The Egyptian economy has delivered one of its most impressive performances ever this year, with a spurt in growth rates generated by reforms and solid macro-economic management. Better still, international organisations like the World Bank, IMF and rating agencies have issued laudatory reports on the state of the local economy and the outlook for 2007/08. Foreign investors poured billions of dollars into diverse sectors throughout the year, with some, such as real estate and information technology, witnessing double-digit growth rates. For average Egyptians, however, there has been precious little of the trickledown that the government promised would be the fruit of economic reform, and patience appears to be wearing thin. The country's economic recovery has so far been a jobless one, with stagnant wages falling well behind mounting inflation rates. The long sought-after high growth rates have come hand in hand with unbearable inflationary spikes and have failed to create job opportunities for millions of Egyptian youth. Persistent unemployment has exacerbated the obvious deterioration in standards of living, leading to increased poverty. Uncharacteristically, Egypt's economic reform has recently met rare waves of labour unrest and public trust has dipped to an all-time low. In the past year, Egypt has seen an unprecedented number of strikes, sit-ins and demonstrations at its factories, the most famous of which was the eight-day demonstrations by property tax employees in early December in demand of higher salaries. This phenomenon is worrying the government, as it was virtually non-existent in the local economy for almost three decades. Egypt's social unrest can be tied to the liberal economic policies followed by the government, which has led to booming stock and property markets, a bigger role played by the private sector and unprecedented levels of growth reaching an average of seven per cent during calendar year 2007. Economic growth was boosted by a dramatic increase in foreign direct investment (FDI), which climbed by 82 per cent in fiscal year 2006/07 to reach the current $11.1 billion figure. FDIs directed to the oil and gas sector accounted for only 28 per cent of the overall figure, with 25 per cent channelled to privatisation and sales of assets and 47 per cent going into new projects and the expansion of existing ones. According to Ministry of Planning figures, growth in the construction sector throughout the year was the highest, reaching 16.2 per cent in the third quarter, compared to 15.2 per cent in the same quarter of the previous year. Tourism and Suez Canal revenues surged, pushing net foreign reserves to $30.92 billion by the end of October 2007, marking a 26.8 per cent spike from the previous year. The exchange rate is benefiting from a worldwide decline in the dollar value, a factor that, luckily, has so far not affected the appeal of Egypt's dollar-denominated exports. The government was also able to raise its revenues by 16.3 per cent in fiscal year 2007, thanks to privatisation receipts, third mobile operator licences and land sales. More significant is the thumbs up given by the World Bank in its annual Doing Business report which ranked Egypt the top reformer in the world during 2007 due to its delivery of the highest number of upgrades to its investment climate out of the 175 countries surveyed by the report. An IMF report published in September praised Egypt's economic growth that has come from a diversified economic structure -- namely agriculture, manufacturing, real estate and construction -- which has boosted consumer demand in the economy. Both Standard and Poor's and Moody's rating agencies, while harbouring reservations on the mounting public debt and government expenditures, maintained a positive outlook for the economy. How have these figures that look so promising on paper trickled down to impact the daily lives of housewives, public workers and even the luckier private sector employees? Not so well. Average household expenditures increased by almost 50 per cent since the beginning of the year. The government introduced a 10 per cent hike in electricity prices last month for both residential and commercial units. Talk about a possible elimination or reduction in subsidies makes the average citizen's view of the future even bleaker. Government figures show a decline in the Consumer Price Index (CPI), the main measurement of inflation, to 6.9 per cent in November, down from 7.5 per cent in October and 9.3 per cent in September. The same figures point to an 8.9 per cent fall in unemployment in the third quarter of 2007, from 11.1 per cent a year earlier. This means that out of a workforce of 23.54 million, there were 2.1 million unemployed. A recent UN survey issued in November gives a more realistic view of the economic situation. The survey revealed that the level of absolute poverty in Egypt is on the rise. An estimated 13 million Egyptians, or 19.6 per cent of the population, earned less than $2 a day in 2005, up from 16.7 per cent in 2000. This renders meeting basic needs a distant dream. Economists also have reservations about the government's elation with the spurt in FDIs, claiming they were not directed to heavy labour industries and thus are powerless to create more employment opportunities. On the contrary, increased foreign investment in the real estate sector have led to skyrocketing real estate prices. Even the more financially privileged of the country's citizens had a tough year. The cautious monetary policy followed by the government throughout the year by maintaining its bank lending and deposit rates at their December 2006 levels of 10.75 per cent and 8.75 per cent respectively has made the yield on investor deposits nil in light of the increasing inflation. Those with dollar savings received the hardest hit, with a severe decline in dollar value worldwide and a three-time reduction in interest rates this year. Meanwhile, the government claims it is fully aware of its people's economic hardships during this time of economic growth. The popular line used by government officials is that this transitional period is a necessary evil that economies go through on their way to development and that people are advised to wait for future gains of the current pains. Minister of Finance Youssef Boutros Ghali told reporters early in the year that public discontent is normal because "fighting inequality becomes harder with economic expansion. The gap between rich and poor will inevitably increase in all economies going through a burst of activity." All hope is not lost, though, as a strong outlook for 2007/08 and continued favourable external conditions provide a promising setting for future implementation of the reform agenda. The obvious and vital task ahead, however, is not merely to push for maintaining growth, but to sustain high job-creating growth, which has seemed to elude the government so far. Banque Du Caire going private THE GOVERNMENT'S decision in July to sell an 80 per cent stake in Banque Du Caire (BC) raised an unprecedented public uproar especially that the move came after government promises not to sell any other state-owned bank after the sale of Bank of Alexandria at the end of 2006. Moreover, the decision came six months after Banque Misr said that a previously planned merger with BC is not economically feasible and will thus be replaced by an acquisition scheme. These changes in policies regarding the fate of the bank -- the third largest in Egypt with regards to asset value -- stirred reservations and fears that there is nothing to guarantee that the National Bank of Egypt and Banque Misr are immune from privatisation. The public unrest escalated with official statements showing a tendency to sell the bank to a foreign institution with the needed expertise to deal with the bank's debt and congested payroll problems. Although the bank enjoys a competitive position with a six per cent market share in terms of both total assets and deposits, 215 branches and about two million clients, its loan portfolio is completely distorted with a non-performing loans ratio of 73 per cent that needs LE12 billion to be settled. Moreover, its payroll includes more than 10,000 employees. Both are hard to deal with problems that no local financial institution can handle. The weeks following the announcement witnessed an unprecedented media campaigns pro and anti the decision. The most prominent was the one launched by the Wafd Party and its mouthpiece Al-Wafd. The party launched a campaign to collect signatures rejecting the move and calling on the government to float the bank as a whole in the stock exchange and hence opening the door to the people to subscribe in its shares rather than selling it to foreigners. The Bar Association opened a bank account at Banque Misr to receive deposits from Egyptians only to be used in the subscription if the bank is floated. The opposition subsided by time in front of the government's clear stance to sell the bank. JP Morgan was chosen to value the bank, advice on marketing it and provide alternatives to its selling. Earlier this month, the government asked investors to submit letters of intent to bid for a stake up to 67 per cent in BC instead of the 80 per cent previously nominated to be sold. The government said it will later sell another 28 per cent in an initial public offering and allocate the remaining five per cent to the bank's employees. Anti-monopolising steel and cement DUE to a notable increase in steel and cement prices on the local market during the past few months, the government found it necessary to interfere and control prices. Minister of Trade and Industry Rachid Mohamed Rachid issued a decree that imposed additional export duties of LE56 per tonne of cement and LE160 per tonne of steel. The aim of Decree 142 was to reduce the volume of steel and cement exports to meet local market needs. According to the Ministry of Trade and Industry (MTI) figures, the local market needs for cement stand at 30 million tonnes annually, while total annual production is estimated at 38 million tonnes. But due to an increase in prices on the international market, producers find it more lucrative to export their goods. As a result, supply to the local market dropped and cement prices rose. Moreover, as a strategic step to increase cement production for local and overseas consumption, the Industrial Development Authority (IDA) held a tender to license new cement factories. Nine bidders competed for eight licences to establish new cement production lines, while five companies competed for licences to expand two existing cement factories. With total investments expected to reach LE17 billion and provide 40,000 jobs, the production capacity of each factory is estimated at 1.5 million tonnes of cement per annum. The total value of the licences for new factories came at LE801 million, while those for expansion lines reached LE336.5 million. Since the cement sector is attracting local, Arab and foreign investors due to a large demand in the local market, MTI felt that having companies bid for the licences was the best way to ensure fairness in awarding the permits. Rachid explained that the licences stipulate that production lines must use at least 25 per cent local input, and hoped this figure will eventually increase to 35 per cent. According to a study conducted by MTI, local demand on cement is expected to reach 55 million tonnes in 2011. In response to consumer complaints that the steel and cement sectors were being monoplised which is driving prices higher, Rachid asked the Egyptian Competition Authority (ECA) to investigate both sectors. The ECA issued a report asserting that cement companies are involved in monopoly acts and have colluded to control cement prices. The report added that these companies coordinated in rationing their output to control prices. In reaction to these conclusions, Rachid referred cement companies to administrative investigations, accusing them of violating Article 6 of the competition and anti-monopoly law. The penalty for monopoly acts is a fine between LE30,000 to LE10 million. The ECA report on the practices of steel companies is due in December. IT growing steadily THE COST of broadband for small-time users was slashed by half this year. High-speed asymmetrical digital subscriber line (ADSL) connections of 256 kilobytes per second and a maximum download capacity of two gigabytes fell from LE95 to LE45 per month. The move aimed to discourage informal sharing of ADSL services, where between 10 to 12 people, often neighbours, were using the same line and sharing the cost. For each additional download capacity of one gigabyte, subscribers pay an extra LE10. This year's cut was the second since the introduction of broadband services in Egypt, when it was first marketed at LE150 per month for the 256K capacity; it went down to LE95 in June, 2006. The government hopes that the slash in prices will not merely prevent piracy of ADSL lines, but also help boost the number of Internet users. Previous government efforts have borne fruit in this area with the number of Internet subscribers constantly growing. Ministry of Communication and Information Technology figures show a growth from 4.5 million subscribers in June 2005, to around seven million subscribers in June 2007. The growth in Internet usage reflects the growth of the entire IT sector. The Business Monitor International (BMI) last quarterly report for 2007 on Egypt's ICT sector reveals that Egyptian ICT investments in general will reach $960 million by the end of 2007. The report covers investment in personal computers, broadband Internet subscription, software industry and IT services, including Business Process Outsourcing (BPO). The BMI report predicted that Egypt's IT service sector, which includes BPO, will reach $278 million by the end of 2007, and will increase to $379 million in 2011. In the meantime, the volume of total ICT investment is forecast to reach $1.306 billion by 2011. A bigger cake TELECOM news made headlines again in 2007 when the third mobile operator, Etisalat Egypt, began operations. Although the company was off to a late start, launching in May instead of February, it managed to rake in one million subscribers during the first seven weeks alone. Etisalat's entry onto the Egyptian market was a sensation in 2006, when it won an auction for the third mobile phone licence and paid for it a stunning LE16.7 billion. Etisalat's entrance into the mobile market has added pace to the race for subscribers. The number of mobile subscribers grew from around 18 million at the end of 2006 to some 27 million in October 2007. With a penetration rate of 25 per cent, Egypt's mobile phone sector falls far behind other regional markets such as Morocco, Algeria, Tunisia and Libya. Nonetheless, at the current growth rate Egypt may well achieve the Ministry of Communication and Information Technology's estimate of 40 million subscribers within four years. The tougher competition is not only attracting more subscribers, but also more advanced technology and services, as well as cheaper prices. Etisalat, which started out by announcing that it is offering 3.5 Generation technology, is now claiming it has 3.75 Generation technology. The other two operators, MobiNil and Vodafone Egypt, acquired the 3G licence as well and spent a fortune on the licence. The National Telecom Regulatory Authority (NTRA) had said that 20 per cent of the amount paid by Etisalat for the operator licence represents the cost of a 3G licence; any other operator wishing to upgrade to 3G would have to pay the same amount as well as the cost of the infrastructure. The upgrade not only enables the operator to expand its multimedia and Internet services, but also helps accommodate the number of subscribers who have outgrown existing frequencies. Also in 2007, the NTRA said it will allow mobile phone operators to buy the licence for the international gateway which had long been monopolised by Telecom Egypt. This would enable them to offer international call services directly to their clients, rather than go through Telecom Egypt connections, as is currently the case. The conditions for acquiring the licence, however, came contrary to everyone's expectations. NTRA did not auction the licence, as was the case with the third mobile licence, but instead it opened it exclusively to the three mobile operators. NTRA also said that once the second fixed-line operator is launched, it too may acquire the licence. It has also placed very tough financial terms that are largely dependent on the number of subscribers, and so far only Etisalat Egypt has acquired the licence. The coming year promises to be no less exciting for this sector. For starters, the business community is anticipating that investors will be invited to bid for the second fixed-line licence. The new operator will be competing with Telecom Egypt, Egypt's exclusive operator for the past 150 years. Although neither date nor details have yet been disclosed, the race is expected to be no less challenging than that for the third mobile licence. Energy challenges THE ALL-TIME record oil price of $100pb has become a living reality. Several factors, mainly geopolitical strife in some highly strategic parts of the world, have driven prices far beyond experts' speculations. To contain the situation, the Organisation for Petroleum Exporting Countries (OPEC) increased output by 500,000 barrels starting last November. While aggravating, concern over skyrocketing oil prices paled in comparison to the more significant issue of energy security. The world is moving towards a new era in which securing energy supplies on the long run and at any price has become an inevitable worry. This caused President Hosni Mubarak to take a historic initiative and steer Egypt towards using nuclear power as a source of energy. Officially, a number of steps were taken to launch this ambitious national project, including the creation of the Supreme Council of Nuclear Energy for Peaceful Purposes, presided over by the president. At the same time, Egypt began negotiations with the International Atomic Energy Agency (IAEA) over candidate sites for nuclear reactors. The government will also present a draft nuclear power law to the IAEA once it is completed by the end of this year. If the IAEA approves its conformity with international standards, the new legislation will be presented to the cabinet by next March before it is ratified by the People's Assembly. Egypt appears to be determined to incorporate more new and renewable (NR) energy as part of its traditional energy resources. Accordingly, an ambitious plan was adopted in early 2007 aimed at using renewable sources -- mainly solar and wind energy -- to cover 20 per cent of the country's total electricity demands by 2020. In an attempt to secure fast depleting sources of oil and gas, the Minister of Petroleum and Mineral Resources Sameh Fahmi made it clear that Egypt will stop signing any agreements to export natural gas within two years. Abrupt and unexpected as it may be, the explanation given by the Fahmi, namely that "Egypt should secure energy sources to its coming generation," was seen by many experts as insufficient. Obviously, spiralling oil prices which persisted during the year provoked criticism of the ministry's previous policy of selling gas at insignificant prices. Oil experts point to the profits that could have been made if Egyptian gas was sold at better terms, and some have even called for imposing taxes on windfall profits made by foreign companies operating in Egypt, as is the case in Algeria. Subsidising oil products continued to be a cause for headache for Prime Minister Ahmed Nazif's government. According to Fahmi, subsidies on oil products jumped from LE6.96 billion in 2002/2003 to LE53.78 billion in 2006/2007. "This means that the purchasing price of these products covers only 31 per cent of the actual production cost," he explained. Fahmi added that the subsidy will further grow due to the increase in oil prices and local consumption. Consequently, the ministries of petroleum, electricity and trade jointly introduced a new pricing mechanism for industry this year. According to the new policy, high energy-consuming industries such as cement, steel, fertilisers and aluminum, will pay more for the natural gas and electricity they consume. The cost will gradually increase during a three-year transitional period, after which all subsidies on their energy supply will be lifted. The plan exempted small and medium-sized enterprises, as well as labour-intense industries such as textiles. Pulling the subsidy rug CONSUMERS were shocked by soaring prices on basic commodities such as bread, cooking oil, dairy, eggs, vegetables, meat, fruits and poultry. Some products rose by 20 per cent, while others by 25 per cent. While families suffer from continuous and unjustified price hikes, news spread that there will be a change in the current subsidy programme. For decades, millions enjoyed subsidies on basic commodities but now the government is considering to reduce subsidies to ease budget burdens. Both direct subsidies of essential foodstuffs and indirect ones of education, healthcare, transportation and energy cost the government LE100 billion annually. Government subsidies are essential for a large category of people, since 20 per cent of the population live under the international poverty line -- estimated at $2 for an individual per day -- need to be financially supported. During the opening session of the People's Assembly, President Hosni Mubarak announced that the current subsidy programme should be redirected to reach poor people. However, the government's intention about this transformation of the subsidy programme is yet unclear. Official statements assert that there is no intention to repeal or reduce the subsidy programme, but rather, a new system will be applied to ensure that subsidies reach those who most need them. A ministerial committee was formed to investigate the best way for subsidy distribution, with cash handouts to the poor as a viable option. Minister of Social Solidarity Ali Moselhi noted that the committee has arrived at three fundamentals. Primarily, that the government will continue to provide both direct and indirect subsidies and is also considering adding new beneficiaries. Second, that new regulations are needed to ensure that subsidies reach those who need them most. And finally, that the government does not have a clear vision of subsidy reform, but is offering alternatives to achieve social justice. Altogether, statements by officials about subsidies are taken very seriously by consumers. If subsidies are cut or reduced, many families will not be able to afford basic needs, and many prefer to keep the current system. Experts agree that the transformation from a closed to an open economy multiplied the number of people living under the poverty line. They also admit that the current system has many irregularities which enable the rich to benefit from subsidies, and that reforms are needed to end this. While they want to see a new balanced subsidy system, they blame the government for not making its plans known sooner. Moreover, some experts warn that if cash replaces subsidies on food commodities, prices will increase excessively. For example, a loaf of bread could rise from five piastres to 30 piastres while meat could reach LE70 per kilo, rendering cash subsidies to the poor useless. Booming estate THE REAL estate sector witnessed one of its busiest years, starting with escalating prices, a revival in the mortgage finance market, and an increased appetite from Gulf investors such as Emaar, Efaad, Damac and Al-Futaim to invest in the sector. While luxurious housing in the suburbs like New Cairo and 6 October, together with development projects in the North Coast and the Red Sea expanded through the year, there was a new trend of focussing on economy housing. This was even undertaken by private companies such as Orascom Hotels and Development as well as Orascom Construction Industries. The sector attracted a lot of attention through 2007 due to skyrocketing prices of land and housing units, apparently caused by auctions to sell public land to private investors at exaggerated prices. Prices in prime locations, and even in new communities such as 6 October City, shot through the roof by multiplying more than 200 per cent in 2007. But Minister of Housing Ahmed El-Maghrabi denied these claims. El-Maghrabi stressed that the total area of land sold to investors through auctions in 22 months amounted to only 4,800 feddans, out of a total of 30,000 feddans sold to the public at reasonable prices. He added that 55 per cent of the areas sold were allocated to the national project of low-cost housing, sold at LE290 per square metre, while plots sold to investors at higher prices in auctions were marked to finance national mega projects. The square metre of land in New Cairo was sold at a whopping LE4,000, pushing the prices in an upward spiral. The newly-adopted method of selling state-owned land through auction received a hard hit when a deal to sell 701,000 square metre plot in Ain Al-Sokhna fell apart. When six bidders in a row withdrew from the deal due to the terms of sale, the government was embarrassed and was accused of not taking enough measures to secure the transaction. It was also accused of not protecting the land from an expected severe drop in its price after being abandoned by all the bidders. Meanwhile, the mortgage industry received a boost in 2007 due to the launch of the Egyptian Company for Mortgage Refinancing (ECMR), a joint venture between the Central Bank of Egypt and 24 public and private financial institutions. ECMR will provide 20-year secured loans to banks, that will in turn lend this money to individuals at an interest rate of 11 per cent. Existing mortgage companies offer only 10-year loans with an interest rate of 12-14 per cent. The sector's contribution to GDP in 2006/2007 came at 8.3 per cent, while it grew at a rate of 15.8 per cent during 2006/2007. This is compared to five per cent and 14 per cent in 2004/2005 and 2005/2006, respectively. A troublesome harvest IN 2007, farmers faced several serious issues, including obvious shortages in chemical fertilisers, problems in marketing cotton, and a larger discrepancy between production and consumption of local wheat. In summer, farmers across the country complained of a crippling shortage in chemical fertilisers which caused a spike in prices to a shocking three-fold from LE700 to LE2,000 per tonne. Fertiliser shortages are common during this season since 55 per cent of the total annual consumption of fertilisers is used during this time to grow strategic crops such as rice, cotton and corn. To end this seasonal crisis, experts believe that the Ministry of Agriculture should stop the quota system in fertiliser distribution and float prices according to market needs. This would give farmers the liberty to choose whether to buy from the Principal Bank for Development and Agriculture (PBDA), cooperatives or private sector outlets. Meanwhile, cotton faced serious problems in the marketing realm. Since 1994 when the domestic cotton trade was liberalised, the government have no longer been responsible for marketing cotton which left farmers without any financial insurance on their harvest. This year, agricultural cooperatives affiliated to the state-run PBDA refused to buy the crop from farmers since they have no budget. Farmers complained for weeks that this year's cotton harvest is stockpiled in their houses and barns with no where to go. The result was a huge drop in local prices from LE1,000 per qantar last year to LE400 per qantar this season. In response to farmer discontent, the government allocated LE3 million to the PBDA to buy the cotton crop from farmers, paying them 80 per cent of the price immediately. To help farmers feel secure and encourage them to grow cotton, experts argue that the Ministry of Agriculture should set an average price for cotton and announce it at the beginning of each season. Moreover, the ministry should have a clear contract with farmers which guarantees marketing their product in order to encourage them to grow the strategic crop. Another pressing problem facing Egypt's cotton crop is dwindling land areas on which it is grown. According to Ministry of Agriculture and Land Reclamation figures, there are only 450,000 feddans available for cultivating cotton -- a far cry from the two million feddans of cotton harvested in the 1950s. Dealing with another important crop, wheat, the government took two important measures to cope with local shortages and the high increase in international prices. The first step was to pay farmers more for their crop in order to increase local production. The government announced that the General Authority for Food Commodities will buy the wheat from farmers at no less than LE240 per ardab. This decision aimed at encouraging farmers to expand wheat cultivation, and to match the rise in international prices which reached a high of $353 per tonne, in addition to $100 in transportation fees. The second measure was Prime Minister Ahmed Nazif's decision to raise the budget allocated for subsidies from LE9.7 billion to LE14.4 billion for fiscal year 2007/2008. The extra LE4.7 billion will subsidise essential food stuffs, particularly wheat. Meanwhile, experts expect an increase in wheat-cultivated lands to 3.5 million feddans this year, in response to a media campaign encouraging farmers to cultivate the crop. They also believe that Egypt should depend more on local production and try to achieve self-sufficiency. Taxes revisited ALTHOUGH the stability of tax systems in any country is a main motivator to attract foreign investments, the Ministry of Finance is never hesitant in introducing many amendments to existing tax laws. Minister of Finance Youssef Boutros Ghali, in fact, calls it a healthy sign: "Amendments are a cornerstone in the tax reform package adopted by the country; an indication of the country's determination to correct its path whenever is needed." This year, a draft real estate law was introduced by the ministry to regulate the relationship between the landlord, tenant and government. The new law which is expected to be ratified by the People's Assembly during the current session, broadly aims at abolishing distortions found in older, obsolete laws which were adopted half a century ago. The draft legislation reduces the taxes imposed on real estate to 14 per cent, instead of the previously exaggerated 40 per cent. At the same time, it specifies tax-exempt properties such as cemeteries and properties owned by non-profit organisations, public youth centres, foreign embassies (on condition that equal treatment is extended to Egyptian buildings in those countries), religious establishments such as mosques and churches, as well as buildings allocated for religious education. On the other hand, new taxes will be imposed on all buildings and real estate, including those in newly developed areas and on the northern coast. The tax will be collected starting next year, and the revenue will be directed to the general coffers instead of local authorities. Tax evaders will pay a fine worth double the estimated taxes due. Meanwhile, the main features of the much anticipated amendments on the income tax law of 2005 have yet not fully materialised. According to Ashraf El-Arabi, head of the Egyptian Tax Authority, the amendments will not by any means touch the spirit or content of the present law, nor will it change any tax price ratified by the law. "The amendments will only deal will the loopholes which emerged after applying the present law," stated El-Arabi. Next year, major amendments are expected to be introduced to the much debated sales tax law of 1991. Since its introduction 16 years ago, the sales tax law has seen a phenomenal number of amendments and next year more are slated, including converting the sales tax into a value-added tax. Accordingly, a unified six per cent tax will be imposed, instead of the current 10 per cent, but strategic commodities, such as bread, will be tax exempt. The ceiling to exempt small- and medium-sized enterprises (SMEs) will increase to LE500,000 as incentive, while taxes imposed on export vehicles will remain as high as 15 to 45 per cent, determined according to the cylinder capacity. "Taxes on vehicles will not be reduced as long as oil products continue to be subsidised," noted Ghali. The Ministry of Finance has always prided itself on the package of reforms it adopted to guarantee voluntary compliance by tax payers, and according to its figures it has been widely successful in reaching its goal. According to El-Arabi, tax revenues increased to LE7.4 billion this year compared to LE1.2 million before the law was applied. Compliant tax payers have increased to 3.1 million compared to 1.2 million after two years from applying the law. "The ultimate goal, however, is to ensure adequate foreign direct investment into the country, and to guarantee comparative advantage to Egyptian companies to help them compete on the international market," said El-Arabi. Public insurers merged THE INSURANCE sector is to receive a colossal state-owned insurer in 2008 after the government decided in July to merge three public insurance companies in one entity. This new company will combine assets of Misr Insurance, Al-Sharq Insurance and Ahliya Insurance and will be the fifth largest in the MENA with regards to asset value. The combined assets of the new company are estimated at LE18.7 billion expected to grow to LE45 billion by 2013. Moreover, the company will control 70 per cent of the domestic insurance industry. The decision came after 18 months of an evaluation process conducted by local and foreign consultant to decide the best way to reform the stagnant sector. The committee of consultants decided that the merger will be the best alternative and will be followed by a partial privatisation of the new company in the form of an IPO. The logic behind the merger, according to Ministry of investment officials, is to boost the financial results of those loss-making by tightening the overlap in activities between them. More restructuring of the companies including organising its real estate assets portfolio is expected to end early in 2008. Since the nationalisation movement in the 1950s, the three insurance companies integrated in their portfolios significant real state assets concentrated in old residential buildings with units rented to families or companies for a few pounds. The merger announcement came as a surprise to sector observers who expected the government to follow the same pattern adopted in reforming the banking sector, i.e. selling one or more companies to a strategic foreign investor. "We chose the IPO instead of the strategic investor approach because, financially, we don't need an injection of capital, and we already have enough Egyptian expertise," explained Mahmoud Mohieldin, minister of investment, in a press conference held a few days after the merger announcement. The merger and the following privatisation come in line with a three-year-old reform plan of the sector adopted by the Nazif government. Lifting the restriction on the activities of private insurers was a major leap in this direction. Previously, private insurance companies were permitted to sell insurance policies for only one kind of insurance for example those who are permitted to sell property insurance were prohibited from offering life insurance. Last year's decision to form a new holding insurance company that includes the three public insurance companies together with the Egyptian Reinsurance Company under one umbrella was another step aimed at streamlining the management of these companies. Egypt currently has 21 private and public insurance companies but is still stagnant by both regional and international standards with insurance premiums representing less than one per cent of Egypt's GDP. A gaining CASE WITH new commodities, more investors and all-time record highs, 2007 was exceptionally good for the Cairo and Alexandria Stock Exchange (CASE). The market benefited from an obvious change in corporate culture in Egypt, with more private companies resorting to IPOs as a means to finance their activities. The offerings of heavyweights like Arafa Investments, Ghabbour Auto and Talaat Mustafa Group sold like hot cakes, adding attractive commodities to the market as well as attracting more investors, mainly retailers. It was not only new traded companies but also new investment tools in the market. Clients of the Egyptian National Postal Authority can now deposit savings in an account tied to a professionally managed fund that invests in CASE. The new investment saving accounts, which can be opened with as little as LE100, add to the financial services available at 3,400 post office branches nationwide. The CASE30 index, tracking the performance of the market's most actively traded companies, increased by almost 50 per cent to break the 10,000 threshold through the year. Market capitalisation exceeded LE650 billion. The new Nile Stock Exchange (NileX), the small and medium enterprises (SMEs) bourse, was the latest addition to the market. The new bourse aims to secure a source of raising capital for smaller companies. Listing and disclosure rules for the new bourse are much easier, with the minimum paid-in capital requirement of LE500,000, compared to LE2 million to list in the CASE. Companies listed in NileX are not required to offer quarterly financial results as a means of lowering costs. Moreover, annual listing fees, transaction costs and underwriting fees were also reduced to encourage SMEs to list. The stock exchange administration introduced new regulations throughout the year, aiming at protecting interests of minority shareholder rights in companies offered for sale through the bidding process. According to new regulations, investors are not able to buy more than one third of a company's total capital or voting rights through the stock exchange or other market mechanisms. To buy more than one third of the company, investors are obliged to bid for all of the company's outstanding shares. Another regulatory change was the amendments to the executive regulations for Investment Incentives Law of 1997 regarding securitisation rules, making it easier for companies to raise short-term debt.
