Introduction

The Egyptian economy is one of the largest in the Arab World and the second largest in the Middle East and North Africa. Furthermore, Egypt is in the process of positioning itself to become one of the fastest growing economies in the world.

 

Egypt is currently undertaking a comprehensive economic reform and stabilization program aimed primarily at generating high and sustainable growth rates, alleviating poverty, improving the standards of living, reducing unemployment and achieving financial and monetary stability. The reform program targeted the core of the economy with direct policy changes and encompassed the infrastructure backbone through areas such as education to improve Egypt's overall economic and social being. In its earlier phases, the program concentrated on monetary tightening, exchange rate liberalization, and price deregulation. In line with their recognition of the indispensable role of the private sector, the Egyptian Government has exerted concerted efforts to encourage greater participation and to create a business-friendly environment.

 

The comprehensive reform measures, undertaken since 1991 and expedited since July 2004 after the first Cabinet of Dr. Ahmad Nazif, ushered in a new era of efficient economic management and financial discipline and laid down the framework for a dynamic, high-growth economy.

Egypt is now witnessing the emergence of a full-fledged, market based, liberal, and privately led economy, that has the means, the institutions and the capacities to face the global competition of the 21st century. Major strides have been made to revamp conditions for market entry, operations and exit of business, to rebuild and consolidate the infrastructure, to dismantle the bureaucratic barriers and to streamline procedures. As a result, Egypt is currently one of the most open and internationally integrated markets in the region.

 

 The structure of the Egyptian Economy

Egypt has a fully diversified economy with enormous potential for sustained high growth across all sectors.

 

Oil and gas

Oil is a major source of foreign exchange, and dozens of multinationals operate in the energy sector. Reserves of natural gas will last for fifty years and prospecting for new fields is active as a result of attractive incentives. Energy consumption has nearly doubled from 1994 to 2001.

 

Agriculture

Egypt enjoys near ideal agronomic conditions, and yields for rice and sugar cane are the highest in the world. Output, yields and exports are responding positively to the elimination of controls in agriculture and the potential is still vast for marketing fresh fruits and vegetables internationally.

 

Tourism

Egypt has considerable potential for developing its tourism sector, currently at around 7 million tourists annually. A major advantage is the variety of tourist locations and attractions. Coastal tourism projects are becoming progressively larger, and plentiful conference facilities are available.

 

Construction

Construction is an integrated multi-billion dollar sector, with a work force of 1.2 million serving Egypt and the region. A major strength is its diversified and competitive manufacturing base for steel, cement and other building materials. A recent success story is in the export-oriented ceramics, tiles and sanitary ware industry.

 

Manufacturing

The size and competitiveness of the manufacturing sector ensures that it is- and will continue to be- Egypt's engine of growth. Industrial strategy promotes export orientation and the use of frontier technology, with a major role for transnational corporations. Egypt's National Export Development Strategy aims at raising the value of exports fivefold over the next decade. Egypt's manufacturing sector has achieved significant progress in labor productivity, while maintaining a constant level of dollar wages. What this means is that the country has an obvious and significant cost advantage for businesses operating in Egypt.

The food processing industry relies on Egypt's high quality and low-priced agricultural output. It is attracting a growing number of transnational corporations to serve expanding domestic and foreign markets. Egypt ranks fifth in terms of exports of processed food to the large Arab market. Over the past decade, land reclamation has added several thousand acres to vegetable and fruit cultivation, which give food processing a plentiful supply of varied inputs that are highly cost-competitive by international standards.

 

Food processing as a whole has registered an annual growth rate of 22% over the past 10 years, mostly in response to the sustained increase in domestic demand. The local market is boosted by the annual addition of about 1.2 million persons to the population, by the rise in the number of working women from the middle class, and the influence of the media on people's preference for convenience foods, pre-cooked meals, snack foods and confectionery.

 

Private establishments in the textiles and garments industry are quickly multiplying, and exports have increased significantly in recent years. A key attraction is the use of Egypt's finest cotton, whose top world quality has remained unchallenged for two centuries.  Another advantage is high labor productivity, with wages that are only 19% of those in Turkey and 8% of those in Israel.

 

With a population of 71.9 million and growing by one million every ten months, demand for practically every type of consumer good, capital good and intermediate is constantly on the rise. There are over one million commercial vehicles on Egypt's roads, and equally many private passenger cars.

 

Egypt's internal stability is yet another major asset with which Egypt steps confidently into the 21st century. The number of political parties, publications and public debate forums has multiplied throughout the last two decades. Economic policy is drafted in consultation with the private sector and in harmony with its interests. Implementation of reforms relies in a very large measure on the advice of various consumer and business groups.

 

Key Economic Indicators of the Egyptian Economy

 

 

 

Egyptian-American Economic Relations

          Egyptian-American economic relations have rapidly expanded over the course of the last two decades.

Trade

The United States is currently Egypt's largest single trading partner and the second largest trading bloc, following the European Union, and supplies almost one-fifth of Egyptian imports. Egyptian exports to the United States, on the other hand, account for more than one-eighth of total Egyptian exports, albeit less than a tenth of a one percent of all US imports.

Acknowledging the importance of the economic relations between the two countries, the governments of Egypt and the United States developed a framework that was entrusted with the task of initiating and forwarding public-private sector dialogue on policies aimed at expanding economic growth and job opportunities in Egypt, as well as building mutually-beneficial economic and commercial ties between the two countries. The framework formally known as Egypt-U.S. Partnership for Economic Growth and Development operated through three main anchors:

1) The Presidents Council

2) The Joint Board on Science and Technology

3) The Joint Committee for Economic Growth and Development, with its four subcommittees.

In July 1999, Egypt and the U.S. also signed the Trade and Investment Framework Agreement (TIFA), which was regarded as a preliminary step towards a future Free Trade Agreement between the two countries.

 

 

 The United States holds the largest stock of foreign direct investment in Egypt ($2.2 billion in 1999). American companies operating in Egypt are concentrated in energy-related investments, where they account for almost 30 percent of total foreign investment in the sector. American companies are also active in the banking and manufacturing sectors.

 

 

US Economic Assistance to Egypt

Following the Camp David Accords in 1978, and in recognition of the importance of Egypt as a strategic ally and of Egypt's role as a moderating force in the Middle East, Egypt became one of the largest recipients of U.S. economic assistance. USAID-Egypt, which celebrated its 25th anniversary last year, operates within a framework that reflects the priorities set by the U.S-Egyptian policy structures, as well as the goals set forth by Egypt's development strategies. Currently, agriculture, health, family planning, education, environment, and infrastructure are key areas of USAID operations in Egypt.

 

In addition to the project portion of American economic assistance to Egypt, the assistance package also provides for U.S. Dollars at fixed exchange rates, and short to medium credit terms with an interest-free grace period to Egyptian private sector firms to finance the importation of U.S.-manufactured commodities from the United States. The program is widely known as Commodity Import Program (CIP).

 

A third portion of U.S. economic assistance to Egypt is what is widely referred to as the "Cash Transfer" portion. The term refers to transfers and technical assistance to facilitate policy reform and structural adjustment.

 

In 1998, the United States, after consultation with the Egyptian Government, reached an agreement to phase down its economic assistance to Egypt. In effect, U.S. economic assistance to Egypt has been reduced by $40 million a year since fiscal year 1999, with the objective of leveling off at $415 million in 2008, the rationale being two-fold. On one hand, and while there is still need for American support, Egypt is economically on track. The impressively successful economic reform and structural adjustment program that was carried out during the 1990s brought about a transformation from a centrally-planned economy to one that is market-oriented, all with minimal social sacrifices incurred. This coupled with a noticeable improvement in the living standard of the ordinary Egyptian justified from both the Egyptian and the American perspectives a review of the levels of U.S. economic assistance to Egypt.

 

On the other hand, the scaling back of assistance was also seen as a means by which Egypt and the United States can ultimately move from an economic relationship based on aid to one based on investment and trade.

 

    

Investment in Egypt

 

In 1997, Investment Law No. 8 was enacted to introduce more coherence in the plethora of laws governing investment and it represents a considerable improvement on the investment regulatory framework that had evolved during the past two decades. Among the most essential provisions of Investment Law No. 8 is the granting of national treatment to foreign investment. In the years ahead, Egypt has the potential to attract FDI of higher quantity and quality and commensurate with the fundamental strengths and opportunities that its economy offers. These strengths include a large domestic market, a wide industrial base, a skilled and competitively priced work force and a strategic location in the region. These competitive advantages we re-identified by a survey conducted by UNCTAD among major transnational corporation (TNC) executives, as well as managers of affiliates operating in Egypt.

 

Economic reforms undertaken by the Egyptian government have improved the business climate, boosting local and foreign investor confidence. A growing economy, liberalized rules for FDI, and the free trade agreement with the European Union have produced a favorable investment climate in Egypt. In the past year, the Government of Egypt has taken strides to further improve the country's business climate. When international business executives were asked whether changes to government policies in a country had improved competitiveness in the past year, Egypt was first of the 58 countries surveyed by the Global Competitiveness Report of the World Development Forum.

 

2       FDI has flowed into Egypt at a steadily increasing pace in the 1990s and the current level of inflow appears to be more stable than earlier. FDI approvals for this year suggest a substantial increase in realized flows over the next few years. Egypt currently boasts 26 out of the 100 world's largest TNCs. Domestic firms also benefit from a range of non-equity form arrangements with TNCs, including alliances, leasing technology or brand names, and marketing.

 

Egypt's large domestic market is a magnet for FDI. The industrial base extends from labor-intensive industries through technology-intensive industries to energy-intensive industries. There are a number of emerging high-skill service industries such as financial services and software development. Egypt enjoys comparative advantage not only in natural resources but also in several manufacturing industries, including textiles, engineering, metals, pharmaceuticals and food processing.

 

 

Doubling Investments

            The value of investments Egypt attracted increased by 211% in 2005 from $408 million to $1.3 billion and oil investments increased from $1 billion to $2.6 billion. Therefore, total foreign direct investments in Egypt reached $3.9 billion by the end of 2005. Many predict that Egypt will be able to triple its FDI in years to come. This is consistent with Egypt's recent general trend of economic growth, increased stability, and optimism that many attribute to its recent economic reforms and increased privatization