VZCZCXYZ0000
RR RUEHWEB
DE RUEHEG #7133/01 3471439
ZNR UUUUU ZZH
R 131439Z DEC 06
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 2915
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0238
UNCLAS CAIRO 007133
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: OCTOBER - NOVEMBER ECONOMIC REPORT
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SUMMARY
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1. IN THIS EDITION:
MACROECONOMIC:
2. INFLATION: Highest rate in two years
3. MONETARY POLICY: Interest rate increase
4. FDI: $7.5-8b by year-end?
5. FDI: One-stop Shops
6. CAPITAL MARKETS: Enhanced regulatory regime
7. UNEMPLOYMENT: Survey shows unemployment down
8. MORTGAGE FINANCE: Financing reaches $113 million
9. PUBLIC PRIVATE PARTNERSHIP: GOE investment plans
LEGISLATION:
10. PENSIONS: New pension law being drafted
11. TENDERS AND AUCTIONS: Rules reforms implemented
TRADE:
12. U.S.-EGYPT: Exports to U.S. double
13. CHINA-EGYPT: Nine new trade agreements
SECTORS:
14. INDUSTRY: GOE establishes new industrial zones
15. AGRICULTURE: Exports reach $1.2 billion
16. ELECTRICITY: Price increases and cutoffs
17. OIL/GAS: New agreements with Russia and Canada
18. PHARMACEUTICALS: U.S. firms purchase Amoun
19. TELECOMS: New intercontinental cable
20. TELECOMS: Lucent Technologies to help schools
21. TELECOMS: Orascom subscribers reach 46 million
22. TELECOMS: Telecom Egypt launches IPTV service
23. TRANSPORT: Suez Canal transit has record day
24. HEALTH: Cholera outbreak
25. PETROCHEMICALS: New petrochemical plant in Port Said
26. RETAIL: Metro to invest 300m euros in Egypt
27. ECONOMIC INDICATORS
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MACROECONOMIC
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2. INFLATION: Inflation rose to 11.8% in October, the highest rate
in two years, despite easing of global oil and non-oil commodity
prices. The Consumer Price Index, which measured 4.4% in April, has
more than doubled in the past six months. Although prices rose in
most sectors in October, cement and steel prices actually declined.
To keep construction costs down, the Ministry of Trade and Industry
(MTI) placed a voluntary cap of LE 295 ($52) per ton on cement
prices last August. In early November, MTI announced that most
producers had complied with the cap, and prices had dropped 15%, to
LE 340 ($60) per ton, compared to LE 380 ($67) per ton in July.
Steel rebar prices also declined 10% in October, to LE 2980-3500
($523-614) per ton. Industry sources attribute the decline to lower
global prices for inputs such as iron, copper and aluminum, as well
as lower demand during Ramadan.
3. MONETARY POLICY: In response to rising prices, the Central Bank
raised its overnight deposit and lending rates in November to 8.5%
and 10.5% respectively, both up 0.5%. The Monetary Policy Committee
(MPC) released a statement on November 2 indicating the decision to
raise rates was based on inflationary pressure brought on by
accelerated growth, particularly in the construction and
manufacturing sectors. The MPC indicated future rate decisions will
consider the outlook for inflation and growth. Most observers
believe the MPC will raise rates again in December.
4. FOREIGN DIRECT INVESTMENT (FDI): UNCTAD's World Investment
Report 2006 indicated FDI flows to Egypt in 2005 stood at $5.376
billion, placing Egypt second after South Africa in terms of FDI
flow to Africa. The non-energy sector made up 70% of FDI in
FY05/06, compared with 33% and 20% in the two previous fiscal years.
The steady rise in FDI has boosted foreign reserves to $24.9
billion, contributing to the Egyptian pound's stability. Commenting
on the report, Minister of Investment Mohieldin predicted FDI would
climb to $7.5-8 billion by June 2007. Speaking at the Egypt Invest
conference in November, Chairman of the General Authority for
Investment and Free Zones (GAFI) Zaid Bahaa El Din admitted that
despite increased FDI, investors still face problems in Egypt,
especially obtaining business licenses. The licensing regime in the
Suez Industrial Zone, however, works well and Bahaa El Din hoped it
could serve as a model. GAFI's One-stop Shop is also working to
reduce waiting time for tax registration cards. Bahaa El Din noted
Egypt still has no bankruptcy law, but "exit" rules are improving
and GAFI is also addressing investor concerns such as financing and
dispute settlement.
5. On a related note, MTI will soon open commercial registry
branches in local chambers of commerce, as part of an overall trade
modernization plan. The Federation of Egyptian Chambers of Commerce
said the registries will be part of One-stop Shops planned for each
of its branches, to facilitate commercial licensing for small
investors and small and medium enterprises (SMEs). The One-stop
Shops will host representatives from various GOE agencies, including
the Ministry of Finance, Customs and the Social Insurance Agency.
The shops are expected to open in the coming year.
6. CAPITAL MARKETS: The Chairman of Egypt's Capital Market
Authority (CMA) announced implementation of enhanced regulations on
the Cairo and Alexandria Stock Exchange (CASE), aimed at reducing
investment risk. The regulations include new solvency requirements
for listed companies and new membership and transparency rules for
brokerage firms. The CMA hopes the new regulations will attract
more corporate investors to balance the large number of individual
traders and stabilize the market. The number of individuals
investing on the CASE increased from 300,000 to 1.7 million in the
last 10 months. Individual traders accounted for 90% of trading
during the bear market from March to July 2006.
7. UNEMPLOYMENT: The Economic Research Forum, in cooperation with
the Population Council and the Central Agency for Public
Mobilization and Statistics, released the annual USAID-funded Egypt
Labor Market Survey for 2006 in October. The survey covered 8,349
households and showed economic reform has reduced unemployment from
11.7% to 7.8% in 2006, with the biggest impact in rural areas. The
survey also found that although real wages have increased, earnings
inequality has widened. New labor market entrants are increasingly
relying on informal jobs. Males are transitioning from school to
work 1-2 years earlier than in previous years, with no change for
females. A population bulge of youth under 25 is now entering the
labor market, just as Egypt's economy is beginning to grow again.
The new generation of workers is expected to increase the number of
breadwinners per capita, despite continuing barriers to entry of
young women into the labor market.
8. MORTGAGE FINANCE: Mortgage Finance Authority Chairman Osama
Saleh announced that total mortgage lending had reached LE 650
million ($113 million) in September. The figure is up from LE 514
million ($89 million) in June 2006 and LE 15.8 million ($2.74
million) in June 2005. Saleh expects total lending to reach LE 1
billion ($173 million) by the end 2006. In an effort to increase
mortgage activity, Minister of Investment Mohieldin announced plans
to restrict lending activities by real estate developers, a common
practice, in order to allow banks to play a more active role in the
housing market. The GOE's goal was to increase lending to 5% of GDP
or LE 20 billion to LE 30 billion ($3.5 billion-$5.2 billion) by the
end of 2007.
9. PUBLIC-PRIVATE PARTNERSHIPS (PPP): The GOE is planning to use
PPPs to increase investment in sectors such as energy, water and
sewerage, health, transport, and education, according to Minister of
Investment Mohieldin. Speaking at the Euro-Med Conference in
Marseille in November, Mohieldin said he envisaged $1 billion per
year for investment in the health sector alone, with $600
million/year for electricity, $200 million/year for education and $2
billion over three years for transport. He estimates long-term
financing needs of $25 billion for wastewater treatment over the
next several years. Mohieldin recognized the image of PPPs in Egypt
is adversely affected by foreign currency problems associated with a
series of build-own-operate-transfer (BOOT) projects carried out in
the mid-1990s. New regulations are under preparation, however, to
prevent a recurrence. The GOE will likely frame the regulations
sector-by-sector, according to Mohieldin.
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LEGISLATION
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10. PENSIONS: Minister of Finance Boutros Ghali announced in late
October that a new draft pension law is under review. The bill will
maintain the current pension system, but create a parallel scheme
for new subscribers, including temporary workers, who will pay 17%
of their monthly salaries into the system. Of the 17%, 12% will go
into non-tradable treasury bonds, and 5% into financial assets.
Citizens over 65 will receive relatively lower pensions through the
Social Solidarity Scheme. The bill will create a pension commission
with representatives from the Ministries of Finance, Investment,
Social Solidarity, Manpower and Emigration, as well as the CMA and
the Egyptian Insurance Supervisory Authority. The commission will
supervise regulations and performance of pension authorities. The
new system is designed to ensure adequate pensions based on stable
financial sources with sound management and efficient and
transparent investment of funds.
11. TENDERS AND AUCTIONS: In October, regulations implementing the
Tenders and Bids Law were amended to streamline contract procedures.
The changes shorten the period required for announcing tenders and
evaluating bids, lower charges for tender documents, oblige clients
to hold pre-bid meetings to clarify items in tenders, and include
model contract terms clearly setting out rights and obligations of
contractors. The amendments allow small- and medium-sized
enterprises to acquire tender documents at cost, in order to help
such firms to win business.
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TRADE
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12. U.S.-EGYPT: Egyptian exports to the U.S. more than doubled in
the first half of 2006. Minister of Trade and Industry Rachid
announced exports to the U.S. soared to $1.5 billion between January
and June 2006, compared to $925 million during the same period last
year, a 56% increase. Egyptian imports from the U.S. have increased
by 28% during the first six months of the current year to reach $1.8
billion, compared to $1.4 billion during the same period last year.
A study prepared by Egypt's International Trade Point found that the
Qualifying Industrial Zones (QIZ) agreement was the main factor in
boosting Egyptian textile exports to the U.S. market. January-June
2006 QIZ exports increased to $347.9 million, 24.1% of Egypt's total
exports and 41.8% of Egypt's total non-petroleum exports.
13. CHINA-EGYPT: Egypt signed nine bilateral trade agreements with
China at the China-Africa Summit in November. The agreements are
designed to promote Chinese investment in Egypt and correct Egypt's
balance of payment deficit with China. At the conference, President
Mubarak and Minister of Trade and Industry Rachid stressed the
importance of cooperation and encouraged the Chinese government to
promote investment in Egypt by providing incentives to Chinese
investors. The two sides agreed to develop and increase Egyptian
exports, with China offering to train and develop Egyptian human
resource in marketing and exporting and to conduct studies in Egypt
to help increase exports. A delegation of Egyptian businessmen also
attended the summit, and contracts were signed for new electric
cable, textiles and electrical appliance factories in Egypt and for
the exchange of technical knowledge on SMEs. An agreement on
cooperation in science and technology was also signed. The first
project under the agreement will be a fish-farming laboratory at
Suez Canal University in Ismailia.
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SECTORS
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14. INDUSTRY: The GOE has set up an agency to develop a series of
industrial zones characterized by "business-friendly" regulations.
Prospective investors are invited to submit prequalification
applications for projects in sample zone sites in four existing
industrial cities - 6 of October, 10 of Ramadan, Borg al-Arab and
Sadat. The new agency, the Industrial Development Authority, will
operate under the umbrella of the MTI. Private companies will
develop, finance, promote, lease or sell, manage, operate and
maintain the industrial zones under contractual agreements. The
areas will be eligible for QIZ designation.
15. AGRICULTURE: In October, the Ministry of Agriculture announced
Egypt's agricultural exports reached LE 7 billion ($1.2 billion) in
2005, and predicted they would grow 15% in 2006. Potato exports in
2005 were 394,000 metric tons (mt), and citrus exports, 700,000 mt.
Citrus exports are expected to grow significantly as a result of
recently-signed agreements with Australia and China. The ministry
plans to spend LE 160 million ($28 million) to combat fruit flies, a
chronic problem for Egypt's agricultural sector.
16. ELECTRICITY: In October, electrical distribution companies
raised prices 4.9 to 8.1%, depending on consumption, the third
increase since 2004. However, electricity subsidies are still about
LE 3 billion ($526 million)/year. Electrical Holding Company
President Mohammed Awad announced Egypt needs LE 6 billion ($1.1
billion) in additional revenues to meet an average 10.3% annual
increase in demand. Finally, for the first time in living memory,
Minister of Electricity Hassan Younis received permission from Prime
Minister Nazif to cut off electricity to government buildings that
had not paid their bills. In October, electricity to several Cairo
governorate buildings was cut off. In addition, warning notices
were sent to the Ministries of Interior (LE 3.85 million, or
$675,000 behind) and Higher Education (LE 500,000, or $87,000), as
well as Cairo University (LE 6 million, or $1.1 million). The move
received considerable press coverage, and water utilities are
expected to follow the lead of the electricity sector.
17. OIL/GAS: Minister of Trade and Industry Rachid signed an MOU
with Gazprom for cooperation in Egypt's natural gas sector in
October in Moscow. The MOU covers exploration, sharing technology
and marketing. In late November, the Egyptian Mineral Resources
Authority and the Canadian consortium Centurion Energy International
signed an agreement to study possible reserves of oil shale in Egypt
and exploitation and marketing feasibility. According to Minister
of Petroleum Fahmi, Egypt's estimated oil shale reserves are
equivalent to 5.7 billion barrels of oil. Centurion Energy
International Inc. was recently acquired by Dana Gas, a UAE-based
energy company. The consortium also has facilities in Tunisia and
Nigeria.
18. PHARMACEUTICALS: Two U.S. firms, Citigroup Venture Capital
International and Capital International Private Equity Fund IV,
together with Concord International Investments, bought 93% of
Egypt's Amoun Pharmaceuticals for LE 2.623 billion ($458 million).
The firms bought the majority stake from Amoun Chairman Sarwat
Bassily and his family, company officials said. Bassily, who
founded the company in 1998, will stay on to manage it. The company
produces international products under license and exports to
countries in sub-Saharan Africa, central Asia, and throughout the
Middle East.
19. TELECOMS: In late October, India's Videsh Sanchar Nigam Ltd
(VSNL) signed an MOU with several telecom service providers,
including Etisalat, Saudi Telecom Company, Telecom Egypt and Telecom
Italia Sparkle, for the construction of a new submarine cable system
linking India with Europe, Africa, Asia and the Middle East. VSNL
says the India-Middle East-Western Europe cable system will be ready
by mid-2008; construction contracts will be awarded by year-end.
The cable will use Dense Wavelength Division Multiplexing
technology, with a proposed capacity of at least 2.56 terabits
per-second.
20. Also in late October, Minister of Communications and
Information Technology Kamel and Minister of Education El Gamal
announced a contract with Lucent Technologies and its business
partner TeleTech to provide high speed internet access and data
delivery to public schools, under the Egyptian Educational
Initiative. Lucent will work with TeleTech to deliver a
next-generation CDMA2000 1xEV-DO (Evolution-Data Optimized) and WiFi
trial network to complement Telecom Egypt's CDMA2000 1X network in
the El Max area. The trial network will provide wireless data
services such as broadband Internet access, e-mail and distance
learning at very high speeds for students and educators.
21. In mid-November, Orascom Telecom (OT) announced its mobile
subscriber base is over 46 million. Revenues during the third
quarter of 2006 rose 35% to $3.216 billion. Egyptian subsidiary
MobiNil made up 12% of the company's revenues. OT has mobile
operators in Algeria, Pakistan, Egypt, Iraq, Tunisia, Bangladesh,
Africa and the Republic of the Congo and recently acquired an
additional 8% stake in its Algerian subsidiary for $399 million,
raising its stake in Algeria to 95.6%.
22. In late November, Telecom Egypt (TE) launched Egypt's first
IPTV dedicated service, joining recent entrants in the market such
as Germany's Deutsche Telekom, Telecom Italia and Swisscom's Bluewin
TV service. TEData, TE's internet subsidiary, began on-demand
content to both TEData's existing customers and new ADSL subscribers
in November. The service is called TE-VU.
23. TRANSPORT: On October 26, a record 76 vessels transited the
Suez Canal, earning a one-day record $13 million in tolls for the
Suez Canal Authority (SCA). In September SCA's revenues were $332.2
million, 10% over September 2005, despite the sinking of an Egyptian
dredger that halted traffic for several hours. The GOE hopes to
increase inland maritime traffic as well. Press reports indicate
the Ministry of Transport will offer four river ports, and a total
of 180,000 square meters of land for development under
build-operate-transfer terms. The ports include the Tebin Port,
located south of Cairo, and Qena Port in Upper Egypt.
24. HEALTH: In early October the press reported several cholera
cases in the western Delta govenorate of Daqahliyya, and said
victims were being treated in the Mansoura Viral Hospital. Also in
October, there were fifty poisoning cases in the western Delta
governorate of Sharquiyya, resulting in two deaths. The press
blamed those cases on contaminated water. In both cases, the
Ministry of Health denied that the illness was cholera; the
governors of the two affected governorates also said the problem was
not contaminated water but food poisoning.
25. PETROCHEMICALS: In mid November, Oriental Weavers signed an
agreement with the German company ODA for construction of a new
plant to produce propylene in Port Said. Total investment is $680
million. Sixty-five percent of production will be exported,
beginning in 2009. Oriental Weavers Chairman Mohamed Khamis
indicated the project will use locally-produced propane gas. Other
investors include Yemen's Haiel Said Group, UAE's Amwal El Khalig
Company, and the Arabic Company for Libyan Investments.
26. RETAIL: The International Metro Cash & Carry supermarket chain
is expected to invest an estimated 300 million euros in Egypt in a
food and farm products marketing chain, according to the Ministry of
Investment, which hosted a delegation of Metro representatives in
October. Metro Cash & Carry is the largest division of German
retail giant Metro, with total 2005 sales of 28 billion euros.
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ECONOMIC INDICATORS
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27.
Exchange Rate:
(09/28/06) (11/30/06)
Egyptian Pounds/$ Buying Selling Buying Selling
Avg. Bank/Bureau Rate 573.17 575.00 571.23 573.37
Capital Market:
(09/28/06) (11/30/06)
CASE 30 Index 6,427(09/27) 6,561
Hermes Financial Index 57,059 57,974
EFG Index 29,014 29,170
Interest Rates:
(percent, monthly comparison)
Interbank Overnight 8.9(09/27) 9.6
T-bills (182 days) 9.55 9.86
T-Bond (maturing 12/08) no trade 10.81 (11/27)
T-Bond (maturing 10/11) 10.3(09/27) 10.88
Foreign Reserves:
(US $ billion, official gov't figures)
(09/2006) (11/2006)
24,064.9 24,900.8
Inflation
(08/2006) (10/2006)
Consumer Price Index (CPI) 8.9 11.8
RICCIARDONE