Economy of Egypt

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A series of International Monetary Fund arrangements, coupled with massive external debt relief resulting from Egypt's participation in the Gulf War coalition, helped Egypt improve its macroeconomic performance during the 1990s. Through sound fiscal and monetary policies, the Government of Egypt tamed inflation, slashed budget deficits, and built up foreign reserves. Although the pace of structural reforms, such as privatization and new business legislation, has been slower than the IMF envisioned, Egypt's steps toward a more market-oriented economy have prompted increased foreign investment. Lower combined hard currency inflows - from tourism, worker remittances, oil revenues, and Suez Canal tolls - in late 1990s resulted in pressure on the Egyptian pound and sporadic dollar shortages, but external payments were not in crisis. At the turn of the millennium, monetary pressures have eased, however, with the continued oil price rise since 2002, increased gas exploration and discoveries and a moderate rebound in tourism.^[1] Egypt's reform record has substantially improved since Nazif government came to power. Egypt has made substantial progress in developing its legal, tax and investment infrastructure. The reform program is still a work in progress.

1 Economy: in greater detail
2 Statistics
3 Investment climate
4 Notes
5 References
6 See also
7 External links

[edit] Economy: in greater detail

[edit] Macro-economic trend

This is a chart of trend of gross domestic product of Egypt at market prices estimated by the International Monetary Fund with figures in millions of Egyptian Pounds.

Year	Gross Domestic Product	US Dollar Exchange	Inflation Index (2000=100)
1980	15,660	0.70 Egyptian Pounds	8.50
1985	32,515	0.70 Egyptian Pounds	16
1990	96,100	1.05 Egyptian Pounds	42
1995	204,000	3.39 Egyptian Pounds	78
2000	340,100	3.42 Egyptian Pounds	100
2005	558,000	5.99 Egyptian Pounds	133
2006	618,000	5.71 Egyptian Pounds	139

For purchasing power parity comparisons, the US Dollar is exchanged at 1.83 Egyptian Pounds only.

Egypt has a stable economy in the Middle East and North Africa enjoying continuous growth in the past half-a-century. Its current GDP per capita expanded 46% in the Sixties and reached a peak growth of 139% in the Seventies. But this proved unsustainable and growth consequently scaled back to 48% in the Eighties rising smartly to 89% in the Nineties due to successful diversification.

Under comprehensive economic reforms initiated in 1991, Egypt has relaxed many price controls, reduced subsidies, reduced inflation, cut taxes, and partially liberalized trade and investment. Manufacturing is still dominated by the public sector, which controls virtually all heavy industry. A process of public sector reform and privatization has begun, however, which could enhance opportunities for the private sector. Agriculture, mainly in private hands, has been largely deregulated, with the exception of cotton and sugar production. Construction, non-financial services, and domestic marketing are largely private. This has promoted a steady increase of GNP and the annual growth rate. Among Arab countries, Egypt's GDP is second only to Saudi Arabia's. However, the Egyptian economy relies heavily on tourist revenues. The tourism sector suffered tremendously following a terrorist attack on tourists in Luxor in October 1997, and the September 11, 2001 attacks against the United States, affecting the economy as a whole.

The reform programme is a work in progress. Noteworthy that the reform record has substantially improved since Nazif government came to power. Egypt has made substantial progress in developing its legal, tax and investment infrastructure. (See Nawar 2006) Indeed, over the past 5 years, Egypt has passed, amended and admitted over 15 legislative pieces. The economy is expected to grow by about 7.5% in 2006/2007. Energy subsidies, perhaps, are the most controversial economic reform in 2006/2007.

[edit] Exchange Rate

In the fiscal year 2004 and over most of the fiscal year 2005, the pound depreciated against the US Dollar. Since the second half of the fiscal year 2006, the pound graduallay appreciated to EGP 5.76 6 per USD. It is likely to remain close to this appreciated level in the short-term.

Approximately one-third of Egyptian labor is engaged directly in farming, and many others work in the processing or trading of agricultural products. Practically all Egyptian agriculture takes place in some 25,000 km² (6 million acres) of fertile soil in the Nile Valley and Delta. Some desert lands are being developed for agriculture, including the ambitious Toshka project in Upper Egypt, but some other fertile lands in the Nile Valley and Delta are being lost to urbanization and erosion.

Warm weather and plentiful water permit several crops a year. Further improvement is possible, but land is worked intensively and yields are high. Cotton, rice, wheat, corn, sugarcane, sugar beets, onions, and beans are the principal crops. Increasingly, a few modern operations are producing fruits, vegetables and flowers, in addition to cotton, for export. While the desert hosts some large, modern farms, more common traditional farms occupy one acre (4,000 m²) each, typically in a canal-irrigated area along the banks of the Nile. Many small farmers also have cows, water buffaloes, and chicken, although larger modern farms are becoming more important.

The United States is a major supplier of wheat, corn, and soybean products to Egypt, almost all through commercial sales. Egypt is, in fact, the U.S.'s largest market for wheat sales. U.S. agricultural sales to Egypt total $1 billion annually. U.S. food assistance programs to Egypt ended in 1992 as Egypt became more prosperous. Egypt continues to receive modest food assistance through the World Food Program and from France.

"Egypt," wrote the Greek historian Herodotus 25 centuries ago, "is the gift of the Nile." The land's seemingly inexhaustible resources of water and soil carried by this mighty river created in the Nile Valley and Delta the world's most extensive oasis. Without the Nile, Egypt would be little more than a desert wasteland.

The river carves a narrow, cultivated floodplain, never more than 20 kilometers wide, as it travels northward toward Cairo from Lake Nasser on the Sudanese border, behind the Aswan High Dam. Just north of Cairo, the Nile spreads out over what was once a broad estuary that has been filled by riverine deposits to form a fertile delta about 250 kilometers wide (150 mi.) at the seaward base and about 160 kilometers (96 mi) from south to north.

Before the construction of dams on the Nile, particularly the Aswan High Dam (started in 1952, completed in 1970), the fertility of the Nile Valley was sustained by the water flow and the silt deposited by the annual flood. Sediment is now obstructed by the Aswan High Dam and retained in Lake Nasser. The interruption of yearly, natural fertilization and the increasing salinity of the soil has been a manageable problem resulting from the dam. The benefits remain impressive: more intensive farming on thousands of square kilometres of land made possible by improved irrigation, prevention of flood damage, and the generation of millions of gigajoules of electricity at low cost.

The Western Desert accounts for about two-thirds of the country's land area. For the most part, it is a massive sandy plateau marked by seven major depressions. One of these, Fayoum, was connected about 3,600 years ago to the Nile by canals. Today, it is an important irrigated agricultural area.

[edit] Natural Resources

In addition to the agricultural capacity of the Nile Valley and Delta, Egypt's natural resources include petroleum, natural gas, phosphates, and iron ore. Crude oil is found primarily in the Gulf of Suez and in the Western Desert. Natural gas is found mainly in the Nile Delta, off the Mediterranean Sea shore, and in the Western Desert. Oil and gas accounted for approximately 7% of GDP in fiscal year 2000-01.

Export of petroleum and related products amounted to $2.6 billion in the year 2000. In late 2001, Egypt's benchmark "Suez Blend" was about $16.73 per barrel ($105/m³), the lowest price since 1999.

Crude oil production has been in decline for several years since its peak level in 1993, from 941,000 bbl/d in 1993 to 873,000 bbl/d in 1997 and to 696,000 bbl/d in 2005. (See Figure). At the same time, the domestic consumption of oil increased steadily (531,000 bbl/d and 616,000 bbl/d in 1997 and 2005 respectively). It is easy to see from the graph that a linear trend would project that domestic demand would outpace supply in the near future (2008-2009), turning Egypt to a net importer of oil. To minimize this potential, that the Government of Egypt has been encouraging the exploration, production and domestic consumption of natural gas. Natural gas output continues to increase and reached 34.7 Billion cubic meters in 2005.

Over the last 15 years, more than 180 petroleum exploration agreements have been signed and multinational oil companies spent more than $27 billion in exploration companions. These activities led to the findings of about 18 crude oil fields and 16 natural gas fields in FY 2001. The total number of findings rose to 49 in FY 2005. As a result of these findings, crude oil reserves as of December 2005 are estimated at 3.7 billion barrels, and proven natural gas reserves are 1.89 trillion cubic meters with a likely additional discoveries with more exploration campaigns. The main natural gas producer in Egypt is the International Egyptian Oilfield Company (IEOC), a branch of Italian ENI-AGIP. Other companies like BP, BG, Texas-based Apache Corp. and Shell carry out activities of exploration and production by means of concessions granted for a period of generally ample time (often 20 years) and in different geographic zones of oil and gas deposits in the country.

Egypt's excess of natural gas will more than meet its domestic demand for many years to come. The Ministry of Petroleum and Mineral Resources has established expanding the Egyptian petrochemical industry and increasing exports of natural gas as its most significant strategic objectives.

Egypt and Jordan agreed to construct the Arab Gas Pipeline from Al Arish to Aqaba to export natural gas to Jordan; with its completion in July 2003, Egypt began to export 1.1 bcm of gas per year. Total investment in this project is about $220 million. In 2003, Egypt, Jordan and Syria reached an agreement to extend this pipeline to Syria, which possibly could mean a future connection with Turkey, Lebanon and Cyprus. In addition, the East Mediterranean Gas (EMG), a joint company established in 2000 and owned by Egyptian General Petroleum Corp. EGPC (68.4%), the private Israeli company Merhav (25%) as well as Ampal-American Israel Corp. (6.6%), has been granted the rights to export natural gas from Egypt to Israel and other locations in the region via underwater pipelines from Al 'Arish to Ashkelon which will provide Israel Electric Corp IEC 1.7 bcm of gas per year. Gas supply is expected to start in the first half of 2007.

[edit] Statistics

Basic Data
Fiscal Year	1 July - 30 June
Currency	Egyptian pound (EGP) = 100 piasters
Measuring System	Metric
Land Area	$\approx$ 1 million k $m 2$

To Be Completed Soon:

Economic Statistics	2001	2002	2003	2004	2005	2006	2007
GDP (EGP Bn)	358.7	378.9	417.5	485.3	536.6	618
GDP Growth	3.5	3.2	3.1	4.1	5.0	6.9
Inflation	2.4	2.4	3.2	10.3	11.4	4.4
Current Account Balance (USD m)	-33	614	1943	3418	2911
Development Assistance (USD b)				1.3 ^[2]
Population (m)	65.3	66.6	68.0	69.3	70.7
Labor Force	19.3	19.9	20.4	20.9	21.8
Unemployment (%)	9.2	10.2	11.0	10.3	11.2
Merchandise Imports (fob: USD m)	16441	14637	14821	18286	24193
Merchandise Exports (fob: USD m)	7078	7121	8205	10453	13833
Net Foreign Direct Investment (FDI: USD m)	509.4	428.2	700.6	2107.2	3901.6	6111.4
GDP Composition
-- Agriculture	14	16	17	15	14	15
-- Industry ^[3]	30	32	33	31	33	36
-- Services	56	53	50	54	53	49
Subsidies (EGP Bn) ^[4]	25	25	28	38	54	68.5
Electricity Generation (GWh)	75599	83012	88855	94067	100093
Fiscal Balance, (-) Deficit	–8,018	–9,623	–9,946
Per Pound USD Exchange Rate	4.4900	4.5000	6.1532	6.1314	5.7322	5.71310 ^[5]
IMF Voting Power						0.45%^[6]

GDP: purchasing power parity - $339 billion (2006 est.)

GDP - real growth rate: 5.7% (2006 est.)

GDP - per capita: purchasing power parity - $4,700 (2006 est.)

GDP - composition by sector:
agriculture: 17%
industry: 32%
services: 51% (1999)

Population below poverty line: 16.7% (2000)

Household income or consumption by percentage share:
lowest 10%: 3.9%
highest 10%: 26.7% (1991)

Labor force: 19 million (1999 est.)

Labor force - by occupation: agriculture 40%, services 38%, industry 22% (1990 est.)

Unemployment rate: 9.9% (2003 est.)

Budget:
revenues: $20.7 billion
expenditures: $22.3 billion, including capital expenditures of $NA (FY98/99)

Industries: textiles, food processing, tourism, chemicals, petroleum, construction, cement, metals

Industrial production growth rate: 5% (1999 est.)

Electricity - production: 69,960 GWh (2001)

Electricity - production by source:
fossil fuel: 78.72%
hydro: 21.28%
nuclear: 0%
other: 0% (1998)

Electricity - consumption: 54,000 GWh (1998)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

Agriculture - products: cotton, rice, corn, wheat, beans, fruits, vegetables; cattle, water buffalo, sheep, goats; fish

Exports: $8.7 billion (f.o.b., 2003 est.)

Exports - commodities: crude oil and petroleum products, cotton, textiles, metal products, chemicals

Exports - partners: EU 47%, US 14%, Turkey 8% (1998)

Imports: $14.7 billion (f.o.b., 2003 est.)

Imports - commodities: machinery and equipment, foods, chemicals, wood products, fuels

Imports - partners: EU 42%, US 16%, Japan 5% (1998)

Debt - external: $30 billion (1999 est.)

Economic aid - recipient: ODA, $2.25 billion (1999)

[edit] Investment climate

The Egyptian equity market is one of the most developed in the region with more than 633 listed companies. Market capitalization on the exchange doubled in 2005 from USD 47.2 billion to USD 93.5 billion, with turnover surging from USD 1.16 billion in January 2005 to USD 6 billion in January 2006.

Until 2003, the Egyptian economy suffered from shortages in foreign currency and excessively elevated interest rates. A series of budget reforms were conducted in order to redress weaknesses in Egypt’s economic environment and to boost private sector involvement and confidence in the economy.

Major fiscal reforms were introduced in 2005 in order to tackle the informal sector which according to estimates represents somewhere between 30% to 60% of GDP. Significant tax cuts for corporations were introduced for the first time in Egyptian history. The new Income tax Law No 91 for 2005 reduced the tax rate from 40% to 20%. According to government figures, tax filing by individuals and corporations increased by 100%.

Many changes were made to cut trade tariffs. Among the legislator’s goals were tackling the black market, reducing bureaucracy and pushing through trade liberalization measures. Amendments to Investment and Company law were introduced in order to attract foreign investors. For example, the number of days required for establishing a company was dramatically reduced.

Significant improvement to the domestic economic environment increased investors’ confidence in Egypt. The Cairo & Alexandria Stock Exchanges is considered among the best ten emerging markets in the world. The changes to the policy also attracted increased levels of foreign direct investment in Egypt. According to the UN Conference on Trade and Development’s World Investment Report, Egypt was ranked the second largest country in attracting foreign investment in Africa.

Given the large number of amendments to laws and regulations, Egypt has succeeded to a certain extent in conforming to international standards. Very recently the Cairo and Alexandria Stock Exchange (CASE) was welcomed with full membership into the World Federation of Exchanges (WFE) – the first Arab county to be invited.

Enforcement of these newly adopted regulatory frameworks remain, sometime problematic. Problems like corruption hamper economic development in Egypt. Many scandals involving bribery were reported during the past years. “In 2002 alone, as many as 48 high-ranking officials - including former cabinet ministers, provincial governors and MPs were convicted of influence peddling, profiteering and embezzlement.” Maintaining good relations with politicians is sometimes a key to business success in Egypt. Based on the 2006 Corruption Perception Index developed by Transparency International (where the higher the ranking the greater the level of corruption), Egypt ranked 70 out of 163. On a scale from 0 to 10 (with 0 being highly corrupt), Egypt scored a 3.3 .

[edit] Notes

^ It is noteworthy that the Central Bank of Egypt intervened too.
^ World Bank Country Data Profile.
^ Includes energy, mining, and manufacturing.
^ Figures do not include Subsidies to Non-Finanical institutions.
^ November 30, 2006. See IMF (2006) "IFS" and current financial figures for market exchange rate
^ As of June 16, 2006. See IMF (2006) "IMF in Focus," A Supplement to the IMF Survey, Vol. 35, August, 2006, p. 15.

[edit] References

Nawar, Abdel-Hameed (2005). ""The Emerging Landscape of the Natural Gas in Egypt"". Cairo University, manuscript.
Nawar, Abdel-Hameed (2006). ""NIS in Egypt: The Need for A Strategic Shift"". Cairo University, manuscript.
Ministry of Investment (2005). ""Quarterly report (Second Quarter) financial".
Oxford business group. ""Emerging Egypt 2007”".