Gamal Essam El-Din met with Andrew , the Oxford Business Group's editor-in-chief, to explore the important report's basic The Oxford Business Group, the British publishing company best known for its Emerging Markets Series on countries throughout the Middle East, North Africa, Eastern Europe and Central Asia, announced last week its fourth consecutive publication on Egypt, Emerging Egypt 2004. This 200-page publication is produced in association with the American Chamber of Commerce in Egypt and will be available in bookstores next week. To date, it is the most comprehensive and accurate English-language review of the economy published on Egypt. It is the result of six months of research on all aspects of the Egyptian economy. It includes some 350 interviews with leading political and economic figures as part of its in-depth country research. Would you please give us a general review of the basic features on Emerging Egypt 2004 report? We believe that Egypt in 2004 is at a turning point after several rough years. There are great prospects for investment, notably in the tourism and natural gas sectors, and above all, the currency situation is beginning to stabilise. Egypt has been through a series of outside shocks in the last few years. Egypt had the Asian crisis, the 11 September attacks, the Afghan war, the Palestinian-Israeli war and the Iraq war. A lot of people thought there would be a seriously negative outcome from the Iraq war. Fortunately, this did not happen. Egypt had higher oil and gas revenues, higher traffic in Suez Canal that generated over $2.5 billion in revenues, while the number of tourists visiting the country hit an unprecedented record of over six million and achieved more than $4.5 billion in receipts. All of these good news -- coupled with the government's pound flotation decision -- greatly helped in stabilising the chronic bad situation of foreign exchange. I hope that this will boost Egyptian exports in 2004 and this is the biggest challenge facing Egypt. The report also registers some other significant steps which were embraced by the government in the legislative area. We saw the passing of a new labour law which the business sector highly appreciated, a new banking law which is considered a very positive step in the direction of strengthening the role of the Central Bank of Egypt (CBE) and the appointing of a more efficient CBE governor. In particular, the CBE played a good role in cleaning up banks from bad loans. All of these positive developments are very important for overseas investors to tap the country and inject more money in its sectors. We expect greater good performance in the banking, tourism and export sectors. How does the report evaluate the macroeconomic scene of Egypt in 2003 and what are its expectations for 2004? In the last year, we saw a higher rate of growth. The fiscal year (FY) of 2002/2003 saw the real GDP [growth rate] standing at 3.2 per cent. In the first quarter of FY 2003/2004, GDP rose to four per cent. We expect that FY2003/2004 will witness GDP rising to four per cent. This is good compared, for example, to a country like Israel (where GDP growth registered 2.4 per cent for 2003). So, it was fantastic for Egypt to reach this figure in an environment riven with such crises as those in Iraq and Palestine. So you have significant and positive levels of growth. The other thing is that inflation was artificially under control (swinging between four per cent and six per cent). This is especially good in light of the fact the devaluation of the pound led to a rise in prices. So, there is no question that given the size of the devaluation of the currency, we have not seen an equivalent rise in inflation. I think that subsidies offered by the government to some basic goods and services helped to some extent keep inflation under control. Our estimate is that inflation will not exceed 6.5 per cent in 2004 and this is a good thing. Unemployment, however, remains a problem but it is very difficult to assess. We hope that growth in such sectors as tourism will help absorb some of the unemployed on the work market. In general, we see that the macroeconomic indicators are improving, but obviously with one exception and that is the budget deficit. There is no question that the budget deficit is something that needs to be focussed on by the government. It has been increasing over the recent few years and is expected to reach 7.5 per cent of GDP in 2004. There is no question that this increasing deficit is largely the fault of increasing state social subsidies and over-employment in the public sector. There is no question that continued privatisation will allow the government to get rid of such faltering public sector companies and help it focus subsidies more on the most basic needs. We know that subsidies are a major concern for the government. The bread riots of 1977 still loom large in the memory of the government. It left it shouldered with a basic responsibility to maintain subsidies of basic food and so this is why it is very cautious in dealing with the problem of greater subsidies. There have been a lot of complaints in Egypt over the ballooning of public debts. Has Emerging Egypt 2004 covered this thorny area? Undoubtedly. But I think that one must remember that the size of public debt compared to that in other Arab countries such as, for example, Lebanon, it is considered quite small. Of course, we recommend that on the long term, the government may have to deal with this problem. But irrespective of all, we think that the level of the public debt is not an overbearing problem at the moment. The government must focus first on covering the budget deficit. What sectors does Emerging Egypt 2004 consider the best performers in the Egyptian economy? I think particularly for foreign investors, there is no question now that there is good potential in the banking sector. We may see some foreign bankers coming in to invest in Egypt. We saw last year Cairo Barclays buying out the remaining shares in the bank. As Barclays is one of the largest banks, this really did show that the growing confidence in the economic future of the country, especially in the banking sector. Barclays is looking now for a significant increase in its investments in Egypt. Tourism is doing excellently. You have an oversupply in places like Sharm El-Sheikh which drew the rugs from under the feet of most rival resorts in the region. There are other brilliant sectors such as textile in the private sector, and the energy sector (which attracted investment of such giants as British Gas). What major weaknesses you registered in Emerging Egypt 2004 about the Egyptian economy? There is no question that the process of privatisation is not moving forward as quickly as it should. This is in spite of the fact that the government still has some fantastic assets to sell such as the Eastern Tobacco Company. Morocco generated billions of dollars from selling its tobacco company last year. The government here has some fears that such privatisation might trigger greater unemployment. There are also some legislative areas that have to be addressed. For example, the mortgage law, which is good, has to be stimulated. What about the export sector? This sector is still riddled with many bureaucratic procedures, problems of customs, and other infrastructure problems. It is very difficult for Egypt to compete if these problems remained unsolved. Anyhow, there is a positive development in the fact that Egypt is no longer vulnerable to external shocks in the same way as happened some years ago. Now, in spite of all the bombings in Gaza and war in Iraq, tourists are coming to Egypt and exports find their way relatively easily into European and American markets. This is very positive. Investors now know the difference between what is happening in Gaza and Giza. We also saw that some Egyptian companies managed to tap the Iraqi market. This is in spite of the stiff competition posed by American and world companies. Orascom has managed to get a very significant contract in Iraq and we think that other Egyptian companies will follow suit and will be able to recover Egypt's pre-war share in Iraq. We hope that Egypt will be able to reach an FTA (free trade agreement) with America. America's FTA with Jordan enabled the latter to raise its exports to the US market from $13 million in 1999 to now over $600 million. Now, Egypt is still having problems reaching a QIZs (Qualified Industrial Zones) agreement with Israel as a prerequisite for having an FTA with America. What are the main points of your interview with Gamal Mubarak, the son of President Hosni Mubarak and the policy secretary of the ruling National Democratic Party (NDP)? The most important thing to say about Gamal Mubarak's committee is that it includes some of Egypt's most prominent economic figures. We interviewed, for example, Mahmoud Mohieddin. It is representative of the economic community of Egypt. Many of them have very good ideas. This committee as we discovered is trying to push for more and greater economic reforms. Of course, they have become very influential. However, we noticed that the reforms suggested by this committee take a very long time until they get passed and then implemented. We hope that this committee will at last be able to change the workings of legislation in terms of speed and content and speed up Egypt's full transformation to a market and liberal economy.
