Egypt: June 1999
The economic stabilization programme initiated in the early 1990s in Egypt has improved economic growth, and reduced inflation and, to some extent, unemployment.
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).Back to top
The Secretariat s report: summary
POLICY REVIEW BODY: EGYPT
Report by the Secretariat Summary Observations
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.
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.
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.
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 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 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.Back to top
POLICY REVIEW BODY: EGYPT
Report by the Government - Parts I and II
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.