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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT APRIL 2007
CAIRO & ALEXANDRIA STOCK EXCHANGES
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
Year 2006 witnessed the acceleration of the
growth of the Egyptian economy. The
continuous aggressive economic and political
reform programs led the Egyptian economy
to grow by almost 7% in 2005/2006, which is
the largest growth rate over the last two
decades.
The speeding up of the privatization program
together with the high Foreign direct
investment (FDI) flows were the major
engines of this impressive growth this year,
whereby FDI registered almost US$ 6.1 billion
during 2005/2006 (its highest ever), up by
56% compared to the previous year, with
expectations to reach US$ 8 billion in FY
2006/2007.
Likewise, the privatization program kicked off
in 2006, with proceeds surpassing LE 14
billion. The government was also able to sell
the third mobile license for L.E 16.7 billion
worth of proceeds, which will be earmarked
to finance the budget deficit.
This was further complemented with the
major structural reforms in the banking sector
to provide a more competitive environment,
whereby 27 banks complied to the required
capitalization, while more than 10 banks were
forced to merge. Only three non compliant
banks remain to be acquired by big financial
institutions. Moreover, year 2006 has
witnessed the sale of Alexandria Bank –one
of the four major public banks- to Italian
SanPaolo IMI, the fourth largest bank in
Europe, in a deal worth US$ 1.6 billion.
The economic as well as the political and
legislative reforms have played an essential
role in strengthening the international
institutions’ confidence in the Egyptian
economy and its ability to absorb shocks,
which was proved not only by holding the
World Economic Forum for the first time in
Sharm El Sheikh, right after the bombing
accident that took place in the city, but also
by the positive feedbacks that came from all
institutions on the strength of the Egyptian
economy.
In the same context, Fitch Ratings has
affirmed Egypt's debt ratings with a stable
outlook, together with Moody's credit rating
agency raising Egypt's foreign debts.
Economic Performance
The Egyptian economic growth has picked
up to 6.9% during the FY 2005/2006 versus
5.1% last year. This performance came in-line
with the government targeted growth rate of
6% for FY 2005/2006, up from an average
annual growth rate of around 3.8% over the
fiscal years 2001/2002 till 2004/2005. The
economic recovery was helped by the
stability in currency prices, the growth in the
non-petroleum exports as well as the
increased confidence in the economic and
political reforms, whereby the latter has
positioned the Egyptian economy on top of
the developing countries in terms of the
implemented reform programs in 2005. The
World Bank expectations show an annual
growth rate reaching 8% over the coming
three years.
This positive performance was further carried
on to other economic fronts, whereby the
balance of payments recorded a surplus
exceeding US$ 3.5 billion during the FY
2005/2006, with both current and capital
accounts realizing surpluses amounting to
US$ 1.75 billion and US$ 3.5 billion,
respectively.
The current account surplus came on the
back of the services and transfers accounts
surpluses, despite the wide deficit in the
trade account that was mainly driven by
heavy imports of oil as well as capital and
intermediary goods.
The capital account has also witnessed an
upsurge in FDI registering more than US$ 6.1
billion, to conclude the FY 2005/2006 with an
increase of 56% compared to the last year.
Likewise, the performance on the monetary
front witnessed a stabilization wave, as a
result of the Central Bank of Egypt (CBE)
adopted policy, which included several cuts
in deposit and lending rates, followed by two
consecutive raises in the last two months of
2006, due to the increasing inflationary
pressure which rose to 11.8% in October
2006, to culminate at 8.75% and 10.75% as
opposed to 9.5% and 12.5% at the beginning
of year 2006, respectively. In addition, the
foreign reserves reached US$ 24.9 billion by
the end of November 2006, and finally the
exchange rate has declined to reach 5.71
LE/US$.
On the other hand, Egypt's foreign debt
position remains safe at US$ 29.6 billion at
the end of FY 2005/2006, standing at around
27% of the country’s GDP.*
* Information as provided by the Cairo and Alexandrian
Stock Exchanges
Key Information Contacts
Ministry of Finance www.mof.gov.eg
Ministry of investment www.investment.gov.eg
Central Bank of Egypt www.cbe.org.eg
Capital Market Authority www.cma.gov.eg
Misr for Clearing, Depository and Central Registry www.mcsd.com.eg
2005/06-ORIGINS OF GROSS DOMESTIC PRODUCT (%)
Manufacturing Mining (incl oil & gas) Agriculture Other
Trade General government Transportation & communication
2004/05-COMPONENTS OF GROSS DOMESTIC PRODUCT (%)
Private consumption Government consumption Gross fixed investment
Exports of goods & services Imports of goods & services Changes in stocks
15.5
14.1
80
60
71.4
17.0
10.9
9.8
40
20
0
12.3
18.7
31.3
26.4
6.3
-20
-40
-33.7
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