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Cablegate: Egypt: Monthly Economic Report

Published: Mon 23 Oct 2006 04:18 PM
VZCZCXYZ0005
RR RUEHWEB
DE RUEHEG #6524/01 2961618
ZNR UUUUU ZZH
R 231618Z OCT 06
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 2189
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0213
UNCLAS CAIRO 006524
SIPDIS
STATE FOR NEA/ELA, NEA/RA, AND EB/IDF
USAID FOR ANE/MEA MCCLOUD
USTR FOR SAUMS
TREASURY FOR NUGENT/HIRSON
COMMERCE FOR 4520/ITA/ANESA/TALAAT
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV ENRG EWWT EG
SUBJECT: EGYPT: MONTHLY ECONOMIC REPORT
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SUMMARY
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1. (U) IN THIS EDITION: Ramadan begins, and consumer prices rise.
Egypt's credit rating remains unchanged, but interest rates for
farmers decrease. The Ministry of Investment drafts changes to the
investment law, as on-line trading and a new stock index are
launched. Egypt's Minister of Environment discusses the Clean
Development Mechanism in Saudi Arabia an Pugwash chooses Egypt to
host its next conference. Orascom negotiates to take over
Hutchinson Telecoms, while Vodafone and Etisalat announce intentions
to bid for the international voice gateway license. Mobinil
disputes third generation technology with the National
Telecommunications Regulatory Agency, Swedish and Chinese firms are
selected to construct the third mobile phone network and ARINC is
award the contract for IT systems at the new Terminal 3 at Cairo
International Airport. ExxonMobil announces investment in improved
downstream services, while the GOE and Saudi Arabia discuss
integrating electrical grids. Suez Canal revenues reach record
levels. End summary.
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MACROECONOMIC
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2. (U) INFLATION: Consumer prices rose across the scale with the
start of Ramadan on September 23. Prices of fruits and vegetables
and various Ramadan staples (lentils, dates, dried fruits and nuts
and poultry) increased 20-30 percent since the start of the fasting
month. Despite the August decision to left the poultry import ban,
widely seen as a GOE effort to avert Ramadan shortages, consumer
poultry prices rose nearly 60 percent. Further reporting on
inflation will be sent septel.
3. (U) CREDIT RATING: In early September, Moody's maintained
Egypt's Baa3 local currency government bond rating with a negative
outlook in local currency and Ba1 with a stable outlook in foreign
currency. The Baa3 local currency bond rating reflects Egypt's
ample maneuverability in managing its domestic debt, as most debt is
non-marketable and held by various public sector entities, according
to Moody's. While fiscal transparency improved, GOE finances
continue to deteriorate, causing a negative outlook for local
currency government bonds. The stable outlook on Egypt's foreign
currency Ba1 debt ratings reflects Egypt's low debt service burden
(particularly on bond debt) and strong liquidity position. These
characteristics, coupled with external financial assistance, account
for the stability of the bond ratings in spite of policy slippage
and exogenous shocks.
4. (U) AGRICULTURE AND INTEREST RATES: In mid September, Minister
of Agriculture Amin Abaza announced a reduction in the interest rate
on farmers' loans from the Principal Bank for Development and
Agricultural Credit. Interest rates were lowered from 7.5 to 5.5
percent, in order to increase farmers' access to credit and
encourage borrowing for new equipment and modern irrigation methods,
in hopes of improving agricultural productivity.
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LEGISLATION
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5. (U) INVESTMENT LAW: The Ministry of Investment (MOI) plans to
amend Investment Law No. 8 of 1997 to allow discounting, whereby
special purpose financial vehicles are used to purchase debts owed
to companies at a discount and assume responsibility for collecting
them. Discounting, used in many countries, increases liquidity and
the ability of investors to finance production needs. A number of
Egyptian banks already provide discounting services but MOI expects
the practice to increase after the amendments are finalized. MOI is
also planning to reduce the minimum required capital for
establishing sole proprietorships and corporations.
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CAPITAL MARKETS
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6. (U) ONLINE TRADING: Al-Arabia Online and EFG-Hermes received
licenses from the Cairo and Alexandria Stock Exchange (CASE) and the
Misr Clearing and Settlement House to begin provide online trading
services. Egypt for Information Dissemination (EID) is developing
the CASE's online trading infrastructure. EID is a joint venture
between the CASE and OMX, a Swedish trading technology corporation
that owns and operates six bourses in northern Europe.
7. (U) NEW STOCK MARKET INDEX: Dow Jones Indexes has teamed up
with CASE to launch the Dow Jones CASE Egypt Titans 20 Index. This
blue-chip index measures the performance of the CASE by following
the transparent and objective methodology of the Dow Jones Global
Titans 50 Index. It also includes 20 leading Egyptian stocks ranked
by free-float market capitalization, sales/revenue and net income.
The Dow Jones CASE Egypt Titans 20 Index is designed to underlie
investment products such as mutual funds, exchange-traded funds and
other financial products that enable investors to participate in the
performance of the Egyptian stock market. The top five companies in
the index by free-float market capitalization are: Orascom Telecom
Holding, Orascom Construction Industries, EFG Hermes Holding,
Egyptian Kuwaiti Holding and Commercial International Bank.
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ENVIRONMENT
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8. (U) KYOTO PROTOCOL: In late September 19-21, El-Sayed Mansour,
Head of the Climate Change Unit at the Egyptian Environmental
Affairs Agency (EEAA) gave a presentation on Egypt's experiences
with the Kyoto Protocol's Clean Development Mechanism (CDM) at a
conference in Saudi Arabia. The conference provided participants
with a conceptual understanding of the financial and economic
development benefits of the CDM. Mansour discussed EEAA's
regulations, the CDM project evaluation process, projects underway
in Egypt and EEAA's "green index" that allocates a percentage of
income from Certified Emission Reductions CERs to an Environmental
Protection Fund.
9. (U) PUGWASH: In late September the international scientific
organization Pugwash (http://www.pugwash.org/) announced that Egypt
would be the first country in the Middle East to host its next
conference on science and world affairs in November. The Egyptian
Council of Foreign Affairs will assist Pugwash in organizing the
two-day event, scheduled at November 11 and 12. Issues discussed at
the conference will include nuclear non-proliferation, efforts to
render the Middle East a nuclear weapon-free zone and the
possibility of establishing a regional security system. Attendees
will also focus on the latest political developments in the
Palestinian territories, Iraq and Lebanon, fighting terror, and
promoting cultural dialogue.
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TELECOMMUNICATIONS AND IT
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10. (U) In late September, the press reported that Orascom Telecom
was discussing take over of the Hong Kong-based cooperation
Hutchison Telecom. Naguib Sawiris, Orascom CEO, told reporters that
negotiations had reached an advanced stage, although no agreement
was reached on price. In December 2005 Orascom paid $1.3 billion for
a 19.3% stake in Hutchison Telecom Media, a member of the Hutchison
Whampoa Group. The press also reported that the deal will be
structured to ensure that Orascom's indirect holdings in the Israeli
cellular company Partner Communications do not exceed 10 percent.
11. (U) On September 19, Vodafone Egypt announced it would bid for
one of two international gateway operators' licenses offered by the
National Telecommunication Regulatory Authority (NTRA). The
announcement came days after Vodafone's acquisition of 51 percent of
Raya Telecom for LE 104 million. Embassy contacts believe
Vodafone's acquisition of Raya puts the company in a better
technical and legal position to pursue the license. Mohammed Omran,
Chairman of Etisalat, winner of the third mobile phone license, also
announced his company's intention to apply for one of the two
licenses. Egypt has already passed the December 2005 deadline to
fulfill its WTO obligation to end Telecom Egypt's (TE) monopoly on
international calling operations. TE collected LE 2.3 billion in
international calling revenues in 2005, accounting for 27 percent of
its total revenues of LE 8.5 billion. In late September TE also
announced it would increase its stake in Vodafone Egypt to 24.4
percent. Akeel Basher, TE Chairman, said that TE had obtained loans
of LE 4 billion to finance the transaction, which will be concluded
by the end of the current month.
12. (U) A dispute erupted in early September between NTRA and
Mobinil, when the latter commercially introduced Enhanced Data for
GSM Evolution (EDGE) technology without a license. EDGE allows users
to transfer data at six times the speed of GPRS. NTRA classifies
the technology as third generation, which requires an NTRA license
that costs LE 3.3 billion. Mobinil argues that the technology is
second generation, citing the GSM Association, an international
support body. Second generation technology does not require an
additional license for Mobilnil. Mobinil agreed to suspend EDGE
services until the dispute is resolved.
13. (U) In early September the Swedish firm Erickson and the Chinese
Huawei Technologies won contracts from Etisalat to construct Egypt's
third mobile network, for a total of 800 million UAE Derham (almost
$218 million). Erickson will build in Cairo and Alexandria while
Huawei will build in more remote areas including Sharm el Sheikh and
Hurgada. The new mobile company is expected to start experimental
operations by year-end and formal operations in February 2007. The
NTRA license requires coverage in the 4 cities mentioned above
within six months.
14. (U) (U) AIRPORT IT: In mid September ARINC Incorporated was
selected to provide passenger check-in systems and related
technologies for the new Cairo International Airport Terminal 3, a
$400 million project partially financed by the World Bank (WB).
ARINC was chosen through a competitive tender process under WB
procurement rules. The IT portion of the project is valued at $22
million. ARINC will provide the Cairo Airport Company with
extensive design, project management, supply management,
installation, and commissioning for 14 IT systems, from passenger
check-ins and displays to biometric gates and ramp control.
Terminal 3 is scheduled to open in early 2008.
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ENERGY
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15. (U) OIL: During the last week of September, Tom Walters, the
general Manager of ExxonMobil in Egypt announced a new investment
plan for in Egypt worth $100 million. Under the plan, 70 percent of
the investment will be directed to the Greater Cairo Area and the
remaining 30 percent in Alexandria and Upper Egypt. ExxonMobil
plans to improve downstream services at gas stations, increase the
number of natural gas stations, and expand ExxonMobil;s successful
"On the Run" shops at service stations in Egypt. Also in late
September, the British oil company, Aminex PLC signed a production
sharing agreement with the GOE to oilfields in the West Esh El
Mellahah area in Upper Egypt.
16. (U) ELECTRICITY: On Sept. 27, Egypt and Saudi Arabia signed a
contract to study the possibility of connecting their electrical
grids. Hassan Younis, Minister of Electricity and Energy said the
study would cost $2.6 million, and that the contract demonstrated
political will to link the grids. Press reports indicate that
between 1990 and 2003, electricity consumption in theregion
increased from 214 to 471 kilowatt hours,a rise of 120 percent. In
comparison, Japan sawa 23 percent rise and the U.S. a 29 percent
increse during the same period.
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TRASPORTATION
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17. (U) SUEZ CANAL According to Ahmed Ali Fadel, Chairman of the
uez Canal Authority, tolls will hit a record $3.65billion by
SIPDIS
year-end. Fadel told econoff that tols for the third quarter of
2006 would exceed theprevious quarter and reach $960 million.
Fadel also noted that a Danish ship, the largest container ship in
the world, crossed the Suez Canal on September 22, after 17-hour
sailing in the waterway. The ship is almost 400 meters long and
56.5 meters wide, and can carry 15,000 containers. The passing fee
for ship was $653,421.
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ECONOMIC INDICATORS
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18. (U)
Exchange Rate:
(08/31/06) (09/28/06)
Egyptian Pounds/$ Buying Selling Buying Selling
Avg. Bank/Bureau Rate 573.76 575.84 573.17 575.00
Capital Market:
(08/31/06) (09/28/06)
CASE 30 Index 5,674 6,427(09/27)
Hermes Financial Index 50,025 57,059
EFG Index 25,509 29,014
Interest Rates:
(percent, monthly comparison)
Interbank Overnight 8.1 8.9(09/27)
T-bills (182 days) 8.99(08/01) 9.55
T-Bond (maturing 12/08) 9.25(07/25) no trade
T-Bond (maturing 10/11) 9.1 10.3(09/27)
Foreign Reserves:
(US $ billion, official gov't figures)
(08/2006) (09/2006)
23,051.1 24,064.9
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