Country ReportEgyptDecember 2010Economist Intelligence Unit26 Red Lion SquareLondon WC1R 4HQUnited Kingdom
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Egypt

  1. 1. Country ReportEgyptDecember 2010Economist Intelligence Unit26 Red Lion SquareLondon WC1R 4HQUnited Kingdom
  2. 2. Economist Intelligence UnitThe Economist Intelligence Unit is a specialist publisher serving companies establishing and managingoperations across national borders. For 60 years it has been a source of information on business developments,economic and political trends, government regulations and corporate practice worldwide.The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where thelatest analysis is updated daily; through printed subscription products ranging from newsletters to annualreference works; through research reports; and by organising seminars and presentations. The firm is amember of The Economist Group.London New YorkEconomist Intelligence Unit Economist Intelligence Unit26 Red Lion Square The Economist GroupLondon 750 Third AvenueWC1R 4HQ 5th FloorUnited Kingdom New York, NY 10017, USTel: (44.20) 7576 8000 Tel: (1.212) 554 0600Fax: (44.20) 7576 8500 Fax: (1.212) 586 0248E-mail: london@eiu.com E-mail: newyork@eiu.comHong Kong GenevaEconomist Intelligence Unit Economist Intelligence Unit60/F, Central Plaza Boulevard des Tranchées 1618 Harbour Road 1206 GenevaWanchai SwitzerlandHong KongTel: (852) 2585 3888 Tel: (41) 22 566 2470Fax: (852) 2802 7638 Fax: (41) 22 346 93 47E-mail: hongkong@eiu.com E-mail: geneva@eiu.comThis report can be accessed electronically as soon as it is published by visiting store.eiu.com or by contacting alocal sales representative.The whole report may be viewed in PDF format, or can be navigated section-by-section by using the HTML links.In addition, the full archive of previous reports can be accessed in HTML or PDF format, and our search enginecan be used to find content of interest quickly. Our automatic alerting service will send a notification via e-mailwhen new reports become available.Copyright© 2010 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication norany part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means,electronic, mechanical, by photocopy, recording or otherwise, without the prior permissionof The Economist Intelligence Unit Limited.All information in this report is verified to the best of the authors and the publishers ability. However, theEconomist Intelligence Unit does not accept responsibility for any loss arising from reliance on it.ISSN 0269-526XSymbols for tables"0 or 0.0" means nil or negligible; "n/a" means not available; "–" means not applicablePrinted and distributed by IntypeLibra, Units 3/4, Elm Grove Industrial Estate, Wimbledon, SW19 4HE
  3. 3. Egypt 1 Egypt Executive summary 3 Highlights Outlook for 2011-15 4 Political outlook 6 Economic policy outlook 7 Economic forecast Monthly review: December 2010 11 The political scene 12 Economic policy 15 Economic performance Data and charts 18 Annual data and forecast 19 Quarterly data 20 Monthly data 22 Annual trends charts 23 Monthly trends charts 24 Comparative economic indicators Country snapshot 25 Basic data 26 Political structure Editors: Justin Alexander (editor); David Butter (consulting editor) Editorial closing date: November 17th 2010 All queries: Tel: (44.20) 7576 8000 E-mail: london@eiu.com Next report: To request the latest schedule, e-mail schedule@eiu.comCountry Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  4. 4. 2 Main railway MEDITERRANEAN SEA Main road Baltim Sidi Barrani Dumyat International boundary Rashid Matruh Alexandria Al Mahalla Port Said Main airport Al Kubra Al Manzala Al Arish Arish Damanhur Al Mansura ISRAEL Capital Tanta Zagazig Shibin al-Kom Ismailia Major townCountry Report December 2010 n Benha Other town sio r es Suez D ep Giza CAIRO 0 km 100 200 300 ra a Sinai tt 0 miles 50 100 150 Qa Fayoum Siwa Beni Suef Gu lf of S Gr ue Bani Mazar z ea Bawiti Gulf of A qaba Ras Gharib t S Al Minya a Mallawi Sharm el-Sheikh nd Dairut Abnub SAUDI ARABIA Sea Hurghada Asyut Ni le R . Bur Safaga LIBYA EGYPT Akhmim Sohagwww.eiu.com Girga Qena Quseir Qus Luxor RED SEA Al Kharga Isna Marsa Alam Idfu Aswan S a h a r a D e s e r t Lake Nasser Halaib Abu Simbul Triangle © The Economist Intelligence Unit Limited 2006 2010 SUDAN© The Economist Intelligence Unit Limited 2010 Egypt
  5. 5. Egypt 3 Executive summary Highlights December 2010 Outlook for 2011-15 • The ruling National Democratic Party (NDP) will maintain tight control over domestic politics and will dominate the parliamentary election on November 28th, preventing the Muslim Brotherhood from gaining ground. • Attention will be focused on the 2011 presidential election and on who will stand for the NDP—Hosni Mubarak, his son Gamal or another regime insider. Mohamed ElBaradei is a possible opposition candidate, if allowed to run. • In the wake of the economic slowdown, the government will move ahead carefully with economic reform, aimed at raising living standards and creating jobs, to try to mitigate rising social unrest. • The expansionary fiscal policy in the 2009/10 (July-June) fiscal year widened the budget deficit to around 8% of GDP, although it will narrow to 6.8% of GDP in 2011/12 as tax and other revenue grows, and to 5.5% by 2014/15. • Real GDP growth reached a respectable 5.2% in 2009/10, but will only strengthen slightly over the forecast period until 2015, averaging 5.4%, well below the peak of 2007/08. • A slight narrowing of the trade deficit, combined with stronger tourism receipts will help return the current account to a narrow surplus from 2011. Monthly review • The approach of the parliamentary elections has led to splits within the NDP—despite its decision to run multiple candidates in safe seats—and division remains within the Muslim Brotherhood over whether to participate. • There have been demonstrations, and some violent clashes, on university campuses following a court ruling that the police units that have been deployed since 1981 on campuses, and can be oppressive, should be removed. • The government has drawn up a new contract ceding land to a developer TMG, to replace the old one ruled invalid by a court. However fresh legal challenges are pending to this new contract and other land sales. • A new minimum wage of E£400 (US$70) per month has been proposed by the National Council for Wages, although unions argue this is still too low. • The Ministry of Housing has planned the relaunch of a PPP tender for a major wastewater facility west of Cairo, and other PPP tenders are pending. • The government has set aside 50m sq metres of land for industrial projects, in the Suez Canal zone, Cairo suburbs, Alexandria and North Fayoum. • Egypts foreign-exchange reserves have returned to their peak level of US$36bn.Country Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  6. 6. 4 Egypt Outlook for 2011-15 Political outlook Political stability Egypt has been under authoritarian military rule, with a democratic veneer, since a coup in 1952. This has provided a degree of stability, even through defeats in wars with Israel, and kept out of power the Muslim Brotherhood—a banned but popular and partly tolerated Islamist group. However, the president, Hosni Mubarak, who has ruled since 1981, is now 82 and underwent major surgery in early 2010. There is considerable doubt about whether he would be fit to see through another six-year term. The biggest question in Egyptian politics at present is whether he will contest the presidential election in September 2011, or stand aside in favour of his son, Gamal, or another regime candidate (probably a military man such as Omar Suleiman, the intelligence chief, or Ahmed Shafiq, a former Egyptian Air Force commander who is now aviation minister). The ruling National Democratic Party (NDP) will use the coming months to assess the acceptability of the various possible candidates to the public and the military. Even if Mr Mubarak chooses to run for a sixth term (which he would inevitably win, given the NDPs control over the election apparatus), he would be unlikely to complete it. Nonetheless, in recent months many of the NDPs old guard have voiced support for a sixth term, although a final decision has probably not been made yet. There is a growing sense of disaffection among the population about inadequate salaries and poor living standards, leading to increasingly bold demonstrations and industrial action by labour activists, which could develop a more overtly political tone. The benefits of economic growth in recent years have not been evenly spread, and despite the emergence of a growing middle class, the bulk of Egypts 84m population remain extremely poor—and as the population is growing by around 1.6m a year, large numbers of new jobs must be created just to keep unemployment at its current high levels. The government is pursuing a long-term economic reform programme aimed at raising living standards, education levels and access to jobs to stem social and political tension. However, the inequality gap is so wide that these efforts will be insufficient to eradicate discontent in the near term. There is also ongoing frustration about corruption and police brutality. A cabinet reshuffle is likely following the imminent parliamentary election, and there may even be a new prime minister to replace Ahmed Nazif, in office since 2004. Other threats to stability come from sporadic clashes between some Muslims and Coptic Christians (about 10% of the population) and the long-term marginalisation of the Bedouin population in the Sinai region, which may result in some providing support to al-Qaida. However, the regime is unlikely to be seriously destabilised and will continue to contain opposition and criticism from the independent judiciary, the press and especially the Muslim Brotherhood. The legal opposition parties are weak and divided and lack credibility. The Brotherhood is more popular, but is divided between a conservative branch, which wants the movement to revert to a more moralistic societal role (andCountry Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  7. 7. Egypt 5 which appears to be in the ascendant), and a younger, reformist arm that remains keen to participate in the formal political process, despite the governments ongoing crackdown on its activities and the prohibition on political parties based on religion. Brotherhood candidates, running as independents, won 88 seats in the Peoples Assembly (the lower chamber) election in 2005, compared with just 14 seats for the legal opposition parties. Election watch The NDP, which holds the vast majority of parliamentary seats, will seek to reduce the Brotherhoods representation in the Peoples Assembly (in which the number of seats will be increased from 454 to 518, with all the new seats reserved for women) in the election on November 28th. The fact that eight of the 88 seats available in the June 1st election for the Shura Council (the upper house) went to opposition parties and independents, but none to Brotherhood- backed independent candidates, may be seen as an indication of the regimes intentions. Mohamed ElBaradei, the former director-general of the International Atomic Energy Agency who returned to Egypt this year and has rallied the opposition, has called a boycott of the elections, but there has been little enthusiasm for this, and the main legal opposition parties—Wafd, Tagammu and the Nasserists—will contest it, as well as about 150 independent candidates linked to the Brotherhood. The NDPs continued domination of parliament will in turn enable it to determine the terms for the presidential election. Any presidential candidate must currently either come from the leadership of a recognised party or obtain 250 signatures from members of parliament or local councillors, which would be virtually impossible for any independent candidate, given the NDPs domination of all the governing bodies. Mr ElBaradei is a possible candidate, although he could not stand under current rules and is focusing his efforts on easing the candidacy restrictions and on other reforms. If Mr Mubarak is serious about engineering his sons succession, then he might eventually agree to grant some of Mr ElBaradeis demands in the hope of giving the succession some aura of democratic legitimacy. International relations Ties between Egypt and the US will remain strong, as the US seeks Egyptian support for its Middle East policies and Egypt relies on US military assistance. However, tensions between the two will still flare up occasionally over concerns about human rights violations, anti-democratic behaviour and the situation of Egypts Christian minority. Israel will continue to be a close ally, and Mr Mubarak will work with Israel to continue the isolation of the Gaza Strip, both because Egypt does not want to be forced to assume responsibility for the crowded Palestinian territory, and because Gaza is controlled by Hamas, an Islamist group related to the Muslim Brotherhood. Egypt remains concerned about the regional role of Hamass primary backer, Iran, and its apparent nuclear ambitions. Gradual moves towards Egyptian-Syrian rapprochement may have a bearing on relations with Hamas and Iran, both Syrian allies. Egypt will play a role in US-mediated Israeli-Palestinian peace talks, if they continue, but little is expected to come of them. There may be more chance for progress towards peace later in the forecast period, although past experience invites scepticism.Country Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  8. 8. 6 Egypt Egypts most significant diplomatic challenge will be maintaining its interests in the Nile river waters. Most of the upstream countries have signed an agreement to establish a new regime for co-operation along the river—in place of a colonial era Anglo-Egyptian agreement—which come into effect in mid-2011 and would facilitate their use of hydroelectric power and irrigation. Egypt and Sudan strongly oppose any measures that would reduce the volume of flow into their borders. The situation will be further complicated in January 2011 when Southern Sudan—through which the White Nile flows—is expected to vote for independence in a referendum promised in the 2005 agreement that ended the Sudanese civil war. However, it is not expected that any of the upstream initiatives currently under way will seriously reduce the Nile flow in the near term. But if future projects were to, then Egypt might threaten, and even seriously consider, a military response. Economic policy outlook Policy trends The governments overriding concern in the forecast period will be to maintain economic activity and job creation as Egypt emerges from the aftermath of the global recession. The government will continue with some economic reforms and liberalisation, although concerns over political unrest are likely to slow progress in some key areas, such as reform of public administration and implementation of a new property tax. The government will continue its programme of incrementally reducing subsidies on energy products in a bid to align domestic and international prices and minimise the fiscal drain, although some of this will be delayed until after the 2011 election. It aims to have eliminated all energy subsidies by 2013. The governments consolidation programme in the banking sector means that Egypts banks are relatively stable, and domestic liquidity will remain at comfortable levels. The government will continue to tighten regulation and to work on improving access to finance for the private sector. The privatisation of Banque du Caire was put on hold in 2008, and it is unclear whether this has been shelved entirely following the announcement in May 2010 of a halt in the overall privatisation programme in favour of an approach based on private- sector management of state-owned assets. The government is aware of the risk of social dislocation if liberalisation moves too quickly, and reform will remain gradual. The public-private partnership (PPP) law passed in June 2010 should facilitate the implementation of PPPs and thereby speed up the ongoing government programme to improve Egypts infrastructure in areas such as hospitals, roads, railways, ports and wastewater treatment. Fiscal policy The government has been operating for many years with a large fiscal deficit, averaging around 8% a year over the past decade. It aims to reduce this substantially over the forecast period, to 3.5% of GDP by 2015; the Economist Intelligence Unit expects that it will make some progress after the current 2010/11 fiscal year (July-June), but will still fall well short of this target, with a deficit still around 5.5% of GDP in 2014/15. The presidential election in 2011, together with fiscal stimulus in the aftermath of the global recession, will boost spending growth in the current year, although gradual cuts will be made inCountry Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  9. 9. Egypt 7 some subsidies (for example in the price of subsidised butane canisters). Meanwhile, having dipped in 2009/10, revenue growth should pick up to an average of 15% in 2010/11-2014/15 as global trade, and thus earnings from the Suez Canal and customs duties, recovers. This will be augmented by measures to increase tax compliance and by the abolition of some tax exemptions. A property tax introduced in 2010 will further boost receipts, although it will only be gradually implemented. Stronger than expected economic growth and tax revenue since the start of the calendar year resulted in a deficit in 2009/10 of around 8% of GDP. Provided that the economy recovers as forecast, the deficit should remain fairly stable in 2010/11, and then begin declining as revenue growth outstrips expenditure growth, and as subsidies are reduced. Given the governments caution over contracting foreign debt, we expect the deficit to be financed largely by local borrowing, although some new Eurobonds will also be issued. The public debt stock, domestic and external, totalled around 81% of GDP at end-2009, and interest payments account for an increasing proportion of spending, but it is expected to decline in relative terms to 69% of GDP at end-2015. Monetary policy The Central Bank of Egypt (CBE) has begun to move towards making inflation- targeting its main policy goal. It will be some time, however, before the CBEs monetary instruments are fully in place. The CBE began loosening monetary policy at the beginning of 2009 on the back of a gradual deceleration in the rate of inflation, which bottomed out at 9% in August 2009, from a peak of 23.7% in August 2008. The CBE last cut its rates in September 2009, when the overnight deposit and lending rates were reduced by 25 basis points each, to 8.25% and 9.75% respectively. The discount rate was left unchanged at 8.5%. However, given a subsequent pick up in inflation, the CBE has ended its loosening cycle. In light of the potential inflationary impact of the government resuming its programme of reducing energy subsidies, we expect the CBE to starting raising interest rates early in the forecast period, particularly as monetary policy begins to tighten elsewhere in the world in 2012 and Egypt seeks to maintain a positive interest-rate differential with other countries to discourage capital outflows. Economic forecast International assumptions 2010 2011 2012 2013 2014 2015 Economic growth (%) US GDP 2.5 1.5 1.9 2.3 2.4 2.4 EU27 GDP growth 1.7 1.1 1.5 1.7 2.0 1.9 World GDP 3.5 2.5 2.9 3.0 3.1 3.1 World trade 12.2 5.9 6.3 6.6 6.7 6.1 Inflation indicators (%) US CPI 1.5 1.1 1.9 2.5 2.8 2.8 EU27 CPI 1.8 1.7 1.7 1.9 2.0 2.1 Manufactures (measured in US$) 2.3 -1.6 -0.5 1.2 1.7 2.0 Oil (Brent; US$/b) 80.0 82.0 81.3 78.3 75.5 71.0 Non-oil commodities (measured in US$) 21.9 9.0 -4.1 -4.0 2.1 0.3Country Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  10. 10. 8 Egypt 2010 2011 2012 2013 2014 2015 Financial variables US$ 3-month commercial paper rate (av; %) 0.2 0.3 0.7 2.2 4.1 5.1 Exchange rate E£:US$ (av) 5.6 5.8 5.7 5.7 5.6 5.6 Economic growth Despite a slight hiccup in the second quarter of 2010, growth has been accelerating since the start of 2009, following the sharp drop at the end of 2008. The preliminary official estimate put real GDP growth in 2009/10 at 5.2%, up slightly on the previous year. Although well down on rates recorded during the recent boom, it was still a positive outcome against the background of a global economic recession in which world GDP contracted by 0.8% in 2009 (at purchasing power parity rates). However, it was probably not strong enough to lift employment growth to the levels needed to create sufficient jobs for the large number of new entrants coming onto the labour market. Egypts exports were hit by the recession, and although they are growing once again are not forecast to exceed the 2007/08 level until 2011/12. External demand will continue to be weak as the recovery in the EU and the US, Egypts largest export markets, remains fragile. On the plus side, domestic demand remains strong, buoyed by the governments fiscal stimulus programme and by robust activity in sectors such as construction and telecommunications. However, some effects of the global slowdown will continue to be felt, especially through the labour market, and this means that private consumption will pick up only gradually. We forecast that the global economy will expand only weakly, and growth will soften in 2011, as the positive effect of inventory restocking and stimulus measures in the major economies wanes and the governments of many developed economies instead cut expenditure significantly to control their spiralling deficits, which in turn will dampen corporate and household sentiment. Egypt will be affected through an only slow recovery in exports and shipments through the Suez Canal, although tourism seems to be more resilient than expected. The governments spending on infrastructure will continue to offset some of the negative effects of the slowdown on the manufacturing sector and employ- ment, and will help to sustain investment and household demand. Private investment remains strong in construction, and from 2011 the PPP programme should help to boost demand in the sector. Additional investment will flow from new oil and gas projects, particularly the deepwater Mediterranean fields being developed by UK-based BP. The main risk to our forecast stems from external factors: if Egypts export markets pick up even more weakly than forecast, or even slip back into recession, growth in Egypt may not be sufficient to lift living standards significantly. However, assuming that investment, both domestic and foreign, holds up, we forecast that real GDP will continue to grow at an average of around 5.4% in 2010/11-2014/15.Country Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  11. 11. Egypt 9 Economic growth % 2010 a 2011 b 2012 b 2013 b 2014 b 2015 b GDP c 5.2 5.3 5.5 5.6 5.3 5.4 Private consumptiond 5.0 4.4 4.8 5.7 6.4 7.6 Government consumption 8.9 8.1 5.7 3.1 3.6 3.5 Gross fixed investment 6.1 9.2 13.3 14.1 13.8 13.5 Exports of goods & services 5.7 8.9 10.6 13.8 12.5 11.6 Imports of goods & services 6.1 10.3 13.3 17.3 17.9 18.0 Domestic demand 5.3 5.9 6.6 7.1 7.7 8.6 Agriculture 3.4 3.8 3.6 3.5 3.2 3.4 Industry 5.5 5.9 6.8 6.9 6.4 5.8 Services 5.4 5.1 4.4 4.4 4.4 5.6 a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. Inflation Having peaked at an average of 18.3% in 2008, the year-on-year rate of inflation has fallen steadily and will have averaged an estimated 11.1% in 2010. Oil prices will remain high, averaging US$77/barrel in 2011-15, and non-oil commodity prices will remain relatively flat on average over the forecast period (although there will be sporadic spikes, as with wheat prices at the moment owing to a drought in Russia). This relatively mild external environment will mean that inflation should ease gradually and average 8.3% during 2011-15, although there are risks to this scenario such as an upward revaluation of the Chinese renminbi, which would increase import costs, and a sizeable increase in the minimum wage in response to demands from the growing labour movement. Exchange rates The exchange rate is driven in large part by capital flows and developments with the US dollar. Egypts robust economy and high interest rates compared with much of the rest of the world have attracted substantial carry-trade inflows in recent years. The trend has now reversed and the Egyptian pound slipped to a five-year low against the dollar in late October 2010, possibly with some help from the Central Bank. However, the CBE is unlikely to countenance much more depreciation, owing to the impact on imported inflation, and the resumption of quantitative easing in the US should anyway give the pound support in late 2010 and early 2011. It is also likely to get a boost after the presidential election in late 2011, as the political uncertainty may be weighing negatively on the pound. The long-term average in 2011-15 is forecast to be E£5.68:US$1, compared with an estimated E£5.63:US$1 in 2010. As a result of weakness in the euro zone, the pound will strengthen steadily against the euro, to an average of E£6.77:€1 in 2011-15 (from an estimated 2010 average of E£7.47:€1 and around E£8:€1 in late October 2010), which could hurt exports to Europe and the tourism sector. Capital inflows will be more moderate than in recent years, but rising hydrocarbons and Suez Canal receipts will lift foreign- exchange reserves, and the CBE will intervene to prevent sharp swings in the exchange rate. External sector Export earnings will continue to rise over the forecast period as external demand strengthens gradually, and so the trade deficit will narrow steadily. The non-merchandise surplus will also widen further, as the Egyptian tourism sector and traffic through the Suez Canal pick up after the slump in 2009, helping to boost the services balance. The transfers account will maintain aCountry Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  12. 12. 10 Egypt solid surplus and the income balance will turn positive by around 2013. Overall, the current account will return to a narrow surplus in 2011, after three years in deficit. During the rest of the forecast period, the trade deficit will remain relatively steady in absolute terms, although it will fall as a proportion of GDP, but the non-merchandise surplus will steadily widen, pushing up the current-account surplus to an average of 1.6% of GDP in 2011-15. Forecast summary (% unless otherwise indicated) 2010 a 2011 b 2012 b 2013 b 2014 b 2015 b Real GDP growth 5.2 5.3 5.5 5.6 5.3 5.4 Industrial production growth 5.6 6.0 6.8 7.1 6.4 5.8 Gross agricultural production growth 3.4 3.8 3.6 3.5 3.2 3.4 Consumer price inflation (av) 11.1 10.0 9.3 8.1 7.0 7.1 Lending ratec 11.8 12.0 12.3 12.5 11.8 11.8 Government balance (% of GDP) -8.0 -7.6 -6.8 -6.7 -5.9 -5.5 Exports of goods fob (US$ bn) 26.0 27.8 30.4 34.3 39.0 41.9 Imports of goods fob (US$ bn) 47.7 47.9 48.3 52.0 56.6 61.2 Current-account balance (US$ bn) -0.7 1.1 5.2 6.8 8.6 9.4 Current-account balance (% of GDP)d -0.3 0.4 1.7 1.9 2.2 2.1 External debt (end-period; US$ bn) 31.2 31.2 29.2 28.5 27.9 27.5 Exchange rate E£:US$ (av) 5.63 5.75 5.72 5.67 5.64 5.62 Exchange rate E£:US$ (end-period) 5.69 5.74 5.70 5.66 5.63 5.61 Exchange rate E£:¥100 (av) 6.44 6.98 6.94 7.00 6.87 6.73 Exchange rate E£:€ (av) 7.47 7.19 6.86 6.69 6.55 6.58 a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Annual average. d Ratio based on calendar year GDP; national accounts use fiscal year.Country Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  13. 13. Egypt 11 Monthly review: December 2010 The political scene Election campaigning reveals Campaigning for the election for the Peoples Assembly (the lower house) on rifts within parties November 28th has exposed the rifts and weaknesses within the ruling National Democratic Party (NDP). The NDPs long hold on power has fostered a climate of corruption and cronyism in which loyalties are to individuals rather than to the party as a whole. The result of this in the 2005 elections was a wave of resignations by NDP members who were not picked as candidates. Many of them ran as independents instead and the NDP was then forced to invite those that won seats to re-join the party to preserve its large majority. To avoid a repeat of this embarrassing scenario, the NDP is fielding multiple candidates in a significant number of constituencies, mainly those that it considers safe seats. The party hopes this will mitigate violence in areas such as Upper Egypt and Sinai that are seeing tribal tensions between prominent families within the NDP competing for seats, although the multiple candidacies will mean that the elections in these constituencies are even more individualised and less about national party politics. The move has also failed to stem resignations, as not all those who wanted to run could be accommodated even with the multiple candidacies, and some NDP members have resigned after not being selected. There are also signs of disappointment from the Coptic Church leadership, because the NDP list does not include many Coptic candidates. The Muslim Brotherhood is also suffering from dissent within its ranks. A bloc called the Opposition Front has emerged from within the organisation, led by Mokhtar Nouh, a former member of parliament and head of the Bar Association who was expelled from the Brotherhood several years ago. Mr Nouh told the local Al Masry Al Youm newspaper that his bloc could transform into a parallel, though not separate, movement. Its stated aim is to offer a platform for those who support the ideology of the Muslim Brotherhoods founder, Hassan al-Banna, but not necessarily all the actions and decisions of the current leadership. Most significantly, the Front has issued a statement opposing the decision of the Brotherhood leadership to participate in the election. The twenty signatories to this statement included Ibrahim al-Zaafarani, a member of the Brotherhoods Shura Council, Kamal al-Halabawy, a former Brotherhood representative in Europe, and Abdel-Hai al-Faramawy, a professor at Al Azhar University in Cairo. The Front has also highlighted a lack of consensus over the use of the Muslim Brotherhoods main election slogan, "Islam is the Solution", which is officially banned according to electoral laws that limit religious-based campaigning, but is still used by Brotherhood candidates. Such internal disputes have weakened the Brotherhood, perhaps influencing its decision to field fewer candidates than in 2005. Brotherhood members have also faced a greater than expected number of arrests, to which it has reacted by threatening the use of "all means" to protect its members "without any red lines". Members continue to protest against these arrests, including a demonstration on November 13th in Alexandria, a city in which the Brotherhood was particularly successful in 2005.Country Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  14. 14. 12 Egypt With several opposition groups boycotting the elections and al-Ghad party members facing harassment and arrest, the Wafd Party may become the major opposition bloc in the new parliament. It is fielding almost twice as many candidates as the Brotherhood, despite also suffering from internal dissent and resignations by prominent members such as Kamal Zakher and Ahmed Fouad Negm, and a mass resignation of 30 members in Minya, Upper Egypt. Overall, with an NDP victory a forgone conclusion, it is the intra-party dissent within the major political blocs that is more significant in the short-term for Egyptian politics than the precise distribution of seats in the new parliament. University campuses witness There have been demonstrations on university campuses, inspired by a unrest campaign by the March 9th Movement, established by a group of professors at Cairo University to promote academic freedom and the autonomy of universities. The movement is particularly publicising a Supreme Administrative Court verdict in October, which upheld a previous ruling that annulled Ministerial Decree 1812 of 1981 that established "university guards", including deploying police at Cairo University. Over the years, these police units have clamped down, often aggressively, on student political activities, and professors also complain of interference in academic life. University campuses remain a site for frequent demonstrations and often witness disturbances before elections. The recent student demonstrations have been calling for the police units to be removed from university campuses throughout Egypt. The most violent clash so far was at another Cairo university, Ain Shams. When members of the March 9th Movement arrived at Ain Shams, on November 4th, to inform students about the ruling, they were attacked by armed thugs, and the university guards present did not intervene to stop the clash. The incident has led to questions over who carried out these attacks on the professors and students supporting them. Hany Helal, the higher education minister, has disputed the March 9th account and accused the group of stirring up trouble at Ain Shams, but photographs and video footage of the incident appear to show men armed with crude weapons threatening the students and professors. Mr Helal has said that the court ruling applies only to Cairo University, but he suggested that a scheme could be developed to provide private security for each university in place of the police presence. Protests are continuing at the gates of Cairo University insisting that the court ruling is implemented. Economic policy Real estate lawsuits worry The consequences of a recent verdict by Cairos Supreme Administrative Court developers cancelling the sale of state land to the Talaat Moustafa Group (TMG) for its Madinaty development (October 2010, Economic policy) have continued to unfold. The court decision forced the government to replace the original 2005 contract with a new one, signed on November 9th. The new contract provides the same terms to TMG, one of Egypts largest real estate developers, including charging it a payment-in-kind (that is, as finished apartments) of 7% of the developments land price value, which would be at least E£15bn (US$2.6bn) atCountry Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  15. 15. Egypt 13 current prices. The new contract ends the legal limbo created by the court ruling, reassuring investors in TMG. This may only be a temporary reprieve for the company and others in the sector. The plaintiff in the original case against TMG, Hamdy Fakharany, has vowed to challenge the new contract and those of other companies that have purchased state land over the last decade. Mr Fakharanys next court date is November 23rd, when another administrative court—which rules on the legality of government decisions—will be asked to declare the new contract illegal. On the same day, the court is to hear a case filed against Palm Hills Developments, another major developer whose shareholders include a holding company linked to the families of the current housing minister, Ahmed al-Maghrabi, and a former transport minister, Mohammed Mansour. Other suits have been filed against Egypt Kuwait Holding and Egyptian Resorts Company. The government is now preparing to introduce a new land-sale law to resolve contradictions in current legislation. One existing law stipulates that state land must be sold through auctions, while another gives the government the right to sell it directly to developers—with the administrative court favouring the first interpretation. The content of the new law remains unknown, but it is likely that it would close the loophole that allows past land sales to be cancelled and allow the government to sell land directly to companies in certain cases, even if the government has pledged greater transparency and competitive bidding for future sales. The new law is unlikely to be passed until next year, given the forthcoming Peoples Assembly election. The government may have to intervene again before then to prevent courts cancelling existing deals. A new minimum wage is On November 11th, the National Council for Wages, a body tasked with setting proposed and contested the national minimum wage, recommended a new rate of E£400 (US$70) per month, equivalent to almost exactly one-third of Egypts estimated GDP per head this year. This increases the minimum wage in the private sector substantially and resolves a courts order that the Council, which had not met in over two decades, update this base to reflect the increased cost of living over this period. Previously the minimum wage had been E£112, or even as low as E£36 in some cases. Trade unions, regrouped under the government-controlled Egyptian Federation of Trade Unions (EFTU), have asked for a higher figure of at least E£500. The EFTU has also proposed three separate minimum wage levels, based on the level of education of the employee: E£500 for the least educated, E£750 for high- school graduates and E£1,000 for university graduates. Independent labour non-governmental organisations and unrecognised trade unions (legal trade unions must be government-approved and exist under the EFTUs umbrella) are asking for a higher sum of E£1,200, a figure based on a single wage-earner supporting a family of five at the UN poverty rate (June 2010, Economic performance). The new minimum wage is not likely to be put in effect until next year, however. The president, Hosni Mubarak, must approve the new figure, and has asked the Ministry of Finance to study various proposals. The new minimum wage is likely to be part of the electoral campaign of the NDPs presidentialCountry Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  16. 16. 14 Egypt candidate (Mr Mubarak, his son, Gamal, or someone else) for the September 2011 election. A PPP wastewater project Egypt is relaunching its tender for a wastewater treatment facility at Abu is relaunched Rawash, west of Cairo, the first major infrastructure project planned under a public-private partnership (PPP) scheme announced in 2009. The 20-year PPP scheme for Abu Rawash has been upgraded to include sludge management and co-generation capabilities in the tender, and includes the operation and management of a 1.2m-cu metre/day treatment facility and an 800,000- cu metre/d secondary treatment plant. The tender, which is run by the Ministry of Housing, has also being adapted to fit with a new PPP law passed in June, after the project was originally proposed. Bidders that have pre-qualified thus far include five multinational consortia. The tender relaunch is expected to happen at the end of November, alongside a similar wastewater treatment scheme for 6th of October City (a suburb of Cairo) and a tender for the construction of 34 km of highway at Rod al-Farag, also near Cairo, estimated at around US$1bn. The new eight-lane highway will link central Cairo along the north-eastern Nile corniche to 6th of October City, and will be designed, operated and maintained by the winning consortium for a 20-25-year period. These projects have been long-planned but were delayed by a lack of clear executive regulations for the new PPP law. More wastewater treatment plants are being planned under the PPP scheme to resolve a growing water problem in rural areas. In October, the housing ministry said that it would be bundling smaller wastewater treatment plant schemes together to provide better sanitation to villages in the Delta and Upper Egypt. Such schemes would probably rely on treatment plants run at the governorate level. Only two-thirds of the country currently has adequate wastewater services. Government allocates land for Egypts Industrial Development Authority (IDA) announced on November 9th industrial investment that it would offer 50m sq metres of land for industrial projects starting in January 2011, with the hope of attracting around E£73bn worth of investments. The IDAs scheme is designed to relieve difficulties in securing land for industrial projects under current regulations, thus addressing a recurrent criticism in the World Banks Doing Business reports. The land designated under the scheme will be fast-tracked for sale to industrial developers, improving the availability of construction permits and reducing transaction costs for investors. According to Beltone Financial, a local investment bank, the land offering will be valued at E£72.7bn and include the following areas: • 15m sq metres in East Port Said, to attract E£22.5bn of investments; • 1m sq metres in South Raswa in Port Said (E£1.8bn); • 5m sq metres in Burg al-Arab, near Alexandria (E£8bn); • 10m sq metres in North Fayoum industrial zone (E£12bn); • 2m sq metres in Abu Khalifa industrial zone near Ismailia (E£3.4bn); • 3m sq metres in Badr City near Cairo (E£4.6bn);Country Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  17. 17. Egypt 15 • 10m sq metres in 10th of Ramadan City near Cairo (E£14bn); and • 4m sq metres in Sadat City north of Cairo (E£6.4bn). Egypt has had success in recent years in attracting Chinese and Turkish investors, among others, in its industrial zone, notably by offering foreign investors the advantage of its trade agreements with the EU. Land allocated for industrial investment Baltim MEDITERRANEAN SEA Rashid Dumyat Port Said Alexandria South Raswa East Port Said Burg al-Arab 1m sq metres 5m sq metres 15m sq metres (E£1.8 bn) (E£22.5 bn) (E£8.0 bn) Tanta Abu Khalifa industrial zone 2m sq metres Ismailia EGYPT (E£3.4 bn) Benha 10th of Ramadan City Sinai Sadat City 10m sq metres 4m sq metres (E£14.0 bn) (E£6.4 bn) Badr City CAIRO Suez 3m sq metres (E£4.6 bn) le R. Ni North Fayoum 10m sq metres Gu l Fayoum (E£12.0 bn) fo fS ue Beni Suef z 0 km 50 100 0 miles 25 50 Economic performance More IPOs are announced Amer Group Holding, a real estate firm, has announced plans to sell 30.7% of the company through an initial public offering (IPO) on the Egyptian Exchange in November. The final price of the shares will be announced on November 22nd, with 80% of them to be sold through private placement and the remaining 20% publicly, for an estimated total of as much as E£1.8bn (US$315m). The sale is being managed by Beltone Financial. Amer Group owns the Porto brand, which has resorts on Egypts Mediterranean and Red Sea coasts. It has plans to expand regionally, including a US$1bn resort in Syria. Amer Group represents the first new IPO in Egypt since that of Juhayna, a dairy and juice company, in June 2010, and only the second since mid-2008. Along with planned future IPOs, it marks a revival of the Egyptian market as the country recovers from the global economic recession. Other planned IPOs include the sale of a US$200m-250m stake in Albatros Resorts, another realCountry Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  18. 18. 16 Egypt estate firm, intended to finance a doubling of the number of rooms it operates. The sale, also managed by Beltone, is expected to take place in 2011. Momen, a fast food company operating in Egypt, Sudan, Libya and Bahrain, also announced on October 7th that it will seek to raise funding through an IPO of 40% of its shares towards the end of 2012. The IPO is intended to finance regional expansion and the goal is to raise at least E£400m (US$70m). In late 2009, Citadel Capital, a private equity firm, had said it would offer 12.5% of its shares in an IPO to raise new capital, but not yet gone ahead with the move. Reserves hit high as govern- Egypts foreign-currency reserves reached US$35.5bn in October 2010, marking a ment considers 100-year bond return to the previous peak in October 2008 at the start of the global financial crisis. To stimulate the economy during the downturn, the government spent over US$5.4bn in late 2008 and the first half of 2009, accounting for much of the reserves fall to a low of US$31bn April 2009. The finance minister, Youssef Boutros-Ghali, said in November that the government was considering issuing 100-year bonds, totalling as much as US$500m. The project is still at an early stage and, although Mexico recently issued its own century bonds, Egypt is more likely to focus on shorter maturities, having raised US$1.5bn earlier this year through ten-year notes with a 5.75% yield and 30-year notes at 6.95% (May 2010, Economic policy). That was the first Egyptian bond offering in nine years, with the government keen to take advantage of lower borrowing costs. In related news, the Central Bank of Egypt cancelled a E£1bn bond auction at 12.35%, but gave no reason for this.Orascom Telecom sale blocked Naguib Sawiris, chairman of Orascom Telecom (OT), said that his companys by Algeria row with the Algerian government over alleged currency violations and unpaid tax claims by its subsidiary Djezzy was blocking plans to sell much of OT to Vimpelcom of Russia. On November 9th, Mr Sawiris said that he had sent a final letter to the Algerian prime minister, Ahmed Ouyahia, requesting an end to pressure on Djezzy or he would resort to international arbitration. He also stated that it was unlikely that the Algerian government, which has repeatedly stated its desire to nationalise Djezzy, would offer a fair price. Press reports allege that Algeria offered US$2.5bn for Djezzy, much lower than the US$7.8bn offered by MTN of South Africa. If the complex OT-Vimpelcom deal were to collapse, it would leave Mr Sawiris saddled with a high debt burden. Bloomberg News reported on November 10th that another of Mr Sawiriss companies, an Italian mobile-phone operator, Wind Telecom, is planning to raise up to €6.9bn (US$9bn) to refinance existing debt. Wind is part of Mr Sawiris Weather Investments, as is part of OT. Instead of including Djezzy, which provided over 50% of OTs income in recent years, in the sale, Mr Sawiris may be forced to sell his company piecemeal to various investors. He has, however, stated that he will keep his interest in certain OT ventures, notably his original Egyptian company, MobiNil, and a new venture in North Korea. Despite his problems, Mr Sawiris appeared combative, expressing interest in acquiring a Polish firm, Polkomtel, and a Serbian company, Srbija.Country Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010
  19. 19. Egypt 17Data and chartsAnnual data and forecast Pl ea se se e g ra p hi c b el ow 2006 a 2007 a 2008 a 2009 a 2010 b 2011 c 2012 cGDPdNominal GDP (US$ bn) 107.9 132.2 164.8 187.3 216.7 243.7 283.6Nominal GDP (E£ bn) 618 745 896 1,039 1,221 1,402 1,622Real GDP growth (%) 6.8 7.1 7.2 4.7 5.2 5.3 5.5Expenditure on GDP (% real change)dPrivate consumption 6.4 8.8 5.7 4.5 5.0 4.4 4.8Government consumption 3.1 0.2 2.1 8.4 8.9 8.1 5.7Gross fixed investment 13.8 23.7 14.8 -10.2 6.1 9.2 13.3Exports of goods & services 21.2 20.2 28.8 -12.8 5.7 8.9 10.6Imports of goods & services 21.7 30.5 26.3 -17.7 6.1 10.3 13.3Origin of GDP (% real change)dAgriculture 3.3 3.7 3.3 3.2 3.4 3.8 3.6Industry 9.7 5.9 6.1 5.1 5.5 5.9 6.8Services 5.4 20.2 8.2 4.2 5.4 5.1 4.4Population and incomePopulation (m) 78.6 80.1 81.5 83.0 84.6 86.2 87.8GDP per head (US$ at PPP) 4,679 5,064 5,445 5,650 5,866 6,169 6,527Recorded unemployment (av; %) 10.6 8.9 8.7 9.4 9.7 8.9 8.1Fiscal indicators (% of GDP)dCentral government revenue 24.5 24.2 24.7 27.2 21.5 22.0 22.4Central government expenditure 33.6 29.8 31.5 33.8 29.5 29.7 29.3Central government balance -8.2 -7.3 -6.8 -6.6 -8.0 -7.6 -6.8Central government debt 114.8 101.0 85.0 80.9 b 81.3 78.8 75.6Prices and financial indicatorsExchange rate E£:US$ (av) 5.73 5.63 5.43 5.55 5.63 5.75 5.72Exchange rate E£:€ (av) 7.19 7.71 7.99 7.72 7.47 7.19 6.86Consumer prices (av; %) 7.6 9.5 18.3 11.9 11.1 10.0 9.3Stock of money M1 (% change) 20.0 25.1 14.9 12.9 14.5 14.9 15.7Stock of money M2 (% change) 15.0 19.1 10.5 9.5 13.1 14.1 19.1Lending interest rate (av; %) 12.6 12.5 12.3 12.0 11.8 12.0 12.3Current account (US$ m)Trade balance -12,558 -20,494 -26,774 -22,475 -21,718 -20,143 -17,909 Goods: exports fob 20,546 24,455 29,849 23,089 26,025 27,791 30,423 Goods: imports fob -33,104 -44,949 -56,623 -45,564 -47,742 -47,934 -48,332Services balance 8,689 11,195 14,312 13,242 13,225 13,190 13,789Income balance 831 1,478 1,373 -1,922 -155 -231 -48Current transfers balance 5,770 8,322 9,758 7,960 7,899 8,274 9,334Current-account balance 2,731 501 -1,331 -3,195 -748 1,091 5,166External debt (US$ m)Debt stock 29,351 32,830 32,616 29,656 b 31,233 31,212 29,151Debt service paid e 2,487 2,740 3,131 5,187 b 2,471 3,485 4,346 Interest 773 881 934 806 b 688 661 686International reserves (US$ m)Total international reserves 25,581 31,374 33,849 33,933 36,543 38,770 39,544a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Fiscal year data ending June 30th. e Includesprepayments of medium- and long-term debt in 2006-08.Source: IMF, International Financial Statistics.Country Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010

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