Egypt

Country Report

Egypt

December 2010
Economist Intelligence Unit
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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)
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Country Report December 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010

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 town

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LIBYA EGYPT Akhmim
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Girga Qena Quseir
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Luxor RED SEA
Al Kharga
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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

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.
• Egypt's foreign-exchange reserves have returned to their peak level of
US$36bn.


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 NDP's control over the election
apparatus), he would be unlikely to complete it. Nonetheless, in recent months
many of the NDP's 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 Egypt's 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 (and


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
government's ongoing crackdown on its activities and the prohibition on
political parties based on religion. Brotherhood candidates, running as
independents, won 88 seats in the People's 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 Brotherhood's representation in the People's 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 regime's
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 NDP's 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 NDP's
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 son's succession, then he might eventually agree
to grant some of Mr ElBaradei's 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 Egypt's 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 Hamas's 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.


6 Egypt

Egypt's 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 government's 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 government's consolidation programme in the banking sector means that
Egypt's 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 Egypt's 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 in


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 government's 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 CBE's
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 0.3


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. Egypt's 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, Egypt's largest export
markets, remains fragile. On the plus side, domestic demand remains strong,
buoyed by the government's 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 government's 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 Egypt's 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.


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. Egypt's 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 a


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.


Egypt 11

Monthly review: December 2010
The political scene
Election campaigning reveals Campaigning for the election for the People's Assembly (the lower house) on
rifts within parties November 28th has exposed the rifts and weaknesses within the ruling
National Democratic Party (NDP). The NDP's 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
Brotherhood's 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 Brotherhood's 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 Brotherhood's 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.


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 Cairo's 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 Egypt's largest real estate developers, including
charging it a payment-in-kind (that is, as finished apartments) of 7% of the
development's land price value, which would be at least E£15bn (US$2.6bn) at


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 Fakharany's 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 People's 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 Egypt's estimated GDP per
head this year. This increases the minimum wage in the private sector
substantially and resolves a court's 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 EFTU's 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 NDP's presidential


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 Egypt's 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 IDA's scheme is designed to relieve difficulties in securing land for
industrial projects under current regulations, thus addressing a recurrent
criticism in the World Bank's 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);


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 Egypt's 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 real


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. Mo'men, 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- Egypt's 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 company's
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 Sawiris's 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 OT's 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.


Egypt 17

Data and charts
Annual 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 c
GDPd
Nominal GDP (US$ bn) 107.9 132.2 164.8 187.3 216.7 243.7 283.6
Nominal GDP (E£ bn) 618 745 896 1,039 1,221 1,402 1,622
Real GDP growth (%) 6.8 7.1 7.2 4.7 5.2 5.3 5.5
Expenditure on GDP (% real change)d
Private consumption 6.4 8.8 5.7 4.5 5.0 4.4 4.8
Government consumption 3.1 0.2 2.1 8.4 8.9 8.1 5.7
Gross fixed investment 13.8 23.7 14.8 -10.2 6.1 9.2 13.3
Exports of goods & services 21.2 20.2 28.8 -12.8 5.7 8.9 10.6
Imports of goods & services 21.7 30.5 26.3 -17.7 6.1 10.3 13.3
Origin of GDP (% real change)d
Agriculture 3.3 3.7 3.3 3.2 3.4 3.8 3.6
Industry 9.7 5.9 6.1 5.1 5.5 5.9 6.8
Services 5.4 20.2 8.2 4.2 5.4 5.1 4.4
Population and income
Population (m) 78.6 80.1 81.5 83.0 84.6 86.2 87.8
GDP per head (US$ at PPP) 4,679 5,064 5,445 5,650 5,866 6,169 6,527
Recorded unemployment (av; %) 10.6 8.9 8.7 9.4 9.7 8.9 8.1
Fiscal indicators (% of GDP)d
Central government revenue 24.5 24.2 24.7 27.2 21.5 22.0 22.4
Central government expenditure 33.6 29.8 31.5 33.8 29.5 29.7 29.3
Central government balance -8.2 -7.3 -6.8 -6.6 -8.0 -7.6 -6.8
Central government debt 114.8 101.0 85.0 80.9 b 81.3 78.8 75.6
Prices and financial indicators
Exchange rate E£:US$ (av) 5.73 5.63 5.43 5.55 5.63 5.75 5.72
Exchange rate E£:€ (av) 7.19 7.71 7.99 7.72 7.47 7.19 6.86
Consumer prices (av; %) 7.6 9.5 18.3 11.9 11.1 10.0 9.3
Stock of money M1 (% change) 20.0 25.1 14.9 12.9 14.5 14.9 15.7
Stock of money M2 (% change) 15.0 19.1 10.5 9.5 13.1 14.1 19.1
Lending interest rate (av; %) 12.6 12.5 12.3 12.0 11.8 12.0 12.3
Current 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 -48,332
Services balance 8,689 11,195 14,312 13,242 13,225 13,190 13,789
Income balance 831 1,478 1,373 -1,922 -155 -231 -48
Current transfers balance 5,770 8,322 9,758 7,960 7,899 8,274 9,334
Current-account balance 2,731 501 -1,331 -3,195 -748 1,091 5,166
External debt (US$ m)
Debt stock 29,351 32,830 32,616 29,656 b 31,233 31,212 29,151
Debt service paid e 2,487 2,740 3,131 5,187 b 2,471 3,485 4,346
Interest 773 881 934 806 b 688 661 686
International reserves (US$ m)
Total international reserves 25,581 31,374 33,849 33,933 36,543 38,770 39,544
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Fiscal year data ending June 30th. e Includes
prepayments of medium- and long-term debt in 2006-08.
Source: IMF, International Financial Statistics.


Egypt

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