development loans on a non-concessional basis. (See Reference table 31 for OECD data on net official development assistance and Reference table 32 for data on US aid to Egypt.)

Workers’ remittances The continuing strength of remittances from expatriate workers has offset declining public transfers to keep net transfers high. A major contribution to the

current account, workers’ remittances rose steadily from US$3bn in fiscal year 1987/88 (July-June) to over US$6bn in 1993/94. This was in response to the stability of the Egyptian pound, new opportunities for investment in financial instruments such as the high-yielding Treasury bills and the attractive returns offered on local-currency deposits. Remittances then dropped to US$3.3bn in 1994/95, owing to the changed method of calculation, and to US$3.26bn in 1996/97, and have since remained stable at around US$3.7bn per year.

Capital flows and foreign debt

The large current-account deficit in 1998 was a shock to the Central Bank; not since 1993 has deficit financing been a major problem. Small deficits on the current account and manageable principal repayments on external debt had been comfortably financed by a combination of inward direct investment, further medium- and long-term debt inflows, and, towards the end of the decade, growing portfolio investment. This had allowed a rapid and substantial build-up in foreign reserves. However, the financing requirement for 1998 reached US$3.56bn (4.3%) of which inward direct investment and fresh debt inflows covered only half. Indeed, the situation was compounded by outflows of portfolio investment as foreign investors fled emerging economies for calmer equity markets. All this required a drawdown in foreign reserves, although most of the shortfall was covered by a drawdown in commercial banks’ foreign assets (most commercial banks are state-owned).

Apart from 1998, high inflows of loans throughout the 1980s saw a sharp rise in Egypt’s external debt. This reached a peak of over US$46bn in 1988, although the situation improved significantly in the early 1990s following a round of debt relief and rescheduling as a result of Egypt’s stand in the 1990-91 Gulf crisis. As well as an estimated US$7bn debt write-off from Arab states on debt that was generally not being serviced, the US wrote off US$7.1bn in military debt, of which some US$2.6bn represented interest arrears and penalty charges. This was proving a major burden as these debts were contracted at high fixed interest rates (mostly 12-14% but in some cases 18%), and annual interest payments had reached around US$1.3bn. Despite this assistance, external debt in 1998 remained high at about US$32bn. Of this, over 85% was public medium- and long-term debt; private debt was negligible, while short- term debt amounted to about US$4.3bn. However, the improvement in the country’s external debt position is best measured by the ratio of total debt service to exports of goods and services. By 1998 this ratio had fallen to an estimated 8% from 26% in 1988. (See Reference table 30 for World Bank data on external debt.)

Capital inflows The policy on official borrowing agreed with multilateral donors appears to be strictly applied, so that new borrowings remain at around the same level as debt repayments in any given year. While new external lending is expected to be concessional, Egypt is relying increasingly on foreign and domestic inflows of direct and portfolio investment, although it will continue to remain dependent on multilateral and bilateral funding. Portfolio investment had risen significantly since 1995 in response to the reorganisation of the capital

markets, but the economic downturn since 1998 has affected investor appetite for Egypt’s maturing stockmarket (see Economic sectors: Financial services). However, private direct investment, while improving, has stayed low in response to bureaucratic restraints and concerns over liquidity and exchange rate management, with capital inflows tending to stay in high-yielding and less risky T-bills and bank deposits. According to World Bank figures, private direct investment currently stands at just 9% of GDP, whereas the ratio for Indonesia is 10%, for Mexico 15% and for Brazil 22%.

Foreign direct investment Property, petroleum and industry have attracted most private investment, accounting for almost three-quarters of all private gross fixed investment in the decade to 1992. Hotels and restaurants, agriculture, and transportation follow with around 7% each. Foreign direct investment (FDI) is estimated at just over 4% of total private-sector investment (0.5% of GDP), which is about half the proportion attracted by the most successful developing economies. IMF figures show net direct investment in 1995 at a mere US$500m, although this has continued to rise in response to liberalisation, to over $1bn in 1998 and 1999 (see Reference table 28). Most of Egypt’s FDI is concentrated in the manufacturing and banking sectors (50% and 30% respectively).

Foreign reserves and the exchange rate

High capital inflows since 1991, in response to a stable exchange rate and high interest rates for the first time in two decades, had led to the rapid accumulation of foreign-exchange reserves until they became depleted, from 1999 onwards, by Central Bank intervention addressing the lack of US dollar liquidity in the currency market. These were US$13.8bn (excluding gold) in April 2000, according to the IMF. Although this figure is down from US$14.5bn in 1999 and US$18.1bn in 1998, it remains a major turnaround from the late 1980s when reserve levels were kept up largely by virtue of exceptional financing and capital inflows from political allies. (For historical data regarding foreign reserves, see Reference table 33.) Reserve management has been conservative but more sophisticated management is becoming a priority, although the low level of expertise within the Central Bank has led to some concern.

US dollar liquidity This concern has been heightened since 1999 owing to widely perceived problems Central Bank mishandling of the severe US dollar liquidity crisis in the local economy. By mid-August that year dollar rates at money changers had soared to the highest in five years reaching E£3.73:US$1, compared with the bank rate, closely monitored by the Central Bank, of E£3.42:US$1. Investors and businessmen were still unable to obtain sufficient dollars and foreign investors became concerned about their ability to repatriate profits while, in the increasingly tense atmosphere, the Central Bank blamed the shortage on speculation by money changers and overlending by banks. Meanwhile, with local-currency liquidity also short, interbank rates increased to around 15%, compared with the usual 8-10%.

The government acted to salvage the situation by raising the interest rate on investment bonds (longer-term T-bills) by 50 basis points to 11%, to discourage

lending and curb dollar demand. The Central Bank injected dollars into the market—reportedly some US$500m in late August alone—and at least 15 money changers were closed down for currency violations. By January 2000 rates on the parallel market had fallen to E£3.50:US$1.Nevertheless, pent-up demand for dollars remained strong and, since May 2000, a more flexible official exchange-rate policy has allowed a slow devaluation of the pound so that by August the exchange bureau rate had risen to E£3.65:US$1, compared with a bank rate of E£3.50. But with significant dollar demand from importers and speculators, the dollar rate continued to climb throughout September to a record E£3.93, before Central Bank intervention attempted to stabilise the rate for both banks and money changers at around E£3.70.

The pressure on the Central Bank’s reserves has increased speculation about a devaluation of the Egyptian pound. Egypt’s US dollar peg has been of increasing concern to the international markets since the Asian and Latin American financial crises of 1997-98, and the general perception is that the pound is overvalued—the IMF estimates a real effective appreciation of 29% from February 1991 to mid-1995, followed by a further 37% appreciation from mid-1995 to July 2000. However, the president and other senior officials have firmly stated that no devaluation will take place and, although the cabinet appears divided on the issue, a formal devaluation is not a political option at present. The government is concerned that a devaluation would denote failure, after its successful battles with the IMF during 1994-96 over the Fund’s demand for a 20-30% devaluation, and would further erode public confidence in the currency owing to the popular perception that a flotation can only lead to a crash. The government has consistently argued that devaluation would have a negative effect on inflation and is not necessarily sensible given the high level of imports and low level of exports. The government also expects revenue flows to increase as a result of improved oil prices, a recovery in tourism, projected large privatisation sales in hard currency and higher FDI. (For historical data on exchange rates see Reference table 34.)

Exchange rates, 1999 (E£ per currency unit unless otherwise indicated; end-period) US$ 3.41 DM 1.76 ¥100 3.31 £ 5.48 FFr 0.52 ¤ 3.45 Source: Central Bank of Egypt.

Exchange controls Most controls on foreign-exchange transactions were abolished by the new foreign-currency law of April 1994 which legalised the reforms of the past few years. The only remaining foreign-exchange restriction—a five-year transfer period for the proceeds from the sale of real estate in Egypt owned by foreigners living outside the country—was removed in July 1996.

Appendices

Sources of information

National statistical sources The reliability and timeliness of official economic data have improved significantly, particularly in the past year. The Ministry of Economy and the Central Bank of Egypt now publish monthly statistics on the Internet, covering most areas of the macroeconomy and the financial markets. The Ministry of Economy also publishes a quarterly and monthly Economic Digest and an annual Investing in Egypt report. The Central Bank of Egypt also produces annual and quarterly reports and a Monthly Statistical Bulletin, which provide details on money, banking and trade indicators but little on sectoral production. The Central Agency for Public Mobilisation and Statistics (the state statistical agency, CAPMAS) provides an annual Statistical Yearbook and publishes a consumer price index. The Ministry of Planning publishes The Five- Year Plan for Economic and Social Development but the figures in this bear little relation to reality. A number of state agencies publish annual reports of varying detail, including the Suez Canal Authority, the National Bank of Egypt and the Social Fund for Development. Aid-financed reports are sometimes produced by state entities such as the National Population Council and the Egyptian Environmental Affairs Agency, and these are usually of a high quality.

Independent sources include the US embassy in Cairo, which covers much of the economy, producing a bi-annual Economic Trends and annual Agricultural Situation reports, some of which are included in the annual Country Commercial Guide. The American Chamber of Commerce in Cairo publishes a journal, Business Monthly, and periodic sectoral reports. A number of leading local companies have sponsored two investment guides to Egypt, Egypt: Investment and Growth and Egypt: Privatisation and Beyond. Leading local investment houses and brokerage firms such as EFG-Hermes, Fleming –CIIC Securities and ABN AMRO Delta all produce daily market reports, economic, sectoral and corporate reports, and periodic guides to the capital markets. Increased international interest in the local financial markets has led to a rash of reports by Merrill Lynch, Nomura, ING Barings and HSBC James Capel, among others. The Cairo and Alexandria stock exchanges produce a range of publications, in both Arabic and English, including daily and monthly Arabic bulletins, a monthly English bulletin and an annual Factbook. The Egyptian Centre for Economic Studies publishes an Industrial Barometer twice-yearly, aimed at gauging real economic trends, along with a number of working papers and conference proceedings.

Business Monthly, journal of the American Chamber of Commerce in Egypt, Cairo www.amcham.org.eg

Cabinet Information and Decision Support Centre, Main Economic Indicators (monthly), Cairo www.economic.idsc.gov.eg

CAPMAS, Statistical Yearbook, Arab Republic of Egypt, Cairo

Cairo and Alexandria Stock Exchanges, Factbook 2000, Cairo www.egyptse.com

Carana Corporation, Privatisation in Egypt (quarterly review), Cairo www.carana.com/PCSU

Central Bank of Egypt, Annual Report, Economic Review (quarterly) and Monthly Statistical Bulletin, Cairo www.cbe.org.eg

EFG-Hermes, Egypt Country Report 2000, Cairo www.efg-hermes.com

Institute of National Planning, Egypt Human Development Report, Cairo

Ministry of Communication and Information Technology, The National Plan for Communication and Information Technology, Cairo

Ministry of Economy, The Monthly Economic Digest, Cairo www.economy.gov.eg

Ministry of Economy, Investing in Egypt, 2000, Cairo

Ministry of Economy, Egypt 2000 Factbook, Cairo

Social Fund for Development, Annual Reports and Bulletins, Cairo

Suez Canal Authority, Annual Reports, Cairo

US embassy, Egypt: Economic Trends (bi-annual), Cairo

International statistical Cotton Outlook, Liverpool sources Energy Data Associates, Bishops Walk House, 19-23 High Street, Pinner, Middlesex, HA5 5PJ

IMF, International Financial Statistics

International Energy Agency, Monthly Oil Market Report

International Institute for Strategic Studies, The Military Balance, 1999/2000

OECD, Geographical Distribution of Financial Flows to Aid Recipients

UN Development Programme, Human Development Report (annual); Egypt Human Development Report

World Bank, Global Development Finance; Trends in Developing Economies; World Development Report; Country Memorandum

Select bibliography Nayra Atiya, Khul-Khaal, American University in Cairo Press, Cairo, 1987

Albert Hourani, A History of the Arab Peoples, Faber & Faber, London, 1991

Edward William Lane, The Manners and Customs of Modern Egyptians, Dent, London, 1908

Nagib Mahfouz, Midaq Alley, American University in Cairo Press, Cairo, 1966

Anthony McDermott, Egypt from Nasser to Mubarak: a Flawed Revolution, Croom Helm, London, 1988

Max Rodenbeck, Cairo: The City Victorious, Picador, 1998

P J Vatikiotis, The History of Egypt, Weidenfeld and Nicolson, London, 1980

Reference tables

Reference table 1 Population (m; mid-year) 1995 1996 1997 1998 1999 Total 57.51 59.31 64.73 65.98 67.23 % change, year on year 2.1 3.1 9.1 1.9 1.9 Source: IMF, International Financial Statistics.

Reference table 2 Population, labour force and unemployment (‘000 unless otherwise indicated) 1994/95 1995/96 1996/97 1997/98 ‘000 % change ‘000 % change ‘000 % change ‘000 % change Resident population 58,978 2.3 60,236 2.1 59,455 –1.3 60,839 2.33 Under 6 years 9,887 1.6 9,962 0.8 n/a n/a n/a n/a Education age (6–24) 24,561 2.0 25,109 2.2 n/a n/a n/a n/a Working age (15–64) 33,688 2.7 34,529 2.5 n/a n/a n/a n/a Old age (over 65) 2,170 3.0 2,231 2.8 n/a n/a n/a n/a Labour force 16,452 2.7 16,925 2.9 17,358 2.7 17,827 2.7 Employment 14,879 3.1 15,340 3.1 15,825 3.2 16,344 3.3 Unemployment 1,573 –0.3 1,585 0.8 1,533 –3.3 1,483 –3.3 Unemployment rate (%) 9.6 – 9.4 – 8.8 – 8.3 – Source: Central Bank of Egypt, Annual Report.

Reference table 3 No. of workers by sector (‘000) 1994/95 1995/96 1996/97 1997/98 1998/99 Agriculture 4,657 4,693 4,747 4,820 4,899 Industry & mining 1,896 1,966 2,038 2,182 2,297 Petroleum 3941434446 Electricity 114 117 120 124 128 Construction 1,011 1,073 1,140 1,215 1,294 Transportation & Suez Canal 654 677 704 732 760 Trade, finance & insurance 1,553 1,615 1,679 1,745 1,813 Tourism 136 140 145 145 147 Real estate 212 215 219 223 227 Social services 1,337 1,372 1,413 1,467 1,528 Public utilities & social insurance 3,270 3,431 3,577 3,647 3,726 Total no. of workers 14,879 15,340 15,825 16,344 16,865 Source: Ministry of Planning.

Reference table 4 Transport statistics

1993/94 1994/95 1995/96 1996/97 1997/98 Public transport (m passengers/day) 10.71 n/a n/a n/a n/a Paved roads (km) 38,327 39,700 40,000 40,000 42,000 Family car ownership (families/private car) 12.15 n/a n/a n/a n/a Port capacity (m tonnes) 49.7 59.7 59.7 59.7 n/a Railway lines (km) n/a n/a n/a n/a 9,400 Sources: Ministry of Transportation; Ministry of Interior.

Reference table 5 Suez Canal traffic

1995 1996 1997 1998 1999 Oil tankers No. 2,473 2,309 2,256 2,137 1,987 Net tonnage (m tonnes) 97 81.0 78 90 68 Average tonnage (‘000 tonnes) 18 29 35 42 n/a Other ships No. 12,578 12,422 12,175 11,335 11,503 Net tonnage (m tonnes) 263 274 291 296 317 Average tonnage (‘000 tonnes) 21 22 24 26 n/a Total No. 15,051 14,731 14,431 13,472 13,490 Net tonnage (m tonnes) 360 355 369 386 385 Average tonnage (‘000 tonnes) 24 24 26 29 n/a Source: Central Bank of Egypt.

Reference table 6 Electricity generation ('000 of mwh) 1995/96 1996/97 1997/98 1998/99 1999/00 Generated electricity 54,469 57,656 62,336 67,865 72,908 Utilised electricity 46,281 49,130 53,227 56,557 60,547 of which: industrial 20,073 20,727 22,080 21,701 23,303 commercial & household 17,467 18,962 20,556 21,751 23,552 other 8,741 9,441 10,591 13,101 13,692 Source: Ministry of Electricity and Energy.

Reference table 7 Electricity consumption by sector (m kwh) 1987/88 1988/89 1989/90 1990/91 1991/92 Industry 14,437 15,240 16,091 16,787 17,482 Agriculture & irrigation 1,271 1,355 1,448 1,486 1,577 Public services 2,107 2,165 2,374 2,499 2,665 Household & commercial 11,377 12,064 12,972 13,639 14,600 Government entities 1,025 1,120 1,171 1,233 1,301 Total incl others 30,491 32,238 34,379 35,992 38,000 Source: World Bank, Private-Sector Development in Egypt: the Status and the Challenges.

Reference table 8 Government finances (E£ m unless otherwise indicated) 1995/96 1996/97 1997/98 1998/99a 1998/99b Total revenue 60,893 64,498 67,963 69,919 73,279 Tax revenue 38,249 40,518 43,962 45,700 48,096 Transferred profits 11,133 11,423 10,780 9,812 9,501 Other non-tax revenue 5,104 5,238 5,293 5,446 5,161 Non-central government revenuec 6,407 7.319 7,928 8,961 10,521 Total expenditure 63,889 66,826 70,783 73,919 86,009 of which: current expenditure 51,196 53,030 55,289 58,002 60,254 of which: domestic interest payments 12,231 12,337 12,219 12,772 14,081 foreign interest payments 3,796 3,114 2,724 2,624 2,325 investment expenditure 12,581 14,070 15,635 16,110 25,321 Overall balance –2,996 –2,328 –2,820 –4,000 –12,730 % of GDP –1.3 –0.9 –1.0 –1.3 –4.2

a Budget. b Actual. c Includes local governments, public services authorities, self-financing investments, and privatisation proceeds.

Source: Ministry of Finance.

Reference table 9 Money supply (E£ m unless otherwise indicated; end-period) 1995 1996 1997 1998 1999 Currency in circulation 22,750 24,954 28,215 31,502 35,310 Demand deposits 17,282 18,026 18,920 19,335 20,506 Money (M1) incl others 41,540 44,521 48,708 58,577 59,066 % change, year on year 9 7 9 20 1 Quasi-money 121,227 135,882 151,129 162,795 174,844 Money (M2) 162,766 180,404 199,837 221,372 233,910 % change, year on year 9.9 10.8 10.8 10.8 5.7 Source: IMF, International Financial Statistics.

Reference table 10 Interest rates (%; period averages unless otherwise indicated) 1995 1996 1997 1998 1999 Deposit rate 10.9 10.5 9.8 9.4 9.2 Lending rate 16.5 15.6 13.8 13.0 13.0 Discount rate (end-period) 13.5 13.0 12.3 12.0 12.0 Source: IMF, International Financial Statistics.

Reference table 11 Gross domestic product (market prices) 1994/95 1995/96 1996/97 1997/98 1998/99 Total (E£ m) At current prices 205,000 228,300 256,250 280,220 302,300 At constant (1992) prices 155,730 163,500 172,480 182,103 n/a % change, year on year 4.7 5.0 5.5 5.6 n/a Per head (E£)a At current prices 3,565 3,849 3,959 4,247 4,497 At constant (1992) prices 2,707 2,757 2,665 n/a n/a % change, year on year 2.1 2.8 3.5 n/a n/a

a Derived using IMF population figures.

Source: IMF, International Financial Statistics; World Bank.

Reference table 12 Gross domestic product by expenditure (E£ m at constant 1992 prices; % change year on year in brackets unless otherwise indicated) 1993/94 1994/95 1995/96 1996/97 1997/98 Private consumption 114,693 117,142 122,234 127,012 128,721 (5.2) (2.1) (4.3) (3.9) (1.3) Government consumption 15,067 15,958 15,926 16,688 17,412 (3.5) (5.9) (–0.2) (4.8) (4.3) Fixed investment 26,500 28,200 31,400 35,570 44,888 (10.4) (6.4) (11.3) (13.3) 26.2) Stockbuilding 0 1,200 840 10 2,056 Exports of goods & services 41,200 44,600 45,300 46,400 42,810 (–4.8) (8.3) (1.6) (2.4) (–7.7) Imports of goods & services 48,700 51,400 52,200 53,200 53,784 (1.9) (5.5) (1.6) (1.9) (1.1) GDP 148,760 155,700 163,500 172,480 182,103 (3.9) (4.7) (5.0) (5.5) (5.6) Source: World Bank.

Reference table 13 Gross domestic product by sector (E£ m; factor cost; current prices) 1995/96 1996/97 1997/98 1998/99 1999/2000a Agriculture 36,968 42,325 45,878 49,360 53,015 Industry & mining 37,936 43,383 48,798 55,225 61,957 Petroleum & products 14,760 15,854 16,803 12,775 21,408 Electricity 3,980 4,220 4,470 4,565 4,935 Construction 1,040 12,750 14,560 16,660 8,414 Transportationb 21,500 2,695 24,507 6,300 8,393 Trade, finance & insurance 5,109 1,027 56,665 63,077 69,781 Hotels & restaurants 3,241 3,830 3,164 3,542 4,561 Housing & real estate 3,816 4,375 4,860 5,412 6,079 Utilities 843 915 1,038 1,179 1,328 Social insurance 140 165 85 214 241 Government services 17,220 18,900 20,662 22,352 24,124 Social & personal services 7,632 19,061 20,630 2,340 4,194 Total GDP 214,185 39,500 262,220 283,001 318,430

a Preliminary. b Includes revenue from Suez Canal.

Source: Ministry of Planning.

Reference table 14 Prices (1990=100; % change year on year in brackets) 1995 1996 1997 1998 1999 Consumer prices 100.0 107.2 112.1 116.8 120.4 (15.7) (7.2) (4.6) (4.2) (3.1) Wholesale prices 100.0 108.3 112.8 114.4 115.4 (6.3) (8.3) (4.2) (1.4) (0.9) Source: IMF, International Financial Statistics.

Reference table 15 Agricultural production (‘000 tonnes) 1994/95 1995/96 1996/97 1997/98 Wheat 5,722 5,735 5,940 6,100 Maize 5,550 5,178 5,810 5,846 Rice 4,585 4,789 4,897 5,486 Beans 393 492 445 471 Cotton 681 610 977 944 Sugarcane 13,822 11,648 11,925 11,778 Vegetables 13,664 15,007 15,821 16,256 Fruits 5,480 6,243 6,269 7,135 Source: Central Agency for Public Mobilisation and Statistics (CAPMAS).

Reference table 16 Cotton production (‘000 qantars; Aug-Jul) 1993/94 1994/95 1995/96 1996/97 1997/98 Extra-long staples 2,429 843 749 1,099 1,445 Giza 45 58 27 31 9 25 Giza 70 1,452 548 491 735 1,045 Giza 77 676 116 169 269 291 Giza 76 200 114 59 79 84 Giza 84 44 39 n/a n/a n/a Long-staples 5,795 5,938 4,014 5,621 3,529 Giza 75 3,699 4,054 2,637 2,463 1,395 Dendera 425 221 24 n/a n/a Giza 81 210 334 n/a n/a n/a Giza 80 1,234 939 819 1,320 n/a Giza 83 164 181 263 503 n/a Giza 45 58 27 n/a n/a n/a Giza 85 n/a n/a 232 1,081 1,170 Total incl others 8,226 6,796 4,763 6,720 6,587 Sources: Cotton Outlook; EIU.

Reference table 17 Major agricultural imports (US$ m) 1996/97 1997/98 Wheat & flour 1,017 833 Maize 324 274 Sugar 271 244 Vegetable oils 294 465 Meat 166 191 Seeds & oil seeds 117 104 Dairy products & eggs 217 129 Fish 107 118 Total incl others 4,052 3,979 Source: CAPMAS.

Reference table 18 Petroleum and natural gas production and consumption (m tonnes oil equivalent) 1995 1996 1997 1998 1999 Crude oil 44.44 42.8 41.3 40.3 39.4 Natural gas 9.9 10.4 10.6 11.0 13.2 Condensates 1.3 1.4 1.6 1.7 1.9 LPG 0.8 1.0 1.0 1.0 1.0 Total productiona 56.5 55.5 54.5 54.0 55.6 continued

1995 1996 1997 1998 1999 Refinery throughput 27.3 28.3 28.7 29.3 28.6 Petroleum products 19.4 20.2 21.7 23.8 23.8 Natural gas 9.9 10.2 10.4 10.6 13.2 Total consumptiona 29.3 30.4 32.0 34.4 37.0

a May not add due to rounding.

Source: Egyptian General Petroleum Corporation (EGPC).

Reference table 19 Minerals production (‘000 tonnes unless otherwise indicated) 1994/95 1995/96 1996/97 Asbestos 514 427 1,836 Bentonite 2,379 1,930 1,136 Feldspar 39,745 75,049 53,783 Gypsum (m tonnes) 1.20 2.03 2.03 Iron ore (m tonnes) 3.87 2.43 2.74 Kaolin 54,175 293,381 258,725 Phosphate rock (m tonnes) 0.270 1.154 1.430 Salt (m tonnes) 1.01 1.99 1.53 Talc 4,125 38,608 41,227 Vermiculite 1,659 483 447 Limestone (m cu metres) 18.0 18.3 22.0 Glass sand (cu metres) 365,800 456,000 504,720 Source: Mining Journal, Annual Review Supplement.

Reference table 20 Industrial production (‘000 tonnes unless otherwise indicated) 1996/97 1997/98 Cotton yarn 325 275 Silk & artificial fibres 46 28 Ready-made garments (m) 193 204 Cars (units) 36,276 36,713 Buses (units) 3,660 2,802 Trucks (units) 13,158 13,872 Washing machines (‘000) 283 316 Refrigerators (‘000) 417 495 Aluminium 180 170 Cement 19,800 21,600 Phosphates 1,260 1,450 Phosphate fertilisers 1,210 1,380 Nitrogenous fertilisers 6,800 6,935 Soap 400 416 Sources: Ministry of Planning.

Reference table 21 Principal stockmarket indicators (E£ m unless otherwise indicated; year-end) 1995 1996 1997 1998 1999 No. of companies listed 746 646 650 861 1033 No. of companies traded 352 354 416 551 663 Total value of traded shares 3,849 10,968 24,220 23,363 42,056 Value of listed shares 2,294 8,769 20,282 18,500 35,821 Value of unlisted shares 1,555 2,198 3,937 4,863 6,235 Volume of traded shares (m) 72 208 373 571 1,074 No. of transactions (‘000) 470 2,316 1,225 n/a n/a Market capitalisation 27,420 48,086 70,873 83,140 112,331 Source: Capital Markets Authority.

Reference table 22 Tourist arrivals by region of origin (‘000 unless otherwise indicated) 1995 1996 1997 1998 1999 Western & southern Europe 1,345 2,137 2,202 1,564 2,946 % of total 43 55 56 48 61 Middle East 1,038 829 893 986 897 % of total 33 21 23 30 19 Americas 229 259 257 218 277 % of total 77776 Eastern Europe 170 206 192 188 278 % of total 55566 Asia Pacific 219 288 260 161 254 % of total 77755 Africa 130 116 120 131 151 % of total 43343 Total incl others 3,133 3,896 3,961 3,250 4,797 Total no. of tourist nights 20,451 23,765 26,579 20,151 31,002 Source: Central Bank of Egypt and CAPMAS.

Reference table 23 Foreign trade (E£ m) 1995 1996 1997 1998 1999 Exports fob 11,704 12,004 13,286 10,606 12,086 Imports cif –39,892 –44,218 –44,769 –54,771 –54,399 Trade balancea –28,188 –32,214 –31,483 –44,165 –42,313 Suez Canal dues 6,693 6,381 6,074 6,109 6,015

a Totals may not sum due to rounding.

Source: IMF, International Financial Statistics.

Reference table 24 Exports (US$ m) 1993/94 1994/95 1995/96 1996/97 1997/98 Agricultural goods 238 616 339 270 243 of which: cotton 45 306 110 107 103 rice 45 64 71 38 28 potatoes 21 104 28 17 27 citrus fruits 35 17 23 20 12 Industrial goods 2,900 3,831 3,540 3,882 3,413 of which: petroleum & products 1,772 1,629 2,226 2,578 1,728 spinning & weaving 496 1,077 574 607 759 of which: cotton yarn 212 480 200 205 288 cotton textiles 66 161 42 30 20 ready-made clothes 163 285 161 195 258 Foodstuffs 88 125 129 152 147 Chemicals 110 293 139 117 173 Metals 235 498 247 163 159 Total incl others 3,725 3,337 4,957 4,609 4,930 Source: Central Bank of Egypt, Economic Review.

Reference table 25 Imports (US$ m) 1993/94 1994/95 1995/96 1996/97 1997/98 Foodstuffs, beverages, livestock & animal products 1,940 2,760 2,513 2,858 2,506 Fats, greases, oil & products, metallic products & fuel 976 721 1,550 1,909 2,188 Chemical, rubber & leather products 1,169 1,772 1,912 1,829 1,840 Wood, paper & textile materials 1,002 1,389 1,373 1,392 1,566 Machines & transport equipment 2,943 3,108 4,101 3,945 4,530 Base metals & manufactures 1,011 1,051 1,902 1,184 1,414 Total incl others 10,647 12,810 14,107 15,565 16,899 Source: Central Bank of Egypt, Economic Review.

Reference table 26 Main trading partners (% of total) 1995 1996 1997 1998 1999 Exports to: US 11 12 12 14 11 Italy 1920151313 UK 78997 Germany 7 5 5 4 4 continued

1995 1996 1997 1998 1999 Imports from: US 19 18 20 16 15 Germany 1010101010 Italy 8 8 7 8 8 France 8 8 7 8 7 Source: IMF, Direction of Trade Statistics.

Reference table 27 Direction and composition of trade, 1998 (US$ m) Exports fob US Italy Netherlands Israel Total Food 4.6 8.9 7.6 4.0 366.3 of which: fruit & vegetables & preparations 1.9 8.0 5.3 1.5 182.7 Mineral fuels 47.9 71.6 151.2 118.6 943.7 Chemicalsa 2.1 22.9 11.9 6.8 293.0 Textile fibres, yarn, cloth & manufactures 108.8 130.3 8.6 1.0 602.8 of which: cotton & manufactures 57.8 107.5 2.5 0.8 438.1 Aluminium & manufacturesb 0.0 41.8 45.6 0.3 144.0 Clothing 197.2 8.3 12.9 0.1 333.4 Total incl others 389.7 319.9 249.3 140.4 3,195.3

Imports cif US Germany Italy France Total Foodstuffs 941.3 72.6 29.9 208.0 2,659.4 of which: cereals & preparations 795.6 1.2 2.8 8.6 1,255.0 Tobacco & manufactures 70.0 0.3 13.4 0.6 220.5 Wood & manufactures 13.4 4.4 9.5 1.3 709.0 Mineral fuels 54.1 2.2 43.8 10.3 798.9 Animal & vegetable oils & fats 62.6 1.6 0.5 16.7 539.2 Chemicalsa 171.5 245.6 156.8 127.0 1,881.3 Paper & manufactures 43.9 25.4 23.2 21.5 503.4 Textile fibres, yarn, cloth & manufactures 28.2 25.4 35.3 4.7 505.5 Non-metallic mineral manufacturesc 5.8 15.4 25.3 13.4 237.8 Iron & steel & manufacturesb 43.5 111.8 104.0 55.3 1,400.0 Other metals & manufacturesb 17.5 36.6 37.8 14.5 322.9 Machinery & transport equipment 482.9 801.4 556.8 403.1 4,309.2 of which: road vehicles & tractors 52.9 146.1 50.0 31.5 697.6 Scientific instruments etc 60.6 77.8 24.5 17.9 397.8 Total incl others 2,073.9 1,468.0 1,111.1 923.6 16,478.6 a Including crude fertilisers and manufactures of plastics. b Including scrap. c Including precious metals & jewellery. Source: UN, External Trade Statistics, series D.

Reference table 28 Balance of payments, IMF series (US$ m) 1995 1996 1997 1998 1999 Merchandise exports fob 4,670 4,779 5,525 4,403 5,237 Merchandise imports fob –12,267 –13,169 –14,157 –14,617 15,165 Trade balance –7,597 –8,390 –8,632 –10,214 –9,928 Exports of services 8,590 9,271 9,380 8,141 9,494 Imports of services –4,873 –5,084 –6,770 –6,492 –6,452 Inflows of interest, profit & dividends (IPD) 1,578 1,901 2,122 2,030 1,788 Outflows of IPD –1,983 –1,556 –1,185 –1,075 –1,045 Current transfers: credit 4,284 3,888 4,738 5,166 4,564 Current transfers: debit –253 –222 –363 –122 –55 Current-account balance –254 –192 –711 –2,566 –1,635 Net direct investment 505 631 762 1,031 1,065 Net portfolio investment 20 545 796 –600 617 Other capital –2,370 –2,635 400 1,470 –1,240 Capital-account balance –1,845 –1,459 1,958 1,901 n/a Net errors & omissions 272 –74 –1,882 –722 –1,558 Overall balance –1,827 –1,725 635 1,179 –4,614 Reserve assets –409 –1,010 –1,185 535 4,027 Use of IMF credit & loans –95 –85 –15 - - Exceptional financing 2,331 2,820 1,836 852 587 Source: IMF, International Financial Statistics.

Reference table 29 Balance of payments, national series (US$ m) 1995/96 1996/97 1997/98 1998/99 1999/2000a Merchandise exports fob 4,609 5,345 5,128 4,445 6,388 Petroleum 2,226 2,578 1,729 1,000 n/a Non-petroleum 2,383 2,768 3,400 3,445 n/a Merchandise imports fob –14,107 –15,567 –16,899 –17,008 –17,861 Trade balance –9,498 –10,222 –11,771 –12,562 –11,474 Exports of services 10,636 11,241 10,455 11,025 11,420 Imports of services –4,845 –5,048 –5,764 5,056 5,796 Private transfers (net) 2,798 3,256 3,718 3,772 3,747 Official transfers (net) 724 890 883 1,097 932 Current-account balance –185 119 –2,479 –1,724 –1,171 Net direct investment 612 723 967 655 1,613 Net portfolio investment 258 1,463 –248 –174 473 Capital- & financial-account balanceb 1,017 2,041 3,387 919 –974 Net errors & omissions –261 –247 –1,043 –1,312 –880 Overall balance 571 1,913 –135 –2,117 –3,025 a Provisional. b Includes other investment and net borrowing.

Source: Central Bank of Egypt.

Reference table 30 External debt, World Bank series (US$ m unless otherwise indicated; debt stocks as at year-end) 1994 1995 1996 1997 1998 Public medium- & long-term 29,815 30,479 28,810 26,804 27,669 Private medium- & long-term 375 313 127 54 34 Total medium- & long-term debt 30,189 30,792 28,937 26,858 27,704 Official creditors 27,733 28,794 27,517 25,728 26,751 Bilateral 23,821 24,821 23,584 21,836 22,555 Multilateral 3,912 3,974 3,933 3,892 4,195 Private creditors 2,457 1,998 1,420 1,130 953 Short-term debt 1,931 2,371 2,347 2,991 4,260 of which: interest arrears 1 3 2 3 1 Use of IMF credit 193 103 16 0 0 Total external debt 32,314 33,266 31,299 29,850 31,964 Principal repayments 945 996 1,105 941 912 Interest payments 1,295 1,384 1,178 986 901 of which: short-term debt 130 132 133 262 227 Total debt service 2,240 2,379 2,283 1,928 1,813 Ratios (%) Total external debt/GDP 62.5 55.0 46.5 39.5 38.6 Debt-service ratio, paida 13.4 13.1 12.2 9.5 10 Short-term debt/total external debt 6.0 7.1 7.5 10.0 13.3 Concessional long-term debt/ total long-term debt 60.4 61.0 76.8 75.7 73.4 Variable interest long-term debt/ total long-term debt 5.5 5.1 4.4 4.5 4.5

Note. Long-term debt is defined as having original maturity of more than one year. a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

Reference table 31

Net official development assistancea (US$ m) 1993 1994 1995 1996 1997 DAC countries 1,824 2,311 1,690 1,933 1,496 of which: US 939 685 626 725 542 Germanyb 111 292 170 442 397 Japan 275 189 243 201 125 Multilateral 198 290 216 225 402 of which: IDA 8 38 69 67 141 EC 57 137 94 98 197 Arab agencies 75 66 ––– Arab countries 380 94 117 54 50 continued

1993 1994 1995 1996 1997 Total incl others 2,400 2,695 2,022 2,212 1,947 of which: grants 1,864 1,791 1,756 1,870 1,568

a Disbursements. Official development assistance is defined as grants (excluding any technical co- operation grants) and loans with at least a 25% grant element, provided by OECD and OPEC member countries and multilateral agencies, and administered with the aim of promoting development and welfare in the recipient country. IMF loans, other than Trust Fund facilities, are excluded, as is aid from the former Eastern bloc. b West Germany only until June 1990.

Source: OECD Development Assistance Committee, Geographical Distribution of Financial Flows to Aid Recipients.

Reference table 32 US aid to Egypt (US$ m; US fiscal years) 1995 1996 1997 1998 1999 Commodity export credit guarantees 165 200 ––– Economic grant aid 815 815 815 815 775 Military grant aid 1,300 1,300 1,300 1,300 1,300 Total (obligation basis) 2,280 2,315 2,115 2,115 2,075 Source: US embassy, Cairo.

Reference table 33 Foreign reserves (US$ m unless otherwise indicated; end-period) 1995 1996 1997 1998 1999 Foreign exchange 15,998 17,198 18,479 17,888 14,278 SDRs 103 123 113 160 41 Reserve position in the IMF 80 77 73 76 165 Total reserves excl gold 16,181 17,398 18,665 18,124 14,484 Memorandum items Golda 704 695 609 541 475 Gold (m fine troy oz) 2.432 2.432 2.432 2.432 2.432

a National valuation.

Source: IMF, International Financial Statistics.

Reference table 34 Exchange rates (end-period) 1995 1996 1997 1998 1999 E£:US$ 3.3900 3.3880 3.3880 3.3880 3.4050 E£:SDR 5.0392 4.8718 4.5713 4.7704 4.6734 Source: IMF, International Financial Statistics.

Editors: Niall Kishtainy (editor); Andrew Gilmour (consulting editor) Editorial closing date: November 1st 2000 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]