Trade Compliance Center

EGYPT TRADE POLICY REVIEW SUMMARY - 1999

PRESS RELEASE

PRESS/TPRB/106

9 June 1999

Continued economic reform crucial to increasing

trade and improving standards of living in Egypt.

The economic stabilization programme initiated in the early 1990s in

Egypt has improved economic growth, and reduced inflation and, to

some extent, unemployment. A new WTO Secretariat report on the

trade policies of Egypt notes that the successful stabilization

programme has been complemented by gradual but progressive

trade liberalization and domestic reform. Egypt has removed most

non-tariff measures, decreased tariff protection, significantly

liberalized foreign investment, and deregulated and privatized public

sector companies. Although these reforms promise to introduce a

greater degree of competition in the economy, investment in the

tradable sector and export growth have remained sluggish,

suggesting the need for accelerated trade and internal reform if

the Government is to meet its ambitious growth targets for GDP

and standards of living.

The new WTO report, along with a policy statement by the

Egyptian government, will serve as a basis for the trade policy

review of Egypt in the WTO's Trade Policy Review Body on 24 and

25 June 1999.

The report concludes that Egypt would benefit from rationalizing

the remaining import prohibitions, lowering tariff peaks and

escalation and narrowing the list of imports subject to compulsory

quality control inspection. Although transparency has improved,

the report says, the degree of discretion that remains in the

system, including with respect to legislative change, adds an

element of unpredictability for traders. So far investment has

mainly been in the non-tradable sectors with the result that

growth has not led to significantly improved export performance.

Maintaining the pace of reform, the report says, would improve

growth and employment opportunities for Egypt's growing labour

force and help Egypt become more closely integrated into the

international economy.

The report indicates that Egypt has had considerable success in

implementing its trade policy goals, which have been twofold: first,

to reduce tariffs and rationalize the tariff structure; and second, to

reduce the number of products subject to non-tariff barriers, such

as export and import prohibitions, and to rely increasingly on tariffs

as the only trade policy instrument.

In 1998 clothing and some poultry products were the only products

still subject to import bans and all MFN import licensing

requirements appear to have been discontinued. There has been a

tendency to place previously prohibited imports on to a list of

imports subject to compulsory quality control. Tariff reform has

resulted in a significant reduction of most-favoured-nation (MFN)

tariff rates: the simple average MFN tariff fell to 26.8% in 1998,

from 42.2% in 1991. Tariff reform has also reduced the maximum

MFN tariff from 100% in 1991 to 40% in 1998 in most sectors,

notable exceptions being alcoholic beverages, textiles and some

motor vehicles. In most cases, the current applied tariff is

considerably lower than the maximum rate bound in the WTO.

However, the report notes that in 1998 some 12% of the tariff had

applied rates in excess of bound levels.

The report notes that in addition to participating actively in the

WTO, Egypt is increasingly focusing on preferential trading

agreements as a way to improving trade flows. Egypt is a member

of regional agreements such as the Common Market for Eastern

and Southern Africa (COMESA), and the Greater Arab Free-Trade

Area (GAFTA) and has also signed a number of bilateral trade

agreements to accelerate regional trade liberalization. The

completion of negotiations for the Euro-Mediterranean agreement

with the European Union (EU) should further deepen the process of

preferential trade liberalization and may improve Egypt's access to

its largest export market.

Egypt has had a long tradition of widespread state intervention in

the economy. However, the report notes that the government has

complemented its macroeconomic and trade reform by domestic

regulation and liberalization. The Egyptian government reduced its

pricing and distribution controls and launched an ambitious

programme of privatization of public sector companies. The

privatization programme - which has mainly focused on

non-financial public sector companies - has accelerated since

1995. Legislation on competition policy is currently being drafted.

Sectoral reform has been significant although unequal across

sectors. Agriculture has received closer attention than

manufacturing and some services are only being liberalized

gradually. Reform in agriculture, which began in the 1980s, has

reduced government control over production, pricing and

distribution. As a result there appear to be no major remaining

restrictions on annual production and most agricultural products

appear to be freely tradeable.

The petroleum sector, despite a decline in production, makes an

important contribution to the Egyptian economy. Reform in the

sector include a reduction in price controls and an opening of the

distribution sector to private investment. Similar reform has taken

place in natural gas production which the Government hopes will

compensate for declining oil reserves.

While reforms in the manufacturing sector have continued, they

have not been as rapid. All import and export bans and quotas

have been abolished with the exception of a ban on imports of

clothing, which will be removed in 2002. The combination of high

tariffs and liberalized investment, moreover, may have resulted in

significant tariff-jumping investment in the motor vehicles industry.

The report suggests that the relatively good performance of some

sectors such as food processing points to the desirability of

widening the scope of trade and internal reform to other important

sectors such as textiles and clothing.

The Egyptian government has made significant headway in financial

sector reforms, which it recently opened to foreign investment. It

is gradually opening the telecommunications sector to competition,

notably in mobile telephony and value added services. In addition,

since the mid 1980s, the government has opened to the private

sector a number of infrastructure services, such as port services,

and energy generation and distribution networks. The report notes

that deregulation of key services activities should continue.

Notes to Editors

The WTO's Secretariat report, together with a policy statement

prepared by Egypt, will be discussed by the WTO Trade Policy

Review Body (TPRB) on 24 and 25 June 1999. The WTO's TPRB

conducts a collective evaluation of the full range of trade policies

and practices of each WTO member at regular intervals and

monitors significant trends and developments which may have an

impact on the global trading system. The Secretariat report covers

the development of all aspects of each of Egypt's trade policies,

including domestic laws and regulations, the institutional

framework, trade policies by measure and by sector. Since the

WTO came into force, the areas of services and trade-related

aspects of intellectual property rights are also covered.

To this press release are attached the summary observations from

the Secretariat report and a summary of the government report.

The full Secretariat and governments reports are available for

journalists from WTO Secretariat on request (call 41 22 739 5019).

They are also available for the press in the newsroom of the WTO

internet site (www.wto.org). The Secretariat report, together with

the government policy statement, a report of the TPRB's discussion

and the Chairman's summing up, will be published in hardback in

due course and will be available from the Secretariat, Centre

William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed:

Argentina (1992 & 1999), Australia (1989, 1994 & 1998), Austria (1992),

Bangladesh (1992), Benin (1997), Bolivia (1993), Botswana (1998), Brazil

(1992 & 1996), Burkina Faso (1998), Cameroon (1995), Canada (1990, 1992,

1994, 1996 & 1998), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica

(1995), C?te d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the

Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European

Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana

(1992), Guinea (1999), Hong Kong (1990, 1994 & 1998), Hungary (1991 &

1998), Iceland (1994), India (1993 & 1998), Indonesia (1991,1994 & 1998),

Israel (1994), Jamaica (1998), Japan (1990, 1992, 1995 & 1998), Kenya

(1993), Korea, Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia

(1993 & 1997), Mali (1998), Mauritius (1995), Mexico (1993 & 1997), Morocco

(1989 & 1996), New Zealand (1990 & 1996), Namibia (1998), Nigeria (1991 &

1998), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994),

the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994),

Singapore (1992 & 1996), Slovak Republic (1995), the Solomon Islands (1998),

South Africa (1993 & 1998, Sri Lanka(1995), Swaziland (1998), Sweden (1990 &

1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Togo (1999),

Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 & 1998), the United

States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992 & 1998),

Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

TRADE POLICY REVIEW BODY: EGYPT

Report by the Secretariat Summary Observations

Introduction

Egypt's economic stabilization programme launched in 1990/91 has

resulted in a significant improvement in most macroeconomic and

trade indicators since Egypt's previous Trade Policy Review in

1992. Much progress has been made in reducing trade barriers:

most non-tariff measures have been removed and tariff protection

has been sharply reduced. MFN duties currently average about

27% compared to 42% in 1991. The removal of export bans and

reduced domestic restrictions on pricing and distribution has also

reduced the anti-export bias in the economy. More liberal

investment policies and a programme to reform and privatize public

sector companies have widened the choice of sectors for domestic

and foreign private investors in Egypt.

Egypt's economic growth has been achieved in the presence of

external shocks and despite a relatively uneven programme of

structural reform which, although clearly positive overall, has

allowed the persistence of some distortions rooted in past

inward-looking economic policies and a long tradition of widespread

state intervention in the economy. Reduced border protection has

brought out more clearly the potential benefits of rationalizing the

remaining import prohibitions, lowering tariff peaks and escalation,

and narrowing the list of imports subject to compulsory quality

control inspection. Tariffs on a number of products are applied in

excess of WTO bound rates. Although transparency has clearly

improved, the degree of discretion that remains in the system,

including with respect to legislative change, adds an element of

unpredictability for traders. Thus far investment appears mainly to

have taken place in the non-tradable sectors with the result that

growth has not led to significantly improved export performance.

Egypt's reform strategy reflects the need to maintain social

concensus around reform but it may be the case that further

economic gains could be secured by stepping up the pace of

internal reform both to forge a more uniform, predictable set of

economic incentives, and to achieve the faster growth that the

Government seeks. The Government believes that the key factors

in improving growth are an increased level of investment and an

acceleration in export growth to at least 10% annually. This would

require further trade reform, especially through a more uniform

tariff structure and continued duty reductions, including for the

sectors currently excluded from the tariff reform programme.

Continued reform could also help to attract more investment,

particularly to the tradable sector, thus allowing trade to play a

greater role in fostering Egypt's economic development.

Other factors that may also need to be addressed include industrial

restructuring, especially of important export industries such as

textiles and clothing, and continued deregulation, especially of key

service activities. Maintaining the pace of reform would thus

complement the stabilization programme and allow Egypt to

improve growth and employment opportunities for its growing

labour force and help it to become more closely integrated into the

international economy.

Trade policy framework

Egypt's trade and structural reforms have been carried out within

the framework of a stable political and institutional environment,

with only a few changes in the policy-making structure since the

previous Review. New and amended legislation requires passage

though the People's Assembly, although the President and Ministers

enjoy discretionary powers to issue amendments that have the

force of law. Frequent modifications to trade-related legislation,

including recent changes that require imports to be shipped directly

from the country of origin, reduce predictability in government

policy and may create uncertainty among traders. Enhanced

transparency with respect to laws and regulations would help

consolidate the considerable gains achieved in this respect since

the previous Review.

Egypt has notified the WTO of new legislation on anti-dumping,

countervailing and safeguard measures that it adopted in 1998.

New laws are being introduced to ensure compliance with the WTO

Agreement on Trade-Related Aspects of Intellectual Property

Rights); Egypt already provides a mailbox facility for patent

applications as required under the Agreement. Legislative

amendments in other trade and related areas, including preferential

rules of origin, have not yet been notified to the WTO.

Under the General Agreement on Trade In Services (GATS), Egypt

made commitments in construction and related engineering

services, financial services, tourism and transport services. In

some cases, notably financial services, recent liberalization goes

beyond Egypt's GATS commitments but in general Egypt's GATS

commitments focus on binding the current policy framework.

Trade and trade-related reforms

Since its last Review, Egypt's trade policy goals have been

twofold: to reduce the number of products subject to non-tariff

barriers, such as export or import bans, and thus to rely

increasingly on the tariff as the only trade policy instrument; and

to reduce tariffs and rationalize the tariff structure. Since 1992

Egypt has removed export bans and reduced the products subject

to import bans to clothing and some poultry products; it has also

removed whole poultry and textiles from the list of products

subject to import bans as committed to under the Uruguay Round;

the former was tariffied at 80% and the latter at 54%. All MFN

import licensing requirements appear to have been discontinued.

Products removed from the list of banned imports have tended to

be placed on a list of imports subject to quality control

requirements. As a result, the list of products subject to quality

control inspection on entry into Egypt grew from 69 at the time of

the previous Review to 182 in 1998.

In 1994 Egypt adopted the Harmonized System of Tariff

Classification. An ongoing programme of tariff reductions has

resulted in a significant reduction in MFN tariff rates; the simple

average MFN tariff has fallen to 26.8% (30.2% with a surcharge

and customs service fee) in 1998, from 42.2% in 1991. Tariff

reform has also reduced the maximum MFN tariff from 100% in 1991

to 40% in 1998. Thus the overall degree of protection granted to

the Egyptian economy, through tariff and non-tariff barriers, has

declined significantly since Egypt's last Review. There has also

been a decline in tariff escalation as duty reductions have

introduced a greater degree of tariff uniformity across sectors.

However, overall tariff dispersion has increased, in part due to the

reduced average tariff highlighting tariff peaks in key sectors not

subject to tariff reductions, including some motor vehicles, textiles

and alcoholic beverages from tariff reductions. Tariff dispersion is

reinforced by a number of temporary exemptions for imports of

inputs and capital goods and for goods imported by assembly

industries.

As a result of the Uruguay Round, Egypt bound over 98% of its

tariff, compared to an average of 73% for developing countries.

The overall average bound tariff was 45% in 1998, well in excess of

the current average applied tariff, and is expected to decline to

37% by the end of the implementation period in 2005. In most

cases the current applied tariff is considerably lower than the

bound rate. However, in 1998, some 12% of the tariff had applied

rates in excess of their bound levels, and almost 2% of the tariff

had applied rates in excess of their initial Uruguay Round base

rates.

Other measures affecting trade

Macroeconomic and trade reform has been complemented by

domestic deregulation and liberalization, which has concentrated

mainly on reducing government intervention in the economy. The

process has been gradual mainly to allow economic agents to

adjust to reduced state intervention and to adapt to market

signals.

Domestic reform has mainly consisted of reduced state

intervention, through a reduction of pricing and distribution

controls and through an ambitious programme of privatization of

public sector companies. Since Egypt's previous Review in 1992,

price controls have been lifted on all but a few industrial products

such as pharmaceuticals, sugar and edible oil, and there appear to

be no restrictions on distribution.

The privatization programme has accelerated since 1995, with

almost 200 out of an initially selected 314 companies expected to

be fully or partially privatized by the end of 1999. The programme

has focused, in the main, on non-financial public sector companies

which account for around a quarter of total government and public

sector output; most of the remaining entities in the public sector

are not being considered for privatization at the present time. The

Government has also taken action to reform and restructure public

sector companies in the services sector, notably in banking,

insurance and telecommunications. Privatization to date has been

largely through the stock market and, thus, has generated

increased foreign portfolio investment.

In an attempt to raise private investment both by Egyptians and

by foreign companies, the Government provides a number of mainly

tax and tariff incentives in certain sectors. Since its previous

Review, Egypt has considerably liberalized its investment regime,

first by reducing the negative list of sectors in which private

investment was discouraged, and then by replacing it with a

positive list of sectors in which investment is encouraged. The new

Law of Investment Guarantees and Incentives passed in 1997 is

likely to increase foreign direct investment in the coming years.

Efforts are also being made to bring greater competition into the

economy through the introduction of competition policy, for which

legislation is presently being drafted.

Although not a member of the WTO Agreement on Government

Procurement, Egypt introduced a new Tenders Law in 1998 which

introduces greater transparency in the process of public

procurement; the new Law, while allowing price preferences for

Egyptian suppliers, is likely to lead to improvements in procurement

practices in Egypt.

Sectoral policies

Sectoral reform has made significant strides in some areas, while in

others it has lagged, reflecting the difficulty of overcoming

decades of government intervention in the economy. Agriculture

has received closer attention than manufacturing, while some

services are only gradually being liberalized. Reform in agriculture,

which began in the 1980s, has concentrated on reducing the

degree of government control over production, pricing and

distribution. As a result, there appear to be no major remaining

restrictions on annual production and most agricultural products

are freely tradeable and may be sold directly to private sector

traders.

Despite a decline in production, petroleum exports still make an

important contribution to the economy. Production is undertaken

through production sharing agreements between the state-owned

Egyptian General Petroleum Company (EGPC) and a number of

foreign companies. Reforms in the sector since Egypt's last Review

include a reduction in price controls and an opening of the oil

distribution sector to private investment. Natural gas, whose

production has been rising, is mainly used for domestic

consumption, although the Government expects it to substitute for

oil exports in the future. As for petroleum, the Government has

reduced price regulation for natural gas, and gas distribution has

been opened for private sector investment.

Reform in the manufacturing sector has continued although not as

rapidly as in other activities. All import and export bans and quotas

have now been abolished with the exception of a ban on imports of

clothing, which will be removed in 2002. There are no foreign

investment restrictions and investment incentives are provided for

manufacturing activities, under the new Investment Law. Tariff

reductions and exemptions have been concentrated in intermediate

and capital goods as a result of which tariff escalation remains high

in industries such as food, beverages and tobacco, and textiles

and leather. Continued protection for finished products and tariff

concessions for assembly industries such as motor vehicles, in

combination with a liberal investment environment, has led to tariff

jumping foreign investment. The good performance of industries

such as food processing (excluding alcoholic beverages) suggests

the desirability of widening the scope of trade and internal reform

to other key sectors such as textiles and clothing.

With the need for higher economic and export growth, the

Government seeks to eliminate bottlenecks created by a number of

service activities. For example, significant headway has been made

in reforming the financial sector, which has recently been

completely opened to foreign investment; the telecommunications

sector is gradually being opened to competition, notably in mobile

telephony and value added services. In addition, since the mid

1990s, the Government has opened to the private sector a number

of infrastructure services, such as port services, and energy

generation and distribution networks. In general, although the

Government retains control of the existing services infrastructure,

most new projects are run as build-own-operate-transfer (BOOT)

schemes and are likely to help producers and exporters.

Trade Policies and Trading Partners

Trade policy reform has been pursued mainly under an autonomous

programme of trade liberalization. An active member of the WTO,

Egypt is also committed to meeting its Uruguay Round

requirements, utilizing in many cases the permitted implementation

period for developing countries. Concurrently, Egypt has focused

on preferential trading agreements as a means for increasing trade

flows, joining regional agreements such as the Common Market for

Eastern and Southern Africa (COMESA) and the Greater Arab

Free-Trade Area (GAFTA). It has also signed a number of bilateral

trade agreements to accelerate regional trade liberalization. The

completion of negotiations for the Euro-Mediterranean agreement

with the European Union (EU) will further deepen the process of

preferential trade liberalization and should improve Egypt's access

to its largest export market; as in similar cases, the agreement

raises questions about possible trade diversion.

TRADE POLICY REVIEW BODY: EGYPT

Report by the Government - Parts I and II

Introduction

1. The first half of the 1980s witnessed the upgrading of the

national infrastructure in electricity, roads, ports,

telecommunications and basic services. Today, Egypt enjoys a

modern and efficient infrastructure network covering most of the

country a fundamental pre-requisite for increased foreign and

domestic investment.

2. The second half of the 1980s witnessed the prelude to a major

financial and economic reform. The comprehensive reform

measures, undertaken since January 1991, are expected to usher

in a new era of efficient economic management, financial discipline,

and the framework for a dynamic, high-growth economy.

3. The first half of the 1990s consolidated the success of the

reforms during the previous decade into a fully fledged, market

based, liberal, privately led economy, that has the means, the

institutions and the capacity to face global competition in the

twenty-first century.

4. Today, the economy of Egypt is poised to reap the benefits of

these reforms with its acquired experience in dealing with the world

and its sound and conscientious understanding of its variables.

5. Egypt has entered a new era of its economic development. It

has accepted the principles of market forces as the main arbiter of

economic activity, and has empowered the private sector to lead

our economy into the twenty-first century. It has changed the

nature of its Government into a government of mediators, an

instrument of change and a vehicle for progress.

6. Foreign investment is essential to the continued growth of our

economy. For this purpose, foreign investors, along with Egyptian

investors, are actively encouraged to participate in the

implementation of the ongoing reforms in our economy. Indeed,

foreign investment is given the lead in expanding infrastructure in

Egypt.

I. Key developments in trade and economic policy since the

last review

A. The Egyptian economy in the spotlight

7. Since the beginning of the reform programme in 1991/92, the

private sector has played an increasingly dominant role in the

growth process. Private-sector activities contributed well above

60% of total GDP. This figure is scheduled to increase to over 85%

by the end of the decade. It has the lead in agriculture and

irrigation, industry and mining, construction, transportation, trade,

hotels and restaurants and housing.

8. In 1995/96, private investment exceeded 50% of total

investments in Egypt, reflecting the Government's commitment to

withdraw from investment activities, while at the same time

facilitating increased private-sector participation in the economy.

9. At present, private investment in the industrial and mining

sector stands at 92% of the total sector's investment.

10. The Government further encourages businessmen and

multinationals to invest in non-traditional areas, specifically in

financial services such as insurance as well as utilities and

infrastructure.

B. Trade

11. Egypt has been the centre of trade and enterprise in the

Middle East for centuries, and its location between the continents

of Africa and Asia makes it the crossroads between the east and

the west.

12. With a population of over 60 million, Egypt has the largest

domestic market in the region.

13. Europe and the United States account for almost three

quarters of Egypt's exports. In addition, almost 70% of all imports

originate from the same two sources; by far the largest source of

Egyptian imports is Europe.

14. Machinery, transportation equipment, and foodstuffs form half

of Egypt's total imports.

15. While cotton contributes 40% of agricultural exports, industrial

commodities are Egypt's major export contributors, with the

petroleum industry constituting 42% and the spinning and weaving

industry contributing 16%.

16. The export growth rate of engineering industries over the

reform period has exceeded all expectations reaching 296%,

followed by a strong upward shift in pharmaceutical exports

achieving a 150% growth rate.

17. The Government has furnished a detailed export promotion

programme aimed at increasing commodity exports five-fold by the

end of the decade. To this end, measures have been taken to

further liberalize trade, remove tariff and non-tariff barriers, reduce

operating costs, enhance transparency of the trade regime,

provide incentives and upgrade port services, ease customs

procedures, quality control and product standards.

18. It should be noted also that the Government of Egypt was able

to bring down its tariff distortion to the range of 5-40% (with minor

exceptions), remove all export quotas and import bans and prior

approvals, eliminate virtually all bureaucratic barriers, streamline

the administration of the drawback and temporary admission

systems and amend the tariff schedule to cope with the

international community by adopting the harmonized system of

classification.

C. Infrastructure

19. Realizing that the private sector is the locomotive for growth in

the Egyptian economy, the Government of Egypt has, since the

beginning of the economic reform programme in 1992, focused on

investing in areas that would support private-sector activities,

rather than those which would compete with it.

20. As such, infrastructure was given top priority with the

commencement of the reform programme.

21. Recently, the Egyptian Government has been reviewing its

traditional involvement in investment directed towards

infrastructure and utilities to include the private sector.

22. New legislation issued in 1996 and 1997 contain provisions for

the private sector to invest in infrastructure and

telecommunications using schemes which provide for an active

participation of the domestic and international private sectors in

infrastructure development in Egypt.

D. Telecommunications

23. Law No. 19/1998 transferred the national communications

authority from the direct control of the Ministry of

Telecommunications to a joint-stock company, and a regulatory

body for telecommunications has already been established.

24. Licences were granted for the establishment of two

private-sector companies for providing mobile telephone services.

25. Internet services are currently offered by more than 30 service

providers from the private sector, and VSAT services were

introduced in October 1996 to provide its services to major

organizations and companies.

E. Tourism

26. Egyptian tourism, which is largely private-sector dominated, is

experiencing a significant breakthrough that can be perceived on a

multidirectional scale. Currently, the Government of Egypt is

working to stimulate the tourism sector, which is a significant

component of the Egyptian economy.

27. The sector continues to be a principal source of foreign

currency for the country, playing an important role in the balance

of payments; this industry currently ranks second among Egypt's

major sources of foreign currency.

F. Investment

28. Egypt is keen on attracting foreign direct investment for

several reasons, including its desire to acquire new technology,

management and marketing capabilities. More importantly perhaps,

FDI is needed to enable the country to grow much faster (7-8%) in

order to create jobs for new entrants into the labour market and to

reduce the current unemployment rate. The high-growth scenario

requires that the ratio of investment to GDP be increased to

25-27%.

29. In order to facilitate investment in Egypt and to provide more

incentives and guarantees, Law No. 230 of 1989, which provides

certain incentives and guarantees for foreign investors who carry

out activities in Egypt in accordance with its provisions, was

repealed by a unified Investment Guarantees and Incentives Law

(Law No. 8 of 1997).

30. Investment activities carried out by foreign companies in Egypt

are to be conducted within the vast areas of investment permitted

under the investment law, namely, land reclamation, housing,

industry, tourism, agricultural projects, oil services and

transportation services, infrastructure for drinking water, waste

water, electricity, roads and communications, financial leasing,

projects financed by the social fund, underwriting and venture

capital activities, air transport, overseas maritime transport,

hospital and medical treatment centres, production of computer

software and systems, and any other areas approved by the

Council of Ministers.

31. Egyptian and foreign investors have the right to act separately

or together in activities falling under any of the fields of investment

outlined under the Law.

32. Foreign investors can also carry out projects in Egyptian free

zones, which are regulated by the investment law and considered,

for a number of purposes, as being located offshore.

33. Both capital and profits could be repatriated freely after the

liberalization of the exchange market in 1991.

34. In addition, all regulatory obstacles to market entry and

business operations have been revised over the past few years.

Licensing for local and international investment is automatic and

open to private business.

G. Ports and maritime transport

35. The Government of Egypt has undertaken great strides allowing

private-sector companies and individuals to engage in maritime

transportation, own any kind of vessels and undertake any

maritime services. In addition, measures have been taken to

streamline and reduce procedures.

36. The commercial code is also being revised and brought in line

with modern international practice.

H. Privatization

37. The privatization programme is a fundamental component of

the economic reform programme. The Egyptian Government is fully

committed to it. This reflects a significant change in government

policy away from state management and control towards a reliance

on market mechanisms and the private sector.

38. The privatization programme in Egypt consists of two basic

parts:

(i) the first and largest involves divestment of

public-sector holdings in production and manufacturing

companies.

(ii) the second part of the privatization programme is

the encouragement of private-sector investment in

sectors historically controlled and operated by the

public sector, including electricity, roads, airports,

maritime ports and oil and gas transmission.

39. The Public Business Enterprise Law 203 of 1991 governs the

restructuring of 314 public-sector enterprises and removed all

government control over public-sector companies, restructuring

them as affiliates under 16 financially autonomous holding

companies.

40. Within the context of the Government's programme,

privatization may take any of the following forms:

(i) the transfer of ownership and control of

state-owned enterprises to the private sector through

a partial or full public share flotation on both the

domestic or foreign stock exchanges.

(ii) direct sale of a controlling interest to domestic

and/or foreign investors.

(iii) direct sale of a controlling interest to employees.

(iv) sale or lease of company assets, unlimited sale of

government-owned shares, or liquidation.

I. Banking

41. The banking system in Egypt is large and well developed with

Egypt showing steady progress towards becoming an emerging

market; this sector is showing staggering prospects for expansion

and diversification.

42. The liberalization of financial services and exchange systems

has benefited banking allowing it to become more efficient.

J. Capital market

43. Law No. 95 of 1992 and its amendments streamlined all

pre-existing capital market regulations and aims at ensuring a fair

and organized market, enhancing investment and privatization, as

well as revitalizing the stock and bond market.

K. Insurance market

44. The Government of Egypt is currently carrying out major

undertakings to restructure the insurance sector. A new law was

issued in 1998 in order to remove restrictions on private and

foreign ownership and to encourage international firms to

participate in the Egyptian market.

I. Egypt's economic performance

45. Since the early 1990s, the Government of Egypt has been

intensifying its efforts to raise standards of living, reduce

unemployment and bring down inflation, leading to a market-based

economy and implementing a consistent economic policy mix. GDP

grew at some 5% over the past two years, up from an average of

3.5% over the previous three years, giving a clear signal of the

success of the Government's reform policies.

46. In response to the continued favourable macroeconomic

environment and institutional reforms, national savings and

investment started to pick up after a slow-down during early

phases of the programme. The increase in public savings that

resulted mainly from the reduction of budgetary and current

transfers is indicative of the strength of the stabilization

programme. On the fiscal side, the budget deficit has been reduced

significantly to 0.9% of GDP in 1996/97 down from 20% prior to the

reform programme, with revenue maximizing efforts and significant

expenditure, restructuring and reduction achieved through

downsizing the Government's activities and implementing lasting

structural improvements.

47. On the monetary side, liquidity growth has fallen significantly

from 40% to between 9% and 10% annually. A tightened monetary

policy focused on reducing the growth rate of money supply and

providing credit to the private sectors to promote investment. At

present, the budget deficit is mainly financed by the non-banking

sector. Treasury bill auctions were introduced during the early

phases. The Central Bank's international reserves now exceed

US$20 billion (17 months of imports) up from US$1.5 billion (two

months of imports) prior to the reform programme.

48. The Government is currently targeting:

(i) An annual growth rate of 6-7% by the end of the

century and maintaining the current low inflation rate

at 4%.

(ii) The budget deficit will continue its gradual decline

to remain below 1% of GDP.

(iii) The nominal interest rate will decline further to

reach 7%.

(iv) The current account (including official transfers)

as a percentage of GDP will be maintained at the same

level despite exogenous factors.

(v) The external debt ratio as a percentage of current

account receipts will decline to almost 8% down from

9% in 1996/97 and 1997/98.

(vi) The external debt will decline to almost 20% of

GDP down from 33% in 1997/98.