EGYPT - Response To Globalisation & Results.

At present, Egypt is considered one of the most attractive emerging markets in the world. It has most of the necessary ingredients for rapid growth and prosperity. Its macro-economic fundamentals are relatively sound, having weathered the ripples from the Asian crisis of the late 1990s without problems. The government is increasingly oriented towards a regional and global outlook in terms of investments and opportunities. Technocrats are becoming more influential in the decision making process.

Reform measures are being introduced at a steady pace, and in spite of some complaints that implementation is slow, there is forward movement in terms of creating a liberalised economic environment. In the past five years, Egypt's annual GDP growth has averaged 5% and the outlook for the coming years is brighter. Between 2001 and 2004, real GDP growth per annum is expected to average 5.5% (see table). It is also important to note in this context that Egypt has a large informal economy, estimated at almost 30-50% of total economic activity. (The gray economy includes agricultural production, artisanal manufacturing, small-scale trade and personal services).

                                     Economic Projections
                        2000      2001      2002      2003      2004

Nominal GDP (LEm)    322,927   355,642   388,998   425,193   463,490
Nominal GDP ($m)      93,874    95,603   103,182   112,783   122,942
Real GDP growth         3.8%      4.9%      5.2%      6.1%      5.8%
Per Capita GDP ($)     1,422     1,419     1,500     1,606     1,714
Savings / GDP           8.5%      8.8%      9.6%     10.3%     11.2%
Inflation                 3%        5%        4%        3%        3%
LE:$ exchange           3.44      3.72      3.77      3.77      3.77
Current account      (1,441)       738       399      (331)      230
Capital account        (646)     1,535     1,939     2,531     2,879

Source: EFG-Hermes forecasts

Privatisation and the growth of entrepreneurship, strongly encouraged by the government, has contributed significantly to the economic revival. The government earmarked 314 public sector enterprises for privatisation in 1991. These firms were stripped from their affiliated ministries and grouped under various holding companies within the Ministry of Public Enterprise pending privatisation. With transactions beginning in 1994, by 2000 more than 110 of the companies were majority privatised, and another 23 were partially sold or leased.

Cairo has seen that it is the creation of wealth in private hands that will help the country best respond to the pressures of globalisation. With this in mind, it has moved to boost private sector business activity through a number of incentives. It has established new industrial zones and provided attractive tax benefits to foster the growth of new enterprises. Two new free zones have been designated - one in East Port Said and one in Suez - and development of port facilities to service the zones have been placed fully in the hands of the private sector through BOT schemes. Large land reclamation projects in southern Egypt and the Sinai aim to expand arable land for private sector agricultural and industrial use. Here too, much of the work is to be realized through BOT mechanisms. Virtually every sector of the economy has been opened up to increased private sector competition.

According to Central Bank of Egypt figures, the private sector is now responsible for 74% of all economic activity, up from 61% in 1992. Although part of this dramatic change is due to what critics call "statistical jugglery" by the state - one independent estimate puts the figure at 63% rather than 74% - it is nevertheless a fact that private sector activity has increased quite fast in recent years. Family empires having turned their diversified business groups into listed corporations in the past three years include the Sawiris and Ghabbours, among the very rich Copts, the Christian Lakahs (or Laccahs), and a rapidly growing Muslim elite like the El Ezz, the Seoudis, the Gerhys, the Bahgats, the Kamels of Kato group, Osman Ahmad Osman's clan, etc.

In a positively reinforcing cycle, sustained growth has led to the emergence and rapid proliferation of family companies, and these companies are going public gradually. That, in turn, is going to have two positive repercussions: (1) it will create a huge number of new jobs for skilled people, which should help reduce the unemployment on the one hand and militancy on the other (because a large number of militants are educated); and (2) it will increase the size of Egypt's educated middle class, which will help the government to sustain a forward looking policy aimed at integration with world economies.

In 2000, the government said earlier this year, 450,000 new jobs were created, of which only 150,000 was in the public sector. Job creation is expected to reach 613,000 each year by 2002, up from 500,000 jobs in 1999 and 428,000 in 1997, and over 1 million per annum by 2006. The annual rate should grow faster from 2007. There are projections that, if growth and the spread of entrepreneurship continue at the current pace, the middle class population could exceed 35 million by 2020. A strong middle class will not only become a stabilising and moderating force but it will also create the climate necessary for further political liberalisation on the path to democratisation.

In a statement that marked the way in which Egypt has changed over the past 10 years, Premier Atef Ebeid said on Jan. 20 that the Egyptian economy was robust and no longer needed any aid from the IMF or World Bank. It was a way of showing that Egypt through careful economic management had broken free of the influence of the IMF/World Bank combine, which is one important pillar among the multilateral structures that are facilitating the spread of globalisation.