While the government boasts the positive outcome of its reform programme, a recent report warns that the picture is not all that bright. Sherine Abdel-Razek leafs through Hardly a day passes without a government official releasing figures about the sound performance of the economy, and the improvement in economic, fiscal and social indicators. However, the Strategic Economic Trends 2006 report issued by the Al-Ahram Centre for Political and Strategic Studies gives reason to reconsider the validity of the positive sentiment prevailing in government assessments of the economy. In the section dedicated to the Egyptian economy the report assesses developments in several sectors, starting with trade, investments, poverty and unemployment. It also follows up on the expectations of the business sector for future economic performance. Amidst a public uproar against the government's management of the privatisation programme, the section dealing with the latter comprised some surprising facts. The report described recent privatisation deals as the "worst robbery in Egypt's history". It cited three selling deals as instances of the Ministry of Investment's mismanaging of the public funds. In addition to the Omar Effendi and Egyptian American Bank (EAB) deals which received substantial publicity, the report gives a presentation of the less popular sale of the government's remaining six per cent of the Alexandria Cement Company. According to the report, 73 per cent of the Alexandria Cement was sold in 1997 to the British Blue Circle group at LE80 per share, a price which was then considered to be lower than the fair price. The Holding Company of Chemical Industries kept around eight per cent of the company. This stake gives it the right to disapprove any board decision, should this be proven not to be in the favour of minority shareholders. However, when Blue Circle sold a new production line to a company it formed under the name of Blue Circle Egypt at LE69 million, which is less than the cost of building the line, the holding company did not lift a finger. Blue Circle also decided not to distribute the profits for the year 2001 in which it reported LE113.9 million worth of profits. Had it done so, the stake of the holding company would have been LE7.5 million. In 2002, a legal dispute was launched by the holding company after Blue Circle changed the internal regulations of the company in a manner that would harm the small investors in the company as well as the holding company itself. Three years later, the company's general assembly convened and decided to sell its stake in the company after it failed to solve the lengthy dispute. Surprisingly, the holding company, which had not got any dividends on its stake since 2000, sold the eight per cent share to Blue Circle at LE30 per share. This is compared to LE48 as the latest price the share had traded before the sale. This meant that the company kept 863,000 shares valued at LE80 per share in 1999, did not get any dividends for five years, then sold it at LE25 million compared to the LE66.9 million it would have got, had it sold the shares in 1999. This makes it a good example of the disastrous sale to anchor investor, according to the report. Turning to the low level of investments in the economy, the report was equally critical of the government's new policy of including investments directed to the oil sector, and the receipts of selling public assets to foreign companies among the Foreign Direct Investment (FDI) figure. The report said the investments pumped by drilling and exploration companies cover a number of years, and should not be included in one fiscal year. As for privatisation receipts, the report describes these as "forged foreign investments" as they did not add any productive assets to the economy, but only entailed a transfer of ownership. The inclusion of such investments, according to the report, aims at inflating the marginal value of foreign investments. Out of the $3.9 billion of FDIs included in statements for 2004/2005, $2.63 billion were in the oil sector. Some $419.5 million were generated by selling privatised companies to foreigners. This leaves the actual FDIs figure at $844.2 million. The report also assesses the economic outcomes of the Qualified Industrial Zones (QIZ) agreement with the US one year after its application. It highlights the fact that due to differences in the manners of calculations, there is a gap between the figures of the Egyptian Central Authority for Public Mobilisation and Statistics (CAPMAS) and US-issued trade figures. According to CAPMAS, the year 2005 witnessed a retreat in the value of Egypt's textiles imports to the US by 35 per cent. This is to be compared to corresponding figures in 2004, which resulted from the application of the Multi Fibre Agreement, according to which the United States lifted the trade barriers to the entrance of textiles imports. This placed Egypt in fierce competition with textiles heavyweights such as India and China. The US figures by contrast highlight an 8.1 increase in the value of Egyptian imports of textiles and garments to the US, from $580 in 2004, to $627 in 2005, at an 8.1 per cent increase. According to the report even if the US- issued figures are more accurate, the eight per cent increase does not validate all of the rosy expectations touted by proponents of the agreement. The report also underscores that one result of the agreement is that Egyptian imports from Israel increased by 44 per cent in one year. It reached $15 million, according to CAPMAS's figures. This compares to a whopping 217 per cent rise, according to Israeli statistics. What is more surprising is that the price of most Israeli-imported items was higher than that of the alternative items from other countries. This led the report to conclude that the end result of the agreement was an increase in expensive Israeli imports to Egypt, coupled with the increase in Israeli labour in QIZ areas, with all that this carries by way of security implications for Egypt. On a related note, the author of the report pointed out that the QIZ agreement gives Israel and the Zionist lobby in the United States reasons to hinder the conclusion of a Free Trade Area agreement with Egypt. The unconditional opening of the US markets in the case of the FTA would negate the need for QIZs, and might thus deprive the Israelis of its economic (and political) benefits. The pension money and the government's manner of dealing with it was yet another topic that came under scrutiny by the report. It expressed reservations towards the cabinet's decision to move the money, under the supervision of the Ministry of Finance. While the move aimed at investing the money in an economically feasible manner, such as investing it in the stock exchange, the report said that countries which have adopted such approach are in a much better position than Egypt. This is because their situation is much better, as regards the transparency of stock market transactions, and the implementation of anti-corruption, democratic mechanisms. The report thus called for the formation of a committee of retired experts to decide the best low-risk investments for this money. It also recommended the formation of another monitoring committee to see how the money is spent. More importantly, the author of the report said the government which used the pensioners' money for long years at a marginal interest rate should pay the pensioners back now. According to the Egyptian pension system, pension funds, of civil workers and private sector workers, have to transfer the surpluses resulting from the increase in revenues of funds, to the National Investment Bank which lends it to state entities. The dilemma, according to the report, is that the interest rates paid by the NIB on these deposits are much lower than prevailing interest rates. The report describes this situation by saying that it is like levying this money as an indirect tax. The accumulated value of this tax in the period from 1975 to 1997 is LE17 billion. Moving to the balance of trade, the report emphasised that Egypt has been recording a trade deficit for the last 30 years. The main reason is the limited new investments in the production sector, as most of the investments are directed to real estate and services, instead of agriculture and industry. The report cited the World Bank's Development indicators which put Egypt's investment rate at 17 per cent of GDP, compared to an international average of 21 per cent, and 38 per cent in the South East Asian countries. The conclusion of the report did not come as a surprise, given the aforementioned outlook. It included the outcome of a study covering a sample of private businesses in Egypt, as to how they see the current and future economic picture. Around 51 per cent of those surveyed were positive regarding the current economic situation, compared to 49 per cent with a negative perception. However, around 41 per cent retain a positive outlook for the next 12 months, compared to 21 per cent who are pessimistic, and the rest who believe that things will remain much the same. Compared to the outcome of a similar survey in the previous report, however, there has been a general retreat in positive perceptions of the economy.
