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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT MAY 2005 CAIRO & ALEXANDRIA STOCK EXCHANGES ECONOMIC AND POLITICAL DEVELOPMENTS Politic and Economic Environment: Strengthening macroeconomic indicators in recent years provided grounds for optimism that the reform process has paved the way for a period of more rapid modernization and solid economic growth. Economic reforms have come within the past decade under President Hosni Mubarak. Key elements of the reform program are: structural adjustment financing through the IMF-World Bank, strong policy action to curb fiscal deficits and inflation, tax and policy changes, including large-scale privatization of state industries, opening the economy to private (including foreign) investment, and pursuit of funding from a flexible range of sources to expedite needed development. A combination of bilateral and private moneyvariously channeled as loans, grants, and incentivized investment-has been committed to numerous infrastructure projects. Egypt's sectoral diversification is impressive. Agriculture still accounts for about 17% of GDP. The principal export crops are cotton and winter vegetables. A substantial industrial sector has benefited from synergy between investment from Persian Gulf oilproducing countries and Egypt's own abundant labor. Egypt is the Arab world's dominant manufacturer of raw and fabricated metals, vehicles, and pharmaceuticals. The near and medium-term industrial outlook appears favorable. Key Information Contacts Central Bank of Egypt www.cbe.org.eg Capital Market Authority www.cma.gov.eg Misr Settlement, Clearance and Depository www.mcsd.com.eg Ministry of Finance www.mof.gov.eg Ministry of Investment www.investment.gov.eg ECONOMIC RATIOS Domestic savings PAGE 68 Egypt Lower-middle-income group Trade Indebtedness Investment A new government was appointed in July 2004, headed by Dr. Ahmed Nazif, with a clear goal to revive the economy. To that end, the new government has formulated a package of structural and financial reforms. These include: a streamline in tariff brackets to only six brackets (down from a previous 27) and an overhaul of customs procedures with a reduction in tariff rates from 14.6% to 9.1%, a newly proposed income tax law, where rate of income tax will be slashed to 20% down from a previous 40%. The corporate tax will be reduced and unified at 20%, the revival and the speeding up of the privatization program, the government presented a medium-term financial sector restructure program covering banking and non-banking sectors with the aim to improve efficiency and reduce costs. In December 2004, Egypt signed the Qualified Industrial Zone Protocol (QIZ), which is expected to have sustained impacts on export growth and trade efficiency as well as stimulate foreign investment in Egypt. On 19 December 2004, Fitch Credit Rating revised their outlook of Egypt long term currency rating of “BBB” from negative to stable. GROWTH OF INVESTMENT AND GDP (%) 20 15 10 5 0 -5 97 GDI GDP Economic Performance: Egypt's recent economic indicators reflect robust signs of an upturn in the Egyptian Economy. 2003/04 real growth recorded 4.4% up from 3.2% in the previous year. The economic recovery was helped by the stability in currency prices, the growth in exports of goods and services as well as the increased confidence in the new Cabinet. Preliminary estimates during the first quarter of FY 2004/2005 projects an annualized rate of 4.8% and maybe surpassing the 5% at the end of the year. The FY 2003/04 current account revealed a large surplus of US$ 3.7 billion compared to US$ 1.9 billion in the previous year. This was mainly attributed to the success in non-oil exports promotion (with exports of good and services growing by 6%) and a surge in tourism revenues. Foreign Reserves reached a five year high of US$ 16.6 billion at the end of January 2005, which covers almost 10 months of imports. Last, but not the least, the Egyptian pound has strengthened 7% vis a vis the US Dollar, coming on the back of a strong current account surplus and the launch of the US$ Interbank market which resulted in increased availability of foreign exchange. On the other hand, Egypt's foreign debt position remains strong and sustainable. Despite an increase in Egypt’s foreign debt to US$ 29.5 billion in the first quarter of 2005, it remains quite safe as it stands at less than 40% of the country’s GDP. Debt to GDP stands at less than 40% of GDP. 98 99 00 01 02 03 * World Bank reports
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT MAY 2005 CAIRO & ALEXANDRIA STOCK EXCHANGES EGYPT GDP/EMPLOYMENT BY SECTOR OF ORIGIN Sector % GDP % Employment Agriculture 17.0 29.2 Industry 32.0 24.0 Services 51.0 46.6 EGYPT MONEY SUPPLY, INTEREST RATES AND FOREIGN EXCHANGE RESERVES GROWTH OF EXPORTS AND IMPORTS (%) 15 10 5 0 -5 -10 EXPORT AND IMPORT LEVELS (US$ Millions) 18,000 12,000 6,000 0 INFLATION (%) Exports Imports GDP deflator CPI 97 98 99 00 01 02 03 0 Exports 97 Imports 98 99 00 01 02 03 1998 1999 2000 2001 2002 Money Supply M1 (pounds-billions) 59 59 62 67 76 Money Supply M2 (pounds-billions) 221 234 261 295 333 Growth Rate M1 20.3% 0.8% 5.3% 7.9% 13.0% Growth Rate M2 10.8% 5.7% 11.6% 13.2% 12.6% Interest Rates deposit rate 12.0% 12.0% 12.0% 11.0% 10.0% lending rate 13.0% 13.0% 13.2% 13.3% 13.8% Foreign Exchange Reserves (US$ millions) 18,124 14,484 13,118 12,926 13,242 Exchange Rate Period Average (pounds/US$) 3.388 3.405 3.690 4.490 4.500 Annual % Growth 0.00 0.50 8.37 21.68 0.22 10 CURRENT ACCOUNT BALANCE TO GDP (%) 3 2 1 0 -1 -2 -3 8 6 4 2 97 97 98 99 00 01 02 03 98 99 00 01 02 03 * Economic Overview, Country Watch Incorporated, 2005 * World Bank reports PAGE 69
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