Egypt

Published October 18th, 2000 - 02:00 GMT

 

Indicators:  

1998 

1999 

2000e 

GDP real growth rate (%) 

5.8 

6.7 

Unemployment Rate (%)* 

10.9 

10.8 

6.9 

Exchange Rate (EGP/$1) 

3.38 

3.38 

3.48 

Debt Service Ratio (%) 

10.90 

10.80 

9.90 

Total Exports (US$bn) 

5.13 

4.45 

6.14 

Total Imports (US$bn) 

16.90 

16.97 

17.76 

Trade balance (US$bn) 

-11.77 

-12.52 

-11.62 

* official figure 

e - Al-Bawaba forecasts 

 

 

 

 

 

Political Outlook 

 

In late June, Egypt’s state security court sentenced 31 people, including three members of parliament from the ruling National Democratic Party (NDP), to up to 15 years in jail for their role in a major corruption ordeal. Sentences were handed down to a group of bankers, businessmen and parliamentarians accused of using five banks during the 1990s to extend or receive unsecured loans valued at EP 1.6 billion ($500 million). The 37-month trial had focused the country’s public attention on corruption in high places. The hearing was rare for its inclusion of active MPs, whose immunity parliament voted to waive prior to the trial. Although this does not mark the first time in which associates of the NDP have been accused of corruption, it came at a politically sensitive period with parliamentary elections scheduled for later this year. 

 

Last December, Egyptian Authorities began releasing a group of imprisoned Jama'ah al-Islamiyah members, the main opposition Islamic movement in the country. This move fell within the framework of general amnesty prior to the month of Ramadan. The number of freed captives reached approximately 1,200, which marks the single largest prisoner release since the launch of wide-scale terrorist attacks in Egypt back in 1992.  

 

Nevertheless, government sources indicated that this amnesty did not signify the beginning of negotiations with extremists, merely the release of prisoners nearing the end of their jail terms. The released prisoners, who originate from various districts, had either been incarcerated for at least 15 years or were being held for interrogation purposes.  

 

Since the discharge of extremists commenced at the beginning of 1998, the number of discharged prisoners has climbed above 4,000. While some observers believe this process reflects a new stage in relations between the government and opposition movements, security sources deny this claim. On the other hand, Islamic quarters and human rights organizations have praised this gesture by the government.  

 

Still, maintaining internal tranquility remains an ongoing concern for the country’s regime. Clashes between Christians and Muslims in southern Egypt erupted in early 2000 during a financial dispute between Muslim and Coptic Christian businessmen in Kusheh. The ultimate consequence was over 20 deaths (mainly Christians) and 44 injuries. More than 20 buildings and several vehicles were torched. While this savagery was not the work of any particular organized group, many of the underlying social tensions that fuel Islamic radicalism endure, especially in the southern regions. 

 

Economic Outlook 

 

Regardless of the underlying motives behind the government’s amnesty, there is no doubt that Egypt's fragile internal security situation has a strong bearing on the nation’s economic performance. Following the November 1997 Luxor carnage, tourism (a vital source of foreign exchange revenues) virtually disappeared. During the past two and a half years of relative calm, however, levels of incoming tourism have steadily rebounded. Through the first nine months of 1999, 3,519,941 tourists visited Egypt, compared to 2,450,336 tourists during the corresponding period of the previous year. Macroeconomic data also reflects the positive outcome of extended tranquility. Recent government reports project an economic growth rate of nearly 7 percent in 2000. 

 

Egypt’s financial well-being received a significant boost during the first week of 2000 with the discovery of oil reserves off Egypt's Mediterranean coast. Following this finding, the country's oil reserves more than doubled from 3.7 billion to 8.2 billion barrels, and its natural gas reserves augmented to 120 trillion cubic feet from 36.5 trillion. Oil Minister Sameh Fahmy announced that the natural gas reserves would cover Egypt's consumption and export requirements for over 100 years and the oil reserves would satisfy the state's consumption for 25 years. Oil output from the new field will commence during FY 2001/2002. 

 

This lucrative energy discovery fortifies Prime Minister Atef Obied's financial accomplishments. Obeid has pledged to speed up privatization in the present year. The focus will be on sales to strategic investors and the auction of remaining state shares in firms that have already been privatized. The government will cautiously embark on a large flagship utility sale; bidding for state-owned Egypt Telecom’s 20 percent share offer will take place between September and November this year. This upcoming offer, to be managed by ABN-Amro, will include an initial public offering, a global depository receipt and a private placement. 

 

Egypt’s economy, particularly its securities market, is projected to experience more liquidity following a law passed by parliament in May, which exempts indigenous firms from capital gains tax. The new legislation puts companies and banks on the same footing as retail investors and foreign companies and investors. Previously, Egyptian companies were liable to 42 percent capital gains tax on their investments in local securities, which all other investors were exempted from. Investors have welcomed this new move and expect it to inject much needed liquidity into Egypt’s stock market.  

 

The decision to introduce the new capital gains tax followed the government’s admission that the economy is in fact experiencing a downturn. Publication of revised actual figured for the 1998/99 budget reveals a deficit more than four times higher than the previously announced figure. At 4.2 percent of GDP, the deficit is significantly higher than the 1 percent figure repeatedly quoted by government ministers as evidence of Egypt’s economic well-being. The revelation that the government was actually running a high budget deficit helps explain the severity of the recent liquidity crisis. A massive augmentation in capital spending was a major factor is this liquidity squeeze. 

 

 

Conclusion 

The Egyptian Prime Minister received far-reaching praise for his initial performance. The economy is predicted to expand rapidly this year, and the recent energy discovery will only enhance foreign exchange revenues. Nevertheless, high levels of poverty and disparities in wealth invigorate social tensions that threaten to erase the country's advancement. The ethnic tension in the south sends a warning to the Egyptian leadership that provision of social services, creation of employment opportunities and elimination of poverty remain the utmost priorities. Furthermore, recently revised budget deficit figures only serve to question the county’s actual economic accomplishments. 

© 2000 Mena Report (www.menareport.com)

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