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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006
CAIRO & ALEXANDRIA STOCK EXCHANGES
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
Egypt’s latest economic indicators reflect
robust signs of an accelerating economic
upturn. These developments mainly came as
a result of the aggressive economic reform
program together with the series of sweeping
structural and political reforms implemented
by the government, including the reductions
in customs barriers to international trade, the
restructuring of the overall tax system, the
revival and speeding up of the privatization
program and the financial sector restructuring
covering banking and non-banking sectors.
All combined, aiming to improve efficiency
and bring structural weakness impeding
economic growth to an end.
The rising confidence in the government
reform measures, has positively effected the
flow of foreign investment to Egypt. Foreign
direct investment (FDI) registered almost
US$ 3.9 billion during 2004/2005, which is
almost 6 times the FDI generated in FY
2003/2004.
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.
The restructuring program aims at increasing
the saving rate to 28% of the GDP, which
would lead to a growth rate higher than 6%.
The government has also showed
commitment to sell Alexandria Bank–one
of the four major public banks–before
end of 2006.
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 Rating 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 5.9% during the third quarter of FY
2005/2006 versus 5.1% in the same quarter
of 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$ 3.3 billion during the first
three quarters of FY 2005/2006, with both
current and capital accounts realizing
surpluses amounting to US$ 2.1 billion and
US$ 1.9 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$ 4.6 billion, to conclude the third quarter
ofFY 2005/2006 with an increase of 48%
compared to the same period of 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, lending and discount rates to
culminate at 8%, 10% and 9% as opposed to
9.5%, 12.5% and 10% at the beginning of
year 2006, respectively. In addition, the
foreign reserves reached US$ 21.15 billion in
the third quarter of FY 2005/2006, while the
inflation rate continued its declining trend to
reach 3.7% at the end of the same quarter
and finally the exchange rate has maintained
its level at 5.75 LE/$.
On the other hand, Egypt's foreign debt
position remains safe at US$ 29.7 billion at
the end of the second quarter FY 2005/2006,
standing at less than 35% of the country’s
GDP.*
* 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
2004/05-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
18.2
14.8
13.9
80
60
71.3
11.0
40
30.5
47.1
6.0
9.7
20
0
-20
12.2
16.6
0.1
-40
-30.6
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