Egypt 1999-2000

COUNTRY PROFILE

Egypt

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Comparative economic indicators, 1998

EIU Country Profile 1999-2000 © The Economist Intelligence Unit Limited 1999 1

November 5th 1999 Contents

Egypt

3 Basic data

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

11 Resources and infrastructure 11 Population 12 Education 13 Health 13 Natural resources and the environment 14 Transport and communications 18 Energy provision

19 The economy 19 Economic structure 20 Economic policy 26 Economic performance 28 Regional trends

29 Economic sectors 29 Agriculture and fishing 31 Mining and semi-processing 33 Manufacturing 34 Construction 36 Financial services 38 Other services

39 The external sector 39 Trade in goods 41 Invisibles and the current account 42 Capital flows and foreign debt 44 Foreign reserves and the exchange rate

46 Appendices 46 Sources of information 48 Reference tables 48 Population 48 Population, labour force and unemployment 49 Number of workers by sector 49 Transport statistics 49 Suez Canal traffic 50 Electricity generation 50 Electricity consumption by sector 50 Government finances 51 Money supply

51 Interest rates 51 Gross domestic product 52 Gross domestic product by expenditure 52 Gross domestic product by sector 53 Prices 53 Agricultural production 53 Cotton production 54 Major agricultural imports 54 Petroleum and natural gas production and consumption 54 Minerals production 55 Industrial production 55 Principal stockmarket indicators 56 Tourist arrivals by region of origin 56 Foreign trade 57 Exports 57 Imports 57 Main trading partners 58 Balance of payments, IMF estimates 58 Balance of payments, national estimates 59 External debt, World Bank estimates 60 Net official development assistance 60 US aid to Egypt 60 Foreign reserves 61 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 62.69m (60.69m resident; 1998 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-1998 exchange rate: E£3.39:$1. Exchange rate on November 5th 1999:E£3.44:$1

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

Public holidays 2000 January 1st, January 8th (Eid al-Fitr—end of Ramadan), March 16th (Eid al- Adha—Feast of the Sacrifice), April 6th (Islamic New Year), April 25th (Sinai Liberation Day), May 1st (Labour Day; Sham al-Nasim), June 15th (Birth of the Prophet), June 18th (Liberation Day), July 23rd (Revolution Day), October 6th (Armed Forces Day), October 24th (Suez Day), October 26th (Ascent of the Prophet), December 23rd (Victory Day), December 28th (Eid al-Fitr—end of Ramadan)

a Greater Cairo estimated at 12m.

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 Ebeid, 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 indepen- dence 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 trans- formed 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, inten- sified 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

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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 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 consider- able 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.

Important recent events

September 1993: Egypt signs a three-year IMF extended Islamabad, Pakistan, kills 16 people and wounds 60. Gamaat fund facility. Islamiya (Islamic Groups), the GIJ and Al-Jihad all claim responsibility. Mr Mubarak visits Israel for the first time as head of November 1993: Militants of the Islamist group, Al-Jihad state to attend the funeral of the assassinated Israeli prime (Holy War), attempt to assassinate the prime minister, having minister, Yitzhak Rabin. already made attempts on the lives of the information and interior ministers earlier in the year. April 1996: Gamaat Islamiya militants kill 17 Greek tourists and an Egyptian, and wound 15 people. May 1995: Egypt refuses to endorse the indefinite extension of the Nuclear Non-Proliferation Treaty at a UN conference, June 1996: Egypt hosts the first pan-Arab summit for six years, owing to Israel’s refusal to sign the treaty. having pushed strenuously for it to be held.

June 1995: President Hosni Mubarak survives an October 1996: Egypt signs a two-year IMF stand-by assassination attempt en route to an Organisation of African arrangement. Unity summit meeting in Addis Ababa. Gamaat Islamiya claim responsibility a week later. November 1997: Gamaat Islamiya militants kill 58 foreign tourists and four Egyptians in Luxor in the bloodiest and most November 1995: The trade counsellor at Egypt’s UN mission brutal attack on Egypt’s tourism industry to date. in Geneva is assassinated. The Group for International Justice (GIJ), an offshoot of Gamaat Islamiya, claims responsibility. A March 1999: Gamaat Islamiya leaders, at home and abroad, suicide bomb inside the Egyptian embassy compound in declare that they have “ceased armed operations”.

International Mr Mubarak has maintained the major thrust of his predecessor’s policies, realignments 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, the date when Egypt’s largest militant group announced a unilateral ceasefire, 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 under- lying 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.

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 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.

Parliament 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

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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. The next election is due by November 2000.

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 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 14 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 a parliamentary front for Egypt’s Islamists. The application of the 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 suc- cession 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 more radical than Tagamu, but it remains totally opposed to peace with Israel and to any form of privatisation, but has not been averse to co-operation with the Islamists.

The Islamist 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 tole- rated. 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 main- stream 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 the 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.

It is the extremist Islamists, generally from Gamaat Islamiya (Islamic Groups) and Al-Jihad (Holy War), that have been responsible for the intensification of violence since March 1992, 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. Weak- ened 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 on the wisdom of pursing a policy of terror, Gamaat Islamiya announced an uncon- ditional ceasefire in March 1999. It remains to be seen whether this will be accepted by all of the movement’s activists, and there was some speculation that the downing of an EgyptAir Boeing, with the loss of all on board, in October 1999 was the work of Islamic militants. Nevertheless, 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

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Main political figures

Hosni Mubarak: Egypt’s president is the central figure in in ill-health and is personally reluctant to seek the highest office. domestic and foreign policy. A cautious politician, He may therefore be overlooked in favour of another top officer, emphasising stability and only incremental change, he has notably the air force chief, Ahmed Shafik. boosted Egypt’s standing abroad. At home he has resisted pressure to introduce more pluralism. He insists that militant Omar Suleiman: The state security chief is one of the most Islamic groups should not gain a political foothold and that powerful figures in the country, and a strongman often sent by political liberalisation is not a necessary adjunct to economic the president to resolve problems with Egypt’s neighbours. This reform. has the useful side-effect of precluding the establishment of any rival powerbase. Atef Ebeid: Appointed prime minister in October 1999, the former minister of public enterprise has been in the cabinet Amr Moussa: The outspoken foreign minister is close to the since 1984. Like his predecessor, Kamal al-Ganzouri, he is a president. He has imbued his ministry with a clearer sense of consummate political insider, and therefore a safe choice for purpose, toughened up foreign policy, especially in relation to premier, but possesses a more urbane and liberal disposition. Israel, and pioneered the use of diplomacy to promote trade. Appointed to promote teamwork and ministerial responsibility after the divisive and dictatorial rule of Mr al- Osama al-Baz: One of the president’s closest advisers, in both Ganzouri, the new prime minister is expected to devolve most domestic and foreign affairs, the Nasserist-leaning first under- of the additional portfolios accumulated by his predecessor to secretary at the foreign ministry and director of the Presidential the relevant ministers and has said he expects his ministers to Bureau of Political Affairs wields enormous influence and has make and initiate their own policies. ensured Egypt’s continued political dominance in the Arab world. Less outspoken by nature, it is he rather than Mr Moussa who Habib al-Adli: Nominated by the president to the interior tends to deal with Israel. ministry in the immediate aftermath of the Luxor massacre, the former director of state security has proved to be more Youssef Wali: The deputy prime minister has been minister of efficient than his predecessors, in part because of the greater agriculture and land reclamation since 1982. He has been a competence of his team of aides. The government’s prime controversial figure, enforcing policies of privatisation and close strategist in the fight against the Islamists, Mr al-Adli’s co-operation with Israel, but his political skills have ensured his success will be judged by his ability to contain Islamist survival in his long-standing and highly influential position as violence, muzzle the opposition and avoid provoking an secretary-general of the National Democratic Party. international outcry at the methods used. However, the September 6th knife attack on President Mubarak by a lone Fathi Sorour: Second in protocol terms to the president, the assailant has rocked the minister’s position by exposing speaker of the People’s Assembly would, under the constitution, serious lapses in presidential security. assume power if the president were incapacitated or killed until a successor was chosen. A shrewd lawyer and former minister of Mohammed Hussein Tantawi: A Mubarak loyalist, education, Mr Sorour is charged with keeping the People’s the defence minister has remained in the background Assembly in line with the government, a task at which he appears politically. Despite holding the top armed forces post, he to excel. is deemed unlikely to succeed the president: he is reportedly

activists of the Islamist Reform Party and the Sharia (Islamic Law) Party respectively.

The armed forces The armed forces, though less prominent in political life under President 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 Relations with Libya have become closer during Mr Mubarak’s tenure. Despite concern over the nature of Colonel Muammar Qadhafi’s rule, Egypt 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 have remained tense in the wake of the latter’s alleged complicity in an assassination attempt on Mr Mubarak in June 1995. Nonetheless, 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 vola- tility, 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.

Western powers Egypt’s key international relationship is with the US, which gives aid of over $2bn a year, although Egypt has some misgivings about what it perceives as US bias towards Israel, its hardline policies towards Sudan and Iraq, and the increasing US preference to use NATO rather than the UN when dealing with international crises. Ties with Europe are gaining higher priority as Egypt negotiates terms for an economic partnership agreement with the European Union, which will allow membership of the proposed EU-Mediterranean free- trade zone, to be established by 2010. 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 will probably have to reach water agreements with all of them eventually.

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 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

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since 1991. However, the tense relations have eased since the election of Ehud Barak as Israeli prime minister in May 1999 on a peace platform. Egypt has continued to lend strong support for the Palestinian Authority in peace negotiations, and in September 1999 Egypt hosted the signing of the Wye II accord, which effectively restarted the Middle East peace process. However, Egypt has been criticised by both the US and Israel for its refusal to enter into multilateral peace talks until there is more definite progress on the Syrian track of the peace process.

Aware that this could be a crucial period for peace negotiations, Egypt has pushed for 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 $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 62,687,839 in January 1998, according to the latest census. This total included 60.69m resident citizens and some 1.98m 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 Mubarak government. The annual rate had fallen to 2.33% in 1997 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 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, roughly 50,000 Egyptians belong to other Christian sects. There is also a small and declining Jewish community. (For historical data regarding population, see Reference table 1.)

Migration Expatriate remittances are a major source of foreign-exchange receipts. According to the 1996 census, 2.18m Egyptians live abroad as temporary migrants. This is less than the 2.25m recorded in 1986, reflecting the 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 1996/97 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 1992 the percentage of six-year-olds enrolled for the first time in the first year of primary school was 98.5% overall, and 92.3% for girls. However, the number of Egyptians with university degrees, although up from 4.3% in 1986, is still small at 7.3% of the population.

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 education system is also failing to supply the labour market with the necessary skills. Illiteracy has remained high at around 40% over the past decade. 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.

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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 UNDP, there were 6.5 Ministry of Health doctors and 8.6 nurses per 10,000 people in 1994. In 1982 the figures were 5.4 and 9.1 respectively.

Health campaigns The infant mortality rate dropped from 157 per 1,000 live births in 1970 to 54 per 1,000 live births in 1997, according to the UNDP. 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 of Egypt 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. Greater Cairo, with an estimated 12m inhab- itants in 1996, 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 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, of which 1% is hazardous and one-third 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 9,826 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 is generally considered underfunded.

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 line two, 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, 27-km line will run from Imbaba to Cairo airport, while a 55-km metro system for Alexandria is under review.

Roads Following an extensive modernisation and expansion programme in the 1980s, Egypt now has 42,000 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). 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.

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Regional connections Since 1991 Egypt has attempted to upgrade its transport links in partnership with neighbouring countries to improve the flow of trade, investment and tourism, but many of these projects have been put on hold owing to delays in the Middle East peace process. The projects include:

• upgrading the Mediterranean coastal road as part of a North African coastal road, which would eventually link up with Europe’s Mediterranean road network via the Gibraltar crossing;

• building a 15.6-km causeway between southern Sinai and Saudi Arabia, linking North Africa with Saudi Arabia and the Gulf states;

• building a 280-km trans-Sinai highway from Suez to Taba as part of a Cairo- Taba-Eilat-Aqaba link between Egypt, Israel and Jordan; and

• constructing a 203-km road across Sinai, from Ismailia to Abu Uwgaila, to join with an Israeli highway across the Negev and meet the Aqaba-Amman road in Jordan, thereby linking Jordan with Africa.

Japan is financing the main section of the four-lane 4-km suspension bridge over the Suez Canal with a $92m grant. Egypt will contribute $60m to build the approaches, with completion due in 2001.

Air services EgyptAir, the state-owned airline, carries some 4.5m passengers and 63,000 tonnes of freight per year. However, its share of international air traffic through Egypt is at most 25%, owing in part to a reputation for poor service and unreli- ability, 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 has been forced to lease out a number of its newer aircraft to pay for its $1.6bn modernisation and expansion plan. Its domestic monopoly has been slightly curtailed by the decision in 1996 to allow charter flights to use Egyptian airports, although they cannot fly into Cairo airport.

Airports exist in major tourist and population centres, and three build-own- operate-transfer (BOOT) airports will be established in the tourist areas of El Alamein, Ras Sidr and Marsa Alum (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 $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 18m tonnes/year 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 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. The government is to receive a percentage of royalties from the operating company, which is also bound to guarantee that at least 60% of its forecasted revenue will be met. 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.

This is Egypt’s second private port operation contract. The first was signed in May 1999 with a consortium led by the US’s Stevedoring Services, for the equipment and operation of the new Ain Sukna port on the Red Sea south of Suez. This is due to begin operations in May 2000. (For historical data on transport, see Reference table 4.)

The Suez Canal The Suez Canal is an important source of foreign exchange, with 13,500 ships passing through it in 1998 (see Reference table 4). However, revenue slipped to $1.8bn in 1996 from a record $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 drop in traffic passing through the canal to and from Asia due to the financial crisis in the region, and the 5.3% 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 expansion project, to deepen the canal to allow for ships with a draught of 72 ft by 1999, was announced in June 1996.

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 Egypt’s telephone system has undergone extensive modernisation. Between 1981 and 1997 exchange capacity increased from 510,000 to 5m lines, and the aim is to double the number of lines to 10m in five years. However, only 7% of the population have access to telecommunications services, and Egyptians wait on average 5.7 years for a connection. Local usage accounts for 91% of calls

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but, because prices are low and subscribers often fail to pay, generates only 21% of total revenue. MobiNil—a consortium comprising France’s Telecom Mobile International, the US’s Motorola and four local partners: Orascom Technologies, the Al Ahram 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 end-June 1999 subscriptions had risen to 294,000. A second private consortium called Click GSM, comprising Vodafone of the UK, Airtouch of the US, the UK’s Mobile Systems International, CGSAT of France, the local Alkan Group and an investment house, EFG-Hermes, along with the state Banque du Caire, launched its operations in November 1998. By end-June 1999, from a base of zero, it had 180,000 subscribers.

Law 19 of 1998 removed TelecomEgypt’s monopoly and made it a joint-stock company. It is currently undergoing valuation as a prelude to partial privatisation, and a regulatory body for the industry, chaired by the minister of transport and communications, has been formed. The local Alkan trading group introduced a satellite telecommunications system in October 1996 and the National Bank of Egypt’s National Telecommunications Company has begun the installation of a cheaper rural telephone service, based on new US technology. Internet services are currently offered by over 30 private-sector providers.

Mass media Under 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 780,000, 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 650,000-700,000. 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, 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 Al-Ahram al-Iqtisadi.

The Arab Television Service started broadcasting in 1960 and there are currently two national and six regional channels. In December 1990 the Egyptian Space 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 is to be launched in 1999, as 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 crisis that 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. Since 1985 around 8,500 mw has been added to Egypt’s installed capacity, bringing it to 14,500 mw, of which 80% is based on natural gas and the rest split between hydroelectric and thermal power. By 2000 the electricity ministry wants 87% of energy to come from natural gas, 8% from hydroelectricity and 5% from new and renewable sources. Another 1,900 mw is to be added by 2002 at a projected cost of $1.45bn.

Domestic consumption of electricity is around 46bn kwh, 43% of which is used by industry. Electricity demand has been increasing by 6% per year during the past decade and is forecast to reach 105bn 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 also going ahead on a $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 $150m link from Egypt to Jordan, via a Taba-Aqaba submarine cable, was completed in October 1998 but has yet to be officially opened. The wider grid will join up later with the unified European electricity grid and that of the six Gulf Co-operation Council states.

Energy balance, 1998 (m tonnes oil equivalent) Elec- Oil Gas Coal tricity Other Total Primary supply Production 44.5 11.0 0.0 3.3a 1.2 60.0 Imports 1.0 0.0 0.9 0.0 0.0 1.9 Exports –18.0 0.0 –0.3 0.0 0.0 –18.3 Stock change 0.0 0.0 0.0 0.0 0.0 0.0 Total 27.5 11.0 0.6 3.3a 1.2 43.6 1.1b 41.4 Processing & transformation Input to refining –32.0 0.0 0.0 0.0 0.0 –32.0 Input to transformation –5.0 –6.5 0.0 –3.3a 0.0 –14.8 Refining/transformation output 32.0 0.0 0.0 5.4b 0.0 –37.4 Energy industry fuel/loss –3.5 –1.4 0.0 –0.3b 0.0 –5.2 Final consumption Transport fuels 7.7 0.0 0.0 0.0 0.0 7.7 Industrial fuels 7.0 0.9 0.6 2.7b 0.6 11.8 Residential etc 3.0 0.8 0.0 2.4b 0.6 6.8 Non-energy uses 1.3 1.4 0.0 0.0 0.0 2.7 Total 19.0 3.1 0.6 5.1b 1.2 29.0

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

Source: Energy Data Associates.

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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 $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 $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 $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, 1998

Real GDP growtha (%) 5.6 Consumer price inflation (av; %) 4.2 Current-account balance ($ m) –2,566 External debt ($ bn) 30.4b Population (m) 62.0c

a Fiscal year ending June 30th. b EIU estimate. c 1997.

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 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, although tourism recovered strongly between 1995 and November 1997, when the Luxor attack sent the sector into sharp decline. However, the effect of the Luxor attack was not as severe as many had feared, and the sector is beginning to show good growth again.

Agriculture remains an important activity, even though only 3% of the total land area is arable land; in 1996/97 the sector contributed 15.7% of GDP and 30% of total employment but only 5.5% of exports, mainly cotton and rice. Industry and mining are also important, accounting for 18.1% of GDP and almost 13% of total employment in 1996/97, and are heavily concentrated in Cairo and the Nile delta. Petroleum and natural gas are mainstays of the economy, accounting for 8.5% of GDP in 1996/97, while petroleum products including crude oil made up 53% of total exports. 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.

Private consumption is a major expenditure component of GDP, accounting for 70% of the total in 1996/97, compared with 11.2% for government consumption and 22.9% for capital formation. (For historical data on GDP by sector see Reference table 13; for the labour force see Reference tables 2 and 3.)

Comparative economic indicators, 1998 Egypt Saudi Arabia Jordan Israel GDP ($ bn) 82.7 131.7 7.3 97.5 GDP per head ($) 1,307 6,534 1,221 16,328 Consumer price inflation (av; %) 4.2 –0.3 4.5 5.4 Exports of goods ($ bn) 4.4 36.0 1.8 23.0 Imports of goods ($ bn) 14.6 24.2 3.4 26.2 Current-account balance ($ bn) –2.6 –13.4 0.0 –0.7 Source: EIU CountryData.

Economic policy

Egypt’s economic Since 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 socio- economic 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 ($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 con- cluded an 18-month SDR250m ($350m) stand-by arrangement with the IMF, and the Paris Club agreed to reschedule $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 $300m structural adjustment loan from the World Bank. A Paris Club agreement was con- cluded the same month, covering an estimated $27bn-28bn in official and government-guaranteed civilian and military debt, which linked debt relief to progress on economic reform.

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Economic policymakers

Hosni Mubarak: The president has shown an increasing credibility to monetary policy, boost exports and remove the interest in economic matters in recent years and has charged institutional impediments to investment—a massive task. his new government with the task of speeding up the pace of economic reform, while stressing social justice, upgrading Medhat Hassanein: The new finance minister, formerly technology and integrating Egypt into the global community. professor of economy and finance at the American University in With an eye to his legacy, Mr Mubarak’s particular concern is Cairo, is typical of the new intake of economic ministers. to complete the series of massive infrastructure projects, the Mr Hassanein has studied abroad, has a good command of most ambitious of which is the Southern Valley Development languages and is a technocrat. Having worked as a commercial Project (Toshka), on time and on budget. consultant and recently established his own commercial ratings agency, Mr Hassanein is likely to have a better grasp of financial Atef Ebeid: The post of prime minister is, in essence, an economics than his predecessor, Mohieddin al-Gharib. This is economic one. Backed by a presidential mandate for change, expected to lead to much improved communication and co- Mr Ebeid is expected to accelerate the pace of economic ordination with the economy ministry. reform and privatisation in particular. However, having headed Egypt’s missions to the IMF and World Bank the new Ismail Hassan: The Central Bank governor, while hampered in prime minister is also likely to show a greater understanding policy decisions by a monolithic and highly conservative Central of the needs of the international investment community. Bank structure, came under sharp criticism in mid-1999 from Generally perceived as an economic liberal, although one who both the local and international business community over his stresses consensus, his appointment is likely to strengthen the “statist” handling of the dollar liquidity crisis. However, now that reformist elements in the cabinet. the Central Bank portfolio has been returned from the prime minister to the economy ministry, the former career banker is Youssef Boutros-Ghali: The foremost proponent of expected to follow the ministry’s line on monetary policy. liberalism in the cabinet is now the most powerful minister on the economic team, having gained the portfolio of foreign Business leaders: A group of leading local businessmen trade to add to his previous economy post in the 1999 exemplify the strengthening alliance between government and cabinet reshuffle. A major architect of Egypt’s macroeconomic big business. Often close to the president’s younger son, Gamal, success, he plays an indispensable role as the government’s who is influential with his father and can take much of the credit main economic strategist and technical interlocutor with for interesting the president in economic liberalisation and global the donor institutions. Increasingly close to Mr Ebeid in the integration, the businessmen have direct access to the president, past few years, as they both came under attack from the more serve on the business councils set up with the US and UK, statist members of cabinet, Mr Boutros-Ghali has been given participate in most of the foreign joint ventures, and wield more the power he previously lacked to raise growth, restore real power than most ministers.

The Social Fund for To alleviate the impact of privatisation, public-sector reform and price de- Development regulation on the poor, a $613m Social Fund for Development (SFD) was established in 1991. A $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, remain limited owing to government sensitivities and the slow pace of privatisation. 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 slight. 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—after over a year of inactivity in the run-up to the parliamentary election in November 1995—once the new government had proved its commitment to economic reform. They culminated in the signing of a new two-year stand-by arrangement in October 1996, which aimed for annual real growth of around 6% and the creation of some 400,000 jobs a year. The programme also aimed to raise Egypt’s investment/GDP ratio from 17% to 23%. The accord focused on continuing prudent macroeconomic policy—a budget deficit below 1% of GDP and inflation stabilised at around 5%—and deepening structural reform, in particular the reduction of trade barriers, including a drop in the maximum tariff rate to 40% and a reduction in the number of tariff bands to seven by July 1998, and the privatisation of state enterprises. Privatisations were intended to yield 5-6% of GDP in both 1996/97 and 1997/98, with one public-sector commercial bank and one state insurance company to be privatised by end-1998. The implicit subsidy on petroleum products is to be eliminated by July 1999, and gas and electricity tariffs raised to their long-run marginal cost through a three-stage reduction, following which an automatic energy price adjustment mechanism is to operate.

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. A precautionary stand-by credit of SDR271.4m was included in the accord but was not drawn down owing to Egypt’s strong balance-of-payments position. Thanks to Egypt’s solid macroeconomic indicators another formal IMF accord will not be signed but the government maintains that close consultations will continue along with increased IMF technical support.

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 independent holding companies. In principle the holding companies operate as private-sector companies with full financial and mana- gerial 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.

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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. Since the Luxor massacre in November 1997, the government has accelerated the pace of privatisation, 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.

While a number of sectors remain off limits, notably EgyptAir, the Egyptian General Petroleum Corporation and the railways, 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. A 20% chunk of Greater Cairo Electricity, the largest of the seven regional electricity companies, was due to go ahead before the end of 1999, as was 20% of the state communications monopoly, TelecomEgypt. The government has also opened up the state-run mobile phone network to private competition. It has awarded licences for private global system for mobile (GSM) networks to two consortiums—Click GSM (led by Vodafone of the UK and Airtouch of the US with the local Alkan Group) and MobiNil (led by France Télécom, Motorola of the US and the local Orascom Group).

By end-March 1999, the government had privatised 120 of the 314 enterprises. These transactions include the sale of majority stakes in 36 companies through a public offering, the asset sale or liquidation of 27 companies, ten anchor investor sales and 28 companies sold to employee shareholder associations. The privatisation programme for public enterprises is projected to be complete by 2001, with a further 60 public-sector companies earmarked to be sold during 1999, leaving 90 companies to be offered in 2000 and 30 to be sold in 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 a number of build- own-operate-transfer (BOOT) projects. Egypt’s first BOOT scheme will be an estimated $450m 2x325-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. In July 1999 the Sidi Kreir project reached financial closure, and the project was 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 9,350 mw to the private sector between 2001 and 2010 on the BOOT model.

Contracts for three BOOT airports—at El Alamein on the Mediterranean coast, and Marsa Alam and Ras Sidr on the Red Sea—have been signed; these will be Egypt’s first private-sector airports. Meanwhile, the Dutch-Australian P&O Ports is involved in negotiations with the government to establish and run a major $10bn BOOT port east of Port Said (Shark el-Tafria), to serve as a transshipment hub for the Eastern Mediterranean. A large industrial and storage zone will be attached. Another BOOT port and industrial zone is to be established near Ain Sukna.

The government has also given preliminary approval for Egypt’s first build- operate-transfer (BOT) road projects, which will be awarded 75-year concessions. The local Construction and Development Group, a joint venture between the public-sector banks Banque Misr and Banque du Caire, and the Sami Saad construction group, has signed a memorandum of understanding with the General Authority for Roads and Bridges to invest E£700m-1bn ($205m-290m) in a 210-km highway from Alexandria to the Fayoum oasis. However, market analysts note that there are very few roads in Egypt with sufficient traffic to justify the economics of a real BOT project.

Banking privatisation The separate banking privatisation programme, under the aegis of the Central Bank, has been stalled by state reluctance to relinquish this profitable sector. But a phased reduction of holdings by public-sector banks in their joint ventures with foreign partners has taken place in 15 cases, while four international banks—Société Générale, Credit Commercial de France, Banque Nationale de Paris and Barclays—have acquired controlling majority stakes in their Egyptian joint-venture banks. In mid-1998, after heated debate, parliament ratified Law 155 enabling banking privatisation to take place; however, there is no state body responsible for its implementation and therefore the process can be interminably delayed by bureaucratic stalling. In the present vacuum, the private bidder has to come to terms with the state seller directly, but many state-owned banks are reluctant to sell their highly profitable joint ventures merely to fulfil the government’s privatisation objectives.

The 1999/2000 budget The 1999/2000 (July-June) budget envisages a 9.8% rise in current expenditure proposals to E£77.6bn ($22.7bn), compared with the 1998/99 budget figure of E£70.7bn. 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 therefore a 12.8% rise in budgeted public-sector wages. The subsidy bill, mainly bread, is also due to rise by 9.8% against budget to E£5.4bn. International debt service is to fall by 12.3% to E£2.3bn, although domestic public debt service is projected to increase by 6.5% to E£17.4bn. Defence spending, 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 5.5% in 1999/2000 to E£79.6bn, from E£75.5bn in 1998/99. The main taxation categories are all expected to increase against budget. However, Suez Canal fees are projected to fall by 3.5% to E£3.3bn, and oil revenue is expected to be down

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by 21% at E£3.8bn. Overall, the government expects a gross budget deficit of E£8.86bn and a net final deficit of E£801m, down from E£1.06bn in 1998/99.

Budgets (E£ m unless otherwise indicated; fiscal year, Jul-Jun) 1997/98 1998/99 1999/2000 Current budget Revenue 70,107 75,490 79,608 of which: taxes 22,000 24,200 26,000 customs dues 10,000 11,000 12,000 sales & service taxes 13,000 14,500 16,500 petroleum revenue 5,139 4,780 3,775 Suez Canal revenue 3,369 3,421 3,300 public-sector companies/agencies 1,500 1,500 1,500 Central Bank revenue 2,344 2,500 2,700 Expenditure 70,107 70,688 77,610 of which: wages & salaries 20,473 22,594 25,458 pension fund payments 4,600 5,209 6,228 subsidies 4,726 4,906 5,387 domestic public debt service 14,953 16,372 17,435 foreign public debt service 2,715 2,624 2,300 miscellaneous current expenses 14,088 15,231 16,855 Investment budget Investment revenue 3,473 3,729 4,233 Investment expenditure 9,861 10,985 12,293 Investment deficit 6,388 7,256 8,060 Capital budget Capital transfers (out) 8,597 9,854 10,400 of which: domestic public debt service 3,310 3,417 4,118 foreign public debt service 2,500 1,957 1,850 Capital transfers (in) 2,817 3,990 7,601 Capital deficit 5,780 5,864 2,799 Deficit Total expenditure 83,520 91,526 100,303 Total revenue 76,397 83,209 91,443 Total deficit 7,123 8,317 8,860 Financed by: Domestic savings 6,162 6,821 7,338 Foreign & domestic loans & credits 213 421 708 Net deficit 735 1,061 801 Sources: Official Gazette; Middle East Economic Survey.

Fiscal performance Preliminary outrun fiscal data for 1998/99, which are not directly comparable with the budgeted data published in the Official Gazette, show that the overall budget deficit rose to nearly E£4bn, equivalent to 1.3% of GDP, from E£2.8bn in 1997/98. Both revenue and expenditure exceeded budget. Total revenue rose by nearly 5% to E£71.3bn, while total expenditure rose by 6.4% to E£75.3bn. Current expenditure rose by 6% to E£58.6bn, while growth in investment expenditure was much more muted at 2.5%, down from 11.1% in 1997/98. (For government finances see Reference table 8.)

Fiscal outturn (E£ m) 1994/95 1995/96 1996/97 1997/98 1998/99a 1998/99b Total revenue 55,719 60,893 64,498 67,963 69,919 71,295 Tax revenue 34,279 38,249 40,518 43,962 45,700 47,149 Transferred profits 10,542 11,133 11,423 10,780 9,812 9,802 Other non-tax revenue 5,068 5,104 5,238 5,293 5,446 5,497 Non-central government revenuec 5,830 6,407 7.319 7,928 8,961 8,847 Total expenditure 58,256 63,889 66,826 70,783 73,919 75,285 of which: current expenditure 46,933 51,196 53,030 55,289 58,002 58,621 of which: domestic interest payments 11,177 12,231 12,337 12,219 12,772 – foreign interest payments 3,613 3,796 3,114 2,724 2,624 – investment expenditure 11,299 12,581 14,070 15,635 16,110 16,030 Overall balance –2,537 –2,996 –2,328 –2,820 –4,000 –3,990 % of GDP –1.3 –1.3 –0.9 –1.0 –1.3 –1.3 a Budgetary. b Actual. c Includes local governments, public services authorities, self-financing investments and privatisation proceeds.

Source : Ministry of Finance.

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 1991/92 and 1992/93 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. As a result, the World Bank estimates that real GDP growth rose to 5% in 1995/96 and 5.5% in 1996/97, fuelled by local private investment and government investment in infrastructure. (See Reference tables 11-13 for historical data on GDP.)

Gross domestic product (% real change; fiscal years ending Jun 30th) Annual average 1998 1994-98 GDP 5.6 4.9 Sources: World Bank; IMF; EIU.

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Performance across economic sectors has been uneven, with growth in tourism fluctuating sharply depending on the political situation. However, recovery is now under way (see Reference table 22 for tourism statistics). Agriculture has grown steadily but modestly, at around 3-4% a year. 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 the official figures of 8.4% growth in 1996/97 and 7.8% growth in 1997/98 appear to confirm anecdotal evidence of sharply increased profits in private-sector industry in response to restructuring, modernisation and the economic upturn. Sectors such as transport, communications and electricity are to be 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 (see Reference table 10 for historical data regarding interest rates). Nevertheless, weak demand, trade liberalisation, exchange-rate stability, tight fiscal and monetary policies, and continuing price controls on a range of basic commodities and services since 1991 brought annual inflation down to 7.2% in 1996, 4.6% in 1997 and 4.2% in 1998.

Inflation (% change) Annual average 1998 1994-98 Consumer prices 4.2 8.0 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 $10bn per year—$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 proved loath to implement its IMF commitment to raise energy prices to world levels by July 1999, and little progress has been made. Formal price controls are still in force in two strategic sectors: downstream petroleum

products and pharmaceuticals. The 1998/99 budget allocated E£4.6bn to subsidies, a 4.3% rise on 1997/98, 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 16.3m in 1997/98 (see Reference table 2), with another 2.2m 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 under- employed, 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, which applies to all workers except those undergoing vocational training, is E£84 ($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 Human Development Report of the UN Development Programme (UNDP) 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 8.3% in 1997/98 (see Reference table 2) but independent estimates are considerably higher, at about 11-15%, 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

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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 1985/86 to 17.4% of GDP in 1998/99 but the sector remains crucial to the economy, employing 30% of the labour force and accounting for 20% of commodity exports.

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 declined from 924,000 ha in 1962 to 371,000 ha in 1997/98, 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. In 1996/97 exports totalled 45,000 tonnes. With the removal of state subsidies the cost of production

soared, 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 ($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 has cost it E£1.5bn ($436m) in subsidies over the last two years and has 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 and 6.6m qantars in 1997/98, of which local mills purchased 4.5m qantars. Exports totalled 1.5m qantars, a 50% year-on- year rise, and were valued at E£600m ($176m). However, estimates of the 1998/99 crop stand at around 4.5m qantars. (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. Exports have also grown. Egypt remains one of the world’s largest food importers: agricultural imports (see Reference table 17) rose by 8% in 1996/97, to $4.1bn, representing about 26% of total imports. This figure fell slightly to $4bn in 1997/98, or 24% of the total.

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. (For historical data regarding agricultural production, see Reference table 15.)

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

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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 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 3.9bn barrels in October 1998, but the oil ministry believes that advanced extraction techniques could add another 10bn barrels. Crude oil production has averaged around 880,000 barrels/day 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 de- pletion in Egypt’s ageing oilfields in the Gulf of Suez, production was cut to 840,000 b/d from July 1st 1998, where it has stayed since. 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 Red Sea towards the Sudanese coast (which has led to conflict with Sudan over the border triangle of Halaib), Sinai and Upper Egypt towards Aswan and the Sudanese border.

Exploration is undertaken by foreign companies in partnership with the state- owned Egyptian General Petroleum Corporation (EGPC); Amoco of the US 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.

Export growth has been constrained by the increase in domestic consumption and the continuing weakness in international oil prices. In 1997/98 petroleum exports are estimated to have accounted for about one-third of overall export earnings, down from a peak of 55% achieved in 1992/93.

Gas potential Natural gas reserves were conservatively estimated at 40trn cu ft in August 1999, and potential reserves could be up to 60trn 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). At present, over 59% of Egypt’s gas production of 1.6bn cu ft/day, mainly from the Delta and Western Desert, is used for electricity generation, with the rest 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. British Gas International (BG) and its partner Italy’s Edison International announced in August 1999 the conclusion of a gas sales agreement with EGPC for its West Delta Deep Marine Concession, located in the offshore Nile Delta. The $500m development, to be undertaken by a joint-venture company comprising EGPC (50%), BG (25%) and Edison (25%), will focus on the Scarab/Saffron field, which has estimated reserves of over 4trn cu ft of high quality gas, making it the largest gasfield ever to be developed in Egypt. First output is expected in January 2003 and under the terms of the sales agreement, the joint venture company will deliver 530m cu ft/d over at least 17 years.

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 fell through owing to the lack of Israeli gas infrastructure and political difficulties. But Italy’s ENI signed an agreement with the Palestinian Authority in October 1998 to supply Egyptian gas originating from ENI’s offshore concessions in the Nile Delta to the Palestinian territories. In November 1996 Egypt signed a memorandum of understanding with Turkey to export 10bn cu metres/year, equivalent to 7.3m t/y or around 1,000 cu ft/d, from 2000. Amoco and ENI will implement the deal together with EGPC. But progress has been slow and, despite plans to establish a E£4.4bn ($1.3bn) natural gas liquefaction plant west of Port Said on a build-own-transfer (BOT) basis, no firm agreement has been signed. Gas exports to Jordan by 2000 are also under consideration at an initial 150m cu ft/d via a 280-km pipeline from Port Said to Ain Sukna and on to the Jordanian port of Aqaba.

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, and output is expected to increase from 125,000 t/y to 600,000 t/y in five years.

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

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Abu Tartur phosphate mines, north-west of El Kharga, has been delayed by cost and management problems, but private-sector management is to be sought and an integrated industrial project to produce chemical fertiliser is to be established. A local company, Ademco, has been awarded a 25-year franchise to mine for iron ore, the first for a private company, and the company will establish an integrated iron and steel plant at the site, east of Aswan. Iron ore reserves are estimated at over 400m tonnes. 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 eight refineries processing about 570,000 b/d in 1997. 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 $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 industrial investment in the new communities located on non-agricultural land, 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 $1bn in 1982 but have since levelled off at $300m-500m a year. The industry is divided into two branches. The Arab Organisation for Industrialisation, established in 1975 with a $1bn contribution from Saudi Arabia, Qatar and the United Arab Emirates (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 18.11m t/y of cement and another 2m 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 are being established.

Wastewater schemes and Much of the demand for construction arises from state infrastructure projects. housing The Greater Cairo Wastewater Project, at E£6bn ($1.8bn) one of the world’s largest sewerage schemes, aims to modernise Cairo’s inadequate system with

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funding from the US and the UK. The EU-financed wastewater scheme in Helwan, south of Cairo, will complete the project. A $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 Future construction projects include the massive Southern Valley development project (see box), a number of power plants, two new build-operate-own- 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 $150m Alexandria library, a new $320m media city south-west of Cairo, Egypt’s first private-sector airports, and a poss- ible third terminal for Cairo airport. In the private sector tourism is leading the way, with a number of major projects currently under construction.

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 ($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. 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 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. In addition, 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.

The project seems likely to go ahead, despite increasing criticism from some elements of the opposition. The liberal New Wafd party has described the project as a folly, criticising its cost and lack of transparency. The criticism has stung the government, which has launched a public relations offensive, stressing the project’s social benefits and the fact that it has won the approval of organisations such as the World Bank.

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£132.7bn ($39bn) in 1997. 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. Inflation targets are to be jointly set until the structural adjustment programme is over, by 2005. Legislation to this effect is expected to be passed by parliament during its 1999/2000 session.

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 subsid- iary 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 re- organised 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, including one industrial bank, two 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

EIU Country Profile 1999-2000 © The Economist Intelligence Unit Limited 1999 Egypt 37

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 68% 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 highly conservative, although the sector suffers from excess liquidity as a result of high capital inflows since 1991, and banks are not prepared to take substantial risks. 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 mainly to public enterprises; massive overstaffing; and stifling bureaucracy. Neverthe- less, 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. Thanks to the stability of the Egyptian pound, high real interest rates and an attractive differential between Egyptian pound and dollar deposit rates, local-currency deposits have risen sharply. Foreign- currency deposits as a percentage of overall money supply fell from 51% in 1991 to 20% in June 1999. From 20.3% in 1999, lending rates declined to 12.8% in June 1999.

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 dollar terms according to the independent Egyptian Financial Group (EFG) index. However, performance in 1995 was disappointing, with the market dropping by 21%, in part because of the slow privatisation programme and a subsequent lack of depth and liquidity. The acceleration of the privatisation programme in 1996 galvanised the exchange, and the market ended the year 40% above its end-1995 level. The market ended 1997 up by 14-20% (depending on the indices used) but has since gone into a decline as a result of the slowdown in privatisation and the poor global environment, which has deterred foreign investors, who were responsible for 33% of daily trading in 1997. Trading and volumes were lacklustre for most of 1998 and 1999. By September 1999, the market stood at roughly the same level as in first-half 1996, with a price/earnings (P/E) ratio on 1999 earnings of 7.5%, compared with a P/E of 18.4% at the market’s peak in February 1997, and dividend yields of 9%.

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, and 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 dollar liquidity. There have also been investor concerns about Egypt’s compliance with Y2K (the year 2000, a date which will be incompatible with older computing systems—popularly known as the “millennium bug”), which brokers say have kept many foreign

fund managers out of the market until 2000. Egypt’s market is still small in global terms and not always visible to the large institutional investors. It is not 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. However, having had a stand-alone index since 1997, there is now a general expectation that Egypt will be included in the main index by February 2000, once new capital market and clearance and settlement laws, currently under draft, are put in place, and concerns over dollar liquidity and Y2K have passed.

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. A tranche in one state insurance company is expected to be sold by end-1999 as valuation of the public-sector companies is currently under way.

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 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 $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 that tourist arrivals in May 1999 totalled 361,000, up from 241,000 in May 1998 and the 354,000 recorded in March 1997, prior to the attack. In June 1999 arrivals hit 348,000, up from 250,000 a year earlier, while figures just released for July show a rise to 473,000. Recent balance-of- payments data confirm that tourism revenue rose by 10% in 1998/99 (July- June) to $3.24bn, compared with $2.94bn in 1997/98 and the high of $3.6bn in 1996/97. The government envisages 16m tourists spending 130m tourist nights by 2017. Western Europe is Egypt’s largest tourist market, and was responsible for 56% of arrivals in 1997 (see Reference table 22). Egypt has traditionally relied on its unique archaeological heritage to attract tourists but is now attempting to diversify.

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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 around $400m, but Anwar Sadat’s open-door policy proved a great stimulus to imports, causing the deficit to rise steeply, to just under $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 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 tables 23-26 for external trade data). Figures from the IMF show a sharp widening of Egypt’s trade deficit to over $10bn in 1998, from $8.6bn in 1997. This was mainly due to sharply reduced oil export earnings (because of the collapse in global prices) combined with a revival in investment levels and a further deregulation of the trade regime, which boosted imports.

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 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 half of Egypt’s non-oil exports and roughly one-quarter of its imports.

Imports Egypt 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, 1998 (% of total) Exports to: US 14 Italy 13 UK 9 Germany 4 Imports from: US 16 Germany 10 Italy 8 France 8 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 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 General Agreement on Trade and Tariffs (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

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food producers in developed countries on Egypt’s already large food import bill. On the other hand, the removal of agricultural subsidies 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, 1998 ($ m unless otherwise indicated) Merchandise exports fob 4,403 Merchandise imports fob –14,617 Trade balance –10,214 Exports of services 8,141 Imports of services –6,492 Income: credit 2,030 Income: debit –1,075 Current transfers: credit 5,166 Current transfers: debit –122 Current-account balance –2,566 Source: IMF, International Financial Statistics.

In 1990 Egypt recorded its first current-account surplus ($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 $7bn in 1993 to $4.6bn in 1994, and a consequent drop in the current-account surplus from $2.3bn to just $31m. The current account showed a deficit of $254m in 1995, which dropped back slightly in 1996 before rising to $711m in 1997. The deficit then rocketed to $2.57bn in 1998 (3.1% of GDP), mainly owing to a sharp deterioration in the trade balance. (See Reference table 27 for IMF data on the current account; Reference table 28 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 (see Economic infrastructure). 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 each year, and subventions from Arab oil-producing countries rose to over $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 $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 $2bn in cash injections and a $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 $1.75bn in 1989 to a peak of $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 May 1997 Egypt won aid pledges from international donors of $2.5bn over the ensuing two years—$1.5bn in grants and $1bn in concessional loans—and access to nearly $1bn in long-term development loans. (See Reference table 30 for OECD data on net official development assistance and Reference table 31 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 $3bn in 1987/88 to over $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 $3.3bn in 1994/95 owing to the changed method of calculation, and to $3.26bn in 1996/97. However, the fall in 1994/95 also reflects the final stage of a one-off relocation of Egyptian surplus savings held abroad, particularly in the Gulf states, in response to the uncertainty resulting from the 1991 Gulf war.

Capital flows and foreign debt

The large current-account deficit in 1998 was a shock to the Central Bank; for most of the 1990s deficit financing was not 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 (see below). However, the financing requirement for 1998 reached $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 $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 $7bn debt write-off from Arab states on debt that was generally not being serviced, the US wrote off $7.1bn in military debt, of which some $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 $1.3bn. Despite this assistance, external debt in 1998 remained high at about $30bn (37% of GDP). Of this, 87% was public medium- and long-term debt; private debt was negligible, while short-term debt amounted to about $3.8bn. 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 11% from 26% in 1988. (See Reference table 29 for World Bank data on external debt.)

Domestic debt To a much lesser extent, the improved debt position reflects the squeeze on public spending since Egypt embarked on its economic reform programme in 1991. The government’s careful fiscal stance slashed the budget deficit from 20% of GDP in 1990/91 to 1.3% of GDP in 1998/99. The declining deficits have in turn led to a reduction in government borrowing as the government has increasingly chosen to fund the deficit through the sale of Treasury bills and bonds rather than external borrowing. The government has recently 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 ($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 recent series of monthly E£500m offerings since August 1998. Domestic debt stood at E£137bn, or less than 50% of GDP, in 1997/98 according to the government.

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 has risen significantly since 1995 in response to the reorganisation of the capital markets, and this trend should continue as Egypt’s fledgling stockmarkets mature (see Financial services). However, private direct investment, while improving, has stayed low despite the tremendous liquidity in the system, 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. According to the prime minister, Egypt attracted a mere $600m in FDI in 1995, although this has continued to rise in response to liberalisation, to over $1bn in 1998, according to the IMF (see Reference table 27). 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, have led to the rapid accumu- lation of foreign-exchange reserves. These were $16.7bn (excluding gold) in June 1999, according to the IMF, sufficient for over nine months of import cover. Although this figure is down by some $1.6bn on the beginning of 1999, this is 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 32.) Reserve management has been highly conservative but more sophisticated management is now becoming a priority, although the level of expertise within the Central Bank has led to some concern.

Dollar liquidity problems These doubts were heightened during the course of 1999 when the Central Bank was widely perceived to have mishandled a severe dollar liquidity crisis in the local economy. By mid-August 1999, dollar rates at money-changers had soared to the highest in five years at E£3.73:$1, compared with the bank rate, closely monitored by the Central Bank, of E£3.42:$1. Nevertheless, investors and businessmen continued to be unable to obtain sufficient dollars and foreign investors started to worry about their ability to repatriate profits while, in the increasingly tense atmosphere, the Central Bank blamed the shortage on the money-changers for speculation and the banks for overlending. Mean- while, with local currency liquidity also short, interbank rates increased to around 15%, compared with the usual 8-10%.

In tandem, the government acted to salvage the situation by raising the interest rate on investment bonds (longer-term Treasury bills) by 50 basis points to 11%, mainly to encourage a rise in interest rates on loans, which would in turn discourage lending and curb dollar demand. The government also instructed the Central Bank to start injecting dollars into the market, and reportedly some $500m were released in late August alone. Moreover, at least 15 money-changers were closed down for currency violations. As a result, by early September, rates on the parallel market had fallen to E£3.55:$1 and by late October had reached E£3.53:$1.

Nevertheless, pent-up demand for dollars remains strong and the Central Bank has continued to ration dollars, giving preference first to foreigners and then trade. This policy is expected to stay in place until revenue flows start to increase owing to higher oil prices, greater numbers of tourists and large privatisation sales in foreign currency.

The pressure on the Central Bank’s reserves (see above) increased speculation about the possibility of a devaluation of the Egyptian pound. Egypt’s 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—HSBC investment bank estimates an inflation adjusted appreciation of around 50% over the past nine years. However, the new prime minister has firmly stated that no devaluation will take place, and it is not a political option at present. A devaluation would denote failure after the government’s successful battles with the IMF during 1994-96 over the latter’s demand for a 20-30% devaluation. The government is also fearful that devaluation would erode public confidence in the currency owing to the popular perception that a flotation can only lead to a crash. Moreover, the government argues that it would have a negative effect on inflation given the country’s high level of imports and would have little benefit for exports since the biggest item—petroleum—is denominated in dollars. The government adds that it 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 foreign direct investment. (For historical data on exchange rates see Reference table 33.)

Exchange rates, 1998 (E£ per currency unit unless otherwise indicated; end-period) $ 3.39 DM 2.03 ¥100 3.01 £ 5.66 FFr 0.60 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 now publishes monthly statistics on the Internet, covering most areas of the macroeconomy and the financial markets.. The Central Bank of Egypt also produces an Annual Report 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 annual Economic Trends, Trade Act and Agricultural Situation reports, many 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 while a leading local broker, EFG-Hermes, has produced guides to the capital markets, and Intercapital Securities produces a weekly market report. Both also produce sectoral and corporate reports. Increased international interest in the local financial markets has led to a rash of reports by Merrill Lynch, Robert Fleming Securities, 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

Cabinet Information and Decision Support Centre, Main Economic Indicators (monthly), Cairo

CAPMAS, Statistical Yearbook, Arab Republic of Egypt, Cairo

Capital Market Authority, semi-annual reports, Cairo

Central Bank of Egypt, Annual Report, Economic Review (quarterly) and Monthly Statistical Bulletin, Cairo

EFG-Hermes, Egypt Country Report 1999, Cairo

Institute of National Planning, Egypt Human Development Report, Cairo

Ministry of Economy, The Monthly Economic Digest, website

Ministry of Economy, Investing in Egypt, 1999, Cairo

Ministry of Economy, Egypt 2000 Factbook, Cairo

Ministry of Electricity and Energy, Annual Report 1996/97, Cairo

National Bank of Egypt, Annual Reports and Economic Bulletin, Cairo

Social Fund for Development, Annual Reports and Bulletins, Cairo

Suez Canal Authority, Annual and Monthly Reports, Cairo

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

US embassy, Trade Act Report, Egypt (annual), Cairo

International sources Cotton Outlook, Liverpool

Energy Data Associates, 1 Regent Street, London SW1Y 4NR

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

Karl Baedeker, Egypt and the Sudan: Handbook for Travellers, Karl Baedeker, Leipzig, 1929

Kirk Beattie, Egypt during the Nasser Years, Westview Press, 1994

Robert Bianchi, Unruly Corporatism: Associational Life in Twentieth Century Egypt, Oxford University Press, 1989

Elizabeth Warnock Fernea and Robert A Fernea, The Arab World: Personal Encounters, Anchor Press/Doubleday, New York, 1987

Mohammed Hassanein Heikal, The Road to Ramadan, William Collins, London, 1975

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

Helen Chapin Metz (ed.), Egypt, a country study, Federal Research Division, Library of Congress, Washington, 1990

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) 1993 1994 1995 1996 1997 Total 56.49 57.85 59.23 60.60 62.01 % change, year on year 1.3 2.4 2.4 2.3 2.3 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 –1.29 60,839 2.32 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 –1.7 1,483 –3.3 Unemployment rate (%) 9.6 – 9.4 – 8.8 – 8.3 – Source: Central Bank of Egypt, Annual Report.

Reference table 3 Number of workers by sector (‘000) 1992/93 1993/94 1994/95 1995/96 1996/97 Agriculture 4,578 4,621 4,657 4,693 4,747 Industry & mining 1,752 1,828 1,896 1,966 2,038 Petroleum 3638394143 Electricity 107 111 114 117 120 Construction 903 955 1,011 1,073 1,140 Transportation & Suez Canal 612 632 654 677 704 Trade, finance & insurance 1,432 1,491 1,553 1,615 1,679 Tourism 130 133 136 140 145 Real estate 205 209 212 215 219 Social services 1,243 1,293 1,337 1,372 1,413 Public utilities & social insurance 3,013 3,125 3,270 3,431 3,577 Total number of workers 14,011 14,436 14,879 15,340 15,825 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 Sources: Ministry of Transportation; Ministry of Interior.

Reference table 5 Suez Canal traffic 1994 1995 1996 1997 1998 Oil tankers No. 2,730 2,473 2,309 2,256 2,137 Net tonnage (m tonnes) 107 97 81.0 78 90 Average tonnage (‘000 tonnes) 23 18 29 35 42 Other ships No. 13,640 12,578 12,422 12,175 11,335 Net tonnage (m tonnes) 257 263 274 291 296 Average tonnage (‘000 tonnes) 19 21 22 24 26 Total No. 16,370 15,051 14,731 14,431 13,472 Net tonnage (m tonnes) 365 360 355 369 386 Average tonnage (‘000 tonnes) 22 24 24 26 29 Source: Central Bank of Egypt.

Reference table 6 Electricity generation 1989/90 1990/91 1991/92 1992/93 1993/94 Bn kwh 62.0 67.0 70.0 74.5 75.0 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) 1995/96 1996/97 1997/98 1998/99a 1998/99b Total revenue 60,893 64,498 67,963 69,919 71,295 Tax revenue 38,249 40,518 43,962 45,700 47,149 Transferred profits 11,133 11,423 10,780 9,812 9,802 Other non-tax revenue 5,104 5,238 5,293 5,446 5,497 Non-central government revenuec 6,407 7.319 7,928 8,961 8,847 Total expenditure 63,889 66,826 70,783 73,919 75,285 of which: current expenditure 51,196 53,030 55,289 58,002 58,621 of which: domestic interest payments 12,231 12,337 12,219 12,772 – foreign interest payments 3,796 3,114 2,724 2,624 – investment expenditure 12,581 14,070 15,635 16,110 16,030 Overall balance –2,996 –2,328 –2,820 –4,000 –3,990 % of GDP –1.3 –0.9 –1.0 –1.3 –1.3 a Budget. b Preliminary 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) 1994 1995 1996 1997 1998 Currency in circulation 20,612 22,750 24,954 28,215 31,502 Demand deposits 15,919 17,282 18,026 18,920 19,335 Money (M1) incl others 38,275 41,540 44,521 48,708 58,577 % change year on year 11 9 7 9 20 Quasi-money 109,834 121,227 135,882 151,129 162,795 Money (M2) 148,109 162,766 180,404 199,837 221,372 % change year on year 11.2 10.0 10.8 10.8 10.8 Source: IMF, International Financial Statistics.

Reference table 10 Interest rates (%; period averages unless otherwise indicated) 1994 1995 1996 1997 1998 Deposit rate 11.8 10.9 10.5 9.8 9.4 Lending rate 16.5 16.5 15.6 13.8 13.0 Discount rate (end-period) 14.0 13.5 13.0 12.3 12.0 Source: IMF, International Financial Statistics.

Reference table 11 Gross domestic product (market prices) 1993/94 1994/95 1995/96 1996/97 1997/98 Total (E£ m) At current prices 175,000 205,000 228,300 256,250 280,220 At constant (1992) prices 148,820 155,730 163,500 172,480 n/a Real change (%) 3.8 4.6 5.0 5.5 n/a Per head (E£)a At current prices 3,025 3,461 3,767 4,132 n/a At constant (1992) prices 2,571 2,626 2,699 2,792 n/a Real change (%) 1.4 2.1 2.8 3.5 n/a

a Derived using IMF population figures.

Source: IMF, International Financial Statistics

Reference table 12 Gross domestic product by expenditure (E£ m at constant 1992 prices; % change year on year in brackets unless otherwise indicated) 1992/93 1993/94 1994/95 1995/96 1996/97 Private consumption 105,304 107,391 112,010 116,490 121,310 (1.4) (2.0) (4.3) (4.0) (4.1) Government consumption 14,553 16,630 17,230 18,310 19,330 (–0.6) (14.3) (3.6) (6.3) (5.6) Gross fixed investment 28,000 32,200 33,700 35,800 39,550 (1.8) (15.0) (4.7) (6.2) (10.5) Stockbuilding 1 1 1 1 1 (0.0)a (0.0)a (0.0)a (0.0)a (0.0)a Exports of goods & services 43,253 41,207 41,800 45,300 49,400 (7.0) (–4.7) (1.4) (8.4) (9.1) Imports of goods & services –47,803 –48,669 –49,200 –52,360 –56,430 (1.0) (1.8) (1.1) (6.4) (7.8) GDP 143,308 148,760 155,541 163,541 173,161 (3.0) (3.8) (4.6) (5.1) (5.9) a Change as a percentage of GDP in the previous year.

Source: Ministry of Finance.

Reference table 13 Gross domestic product by sector (E£ m; factor cost; current prices) E Million) 1994/95 1995/96 1996/97 1997/98 1998/99 Agriculture 32,050 36,968 42,325 45,878 49,360 Industry & mining 33,330 37,936 43,383 48,798 55,225 Petroleum & products 15,120 14,760 15,854 16,803 12,775 Electricity 3,750 3,980 4,220 4,470 4,565 Construction 9,500 11,040 12,750 14,560 16,660 Transportationa 19,700 21,500 22,695 24,507 26,300 Trade, finance & insurance 39,700 45,109 51,027 56,665 63,077 Hotels & restaurants 2,850 3,241 3,830 3,164 3,542 Housing & real estate 3,450 3,816 4,375 4,860 5,412 Utilities 690 843 915 1,038 1,179 Social insurance 120 140 165 185 214 Government services 15,100 17,220 18,900 20,662 22,352 Social & personal services 15,650 17,632 19,061 20,630 22,340 Total GDP 191,010 214,185 239,500 262,220 283,001

a Includes revenue from Suez Canal.

Source: Ministry of Planning.

Reference table 14 Prices (1990=100; % change year on year in brackets) 1994 1995 1996 1997 1998 Consumer prices 86.4 100.0 107.2 112.1 116.8 (8.1) (15.7) (7.2) (4.6) (4.2) Wholesale prices 94.1 100.0 108.3 112.8 114.4 (4.7) (6.3) (8.3) (4.2) (1.4) 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: 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 ($ ‘000) 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: Central Agency for Public Mobilisation and Statistics (CAPMAS).

Reference table 18 Petroleum and natural gas production and consumption (m tonnes oil equivalent) 1994 1995 1996 1997 1998 Crude oil 44.8 44.44 42.8 41.3 41.0 Natural gas 9.3 9.9 10.4 10.6 10.8 Condensates 1.3 1.3 1.4 1.6 1.6 LPG 0.8 0.8 1.0 1.0 1.0 Total productiona 56.2 56.5 55.5 54.5 54.5 Refinery throughput 26.4 27.3 28.3 28.7 29.3 Petroleum products 17.6 19.4 20.2 21.7 23.7 Natural gas 9.2 9.9 10.2 10.4 10.6 Total consumptiona 26.8 29.3 30.4 32.0 34.3

a May not add due to rounding.

Source: Egyptian General Petroleum Corporation (EGPC).

Reference table 19 Minerals production 1994/95 1995/96 1996/97 Asbestos (‘000 tonnes) 514 427 1,836 Bentonite (‘000 tonnes) 2,379 1,930 1,136 Feldspar (‘000 tonnes) 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 (‘000 tonnes) 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 (‘000 tonnes) 4,125 38,608 41,227 Vermiculite (‘000 tonnes) 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, July 3rd 1998.

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) 1994 1995 1996 1997 1998 No. of traded companies 700 746 646 650 861 Total value of traded shares 2,557 3,849 10,968 24,220 23,363 Value of listed shares 1,214 2,294 8,769 20,282 18,500 Value of unlisted shares 1,343 1,555 2,198 3,937 4863 Volume of traded shares (m) 60 72 208 373 571 No. of transactions (‘000) 95 470 2,316 1,225 n/a Market capitalisation 14,480 27,420 48,086 70,873 83,140 Source: Capital Markets Authority.

Reference table 22 Tourist arrivals by region of origin (‘000 unless otherwise indicated) 1994 1995 1996 1997 1998 Western & southern Europe 930 1,345 1,816 1,910 1,769 % of total 36 43 47 48 51 Middle East 1,032 1,038 1,150 1,186 986 % of total 40 33 30 30 30 Americas 182 229 259 257 218 % of total 77776 Eastern Europe 101 170 206 192 188 % of total 45555 Asia Pacific 181 219 288 260 161 % of total 77775 Africa 153 130 116 120 131 % of total 64334 Total incl others 2,582 3,133 3,896 3,961 3,455 Source: Central Bank of Egypt.

Reference table 23 Foreign trade (E£ m) 1994 1995 1996 1997 1998 Exports fob 11,768 11,704 12,004 13,286 10,606 Imports cif –34,599 –39,892 –44,218 –44,769 –54,771 Trade balancea –22,831 –28,188 –32,214 –31,483 –44,165 Suez Canal dues 6,998 6,693 6,381 6,074 6,109

a Totals may not sum due to rounding.

Source: IMF, International Financial Statistics.

Reference table 24 Exports ($ 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 ($ 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) 1994 1995 1996 1997 1998 Exports to: US 10 11 12 12 14 Italy 2019201513 UK 47899 Germany 6 7 5 5 4 Imports from: US 20 19 18 20 16 Germany 9 10 10 10 10 Italy 9 8 8 7 8 France 6 8 8 7 8 Source: IMF, Direction of Trade Statistics.

Reference table 27 Balance of payments, IMF estimates ($ m) 1994 1995 1996 1997 1998 Merchandise exports fob 4,044 4,670 4,779 5,525 4,403 Merchandise imports fob –9,997 –12,267 –13,169 –14,157 –14,617 Trade balance –5,953 –7,597 –8,390 –8,632 –10,214 Exports of services 8,070 8,590 9,271 9,380 8,141 Imports of services –5,645 –4,873 –5,084 –6,770 –6,492 Inflows of interest, profit & dividends (IPD) 1,330 1,578 1,901 2,122 2,030 Outflows of IPD –2,114 –1,983 –1,556 –1,185 –1,075 Current transfers: credit 4,622 4,284 3,888 4,738 5,166 Current transfers: debit –279 –253 –222 –363 –122 Current-account balance 31 –254 –192 –711 –2,566 Net direct investment 1,213 505 631 762 1,031 Net portfolio investment 3 20 545 796 –600 Other capital –2,666 –2,370 –2,635 400 1,470 Capital-account balance –1,450 –1,845 –1,459 1,958 1,901 Net errors & omissions –255 272 –74 –1,882 –722 Overall balance –1,164 –1,827 –1,725 635 1,179 Reserve assets –1,193 –409 –1,010 –1,185 535 Use of IMF credit & loans –22 –95 –85 –15 – Exceptional financing 2,379 2,331 2,820 1,836 852 Source: IMF, International Financial Statistics.

Reference table 28 Balance of payments, national estimates ($ m) 1993/94 1994/95 1995/96 1996/97 1997/98 Merchandise exports fob 3,337 4,957 4,609 5,345 5,128 Petroleum 1,772 2,176 2,226 2,578 1,728 Non-petroleum 1,565 2,781 2,383 2,768 3,400 Merchandise imports fob –10,647 –12,812 –14,107 –15,567 –16,899 Trade balance –7,310 –7,854 –9,498 –10,222 –11,771 Exports of services 8,677 9,556 10,636 11,241 10,444 Imports of services –5,004 –5,514 –4,845 –5,048 –5,849 Private transfers (net) 3,232 3,279 2,798 3,256 3,519 Current-account balance (excl official transfers) –404 –533 –909 –773 –3,658 Official transfers (net) 814 919 724 890 885 Current-account balance 410 386 –185 119 –2,772 Net direct investment 1,285 735 612 723 1,008 Net portfolio investment 3 4 258 1,463 –248 Capital- & financial-account balancea 2,511 430 1,017 2,041 3,765 Net errors & omissions –815 –61 –261 –247 –1,128 Overall balance 2,106 754 571 1,912 –135 a Includes other investment and net borrowing.

Source: Central Bank of Egypt.

Reference table 29 External debt, World Bank estimates ($ m unless otherwise indicated; debt stocks as at year-end) 1993 1994 1995 1996 1997 Public medium- & long-term 28,303 30,189 30,792 28,937 26,858 Private medium- & long-term 500 375 313 127 54 Total medium- & long-term debt 28,303 30,189 30,792 28,937 26,858 Official creditors 25,445 27,732 28,794 27,507 25,715 Bilateral 21,842 23,821 24,821 23,575 21,824 Multilateral 3,603 3,912 3,973 3,932 3,892 Private creditors 2,359 2,082 1,685 1,303 1,089 Short-term debt 2,003 1,931 2,371 2,347 2,991 of which: interest arrears 11323 Use of IMF credit 202 193 103 16 0 Total external debt 30,509 32,314 33,266 31,299 29,849 Principal repayments 965 923 901 1,020 926 Interest payments 1,041 1,155 1,243 1,041 724 of which: short-term debt 164 130 132 133 n/a Total debt service 2,005 2,078 2,143 2,061 1,650 Ratios (%) Total external debt/GDP 67.2 63.6 56.7 46.1 39.0 Debt-service ratio, paida 13.0 14.1 12.3 11.5 9.0 Short-term debt/total external debt 6.6 6.0 7.1 7.5 10.0 Concessional long-term debt/ total long-term debt 59.0 60.4 61.0 76.7 75.6 Variable interest long-term debt/ total long-term debt 6.1 5.5 5.1 4.4 n/a

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 30 Net official development assistancea ($ 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 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 31 US aid to Egypt ($ m; US fiscal years) 1994 1995 1996 1997 1998 Commodity export credit guarantees 160 165 200 200 – Economic grant aid 592 815 815 815 815 Military grant aid 1,300 1,300 1,300 1,300 1,300 Total (obligation basis) 2,052 2,280 2,315 2,315 2,115 Source: US embassy, Cairo.

Reference table 32 Foreign reserves ($ m unless otherwise indicated; end-period) 1994 1995 1996 1997 1998 Foreign exchange 13,316 15,998 17,198 18,479 17,888 SDRs 86 103 123 113 160 Reserve position in the IMF 78 80 77 73 76 Total reserves excl gold 13,481 16,181 17,398 18,665 18,124 Memorandum items Golda 694 704 695 609 541 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 33 Exchange rates (end-period) 1994 1995 1996 1997 1998 E£:$ 3.3910 3.3900 3.3880 3.3880 3.3880 E£:SDR 4.9504 5.0392 4.8718 4.5713 4.7704 Source: IMF, International Financial Statistics.

Editor: James Reeve All queries: Tel: (44.20) 7830 1007 Fax: (44.20) 7830 1023