Current Economic State of Egypt
During the fiscal year 1998-99, Egypt met its goal of maintaining a deficit of around 1 percent of GDP. The current deficit, for the year ending June 30, 2000, was budgeted at 1 percent of GDP, but ministers say they managed to trim it to 1.1 percent in the first six months of the fiscal year. Government spending in 1999-2000 is budgeted at $29.5 billion. While the government is practicing tight fiscal policy, it is also increasing some social programs, such as doubling since 1998 the number of bakeries providing subsidized bread to 20,000.
As part of the Camp David accords, Egypt receives more than US$ 2 billion per year in US-based economic and military aid. Foreign reserves are estimated at approximately US$ 18 billion, exceptionally high for an economy engaged in many of the liberal economic reforms that Egypt has undertaken. Egypt's budget deficit is now roughly 1 percent of GDP. Inflation is also down to under 4 percent of GDP. Because Egypt served as a linchpin in the 1990-91 Gulf War, it has benefited from a US$ 10 billion write-off in debt relief.
For fiscal 1999-2000, the government is aiming at a 6 percent growth rate, followed in the coming year by an 8 percent growth rate, 18 percent savings rate and 23 percent investment rate. The drivers of growth will be the construction, transportation and industrial sectors. While these figures represent the positive picture of the economy there are some trouble spots, such as an unemployment rate hovering in between 7 percent and 8 percent and a trade deficit that grew from $10.22 billion in 1997 to $11.77 billion 1998.
In other fiscal matters, the government did not raise taxes in 1999-2000 for the fourth consecutive year. External loans, according to the 1999-2000 budget, are LE 700 million, less than one percent of the budget. External debt accumulated during seven years is $28.2 billion. Internal debt rose from LE 125 billion in June 1997 to LE 136.8 billion pounds, with the money earmarked for transportation, communications, drinking water and sanitary drainage projects.
During the last decade, Egypt's economy has strengthened and become increasingly popular with foreign investors. The factors enticing investors are numerous. Egypt has the largest population in the Arab world, including a market of between 5 million to 10 million people who follow western consumption patters, and its labor force is relatively well-educated and English speaking.
Furthermore, the country continues to privatize major industries, attracting foreign investment. Major infrastructure projects are underway from airports to telecommunications and port projects. The tourism industry has also drawn large foreign investment.
In fact, during FY 1998-99, Egypt had a successful year in terms of attracting foreign investors. The volume of foreign and Arab investments in Egypt increased to LE 24,960 billion, 18 percent of which was generated in the free zone. Saudi Arabian firms were the top Arab and foreign contributors with LE 4.5 billion.
Although the investing climate is generally positive, there are detractions. Some loud complaints, for example, have been directed at the government for its lack of transparency and high price setting in its public offering of government-owned companies. There are also the age-old problems of doing business in Egypt such as relatively high transaction costs, bureaucratic processes and red tape.
1998/99 1997/8 1996/7
GDP Growth (percent) 5.8 5.7 5.3
Inflation (percent) 3.8 6.2 7.0
Unemployment (percent) 7.5 8.3 8.5
Debt Service Ratio 10.80 10.90 12.66
Govt. Budget Deficit (LE mln) -3,990 2,699 2,328
Balance of Payments (US$ mln) -2,117 -135 +1,912
Trade Balance -12,524 -11,771 -10,219
Exports 4,445 5,128 5,345
Oil 1,000 1,728 2,578
Non-Oil 3,400 2,767
Imports 16,969 16,899 15,565
Services Balance +5,946 +4,595 +6,194
Transfers Balance +4,869 +4,404 +4,145
C/A Balance -1,709 -2,772 119
Capital Account 880 3,766 2,041
Predominant Economic Domains
In terms of foreign currency revenues, the Egyptian economy is dependent on four main sources: remittances from expatriates working abroad, gas exports, Suez Canal dues, and tourism. In recent years, revenues from these sectors dropped, due to several factors. These include an international oil price slump (in 1998 and early 1999), the November 1997 Luxor massacre, which deterred tourists, and a gradual decline in Suez Canal dues (spurred by the Asian economic crisis).
The most important products of Egyptian industry include cotton yarn, jute yarn and fabrics, wool yarn, refined sugar, sulfuric acid nitrogenous fertilizers, paper, cement, motor-vehicle tires and television receivers. Other industrial activities include the manufacturing of iron and steel, assembling of motor vehicles and oil refining (at several locations). Smaller-scale industrial enterprises of significance to the economy include tanning, brewing, and the manufacture of pottery, perfumes, handicrafts, cottonseed oil, flour and other processed foodstuffs, and asphalt. Most industrial activity is centered around Cairo and Alexandria.
Agriculture has fallen from 20 percent of GDP to 17.3 percent and from 36 percent of total employment to 29.5 percent as of July 1999. This is a sector in which the government has placed a top priority, pushing economic reform the farthest. The result has been a steady increase in productivity and production. Impressive growth has been achieved both in terms of increases in cultivated areas and in production levels. Despite this, Egypt is the world's largest food importer.
Cultivation is concentrated in the Nile and Delta regions, and less than 3 percent of total land area is cultivated. Some steps were taken during 1998-1999 to change this ratio, as the government added 1.8 million feddans of farmable land. But Egypt is looking to the estimated $85.5 billion Toshka Canal Project next to Lake Nasser to dramatically alter the landscape. The project, which began in October 1996, is expected to double the country's arable land. It is scheduled to be completed in 15 years.
Currently, Egyptian farmlands are capable of some of the highest yields in the world. In 1998-1999, for example, grain production increased from 8 million to 18 million tons. Egypt is the world's most important producer of long-staple cotton. Other leading crops include rice, tomatoes and wheat. Also produced are sugarcane, watermelons, millet, barley, onions, vegetables, citrus fruits, mangoes, dates, figs and grapes.
As of 1999/2000, tourism became Egypt's top foreign exchange earner, and its success depends greatly on foreign perception of internal stability. This susceptibility was highlighted in 1997 following two terrorist attacks on tourists, including the massacre of 58 foreigners at Luxor. The result was a 19 percent drop in tourism revenues in FY 1997/98 to $2.9 billion. This, combined with a drop in oil prices, also led to a dollar shortage, which impacted the stock exchange as foreign investors were unable to redeem their shares for dollars.
Egyptian tourism offers tremendous attractions in terms of cultural heritage and of natural beauty. Tourism is a major growth industry, especially along the Mediterranean and Red Sea coasts, and is attracting foreign project management expertise and quality building systems and equipment. Tourism is also important for the government, since it is an important source of easy employment.
Egypt's goal is to draw six million tourists annually by the year 2000. Meanwhile, accommodation capacity will expand to 75,000 hotel rooms. Related construction by German, French and Italian investors will create about 17,500 new jobs. Foreign marketing campaigns are expected to draw a large number of foreign tourists.
The country's oil and gas industries comprised 6.7 percent of the GDP and 33.7 percent of merchandise exports in 1997/98. Egypt's oil revenues suffered with other oil-producing countries when prices dropped, decreasing the value of the country's petroleum and related products exports from $2.4 billion in 1996/97 to $1.2 billion the next year.
Oil prices in 1998/99, however, have again begun to rise, along with Egypt's oil production, increasing from 34 million tons to 55 million tons. Not only did the country's consumption of oil increase, its reserves also increased by one-and-a-half times.
Egypt produces approximately 800,000 to 900,000 barrels of oil per day (approximately forty-five million tons per year). Natural gas accounts for approximately 28 percent of total energy consumption in the country. Production of natural gas and its derivatives is anticipated to augment by at least 4 percent annually.
There have been important developments in the gas sector, with important finds located in the offshore region of the Nile Delta.
Egypt's electrical capacity has grown substantially over the last decade. In 1999 it increased its capacity from 18 billion kWh to 102 billion kWh, with that number expected to rise to 601 billion kWh after the Sidi Krir power station's scheduled opening in December 1999.
Hydroelectric power represents over 8 percent of the total annual energy production in the country.
Egypt offers an import market nearing US$ 17 billion annually. The United States is the largest foreign supplier, capturing approximately 20 percent of Egypt's imports in 1998, hovering between $3 billion and $4 billion for several years.
The principal imports of Egypt are agricultural products, foodstuffs, transportation equipment, chemicals, mining and quarrying machinery and metal products. The country has become increasingly dependent on imports and food grants, especially for wheat, flour and meat, due to rapid population growth.
The major exports of Egypt are crude petroleum, raw cotton, cotton yarn, fabrics and rice. The chief customers for these and other exports are Italy, the US, Germany, France, the former USSR, Japan and Great Britain.
© 2000 Mena Report (www.menareport.com)