Egypt faces economic reform toward EU agreement

Published April 9th, 2001 - 02:00 GMT

Egypt faces a greater need to adopt economic and trade reform as it moves toward signing a free-trade agreement with the European Union (EU), both EU and Egyptian officials say. 

 

The agreement, which was initialed in January and is expected to be signed in a few months, "will prompt Egypt to move forward" on reforms, according to Michele Villani, an EU official who took part in a conference in Cairo this past week. 

 

In 1991, Egypt embarked on a series of economic reforms, including the partial or full sale of state-run companies, but the program has slowed down in the last few years. 

 

Villani and other participants at a two-day conference, which ended Friday, April 6, at a hotel in Ain Sukhna on the Red Sea, studied Egypt's obligations under the free trade accord, or association agreement, and the benefits Egypt would gain from the deal. 

 

Under the accord, the EU market will open completely to all Egyptian products, including agricultural goods, while the Egyptian market will be opened on a smaller scale to European products. The accord also calls for political, cultural and social dialogue. 

 

For Villani and Vittorio Ghidi, who looks after the EU's affairs in Cairo, the agreement will allow Europe "to increase the flow of investment into Egypt."  

 

The deal will also be a double-edged sword for Egypt by increasing its capacity to compete, but also bringing stiffer competition at a time when the country is experiencing economic difficulties, Ghidi said. 

 

Egypt is facing economic stagnation and a liquidity crisis as a result of excessive spending in the public sector and state-run banks, analysts say. Investors are also discouraged by the lack of transparency provided for by the country's economic regulations. 

 

Gamal Eddin Al-Bayumi, Egypt's foreign ministry advisor who negotiated the deal with the EU, said: "Egyptian industry only exports six percent of its output, and the goal is to increase this figure by eight percent annually over the next few years." 

 

Egypt can only rise to the occasion through "a more liberal policy," a reduction in professional taxes, and change in Nasser-era legislation that gives too much job security to workers, he said. Cairo must also adopt a more flexible monetary policy, because "a strong currency is not a religion in itself," he said. 

 

Analysts say the Egyptian pound, at 3.85 to the dollar, remains overvalued despite a devaluation that has taken place in the last year. Finally, Bayumi told AFP that it can take six to seven years to settle commercial disputes in Egyptian courts, a period that is so long that it discourages foreign investment. 

 

During a visit here on March 24, EU Trade Commissioner Pascal Lamy said Egypt must "stabilize and clarify" its trade regulations to fall in line with the association agreement. 

 

The 15-member EU has been concluding association agreements with 12 of its Mediterranean neighbors as part of the Euro-Mediterranean Partnership program, launched in 1995. The EU is Egypt's main economic partner and accounts for nearly half of its foreign trade. Egypt exports crude and refined oil products, fruit, vegetables, cotton and textile products. 

 

In 2000, Egypt registered €3.3 billion ($3.07 billion) in exports and €7.9 billion ($7.1 billion) in imports, but the results marked a reduction in its trade deficit by one billion euros ($900 million) over the 1999 figure. — (AFP, Cairo) 

 

by Michel Sailhan  

 

© Agence France Presse 2001

© 2001 Mena Report (www.menareport.com)

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