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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 PAGE 68
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT APRIL 2007 CAIRO & ALEXANDRIA STOCK EXCHANGES EGYPT ECONOMIC CHARTS AND TABLES 2001/02 2002/03 2003/04 2004/05 2005/06 GDP at market prices (LE billions) 378.9 417.5 485.3 538.5 617.7 GDP (US$ billions) 85.1 80.3 78.8 89.6 107.4 Real GDP growth (%) 3.2 3.2 4.1 4.5 6.8 Consumer price inflation (av; %) 2.4 3.2 4.9 11.4 4.2 Population (million)** 66.6 68.0 69.3 70.0 71.3 Exports of goods (US$ millions) 7,121 8,205 10,453 13,833 18,455* Imports of goods (US$ millions) -14,637 -14,820 -18,286 -24,193 -30,441* Current-account balance (US$ millions) 614 1,943 3,418 2,911 1,752* Net international reserves (US$ millions) 14,147 14,809 14,781 19,302 22,931 Total external debt (US$ billions) 28.7 29.4 29.9 28.9 29.6* Debt-service ratio, paid (%) 7.1 7.7 8.5 9.3 10.3* Exchange rate (av) LE/US$ 4.45 5.20 6.16 6.01 5.75 * Provisional ** Excluding Egyptians living abroad ECONOMIC FORECAST SUMMARY 2006 2007 2008 2009 2010 Real GDP growth (%) 5.8 6.0 5.5 5.3 5.1 Consumer price inflation (av; %) 5.1 4.3 4.1 3.9 4.1 Budget balance (% of GDP) -10.1 -9.7 -8.2 -7.2 -7.0 Current-account balance (% of GDP) 2.4 2.6 3.0 3.0 2.9 Commercial banks' lending rate (av; %) 12.1 12.8 13.0 12.5 11.5 Exchange rate E£:US$ (av) 5.75 5.73 5.78 5.80 5.80 2005/06-PRINCIPAL EXPORTS (US$ millions) Petroleum products (including crude oil) 9,241 Aluminium, iron & steel products 668 Cement, orgaic & inorganic chemical substances 523 Raw cotton & cotton textiles 373 Ready-made clothes 351 2005/06-PRINCIPAL IMPORTS (US$ millions) Petroleum products (including crude oil) 5,359 iron & steel products 1,454 Wheat 888 Spare parts and accessories for cars 827 Pharmaceuticals 627 2005/06-MAIN DESTINATIONS OF EXPORTS (%) 2005/06-MAIN ORIGINS OF IMPORTS (%) EU USA Arab Countries EU USA Asian Countries Asian Countries Other Arab Countries Other 30.6 18.8 11.5 37.1 14.6 11.3 9.0 37.6 9.0 20.5 The Economic Intelligence Unit July 2006 PAGE 69
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