Egypt Economic 022008

Global Research Economic
Egypt
Egypt Economic & Strategic Outlook

Gaining Momentum ..... February 2008
Table of Contents
Summary 1
Annual Indicators 5
Economic News Flow 6
Macroeconomic Profile 10
Gross Domestic Product 12
Public Finance 15
Public Debt 19
External Trade 21
Current Account 24
Capital & Financial Account and Balance of Payment 25
Foreign Direct Investment 26
Privatization 28
Monetary Policy 29
Foreign Exchange Reserve 31
Exchange Rate 31
Inflation 33
Population and Labor Force
34
Sector Performance 36
Agriculture 36
Banking 39
Oil 43
Gas 46
Tourism 48
Telecom 51
Real Estate 55
Cement 60
Stock Market 64
Corporate Earnings 68
Global Research - Egypt Global Investment House
Summary
The Egyptian economy seems to be gaining momentum over the time. The results of the
economic reforms adopted by the government in 2003/04 has been reflected in Egypt’s
nominal GDP growth of 18.4%, reaching LE731bn during the fiscal year 2006/07 1and its
real GDP growth at 7.1%, up from 6.8% the year before.
In 2006/07, the government’s total revenues and grants surpassed the budgeted figure by
9.9% to reach LE180.2bn. The 2007/08 budget estimates a 14.2% increase over 2006/07
budget figure for the government’s revenues and 3.9% increase over 2006/07 actual figure,
to reach LE187.2bn. The increase comes primarily from Tax Revenues, which is projected to
increase over last year’s budget and actual figures by 14.4% and 5.7%, respectively.
The government spending is projected to rise too, by 9.9% compared to 2006/07 actual, as
a result of the increase in the Wages and Salaries figure that is estimated to reach LE60.3bn
as opposed to LE51.4bn in the previous budget and LE52.2bn actually reported in 2006/07,
implying 17.3% and 15.7% of respective growth. Though the government was successful in
reducing the Subsidies, Grants and Social Benefits between 2005/06 and 2006/07 by 15.2%,
it has budgeted them to grow by 10% in 2007/08 reaching LE 64.3bn.
After growing at a faster rate over the previous few years, the public debt portfolio of Egypt
has remained almost at the same level in the past two years. The gross domestic public debt
increased by 5.0% during the period June 06 to June 07, to reach LE493.9bn. During the
same period, gross external debt grew by 0.6% to reach LE170.9bn. During the period from
June 02 to June 07, gross domestic public debt have grown at a higher CAGR of 12.8%
compared to CAGR of 5.7% for gross external debt.
In 2006/07, the Egyptian exports recorded a 19.3% growth over the previous year, to report
US$22.0bn. The Egyptian exports grew at a healthy CAGR of 25.3% between 2001/02 and
2006/07. Fuel and mineral oil formed the major portion of exports, standing for 46.6% in 2006/
07. This is significantly down from 2005/06, when it formed 56.5% of total exports. During
the year 2006/07, exports of fuel and mineral oil dropped by a 1.6% to reach US$10.3bn.
During 2006/07, the imports reached US$37.8bn, an increase of 24.3% over the previous year.
Consumer goods (durable and non-durable) representing 14.0% of total imports, increased
by 49.6% to reach LE5.3bn in 2006/07. As for intermediate goods and investment goods,
they both witnessed growth of 25.1% and 24.8%, respectively. The major portion of imports
in 2006/07 was the intermediate goods, mainly iron and steel and chemical products, forming
27.6% of total imports. The investment goods, which grew by 24.8% this year, represented
26.0% of the total country’s imports to reach US$9.85bn.
The current account surplus, which represented 2.1% of GDP, rose by 53.9% to reach
US$2.7bn in 2006/07. The 39.8% increase in services together with the 27.3% rise in transfers
more than made up for the 32.0% growth in the country’s trade deficit, which in turn led to
the surplus in the current account. As a matter of fact, the current account has been positive
since 2001/02 on the back of an improving services balance. Moreover, the country’s trade
deficit reported for 2006/07 was US$15.8bn, a 32.0% increase over the previous year. The
1 Egypt’s fiscal year begins July and ends in June
February 2008 Economic & Strategic Outlook 1

merchandise import grew strongly during 2006/07, on account of strong domestic demand
drawing in more consumer and capital goods, including industrial supplies and transport
equipment.
The overall balance of payments registered a surplus of US$5.28bn in 2006/07, compared to

US$3.25bn in 2005/06, driven mainly by the 53.9% hike in the current account. The financial
account registered a surplus of US$1.13bn in 2006/07, compared to US$3.51bn in 2005/06.
This 67% decrease was mainly due to a sharp rise in direct investments in Egypt.
Foreign Direct Investment into Egypt is growing at a rapid pace. The total FDI more than
doubled from US$4.1bn in 2004/05 to US$9.1bn in 2005/06 and it further increased by
44% in 2006/07 to reach US$13.1bn. Egypt has become an attractive FDI destination due to
its strong growth prospects, privatization and economic reform. The government of Egypt
remains committed to improving investment climate. The QIZ protocol, which comes in
addition to Egypt’s duty free access to the EU, definitely enhances the attractiveness of Egypt
as a location for FDI.
Over the past few years, Central Bank of Egypt (CBE) has introduced a range of more
sophisticated policy instruments and has shifted its policy focus to target inflation. A
Monetary Policy Committee (MPC) has been formed to prepare for the move to inflation
targeting. An increase in inflation in the second half of 2006 prompted the CBE to increase
its key intervention rates. During December 2006, the CBE raised the overnight deposit and
lending rates by 25 basis points to 8.75% and 10.75%, respectively. The inflation came down
in Q2 2007, as the Consumer Price Index (CPI) inflation dropped from 12.8% in March 2007
to 8.4% in September 2007. Similarly, the Wholesale Price Index (WPI) inflation dropped
from 16.0% in March 2007 to 8.6% in September 2007.
On February 8th 2008, CBE raised its interest rates for the first time in more than a year, in
response to rising inflation and growing food costs. CBE initiated a hike of 25 basis points,
bringing its deposit rate to 9% and its lending rate to 11%. The decision came in the wake of
news that inflation hit 11.5% in the year to January 2008, reversing Egypt’s disinflationary
trend from the last quarter of 2007, according to CAPMAS. CBE said in a statement that it
had acted in response to food price inflation as well as the expectation that food prices would
come under upward pressure over the coming period, pushing up the costs of other goods and
services indirectly though increasing demand for higher wages.
Foreign exchange reserves began to rise in 2004/05, as confidence in the Egyptian Pound
strengthened and the authorities started to purchase foreign currency to prevent a strong
appreciation of the local currency. Bolstered by strong capital inflows, Egypt’s foreign-
exchange reserves continue to rise steadily. According to CBE, the net international reserves
stood at US$28.6bn at the end of June 2007, an increase of 24.6% over the previous year.
This followed the 18.8% growth rate achieved in 2005/06.
The Egyptian banking sector consists of 41 banks, down from 61 in 2004, with 3,116
branches. This number fell as the government has expressed its intention to consolidate the
sector because it felt that the number of banks in Egypt is very high, with few of these banks
having enough capital to be competitive and most facing a larger risk of collapsing should
borrowers fail to pay back large sums of money.
2 Economic & Strategic Outlook February 2008

Growing at a CAGR of 12.9% between 2002/03 and 2006/07, the Egyptian banks’ aggregate
assets reached LE937.9bn, mainly driven by the 78.6% hike in the balance with banks in
Egypt as well as the 71.4% surge in the balances with banks abroad. On the other hand,
deposits rose by 14.3% in 2006/07 to reach LE650.0bn. They account for 69.3% of the total
banking sector liabilities. The banks’ deposits grew at a CAGR of 12.7% between 2002/03
and 2006/07.
Oil production continued its decline witnessed since the 1990s, to reach 678,000 barrels per
day (bpd) in 2006, on the back of the depletion of the current oilfields. Currently, most of the
foreign oil producers are spending intensively in the oil exploration projects. Egypt’s proven
oil reserves stabilized at 3.72 bn barrels by the end of 2006, around 0.3% of the world’s total
reserves and 3.2% of Africa’s total reserves. Of Egypt’s oil production, 70% came from the
Gulf of Suez fields, while the remaining 30% are extracted from the fields located in the
Western desert, Sinai Peninsula and the Eastern desert.
Natural gas production witnessed rapid growth in Egypt during the last couple of years,
reaching 45 billion cubic meters in 2006, a 29% y-o-y growth. Egypt’s ongoing exploration
efforts resulted in around 1.94 trillion cubic meter of proven natural gas reserves in 2006.
Egypt is the second natural gas producer in Africa, capturing around 25% of the continent’s
total production. Owing to the remarkable growth and exploration projects, Egypt has become
the world’s sixth largest Liquefied Natural Gas “LNG” exporter, behind Indonesia, Qatar,
Malaysia, Algeria and Nigeria.
The tourism sector picked up this year after the drop witnessed in 2005/06, subsequent to the
terrorist attacks in Dahab, Taba and Sharm El Sheikh. The tourism industry was negatively
impacted by these attacks, which was apparent in the number of tourist arrivals and tourist
nights. However, the sector recovered quickly in 2006/07, where 9.8mn tourist arrived,
reporting an increase of 12.6% over 2005/06 arrivals.
The Egyptian telecom sector witnessed significant changes in 2007, impacted by the
emergence of the third mobile operator, Etisalat Misr, in a duopolistic mobile market governed
by Mobinil and Vodafone Egypt. In 2006, the mobile subscribers soared by 40%, reaching
18mn compared to 2005. During the same period the mobile revenues rose by only 28%,
reaching LE 14.5mn, on the back of lower call tariffs by the competing service providers. The
existing players were presenting reduced and discounted offers to maintain their subscriber
base from shifting to the new operator. In September 2007, the mobile subscribers reached
27mn, with a penetration rate of 36.2%. The fixed line subscribers witnessed a steady growth
at a CAGR of 9% during the period from 2002 and 2006, reaching 10.8mn by the end of
2006, with 15% penetration rate. This increase came after the Company’s network capacity
expansions, as well as facilitating all procedures for the installation of new fixed lines, along
with the enhanced after sale services.
The Egyptian Real Estate sector flourished on the back of the positive economic conditions,
reflected in the real GDP growth of 7% in 2006/07, as well as the structural economic reform
that is adopted by the current cabinet. Demand is currently surpassing supply for all segments
of the market, from residential properties to administrative centers to commercial and tourism
facilities. The surge in demand has resulted in an unprecedented interest from both local and
regional developers to enter the Egyptian real estate market. Besides, Egypt owns a number

of criteria that makes it a good destination for real estate developers to penetrate the market.
The high population, the economic growth, the declining real estate taxes and the developing
mortgage system are major catalysts for any developer to step in the market.
Egypt enjoys various competitive edges when it comes to cement production. The cheap and
abundant raw materials, the cheap labor and up till now the cheap energy, more and above
the geographical location of Egypt has set it as a major cement exporter, for its proximity to
Europe through the north coast and to the GCC, where the demand is extremely high, through
the east coast.
The cement sector in Egypt witnessed major changes in its structure and future capacities
in 2007. Demand for cement has been growing at high pace, both locally and for export
markets, on the back of a regional construction boom with total investments amounting to
US$1.5trn. Though the cement sector produces beyond the local consumption figures, the
local market faces tremendous increases in the price. This was due to the lucrative export
prices in comparison to the local market, which forced many cement traders and agents to
orient their inventories towards export. In 2007, the total production capacity of the Egyptian
cement sector reached 41.3mn tons, while the actual production hit 38.4mn tons, an increase
of 6% over 2006 production levels. The country’s average utilization rate is 93%, with some
companies operating over 100% of their installed capacities. The local and regional demand
has pushed cement manufacturers to operate near their maximum capacities. Cement demand
attained about 34.5mn tons, with a rise of 14% over the previous year, on the back of the
construction boom, which is taking place in Egypt since 2004.
The Egyptian stock market, represented in the CASE 30 index, recorded a 51% return in
2007, ranking Egypt as the 3rd highest growth among the Arab stock exchanges, after Oman
and Abu Dhabi. The Cairo and Alexandria Stock Exchanges (CASE) managed to execute
various developmental measures that have positively affected the stock market performance
during 2007. Increasing the number of companies traded without a price ceiling from 55 to
151, in addition to, shortening the settlement period on all the listed stocks to (T+2), instead
of partially having (T+3) stocks, have positively affected the market’s performance.
In October 2007, CASE announced the establishment of Nile Stock Exchange (Nilex) as the
first bourse in the MENA region for Small and Medium Enterprises (SMEs). Nilex offers
SMEs, including family-owned businesses, from any country and any industry sector, a
simple access to capital and the benefits of being traded. The launch of Nilex gives CASE a
closer step towards maturity and brings in more depth to the Egyptian stock market.

Annual Indicators
2002/03 2003/04 2004/05 2005/06 2006/07
Economic Performance
Nominal GDP (LE bn) 417.5 485.3 538.5 617.7 731.2
Nominal GDP (US$ bn) 80.4 78.7 89.7 107.5 127.9
Nominal GDP Growth Rate (%) 10.2% 16.2% 11.0% 14.7% 18.4%
Real GDP (LE bn) 390.7 407.0 425.2 454.3 486.5
Real GDP Growth Rate (%) 3.2% 4.1% 4.5% 6.8% 7.1%
Per capita GDP (US$) 1,161 1,117 1,247 1,460 1,706
Consumer Price Index (%) 3.2% 10.3% 11.4% 4.2% 11.0%
Population (mn) * 69.2 70.5 71.9 73.6 75.0
Government Finance (LE mn) *
Total Revenues and Grants 89,146 101,881 110,865 151,266 180,215
Tax Revenues 55,736 67,147 75,759 97,778 114,326
Total Expenditures 127,320 145,987 161,610 207,811 222,030
Wages and Salaries 33,816 37,266 41,546 46,719 52,153
Interest Payments 25,851 30,704 32,780 36,815 47,700
Subsidies, Grants and Social benefits 20,612 24,746 29,705 68,897 58,442
Cash Surplus/(Deficit) (38,174) (44,107) (50,747) (56,545) (41,815)
Less: Net Acquisition of Financial assets 5,385 1,770 896 (6,159) 12,883
Overall Fiscal Surplus/(Deficit) (43,559) (45,877) (51,643) (50,386) (54,698)
Government Debt (LE mn) *
Gross Domestic Public Debt 323,197 388,377 469,039 470,264 493,879
Gross External Debt 177,438 185,385 167,474 169,868 170,865
Balance of Payment (US$ mn) *
Trade Balance (6,615) (7,834) (10,359) (11,986) (15,817)
Total Exports 8,205 10,453 13,833 18,455 22,018
Total Imports (14,820) (18,286) (24,193) (30,441) (37,834)
Services (net) 4,949 7,318 7,842 8,191 11,451
Transfers (net) 3,609 3,934 5,428 5,547 7,061
Current Account 1,943 3,418 2,911 1,752 2,696
Capital & Financial Account (2,734) (5,016) 3,378 3,511 1,134
Overall balance 546 (158) 4,478 3,253 5,282
Money Supply (LE mn)
Money Supply - M1 67,212 77,606 89,685 109,274 131,290
Quasi Money 317,050 357,305 404,199 451,082 531,398
Total Domestic Liquidity (M2) 384,262 434,911 493,884 560,356 662,688
Interest Rates
CBE Discount Rate 10.00% 10.00% 10.00% 9.00% 9.00%
Lending Rate (less than one yr loans) 13.70% 13.40% 13.39% 12.71% 12.64%
3-months Deposit Rate 8.69% 7.96% 7.66% 6.53% 6.01%
3-months T-bills 8.31% 8.41% 10.12% 8.82% 8.65%
Bank Credit as % of GDP 68.20% 61.03% 57.23% 52.46% 48.38%
Capital Market Indicators **
Market capitalization (LE bn) 171.9 233.9 456.3 534.0 768.3
Price Earning (P/E) Ratio *** 8.8 15.6 22.0 21.0 19.1
Total Volume of traded shares (mn) 1,422 2,435 5,310 9,081 15,090
Total Value of traded shares (LE mn) 27,764 42,374 160,635 286,740 362,720
* Preliminary
** Figures as of year end on December
*** P/E ratio is based on the most active companies only (Liquid Market)
Source: Central Bank of Egypt, Ministry of Finance, CASE and Global Research

Economic News Flow (January 2007 to January 2008)

• Egypt received record net foreign direct investment (FDI) flows of US$11bn in the fiscal
year 2006/07 as per Egypt's General Authority for Investment and Free Zones (GAFI).
This is over US$2bn higher than estimated earlier in the year, as reform measures taken
by the Egyptian government continue to reap benefits. Egypt has seen a huge increase
in FDI over the past five years. In 2002/03 foreign companies invested just US$0.7bn.
Reform measures undertaken by the government of Egypt in areas such as privatization of
state owned assets, tax, customs and banking, have played a key role in attracting foreign
investment. Egypt has become investment friendly and fertile for international business.
(Source: General Authority for Investment and Free Zones)
• Egypt's first Eurobond issue was oversubscribed 2.5 times. The Eurobonds have a five-
year maturity and are denominated in local currency and payable in Dollars. This means
that investors in foreign markets will pay the value of the bond in Dollars, receive its yield
during the five years in Dollars, and on maturity in 2012 will receive the initial value in
Dollars. However, the value of the bonds will be exchanged in the Central Bank of Egypt
and deposited in Egyptian Pounds. (Source: Al Ahram Weekly)
• During August 07, Minister of Trade and Industry announced that a new pricing mechanism
for natural gas and electricity used by energy-intensive industrial sectors will be applied
after being approved by the Supreme Energy Council. The new pricing mechanism is the
second phase of a new industrial policy, which includes a series of measures to enhance
the efficiency and competitiveness of the Egyptian industry. This is part of the initiatives
taken to build on efforts to create a competitive, transparent and predictable investment
environment for the growing numbers of foreign and local investors looking to enter
Egypt's industrial sectors. (Source: Al Ahram Weekly)
• Egypt has emerged as an attractive destination for Gulf investors. Around 40% of total
foreign direct investment (FDI) in Egypt came from the Gulf in 2006/07. Arab investors
took the leading role in providing FDI that has previously been played by the United
States and European Union. Gulf investors understand the Egyptian market for several
reasons, including the language and mentality; it is seen as a gateway to less familiar
North African and sub-Saharan markets. Some of the biggest names in Gulf real estate,
construction, private equity, telecoms and oil and gas are now present in Egypt. (Source:
Gulf States Newsletter)
• In an effort to tackle inflated prices, the government decided during September 2007 to
raise the budget allocated for subsidies from LE9.7bn to LE14.4bn for fiscal year 2007/08.
The decision aims at alleviating the burden on consumers, and will soon be submitted for
approval by the People's Assembly. The extra LE4.7bn will subsidize essential foodstuffs,
particularly wheat which witnessed a high price jump in international markets. (Source:
Al Ahram Weekly)
• A study conducted by the Egyptian Centre for Economic Studies (ECES) concluded
that the labor market suffers from a mismatch between demand and supply of skilled
workers. It also noted that the capacity of generating jobs -- particularly in the private
sector -- is limited, and that job creation is a tough challenge for the economy. The study,

published in August 07, explained the poor performance of the labor market as a result
of several factors, including inadequate macroeconomics and labor policies. As per the
report, the government undertook several reform measures to boost economic growth,
increase investments and raise the competitiveness of the Egyptian economy. However,
the Egyptian economy is still suffering from major shortcomings, such as an unfavorable
business environment, poor export performance, severe fiscal imbalance and a low level
of investment. (Source: Al Ahram Weekly)
• Egypt's tourism figures for the financial year 2006/07 showed impressive growth. In the
year to the end of June 2007, a record 9.8mn tourist visited Egypt, up 13% year-on-year.
Tourists spent a total of US$8.02bn in the country, an increase of 14% on the previous
12 months and stayed 96.3mn nights, up 13.1%. According to the ministry of tourism,
the government has targeted receiving 14mn visitors a year by 2011, necessitating an
increase in hotel capacity to 240,000 rooms, up from 175,000. (Source: Oxford Business
Group)
• The World Investment report 2007 released on 18th October by the United Nations
Conference on Trade and Development (UNCTAD) under the title ‘Transnational
Corporations, Extractive Industries and Development’ ranked Egypt as the first in Africa
and the second among the Arab countries in attracting Foreign Direct Investments (FDI)
in 2006. (Source: Al Ahram Weekly)
• Egypt has reached agreement with China on setting up an industrial zone which it hopes
will attract US$2.5bn in Chinese investment. Egypt's trade minister has informed that
the 5 sq km park in the Suez area would be built in phases over the next 10 years and
be financed, developed and managed by TEDA, a Chinese company. It is thought to be
the first Chinese government-backed manufacturing zone in the region and will provide
Chinese companies with an export hub for Europe, the Middle East and Africa. Companies
setting up in the zone are expected to make textiles, gas and oil pipes, electronics and cars
and car components. (Source: Financial Times)
• Egypt has been awarded the title of "world's top reformer" by Doing Business 2008,
an annual report by the World Bank and the International Finance Corporation (IFC).
Egypt topped the table by making more economic reforms in the 2006/07 period than
any other country surveyed. The report surveys 10 different areas of business regulation
in 178 countries worldwide, tracking the time and cost required to meet government
requirements in business start-up, operation, trade, taxation and closure. Egypt was
considered to have made significant progress in five areas: improving the process of
starting a business, licensing, property registration, getting credit, trading across borders
and business closure. (Source: Oxford Business Group)
• Egypt has launched the first stock exchange in the Middle East for small and medium
enterprises, or SMEs, called the Nile Stock Exchange, or NILEX. NILEX will list
companies with a minimum capital of LE500,000 and a maximum of LE25mn, Mr.
Maged Shawky, the head of the Cairo and Alexandria Stock Exchanges said. The bourse
requires that companies offer at least 10% of their shares within one year of going public.
NILEX aims to increase financing opportunities for SMEs and offer them opportunities
for growth. (Source: Dow Jones Newswires)

• Egypt is expected to receive US$15bn in new grants and loans for economic development
in the next five years, Cairo-based Al Ahram daily reported citing the country's minister
of international cooperation. Talks are underway with the US to restructure American
aid to Egypt and re-focus it on human development and scientific research. American
economic and military aid to Egypt has reached US$56bn so far. (Source: Al Ahram
Weekly)
• Egypt awarded six companies licenses worth LE801mn during October 2007 to set up
new cement projects in the country. Wady El Nile won the first license for a project
in the Upper Egyptian governorate of Beni Suef for LE251mn, while Sewedy Cement
won the second license for a facility in the Suez governorate for LE201mn. Al Arabiya
Al Wataniya won the third license for LE200mn for a factory in the Upper Egyptian
governorate of Menya. The fourth license went to Al Nahda Industries for LE83mn for a
project in the Upper Egyptian governorate of Qena. (Source: Dow Jones Newswires)
• To cope with local shortages in wheat, the government should pay farmers more for their
crops, the Higher Committee for Wheat has recommended. The committee recommended
that the General Authority for Food Commodities should buy the wheat from farmers at
not less than LE250 per ardab 2This decision aims at encouraging farmers to expand wheat
cultivation and to match the increase in international wheat prices, which reached a high of
US$353 per ton, in addition to US$100 as transportation fees. (Source: Al Ahram Weekly)
• Alexandria will soon have a new airport and Cairo a new control tower. Egypt's Orascom
Construction Industries (OCI) has won a US$97mn contract with aviation authorities to
expand Alexandria's Borg Al-Arab airport, replacing Al-Nozha airport. The construction
is due to be completed in June 2009. (Source: Al Ahram Weekly)
• The Central Bank of Egypt (CBE) announced that Egypt's foreign reserves have reached
US$31.68bn in December 2007 compared to US$31.5bn in November 2007 and
US$26.04bn in December 2006. (Source: CBE)
• The Minister of Trade and Industry announced that a compound for producing phosphate
fertilizers will be established in Aswan governorate with a total investment cost of LE3.3bn
on a total area of 17 thousand feddans, including quarries for extracting raw materials and
12 phosphate-fertilizer-producing plants with a total annual production capacity reaching
7mn tons. (Source: Al Ahram Newspaper)
• Four Egyptian operating steel companies have been awarded licenses to establish 4 new
steel plants. These companies are Al Ezz Steel Rebars, Suez Steel, Egyptian Sponge Iron
and Steel, and Tiba for Iron and Steel. On the other hand, five foreign companies will
compete for the fifth license through an auction that is expected to be held in January
2008. These companies are Al Tuwairqi Group, Al Ghurair Investments, Arcelor Mittal,
Zoom Developers and Essar Global. (Source: Al Alam Al Youm Newspaper)
• Cairo and Alexandria Stock Exchanges (CASE) extended the 5% up and down price limit
on additional 50 stocks in December 2007, following the extension executed on 45 stocks
in June 2007. Accordingly, about 150 stocks are currently traded with no price limits.
(Source: Al Alam Al Youm Newspaper)
2 1 ardab = 120 kilos

• The Central Bank of Egypt’s monetary policy committee decided to maintain the
overnight deposit and lending rates at 8.75% and 10.75%, respectively. (Source: Al
Ahram Newspaper)
• Standard and Poor's announced that it has maintained Egypt's sovereign credit rating
on the long term at "BB" and "BBB" for foreign and local currencies, respectively,
meanwhile the short term rating stood at "B" and "A-3" for foreign and local currencies,
respectively, with a stable outlook. (Source: Al Ahram Newspaper)
• Banque Misr announced its plan to sell its entire stake in Banque du Caire, equivalent to
100%, through selling a maximum of 67% stake to a financial institution owning a license
for commercial banking. Qualified institutions would submit their letters of intention to
JP Morgan, the financial consultant of Banque Misr, on December 17th, 2007. Following
this sale, an additional 5% stake will be allocated to the Bank's employees, and the
remaining stake will be offered through an initial public offering "IPO" on the Egyptian
stock exchange. (Source: Al Ahram Newspaper)
• In February 2008, ArcelorMittal, an Indian Company, was granted the license to establish
a new steel facility at a total consideration of LE340mn (US$61.2mn). Under the license
agreement, ArcelorMittal will establish two plants, the first for sponge iron production,
with an annual production capacity of 1.6mn tons, while the second for steel billets with an
annual production capacity of 1.4mn tons. The Company announced that the investment
cost of the project will range between US$800mn and US$1bn, and that production is
scheduled to start within 4 years. (Source: Al Ahram Newspaper)
• The Economic Development Minister announced that the GDP growth reached 8.1%
during the second quarter of FY 2007/08 (from October to December 2007), compared to
6.6% reported in the same period the previous FY. He added that the inflation rate during
the same period reached 7.8%, compared to 10% in the same period the previous year.
Meanwhile, the inflation rate rose to 10.5% in January 2008, driven by the increase in
food and beverage prices, mainly the cereals and the edible oil prices, which increased by
26.3% and 31.8%, respectively. (Source: Al Ahram Newspaper)

Macroeconomic Profile
“Reaping the fruits of the economic reform program” could be the title for the next phase
of the Egyptian economy. The principal goal of the current cabinet, which was appointed
in 2004 and headed by Dr. Ahmed Nazif, is to set in motion more economic reforms, thus
transforming the country into a new business hub. This government has succeeded in turning
around many critical issues concerning the Egyptian Economy. The results were significant
during the period from 2004/05 to 2006/07. One of their main achievements was that they
regained trust and credibility from the regional as well as the international investors and
investment institutions.
The main new incentives put forward by the government during the period from 2004/05 to
2006/07 were:
• 50% cut in income and corporate taxes. Likewise, excise taxes and customs duties were
also cut.
• Accelerating the privatization program by means of more liberal practices in asset

valuation and outstanding debts and liabilities.
• Increasing the Foreign Direct Investment (FDI) levels, through paving the way for
investment flow into the country by lessening the old bureaucratic procedures of
investments.
• The Central Bank of Egypt (CBE) has approved the rescheduling of public sector
enterprises debt and has cut the interest rate on their debts to 10%.
• Other developments on the economic front include the introduction of export development
measures.
In 2006/07, the GDP grew by 7.1%, exceeding all expectations about growth. In 2005/06, the
GDP growth was 6.8%, up from 4.5% in the year before. The development in the economy
in recent years is attributed to stronger non-oil export growth, resurging tourism, rising Suez
Canal receipts and better spending power and overall investment climate. The sectors like
manufacturing, extractive industry (which includes petroleum & natural gas), agriculture &
allied sectors, and wholesale & retail trade contribute significantly to GDP.
The sectors which have witnessed maximum growth during 2006/07 include tourism, personal
services, construction and building, education as well as health. The contribution of tourism
sector grew by 30.7% during 2006/07 to reach LE24.6bn. The contribution of tourism sector
to GDP went up from 3.2% in 2005/06 to 3.6% in 2006/07. The tourism sector has grown at
a CAGR of 30.6% during the five-year period from 2001/02 to 2006/07.
The overall fiscal deficit widened in 2006/07 as a result of the increase in interest payments
and wages and salaries. Though the subsidies decreased during the year, the government
is concerned about the transfer of the subsidies to the lower classes of the society. The
cancellation of the energy subsidy for energy intensive industries was a bold move by the
government in 2007. With the rising oil prices, the government's efforts on the economic
front could be hindered by a continuously growing subsidy expenses.

2006/07. Fuel and mineral oil formed the major portion of exports, standing for 46.6% in 2006/
07. This is significantly down from 2005/06, when it formed 56.5% of total exports. During
the year 2006/07, exports of fuel and mineral oil dropped by a 1.6% to reach US$10.3bn. The
current account surplus, which represented 2.1% of GDP, rose by 53.9% to reach US$2.7bn
in 2006/07. As a matter of fact, the current account has been in surplus since 2001/02 on the
back of improving services balance. The overall balance of payments registered a surplus of
US$5.28bn in 2006/07, compared to US$3.25bn in 2005/06, driven mainly by the 53.9% hike
in the current account. The financial account registered a surplus of US$1.13bn in 2006/07,
compared to US$3.51bn in 2005/06.
In the past few years, Central Bank of Egypt (CBE) has introduced a range of more
sophisticated policy instruments and has shifted its policy focus to target inflation. An increase
in inflation in the second half of 2006 prompted the CBE to increase its key intervention rates.
During December 2006, the CBE raised the overnight deposit and lending rates by 25 basis
points to 8.75% and 10.75%, respectively. The inflation came down in later part of 2007,
as the Consumer Price Index (CPI) inflation dropped from 12.8% in March 2007 to 8.4%
in September 2007. Inflation still remains one of the challenges for the government. The
liberalization of the energy prices for industrial uses will definitely exert upward pressure
on prices, which will require close monitoring by the government in order to maintain the
inflation in safe levels.
trend from the last quarter of 2007, according to CAPMAS. The bank said in a statement
that it had acted in response to food price inflation as well as the expectation that food prices
would come under upward pressure over the coming period, pushing up the costs of other
goods and services indirectly though increasing demand for higher wages.
as a location for FDI. Foreign exchange reserves began to rise in 2004/05, as confidence
in the Egyptian Pound strengthened. Bolstered by strong capital inflows, Egypt’s foreign-
Our outlook for Egypt continues to be positive. Growth in sectors like tourism, construction and
real estate are driving fixed capital formation. We expect investment to continue at high rate
in coming months, supported by buoyant business confidence. The efforts of the government
to improve the business environment and privatization of smaller state-owned companies
will keep the investment at a higher level. A number of large-scale infrastructure projects will
also sustain investment, helped by oil-driven liquidity from the Gulf. However, factors like
higher import growth and high inflation might prove to be the dampening factors.

Gross Domestic Product

The Egyptian economy seems to be gaining momentum over the time. The results of the
economic reforms adopted by the government in 2003/04 has been reflected in Egypt’s
nominal GDP growth of 18.4%, reaching LE731bn during the fiscal year 2006/07 3, and
its real GDP growth at 7.1%, up from 6.8% the year before. Between 2001/02 and 2006/07,
the nominal GDP grew at a CAGR of 14.1%, while the real GDP CAGR reached 5.1%. As
per IMF estimates, Egyptian real GDP growth for 2007/08 will be 7%, while the minister of
investments projects growth at closer to 8%. As a matter of fact the buoyant growth in the
economy has come as a result of stronger non-oil export growth, resurging tourism, rising
Suez Canal receipts and better spending power and overall investment climate.
Table 1: Gross Domestic Product

2003/04 2004/05 2005/06 2006/07
Nominal GDP (LE bn) 485.3 538.5 617.7 731.2
Nominal GDP (US$ bn) 78.7 89.7 107.5 127.9
Nominal GDP Growth Rate (%) 16.2% 11.0% 14.7% 18.4%
Real GDP (LE bn)* 407.0 425.2 454.3 486.5
Real GDP Growth Rate (%) 4.1% 4.5% 6.8% 7.1%
Per capita GDP (US$) 1,117 1,247 1,460 1,706
Population (mn)** 70.5 71.9 73.6 75.0
* Value at prices of base year 2001/02
** Preliminary
Source: Central Bank of Egypt, Ministry of Finance
The per capita GDP has increased to US$1,706 in 2006/07, up from US$1,460 in 2005/06.
The per capita GDP has grown at a CAGR of 6.3% over the past five years.
Chart 1: GDP Growth

800 6.8% 7.1% 8%
600 4.5% 6%
4.1%
3.2%
400 4%
200 2%
0 0%
2002/03 2003/04 2004/05 2005/06 2006/07
Nominal GDP (LEbn) Real GDP Growth Rate (%)

The sectors like manufacturing, extractive industry (which includes petroleum & natural
gas), agriculture & allied sectors, and wholesale & retail trade contribute significantly to
GDP. The sectors which have witnessed maximum growth during 2006/07 were tourism,
personal services, construction and building, education as well as health.
The contribution of tourism sector grew by 30.7% during 2006/07 to reach LE24.6bn. The
contribution of tourism sector to GDP went up from 3.2% in 2005/06 to 3.6% in 2006/07.
3 Egypt’s fiscal year begins July and ends in June

The tourism sector has grown at a CAGR of 30.6% during the five-year period from 2001/02
to 2006/07. As for the personal services sector’s growth, it reached 28.4% constituting 1.2%
of GDP in 2006/07 compared to 1.1% a year before.
The contribution of education, though stagnant at 0.6% of total GDP, recorded a growth of
25.2% during 2006/07 to reach LE4.4bn. During the year, the health sector has recorded a
growth of 24.2%, as its contribution to GDP increased from 1.1% in 2005/06 to 1.2% 2006/07.
Table 2: GDP Composition by Economic Activity

2002/03 2003/04 2004/05 2005/06 2006/07
Agriculture, Forestry and Fishing 16.3% 15.2% 14.9% 14.1% 13.8%
Extractive Industry: 10.8% 12.6% 12.6% 15.5% 15.2%
Petroleum 7.0% 7.4% 7.0% 7.0% 6.6%
Natural Gas 3.7% 5.0% 5.4% 8.3% 8.4%
Other 0.2% 0.2% 0.2% 0.2% 0.2%
Manufacturing Industry: 18.5% 18.3% 17.8% 17.0% 16.8%
Petroleum Refinement 0.9% 0.9% 1.0% 1.0% 0.9%
Other 17.6% 17.4% 16.8% 16.0% 15.8%
Electricity 1.6% 1.5% 1.5% 1.5% 1.4%
Water 0.4% 0.4% 0.4% 0.4% 0.4%
Construction and Building 4.3% 4.1% 4.0% 4.1% 4.4%
Transport and Warehousing 4.6% 4.3% 4.3% 4.2% 4.3%
Telecommunications 1.9% 1.9% 2.0% 2.1% 2.1%
Suez Canal 2.9% 3.5% 4.0% 4.0% 4.1%
Wholesale and Retail Trade 11.3% 11.1% 11.1% 10.9% 11.4%
Financial Intermediation 5.7% 5.3% 5.2% 5.0% 4.9%
Insurance and Social Insurance 2.5% 2.3% 2.3% 2.2% 2.1%
Tourism (Hotels and Restaurants) 2.0% 2.8% 3.3% 3.2% 3.6%
Real Estate 3.7% 3.5% 3.5% 3.3% 3.1%
General Government 10.2% 10.1% 10.2% 9.8% 9.4%
Education 0.7% 0.7% 0.6% 0.6% 0.6%
Health 1.3% 1.2% 1.2% 1.1% 1.2%
Personal Services 1.3% 1.2% 1.2% 1.1% 1.2%
Total 100.0% 100.0% 100.0% 100.0% 100.0%
Source: Central Bank of Egypt
Wholesale & Retail Trade and Telecommunication sectors also recorded healthy gains during
the year, growing by 22.3% and 20.9%, respectively during 2006/07. Share of wholesale
& retail trade sector in GDP has increased from 10.9% in 2005/06 to 11.4% in 2006/07,
whereas that of telecommunication industry has slightly improved from 2.06% to 2.12%.
The Natural Gas sector continues to perform strongly, as it grew by 19.5% in 2006/07 and its
contribution to GDP rose from 8.3% to 8.4% between the comparable periods. It is worthy
to mention that the natural gas sector has grown at a CAGR of 40.9% during the five-year
period from 2001/02 to 2006/07.
Share of the agriculture and allied sectors in GDP has declined from 14.1% in 2005/06 to
13.8% in 2006/07, although it grew by 15.9% during the year. Similarly contributions of
extractive industry sector and manufacturing industry have also declined during the year.
Share of extractive industry sector in GDP has declined from 15.5% in 2005/06 to 15.2% in
2006/07. Also, the share of manufacturing industry in GDP declined from 17.0% in 2005/06
to 16.8% in 2006/07. Despite its growth by 16.4% in 2006/07, the share of manufacturing
industry in GDP has been falling over the last few years.

Table 3: GDP Composition by Expenditure Activity

In LE bn 2002/03 2003/04 2004/05 2005/06 2006/07
Final Consumption 357.8 409.7 453.9 512.0 599.9
Household Consumption 304.9 347.8 385.3 436.1 515.5
Public Consumption 52.9 61.9 68.6 75.9 84.4
Investment 70.5 82.2 96.8 115.7 155.3
Fixed Capital Formation 68.1 79.6 96.5 115.7 155.3
Change in Inventory 2.4 2.6 0.3 0.0 0.0
Net Exports -10.8 -6.6 -12.2 -10.0 -24.0
Exports of Goods and Services 91.0 137.0 163.4 185.0 230.6
Imports of Goods and Services 101.8 143.6 175.6 195.0 254.6
GDP 417.5 485.3 538.5 617.7 731.2
While considering GDP by expenditure activity, investment has gone up by 34.2% during
the year 2006/07. In fact, the investment has grown at a CAGR of 17.9% during the five-year
period from 2001/02 to 2006/07. Consumption demand is also growing steadily over the
years. Final consumption has gone up from LE512.0bn in 2005/06 to LE599.9bn in 2006/
07, thereby posting a growth of 17.2% during the year. Household consumption grew by
18.2% during the year, whereas the public consumption growth reached 11.2%. Actually,
the economic expansion has mainly been driven by robust domestic demand growth, which
has resulted in strong development in investment. Investment has also received a boost, due
to ongoing expansion in the manufacturing and extraction sectors. In turn, strong growth in
investment has resulted in increased imports of capital goods. Like in the previous years, net
exports continued to have a negative impact on GDP growth in 2006/07. During the period
of 2001/02 to 2006/07, exports have grown at a CAGR of 27.1%. During the same period,
imports have grown at a CAGR of 24.3%. During the year 2006/07, exports and imports
grew by 24.6% and 30.6% respectively.
The government has been focusing the benefits to be enjoyed by the poorer section of
the society in the current five-year National Development Plan, which runs from July 1st
2007. This is aimed at bridging the income gap between the rich and the poor. As per the
Finance Minister, Egypt’s sixth five-year plan will focus on human development and the
reduction of inequality. As per the Economic Development Minister, the plan includes total
investments worth almost LE1.3tn including LE180bn in the current fiscal year. The target
for the government is to raise the annual average rate of economic growth to 8% and to lift
average annual income per head by 35%, to LE13,000, over the five-year period. The plan
also envisages the creation of 3.8mn jobs, cutting unemployment from the current level of
around 9% to 5.5% by 2011/12, the reduction of inflation to 6%, the improvement of social
services and the development of infrastructure.
Our outlook for Egypt continues to be positive. Growth in sectors like tourism, construction and
real estate are driving fixed capital formation. We expect investment to continue at high rate
in coming months, supported by buoyant business confidence. The efforts of the government
to improve the business environment and privatization of smaller state-owned companies
will keep the investment at a higher level. A number of large-scale infrastructure projects will
also sustain investment, helped by oil-driven liquidity from the Gulf. However, factors like
higher import growth and high inflation might prove to be the dampening factors.

Public Finance
In 2006/07, the government’s total revenues and grants surpassed the budgeted figure by
9.9% to reach LE180.2bn. The 2007/08 budget estimates a 14.2% increase over 2006/07
budget figure for the government’s revenues and 3.9% increase over 2006/07 actual figure,
to reach LE187.2bn. The increase comes primarily from Tax Revenues, which is projected to
increase over last year’s budget and actual figures by 14.4% and 5.7%, respectively.
Table 4: Government Finances (Budget Sector)

In LE mn 2002/03 2003/04 2004/05 2005/06 2006/07 2006/07 2007/08
Actual Actual Actual Actual Budget Actual Budget
Total Revenues and Grants 89,146 101,881 110,865 151,266 163,907 180,215 187,239
Tax Revenues 55,736 67,147 75,760 97,779 105,645 114,326 120,824
Grants 3,290 5,051 2,853 2,379 3,482 3,886 3,166
Other Revenues 30,120 29,683 32,252 51,108 54,780 62,003 63,249
Total Expenditures 127,320 145,987 161,610 207,811 217,275 222,030 244,061
Wages and Salaries 33,816 37,266 41,546 46,719 51,430 52,153 60,344
Purchases of Goods and Services 8,480 9,340 12,612 14,428 15,477 17,028 16,944
Interest Payments 25,851 30,704 32,780 36,815 50,748 47,700 51,979
Subsidies, Grants and Social benefits 20,612 24,746 29,705 68,897 58,444 58,442 64,280
Other Expenditures 18,310 21,080 21,692 19,740 20,936 21,209 22,864
Purchases of Non-Financial assets 20,251 22,851 23,275 21,212 20,240 25,498 27,650
Cash Surplus/(Deficit) (38,174) (44,106) (50,745) (56,545) (53,368) (41,815) (56,822)
Less: Net Acquisition of Financial assets 5,385 1,770 897 (6,159) 8,870 12,883 1,947
Overall Fiscal Surplus/(Deficit) (43,559) (45,876) (51,642) (50,386) (62,238) (54,698) (58,769)
The government spending is projected to rise too, by 9.9% compared to 2006/07 actual, as
a result of the increase in the Wages and Salaries figure that is estimated to reach LE60.3bn
as opposed to LE51.4bn in the previous budget and LE52.2bn actually reported in 2006/07,
implying 17.3% and 15.7% of respective growth. Though the government was successful in
reducing the Subsidies, Grants and Social Benefits between 2005/06 and 2006/07 by 15.2%,
it has budgeted them to grow by 10% in 2007/08 reaching LE 64.3bn.
It is worthy to mention that the total fiscal deficit as percent of GDP improved between 2005/
06 and 2006/07, declining from 8.2% to 7.5%. While before adjusting for net acquisition of
financial assets, the actual cash deficit was LE41.8bn representing 5.7% of GDP compared to
LE56.5bn that is 9.2% of GDP.

Table 5: Breakdown of Government Revenues

In LE mn 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08
Actual Actual Actual Actual Actual Budget
Tax Revenues 55,736 67,147 75,760 97,779 114,327 120,825
Income Tax 20,842 27,280 31,572 48,268 58,535 56,138
On Individual Income 6,719 8,160 9,315 9,381 9,720 13,426
On Corporate 14,123 19,120 22,257 38,887 48,815 42,712
Property Taxes 785 785 1,034 1,214 1,788 1,494
Taxes on Goods and Services 23,131 26,551 31,431 34,699 39,436 45,726
Sales Tax 12,804 15,778 18,725 20,970 24,093 28,367
Taxes on Production 5,497 5,224 6,002 6,487 6,479 7,373
Taxes on Special Services 3,152 3,485 4,131 4,680 4,363 6,543
Taxes on Licensing 1,678 2,064 2,573 2,562 4,228 3,443
Taxes on International Trade 8,233 9,234 7,744 9,654 10,370 13,284
Other Taxes 2,745 3,297 3,979 3,944 4,198 4,183
Grants 3,290 5,051 2,854 2,379 3,887 3,166
From Foreign Governments 2,353 4,382 2,114 1,754 3,398 2,625
From International Organizations 505 0 0 362 289 79
Other 432 669 740 263 200 462
Other Revenues 30,120 29,683 32,251 51,108 62,003 63,248
Returns on Financial Assets 13,741 14,823 17,758 36,373 45,110 45,049
Proceeds from Sales of Goods & Services 6,357 7,755 7,197 7,891 9,776 8,894
Other 10,022 7,105 7,296 6,844 7,117 9,305
Total Revenues and Grants 89,146 101,881 110,865 151,266 180,217 187,239
On the revenues side, the Tax revenues still constitutes the highest component representing
63.4% of the total revenues and grants in 2006/07 and is projected to rise to 64.5% in 2007/
08. Tax revenues are estimated to grow by 5.7% to reach LE120.8bn in 2007/08 as compared
to 2006/07 actual figure. The greater part of the increase is expected from the rise in taxes
on goods and services, which is budgeted to grow at close to 16% during 2007/08, over the
previous year. Revenues from income tax are budgeted to decrease by 4.1% during 2007/
08.
The government’s tax reforms, which came into effect in 2005/06, have resulted in significant
improvements in compliance, thanks to simplified rules and procedures and a reduction in
income tax rates. The overall tax revenues are expected to grow in 2007/08 on account of
expected strong growth in the economy.
The other revenues, after growing by 21.3% between 2005/06 and 2006/07, are budgeted
to rise by 2% in 2007/08. As for the grants, which represent 2.2% of the government’s total
revenues, are budgeted to drop by 18.5% in 2007/08, despite their growth by 63.3% between
2005/06 and 2006/07.

Table 6: Breakdown of Government Expenditures

In LE mn 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08
Actual Actual Actual Actual Actual Budget
Wages and Salaries 33,816 37,266 41,546 46,719 52,153 60,344
Wages 26,588 29,584 32,673 37,676 42,399 45,120
Social Insurance contributions by Govt. 3,808 4,141 4,560 5,094 5,518 6,538
Other 3,420 3,541 4,313 3,949 4,236 8,686
Purchases of Goods and Services 8,480 9,340 12,612 14,429 17,027 16,944
Goods 4,141 4,620 7,416 5,773 6,538 7,326
Services 4,192 4,330 4,874 6,030 6,984 6,769
Other 147 390 322 2,626 3,505 2,849
Interest Payments 25,851 30,704 32,780 36,815 47,699 51,979
Foreign 2,354 2,961 3,002 2,823 3,033 3,893
Domestic (to Non-Govt. Individuals) 14,100 17,201 19,782 24,577 27,975 31,119
Domestic (to Government units) 9,397 10,542 10,001 9,244 16,526 16,753
Other 0 0 (5) 171 165 214
Subsidies, Grants and Social Benefits 20,613 24,746 29,705 68,897 58,442 64,280
Subsidies 6,937 10,347 13,765 54,245 53,959 55,703
Grants 2,160 1,527 1,846 2,174 2,599 3,376
Social Benefits 11,516 12,867 14,092 12,336 1,612 3,551
Other 0 5 2 142 272 1,650
Other Expenditures 18,309 21,080 21,692 19,739 21,208 22,864
Purchases of Non-Financial Assets 20,251 22,851 23,275 21,212 25,498 27,650
Fixed Assets 18,758 20,368 19,930 17,608 20,928 23,926
Natural Assets 421 308 210 189 155 343
Other 1,072 2,175 3,135 3,415 4,415 3,381
Total Expenditure 127,320 145,987 161,610 207,811 222,027 244,061
Between 2005/06 and 2006/07, the government’s total expenditure rose by 6.8% to
reach LE222.0bn. This figure is estimated to increase by approximately 10% in 2007/08.
Representing 26.3% of the total expenditure, the subsidies, grants and social benefits dropped
by 15.2% to reach LE58.4bn in 2006/07. During the year 2006/07, the government has done
an excellent job controlling the expenditure on subsidies, grants and social benefits. The
social benefits reported the highest drop of 87%, reaching LE1.6bn compared LE12.3bn in
2005/06.
The actual expenditure on subsidies, grants and social benefits during 2006/07 at LE58.4bn
matched the budgeted figure. The subsidies, grants and social benefits are budgeted to rise by
10.0%, to reach LE64.3bn in 2007/08.
In view of high oil prices prevailing in international markets, the actual expenditure on subsidies
during 2007/08 might be more than the budgeted figure. Additionally, the government has
promised that all industrial projects would be guaranteed fixed energy prices for the next five
years. This might make things difficult for the government in controlling expenditure.
The share of wages and salaries in total expenditure, which was 23.5% in 2006/07, is projected
to increase by 17.3% to LE60.3bn in 2007/08. This is due to public-sector salary increases,
promised by the government since 2005. During May 2007, the cabinet approved a decree
to raise civil servants’ basic salaries by 10% across the board, with effect from July 1st. It
also increased civil and military pensions by 10%, up to a maximum of an additional LE60 a

month. Purchases of non-financial assets are budgeted to rise by 36.6% during 2007/08 over
previous year’s budget.
We expect the government revenue to grow strongly in 2007/08, on the back of higher than
expected tax receipts. The government continues to take new steps to improve tax revenue.
According to reports, the government plans to table its draft value-added tax (VAT) law in
the course of the next parliamentary session. This new tax would apply to almost all goods
and services, in contrast to the existing sales tax. The government is expected to introduce
a single, across-the-board tax rate - the average of which is expected to be lower than the
current weighted average rate of sales tax. The new law is expected to increase the minimum
sales threshold at which companies would be required to register for VAT.
However the challenge for the government will be to control expenditure, which is expected
to remain high due to increase in capital expenditure and high inflation and energy prices.
These will hinder the government’s attempt to reduce expenditure on subsidies. Increase in
public-sector wages is another factor the government will have to deal with. Spending will
also be high on account of high interest payments on the public domestic debt. The interest
payment during 2006/07 was in fact 29.6% higher than the previous year. We expect the
overall fiscal deficit to widen in 2007/08 due to higher growth in expenditure.

Public Debt
After growing at a faster rate over the previous few years, the public debt portfolio of Egypt
has remained almost at the same level in the past two years. The gross domestic public debt
increased by 5.0% during the period June 06 to June 07, to reach LE493.9bn. During the
same period, gross external debt grew by 0.6% to reach LE170.9bn. During the period from
June 02 to June 07, gross domestic public debt have grown at a higher CAGR of 12.8%
compared to CAGR of 5.7% for gross external debt.
Table 7: Public Debt (End of Period)

In LE mn Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07
Gross Domestic Public Debt 269,988 323,197 388,377 469,039 470,264 493,879
Gross External Debt 129,584 177,438 185,385 167,474 169,868 170,865
The main component of domestic public debt is treasury bills and bonds. The other components
of domestic public debt are borrowings from National Investment Bank (NIB), bank loans,
revaluation bonds and bank restructuring bonds. Egypt’s external debt consists of bilateral
loans and loans from international and regional organizations. As of June 2007, bilateral
loans share in total external debt was close to 64%, as opposed to 66% in June 2006.
Chart 2: Public Debt as % of Nominal GDP

100%
87.1%
77.4% 80.0% 76.1%
80% 71.3%
67.5%
60%
42.5%
38.2%
40% 34.2% 31.1%
27.5%
23.4%
20%
0%
Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07
Gross Domestic Public Debt/GDP Gross External Debt/GDP

Gross domestic public debt as a percentage of GDP has come down over the past two years.
It has come down from 87.1% in June 05 to 76.1% in June 06 and further to 67.5% in June
07. However, the government should try to bring down the absolute level of domestic debt as
it is contributing to higher interest payments. Similarly, gross external debt as a percentage
of GDP has come down from 42.5% in June 03 to 23.4% in June 07. Due to government’s
careful attitude towards foreign debt, the deficits are expected to be financed mainly by local
borrowing.
The debt-service ratios have also improved during 2006/07. During the period July 06 to June
07, the total interest payments as a percentage of GDP was 6.5%, up from 6.0% in 2005/06.
The total principal payments as a percentage of GDP were 1.0% during 2006/07, down from
3.7% in the full fiscal year 2005/06.

The government has begun to develop the domestic bond market by offering a ten-year
LE5bn benchmark bond to overseas investors. Fitch Ratings has upgraded Egypt’s foreign-
currency rating of BB+ to “positive” from “stable”, due to positive external debt management
by the government. Fitch Ratings cited the country’s ongoing economic reforms and fall in
the budget deficit and the debt ratio as factors bolstering its creditworthiness.

External Trade
Exports
2006/07.
Chart 3: Composition of Merchandise Exports for 2006/07*

Others
6.9% Fuels, Mineral
Oil & Products
46.6%
Finished
goods
34.2%
Semi-finished
Goods 9.0% Raw Cotton
Materials 0.5%
2.8%
* Preliminary
Fuel and mineral oil formed the major portion of exports, standing for 46.6% in 2006/07.
This is significantly down from 2005/06, when it formed 56.5% of total exports. During the
year 2006/07, exports of fuel and mineral oil dropped by a 1.6% to reach US$10.3bn.
Finished goods constituted 34.2% of total exports in 2006/07. Though the exports of finished
goods declined by 3.3% in 2005/06, it surged by 45.4% in 2006/07. Most of the segments in
finished goods saw a hike in 2006/07, which includes articles of iron and steel, preserved &
dried vegetables, pharmaceuticals, cotton textiles and fertilizers etc.
The overall increase in exports in recent years signifies the long-term improvement in
Egyptian export capacity on the back of an expanding manufacturing base, favorable terms
of trade and buoyant global demand.
Though exports to the European Union still form the bulk of the Egyptian exports, the
exports to the US and to the Arab countries has witnessed considerable growth of 21.4%
and 28.4%, respectively, between 2005/06 and 2006/07. Exports to the EU formed 33.8%
of the total 2006/07 exports, while the US share was 31.1% and the Arab countries 12.4%.
Egypt’s geographical location as well as its diversity of resources has played a crucial role
in positioning the country as a favorable exporting hub, especially to the EU countries. Also,
the Qualified Industrial Zones (QIZ) protocol, which Egypt signed in 2004, has helped boost
its exports, as the protocol gives Egyptian products duty- and quota-free access to the US
market

Chart 4: Exports by Region (2006/07*)

Africa Australia
(excl. arab 0.3%
countries)
Others 0.2%
1.5%
Asia EU 33.8%
(excl. arab
countries)
13.5%
Arab countries
12.4%
Europe (excl. EU)

4.8%
Russia & CIS
0.7%
USA 31.1%
* Preliminary
Countries like India are increasing their investments in Egypt. ONGC Videsh Limited (OVL),
a subsidiary of India’s state-owned Oil and Natural Gas Corporation, has acquired a 33%
stake in a deep-water gas field located off the north coast of Egypt. The project is operated by
Royal Dutch Shell. OVL will pay Shell US$160mn for its share of the exploration cost, plus
development bonuses. The gas will be exported to India when production starts by 2012.
The government of Egypt is planning to set up its largest specialized industrial zone at Burg
el-Arab on the Mediterranean Coast west of Alexandria. The government hopes it will attract
around US$2.8bn of investment from a range of manufacturing industries, including textiles,
food processing, petrochemicals and engineering. This project is expected to create around
133,000 jobs over ten years and forms a major part of the government’s aim to turn Egypt
into a regional export center, with over half of the zone’s production likely to be destined for
export.
Turkey, which signed a free trade agreement with Egypt in 2005, has signed in January 2008
an agreement with the government of Egypt for the establishment of the first Industrial Park in
the country. The park, which investments amounts to US$1.5bn, will be on a 2mn m² surface
in the 6th of October City, and will comprise Turkish manufacturers working in various
sectors, of which are textile and ready made garments, furniture, automotive, glass, and food
processing. As a matter of fact, Egypt became a favorable investment destination for the
Turkish investors as the Egyptian labor is one-fifth the cost of that in Turkey, natural gas is
one-eighth the cost and electricity is one-third the price. Moreover, the Turkish manufacturers
can take advantage from Egypt’s bilateral and multilateral trade agreements, which give their
outputs preferential access to a number of important markets, the EU markets, which give
special advantage for Egyptian products to enter these markets without customs, as well as
the US markets through the Qualified Industrial Zones (QIZ) Agreement.
Imports
During 2006/07, the imports reached US$37.8bn, an increase of 24.3% over the previous year.
Consumer goods (durable and non-durable) representing 14.0% of total imports, increased
by 49.6% to reach LE5.3bn in 2006/07. As for intermediate goods and investment goods,
they both witnessed growth of 25.1% and 24.8%, respectively.

Chart 5: Composition of Merchandise Imports (US$ millions)

12,000
10,000
8,000
6,000
4,000
2,00
-
2002/03 2003/04 2004/05 2005/06 2006/07*
Fuels, Mineral Oil & Products Raw Materials

Intermediate Goods Investment Goods
Consumer Durable Foods Consumer Non-Durable Goods
Others
* Preliminary
The major portion of imports in 2006/07 was the intermediate goods, mainly iron and steel
and chemical products, forming 27.6% of total imports. The investment goods, which grew
by 24.8% this year, represented 26.0% of the total country’s imports to reach US$9.85bn.
Wheat imports, which stands for 18.5% of the total raw materials imports, surged by 17.9%
reaching US$1.05bn in 2006/07. It is worth to mention that wheat forms a considerable
portion of the Egyptian diet.
The EU, though the main exports destination for Egypt, is also the primary source of imports
representing 34.4% of the country’s imports. The US and the Asian countries follow, with
shares of 21.8% and 15.9%, respectively.
Chart 6: Imports by Region (2006/07*)

Others
Australia 8.0%
0.3%
EU
Asia (excl.Arab 34.4%
countries)
15.9%
Arab countries
8.6%
USA Europe (excl.EU)

21.8% 8.5%
Russia & CIS
1.8%
* Preliminary

Current Account
In 2006/07, the current account surplus, which represented 2.1% of GDP, rose by 53.9% to
reach US$2.7bn. The 39.8% increase in services together with the 27.3% rise in transfers
more than made up for the 32.0% growth in the country’s trade deficit, which in turn led to
the surplus in the current account. As a matter of fact, the current account has been positive
since 2001/02 on the back of an improving services balance.
The country’s trade deficit reported for 2006/07 was US$15.8bn, a 32.0% increase over the
previous year. The merchandise import grew strongly during 2006/07, on account of strong
domestic demand drawing in more consumer and capital goods, including industrial supplies
and transport equipment.
Table 8: Current Account

In US$ mn 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07*
1. Trade Balance (7,517) (6,615) (7,834) (10,359) (11,986) (15,817)
Export Proceeds 7,121 8,205 10,453 13,833 18,455 22,018
Petroleum 2,381 3,161 3,910 5,299 10,222 10,108
Non Oil Exports 4,740 5,045 6,542 8,534 8,233 11,910
Import Payments (14,637) (14,820) (18,286) (24,193) (30,441) (37,834)
Petroleum (2,477) (2,313) (2,550) (3,975) (5,359) (4,128)
Non Oil Imports (12,161) (12,507) (15,737) (20,218) (25,082) (33,706)
2. Services (net) 3,878 4,949 7,318 7,842 8,191 11,451
Receipts 9,618 10,441 12,981 15,030 17,438 20,408
Transportation 2,715 2,965 3,755 4,260 4,947 6,371
of which : Suez Canal 1,820 2,236 2,848 3,307 3,559 4,170
Travel 3,423 3,796 5,475 6,430 7,235 8,012
Investment Income 938 641 485 911 2,002 3,045
Government Services 188 253 179 157 358 254
Other Receipts 2,354 2,786 3,086 3,272 2,896 2,727
Payments 5,740 5,493 5,663 7,187 9,247 8,957
Transportation 420 393 668 902 1,215 1,273
Travel 1,208 1,372 1,315 1,438 1,620 1,918
Investment Income 842 749 692 1,164 1,471 1,857
of which : Interest Paid 689 626 586 584 587 597
Government Expenditures 660 455 489 657 1,320 1,196
Other Payments 2,609 2,524 2,499 3,026 3,621 2,714
A. Goods & Services (Net) (1+2) (3,638) (1,666) (516) (2,517) (3,795) (4,366)
B. Transfers (Net) 4,252 3,609 3,934 5,428 5,547 7,061
Official (net) 1,144 664 888 1,056 572 800
Private (net) 3,109 2,946 3,046 4,372 4,975 6,261
Current Account (A+B) 614 1,943 3,418 2,911 1,752 2,696
*Preliminary
The 39.8% growth in services account in 2006/07 is mainly attributed to the rise in both the
investment income as well as the receipts from transportation. Investment income increased
by 52.1% to US$3.0bn in 2006/07, whereas receipts from transportation increased by 28.8%
to US$6.4bn.
Tourism receipts, which contribute close to 39.3% of total service receipts, rose by 10.7% in
2006/07. Tourism is all set to increase in the coming years, as the government is hoping to
attract 14mn tourists and generate US$10.5bn in tourism revenue by 2010/11, up from 9.8mn

tourists and US$8.0bn in revenue in 2006/07. The government continues to work hard to
attract more tourists by upgrading and expanding the accommodation on offer, as well as by
devising more effective marketing campaigns aimed at European and Gulf travelers.
Chart 7: Suez Canal Traffic

1,000 5
4.17
800 3.56 4
3.31
2.85
600 3
2.24
1.82
400 2
200 1
- -
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07*
Net Tonnage (million tons) Receipts (US$ bn)
*Preliminary
Source: Ministry of Finance
Receipts from Suez Canal increased by 17.2% to reach US$4.2bn in 2006/07. Suez Canal
receipts rose robustly, mainly because of higher transit fees and increased volume of traffic,
as strong global trade growth boosted the transit freight trade between Europe and Asia.
Capital & Financial Account and Balance of Payment

The overall balance of payments registered a surplus of US$5.28bn in 2006/07, compared to
US$3.25bn in 2005/06, driven mainly by the 53.9% hike in the current account. The financial
account registered a surplus of US$1.13bn in 2006/07, compared to US$3.51bn in 2005/06.
This 67% decrease was mainly due to a sharp rise in direct investments in Egypt.
Table 9: Balance of Payment

In US$ mn 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07*
Current Account 614 1,943 3,418 2,911 1,752 2,696
Capital & Financial Account (964) (2,734) (5,016) 3,378 3,511 1,134
Capital Account - - - - (38) (39)
Financial Account (964) (2,734) (5,016) 3,378 3,549 1,173
Direct Investment Abroad (15) (30) (156) (39) (145) (536)
Direct Investment in Egypt (net) 428 701 407 3,902 6,111 11,053
Portfolio Investments Abroad (3) (16) 113 541 (729) (558)
Portfolio Investments In Egypt (net) 999 (405) (226) 831 2,764 (937)
of which: Bonds 954 (218) (148) 26 2,690 (551)
Net errors & omissions (107) 1,337 1,440 (1,811) (2,010) 1,453
Overall Balance (456) 546 (158) 4,478 3,253 5,282
*Preliminary
There was a net surplus in capital and financing account in 2006/07. The net direct investments
in Egypt reached US$11.05bn, which was 81% higher than the figure reported for 2005/06. The
current surge in investments in Egypt can be attributed to the economic reform program which
boosted the privatization along with creating a better investment climate in the country.

Foreign Direct Investment

as a location for FDI.
Chart 8: Foreign Direct Investment (in US$ mn)

5,000
4,000
3,000
2,000
1,000
-
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07*
USA EU Arab Countries Others

*Preliminary
Since the adoption of the economic reform program in 2004/05, the US accounted for
the largest share of FDI inflows to Egypt. While the US share of FDI inflows in 2006/07
reached 36%, the EU countries aggregate share was 31%. The UK, Italy, the Netherlands and
Germany were the main European investors during 2006/07. The Arab countries have started
to increase their investments in Egypt in recent years, to reach 26% of the total FDI inflows
in 2006/07 compared to 6% share in 2005/06. Among the Arab countries, the UAE, Saudi
Arabia, Kuwait and Libya were the main investors in Egypt during 2006/07.
Egypt’s position, as a favored FDI destination, was strengthened further in July 2007, when
Egypt became the first country in the Middle East and North Africa (MENA) region to sign
the OECD’s Declaration on International and Multinational Enterprises. The adherents to
the Declaration commit to providing national treatment to foreign investors and promoting
responsible international business conduct. During this process, Egypt undertook a thorough
review by OECD members of its international investment policies using the Policy Framework
for Investment. One of the main findings of the review is that international investors responded
quickly to the government’s policy reform efforts. Foreign direct investment (FDI) into Egypt
tripled in just three years, diversifying away from the petroleum sector and bringing much-
needed investment to a broad range of manufacturing and service industries.

Table 10: Sectoral Distribution of Net FDI Inflows (US$ mn)

2004/05 2005/06 2006/07
New establishments and expansions 925.5 3,347.8 5,200.0
Sale of assets to non-residents 419.5 905.7 2,800.0
Real estate 16.5 25.7 39.0
Net inflows in the petroleum sector 2,540.3 1,832.2 3,014.2
Net FDI inflows 3,901.8 6,111.4 11,053.2
Source: Ministry of Investment
As per the World Bank report ‘Doing Business 2008’, Egypt was the top reformer for
2006/07, improving in 5 of the 10 areas studied undertaken. The report presents quantitative
indicators on business regulations and the protection of property rights that can be compared
across 178 economies. According to the report, Egypt’s reforms went deep as it made starting
a business easier, slashing the minimum capital requirement from LE50,000 to LE1,000
and halving start-up time and cost. Fees for registering property were reduced from 3% of
the property value to a low fixed fee of LE 2,000. With more properties registered and less
evasion, revenue from title registrations jumped by 39% in the 6 months after the reform.
New one-stop shops were launched for traders at the ports, cutting the time to import by 7
days and the time to export by 5. The first private credit bureau was established and builders
now face less bureaucracy in getting construction permits. The report has further enhanced
the image of Egypt as an investment destination.
Chart 9: Net FDI Inflows distributed by sector

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2004/05 2005/06 2006/07
New establishments & expansions Sale of assets to non-residents
Real estate Net inflow in the petroleum sector
However, there are many challenges still lie ahead for the government. These include
ongoing efforts to phase out unnecessary sectoral restrictions on investment, maintaining the
momentum for broadening the privatization program and encouraging entrepreneurship by
promoting transparency, accountability and competition. We believe foreign investment will
improve under the regime of present government, as it is committed to economic liberalization
and privatization.

Privatization
The Egyptian government, devoted to the privatization program, has succeeded in privatizing
53 companies and properties with a total consideration of LE13.6bn during 2006/07. The
creation of business oriented environment has helped the government of Egypt in the
continuity of its privatization scheme.
Chart 10: Privatization

20,000 66 75
14,612 53 60
15,000
13,607 45
10,000 28
30
19 5,643
5,000 13
10 15
7
381 952 543
- 113
0
200/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07*
Total Value (LEmn) Total Number of Transactions

*Preliminary
Source: Central Bank of Egypt, Ministry of Investment
The Ministry of Finance receives part of the privatization proceeds to pay down the domestic
debt. Another part goes to the Restructuring Fund, which is oriented towards streamlining
the remaining public sector companies, as well as financing the early retirement schemes.
Also, the public enterprises debts to state owned banks are repaid through the aforementioned
fund.
We expect the government to continue its privatization program on the back of its realization
of the significance of lowering the government expenditure and raising the production
efficiency.
During July 2007, the Egyptian government announced plans to privatize Banque du Caire,
the third-largest state-owned bank. Potential strategic investors will be asked to bid for a 67%
stake in early 2008. Another 28% of shares will be sold in an initial public offering (IPO), and
the final 5% will be made available to the bank’s 6,000 employees.

Monetary Policy
Over the past few years, Central Bank of Egypt (CBE) has introduced a range of more
sophisticated policy instruments and has shifted its policy focus to targeting inflation. A
Monetary Policy Committee (MPC) has been formed to prepare for the move to inflation
targeting. The MPC meets every six weeks to set interest rates, and the schedule of the
meetings is made public to improve transparency and predictability.
An increase in inflation in the second half of 2006 prompted the CBE to increase its key
intervention rates. During December 2006, the CBE raised the overnight deposit and lending
rates by 25 basis points to 8.75% and 10.75%, respectively.
Chart 11: Movement in Interest rates

15%
13%
11%
9%
7%
5%
200/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
CBE Discount Rate* Lending Rate (less than one yr loans)

3-months Deposit Rate 3months T-bills
* End of period rates, while others are weighted average rates
The average lending rate has declined marginally to 12.64% in 2006/07, down from 12.71%
in 2005/06. The average 3-months deposit rate was 6.01% in 2006/07, down from 6.53% in
2005/06. Similarly average 3-months deposit rate was 8.65% in 2006/07, down from 8.82%
in 2005/06.
In its meeting held on November 1, 2007, MPC decided to maintain the overnight deposit
and lending rates at 8.75 percent and 10.75 percent, respectively. According to MPC, CPI
inched-up to 8.80% in September 07 compared to 8.45% in August 07, which was mainly
driven by the rise in domestic food prices, on the back of accelerating international prices,
particularly wheat, maize, and edible oil. The propagation of the recent inflationary shocks to
other non-food prices and the inflationary demand pressures from higher economic growth
exerts upward pressure on inflation. Over the medium-term, this has the potential to drive
inflation above the upper level of the CBE’s comfort zone.
trend from the last quarter of 2007, according to CAPMAS. The bank said in a statement
that it had acted in response to food price inflation as well as the expectation that food prices
would come under upward pressure over the coming period, pushing up the costs of other
goods and services indirectly though increasing demand for higher wages.

Table 11: Money Supply (End of Period Stocks)

In LE mn Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07
Total Domestic Liquidity (M2) 328,728 384,262 434,911 493,884 560,356 662,688
Money Supply - M1 59,805 67,212 77,606 89,685 109,274 131,290
Currency in Circulation 42,299 48,258 55,933 63,029 74,239 86,860
Demand Deposits in Local Currency 17,506 18,954 21,673 26,656 35,035 44,430
Quasi Money 268,923 317,050 357,305 404,199 451,082 531,398
Local Currency Time and Savings Deposit 192,718 212,010 233,610 283,020 314,188 377,424
Foreign Currency Demand Deposits 8,267 12,159 16,280 18,140 18,534 26,917
Foreign Currency Time and Savings Deposit 67,938 92,881 107,415 103,039 118,360 127,057
Counterpart Assets 328,728 384,262 434,911 493,884 560,356 662,688

Net Domestic Assets 311,443 358,833 389,670 412,971 426,961 444,059
Net Claims on Government and GASC 95,423 103,518 126,343 159,889 184,131 178,324
Claims on Public Business Sector 31,143 34,987 35,588 37,421 32,888 24,446
Claims on Private Sector 233,524 248,941 260,109 269,461 292,513 328,544
Others, Net (48,647) (28,613) (32,370) (53,800) (82,561) (87,255)
Net Foreign Assets 17,285 25,429 45,241 80,913 133,385 218,629
Central Bank 9,816 12,343 9,858 37,294 61,306 95,372
Banks 7,469 13,086 35,383 43,619 72,084 123,257
During 2006/07, the 20.1% rise in narrow money supply (M1) has directly contributed in the
increase in total domestic liquidity (M2) by 18.3% to attain LE662.7bn. The demand deposits
increased by 26.8% to reach LE LE44.4bn. As for the Quasi Money, it has risen by 17.8% as
a result of the 45.2% surge in foreign currency demand deposits. On the Counterpart Assets
side, the net claims on the government declined during 2006/07, while net foreign assets
reached LE218.6bn, a 63.9% increase over June 2006 level. The money supply figures show
growth in both narrow and broad money indicating robust economic activity and substantial
upward pressures on inflation.
CBE is aiming to move to a formal inflation-targeting regime with the assistance of the IMF.
The CBE will also continue to upgrade its own internal capabilities, increase the transparency
of its decision-making, improve the quality of official statistics, notably concerning inflation,
and expand the range of policy instruments, by enhancing the maturity structure of interest
rates for example. Considering the fact that inflationary pressures are expected to remain
strong in the medium term, on the back of buoyant economic growth, we believe the CBE
will have to raise interest rates in the coming months.

Foreign Exchange Reserve

Foreign exchange reserves began to rise in 2004/05, as confidence in the Egyptian Pound
strengthened and the authorities started to purchase foreign currency to prevent a strong
appreciation of the local currency. Bolstered by strong capital inflows, Egypt’s foreign-
This followed the 18.8% growth rate achieved in 2005/06. In December 2007, the country’s
foreign reserves grew to attain US$31.7bn. The foreign currencies formed a major portion
that is 95.8% of total NIR. Gold, SDR and IMF Reserve form rest of NIR, contributing 3.7%,
0.4% and 0.1%, respectively.
Chart 12: Net International Reserve of CBE (in mn US$)

35,000
31,681
28,559
30,000
25,000
22,931
19,302
20,000
14,809 14,781
14,147
15,000
10,000
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 Dec-07
According to the latest five-year National Development Plan, which took effect on July 1st
2007, the government is aiming to boost the foreign-exchange reserve position to US$42bn
over the next five years.
Exchange Rate
Due to sustained foreign-currency inflows and improvements in the policy framework, the
Egyptian Pound has appreciated from 2005 onwards. The average exchange rate for 2005
was LE5.79: US$1 and further improved to LE5.74: US$1 in 2006. The exchange rate stood
at LE5.51: US$1 at end-November 2007. However, the appreciation has not impacted the
competitiveness of Egyptian exports due to wider depreciation of the Egyptian Pound since
the start of 2000.

Chart 13: Average Exchange Rates (LE/currency units)

12
10
2
2001 2002 2003 2004 2005 2006 Nov 2007
US Dollar Pound Sterling Euro
With the continuing inflows of foreign capital and sustained confidence in the currency, we
expect Egyptian Pound to appreciate in coming months. There may be some attempts by the
government to manage appreciation, if it starts to hurt non-oil exports from Egypt.

Inflation
After maintaining a low inflation rate for most of the 2005 and first half of 2006, inflation
went up during the second half of 2006 and remained high for a long period. This prompted
the CBE to increase its key intervention rates twice in 2006. On December 14th, the overnight
deposit and lending rates were raised by 25 basis points to 8.75% and 10.75%, respectively.
The inflation came down in Q2 2007, as the Consumer Price Index (CPI) inflation dropped
from 12.8% in March 2007 to 8.4% in September 2007. Similarly, the Wholesale Price Index
(WPI) inflation dropped from 16.0% in March 2007 to 8.6% in September 2007.
In November 2007, the CPI inflation further declined to 6.9% on the back of a drop in the
domestic food prices. However the inflation has again gone up to 11.5% in January 2008 as
per CAPMAS. Higher international food prices have led to the acceleration in domestic food
inflation, which in turn have been propagated on nonfood inflation. The CBE has increased
the rates in February, 2008 in order to tackle the persistent increase in food inflation and
expected upward pressure over the coming period.
Chart 14: Price Index

17.3%
18% 16.9%
16%
14%
11.4% 11.8%
12%
12.8% 10.0%
11.0% 9.3%
10% 9.9% 8.6%
10.3% 10.1%
9.0%
8%
8.4%
6%
4.1% 4.2%
4%
2003/04 2004/05 2005/06 2006/07 Jul-Sep Jan-March April-June Jul-Sep
2006 2007 2007 2007
Consumer Price Index Wholesale Price Index
Inflation in coming months might be constrained by the strength of the Egyptian Pound
against the US Dollar and other major currencies and also by a favorable base-effect due to
last year’s high price levels. However, the efforts by the government to cut energy subsidies
might contribute to higher inflation. The projected higher economic growth is expected to
contribute to high inflation too. The inflationary demand pressures from higher economic
growth exert upward pressure on price rises. Over the medium-term, this has the potential to
drive inflation above the upper level of the CBE’s comfort zone.
The Monetary Policy Committee has decided to continue close monitoring of all economic
developments, especially the factors underlying inflation and the recent developments in
international financial markets, and has made it clear that it will not hesitate to adjust the key
CBE rates to ensure price stability over the medium-term.

Population and Labor Force

The increasing population was and still is an on-going concern for the government, as it could
hinder the economic growth that the country is currently witnessing. In 2006/07, the Egyptian
population reached 75mn, a 1.9% growth in a year. Over the last 5 years the population
grew at a CAGR of 2.0%. The government has launched many family planning campaigns,
which are thought to be successful in bringing down birth rates over years. The birth rate has
declined to 25.2 per 1,000 in 2006/07 compared to 25.5 per 1,000 a year before. Also, the
death rate per thousand fell to 6.3 from 6.4 in 2005/06, on the back of better spending on the
health.
Chart 15: Population in Egypt (in mn)

76
75.0
74 73.6
71.9
72
70.5
70 69.2
67.9
68
66
2001/02 2002/03 2003/04 2004/03 2005/06 2006/07*
*Preliminary
Around 35.2% of the population is under 14 years of age and 3.7% is over 65. Rest of the
population, 61.1%, belongs to production age group. With such a youthful population, the
pressures on the labor market and social services are considerable. During 2006/07, total
labor force increased by 2.8% to reach 22.48mn.
Table 12: Population Indicators

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07*
Labor Force/Population % 30.2% 30.3% 30.5% 30.3% 30.6% 30.8%
Unemployment Rate % 10.2% 11.0% 10.3% 10.3% 9.5% 9.1%
Rate of Births (per thousand) 26.5 26.2 25.7 25.8 25.5 25.2
Rate of Deaths (per thousand) 6.4 6.5 6.4 6.4 6.4 6.3
Literacy (%) 69.4% 72.6% 72.1% 77.7% -- 80.5%
*Preliminary
Though the unemployment rate dropped to 9.1% in 2006/07 compared to 9.5% in 2005/06,
the entrance of 600,000 new candidates yearly to the job market has created a significant
challenge for the Egyptian government. The private sector role in suppressing unemployment
rate became crucial, as the government’s wages and salaries bill represented 23.5% of the
total government expenditure in 2006/07, making new job creation hard. Egypt has been
recently encouraging new investments into the country, as a way to contain unemployment.

Chart 16: Employment by sector (2004/05)

Govt. Sector
25.9%
Public
Enterprise
5.2%
Private Sector 68.9%

Most of the Egyptian labor force work in the private sector, which holds 68.9% of the total
workforce. The government sector and the public enterprise sector employ 25.9% and 5.2%,
respectively.
The real problem facing the majority of the Egyptian workforce is the need of adequate
technical and managerial skills, which in turn creates pressure on the government to improve
education in order to enable the labor force to lead the country’s future growth.

Sector Performance
Agriculture
For centuries, the agriculture sector in Egypt has been one of the most important sectors for
the economy. Though its contribution to GDP dropped between 2005/06 and 2006/07 from
14.1% to 13.8%, the agriculture sector’s absolute value has risen by 15.9% in 2006/07. In
addition, agriculture products constituted about 2.1% of the Egyptian exports this year. And
more than one third of the Egyptian labor force work in the agriculture sector. So the reliance
of the Egyptian economy on the sector is significant. It is worthy to mention that the Egyptian
crop yields are among the highest in the world, for Egypt’s fertile soil as well as the length
of growing season.
The international shift to organic crops has given Egypt a great opportunity to motivate
investments in the sector. Also, the high demand of dried and frozen vegetables and fruits,
especially from Europe, has acted as an incentive for Egyptian agriculture entrepreneurs to
further boost their investments in the sector. Investments in the logistics and packaging are
also on the move, to ensure the freshness and safety of the agriculture exports.
Despite the fact that the majority of Egypt surface is desert land, the river Nile Delta and
banks have always been of the best agriculture soils in the world. The agricultural sector is
responsible for achieving food security, in addition to its main role in providing raw materials
for many important industries. The value of agriculture and allied sectors products at current
prices reached LE94.8bn in 2006/07.
Several agricultural crops are raised in Egypt during the three cropping seasons. In addition,
several durable and seasonal crops are cultivated for a whole year or several years, such as
sugar cane, fruits and timber trees. Egypt’s agricultural area in 2006 reached about 8.47mn
feddans 4(about 3.55mn hectares), while vertical development projects in the agricultural
sector have led to an increase in the crops farmed area to 14.6mn feddans (about 6.13mn
hectares). There are six major crops that cover 80% of the Egyptian farm lands: wheat, corn,
cotton, rice, beans and clover. Wheat, clover, linen, onion, beetroot and beans come on top of
the winter farming crops. On the other hand, cotton, summer maize, maize corn, rice and soya
beans come on the top of the summer crops. Horticulture crops include fruits such as citrus
plants with all its kinds, grapes, figs, mango, peach, apples, olive and bananas. Vegetables
represent an important part of the horticulture crops such as potatoes, tomatoes, muskmelon
and watermelon.
The nature of the Egyptian climate is not rainy, therefore the dependence on irrigation has
always been inevitable. The government provides irrigation water for free for the farmers,
for whom irrigation practices were irrational leading to great loss of water resources. The
introduction of new irrigation techniques and technologies has helped in preserving wasted
water. Also, the government campaigns to farmers concerning improved irrigation practices
as well as fertilizers usage optimization have proved its success reflected mainly in the output
of agricultural crops.
4 1 feddan = 1 acre = 4,200m2

In fact, the urbanization together with the industrial expansion has led to a huge loss of
agricultural land. The migration from rural to urban areas has pressured the cultivated land
as the demand for housing increased, which in turn lead many agricultural land lords to alter
their lands to housing areas, benefiting from its fast and lucrative return.
Among the main agricultural crops grown in Egypt currently is rice. The rice crop volume
rose at a CAGR of 3% over the period from 2003/04 to 2006/07. Last year only, the rice crop
grew by 10.3%, as a result of the government plan to increase cereals and grains cultivation
to meet both the internal and the external demand. The high population growth has always
pressured the government of Egypt to catch up the extensive demand on food. While wheat
constitutes the main component of the Egyptian diet, Egypt’s output of wheat dropped by
10.8% during 2006/07, to reach 7.4mn tons. On the other hand, wheat imports in 2006/07
hiked by 18% to reach US$1bn, as a result of the soaring international wheat prices. Most of
the main Egyptian agricultural crops witnessed moderate growth except for sugarbeet, which
surged by 12.8%. The government decided to increase the sugarbeet production as a reaction
to the increasing international prices of refined sugar which Egypt consumes largely. The
refined sugar imports to Egypt jumped by 60% in a year, to reach US$53mn in 2006/07. The
plan is to cover the local needs from sugar and to orient the rest for exportation.
Table 13: Output of Main Agricultural Crops (thousand tons)

CAGR
2003/04 2004/05 2005/06 2006/07*
(03/04 to 06/07)
Wheat 7,178 8,141 8,274 7,379 0.9%
Maize 6,235 6,236 7,085 6,806 3.0%
Rice 6,174 6,351 6,124 6,748 3.0%
Cotton (seeds) 600 785 644 626 1.4%
Sugarcane 16,245 16,230 16,317 16,790 1.1%
Sugarbeet 2,914 2,860 3,905 4,183 12.8%
Vegetables 18,242 19,189 20,374 20,938 4.7%
Fruits 6,754 8,428 7,818 8,134 6.4%
* Provisional
Cotton which used to be the country’s major agricultural export and for many years was
the most extensively subsidized commodity has suffered from inconsistent state policy and
inflexible export pricing. Egyptian cotton still commands over one-third of the world market
for long-staple and extra-long staple cotton, and is Egypt’s most lucrative export commodity
after Oil. The value of Egyptian cotton lies in its strength and elasticity, which allows it to
be woven much more tightly than other strains. It is also the most time consuming and labor
intensive cotton strain to cultivate, requiring seven to eight months to grow and manual
harvesting. Since cotton growing is not the best cash generating crops, many Egyptian
farmers shifted their concentration on other more lucrative crops, thus deteriorating what
used to be the country’s most important export agricultural commodity.
Egypt is one of the world’s prime food importers, especially for wheat, which constitutes
39.2% of the total agricultural imports. The overall agricultural related imports surged by
39% in 2006/07 as compared to 2005/06, on the back of higher international commodity
prices.

Chart 17: Major Agricultural Imports (US$ mn)

3,000
2,500
2,000
1,500
1,000
500
-
2002/03 2003/04 2004/05 2005/06 2006/07*
Wheat Maize Refined Sugar Vegetable & animal oils Dairy products & eggs
* Provisional
The Egyptian agriculture sector, though it has many challenges, has got a great potential
in the foreseeable future. Besides the government efforts in land reclamation and water
management, the real challenge is how to address agri-business investors towards increasing
their investments in the sector in order to increase exportation. Egypt’s proximity to Europe
should be capitalized, especially that the different climate allows Egyptian farmers to grow
various crops when the European agricultural season is down. Also, the expansion in the
organic crops cultivation as well as improving the agri-business related logistics will allow
Egypt to become the first agri-trade partner with the EU.

Banking
The banking sector in Egypt is continuing its restructuring process with the aim of increasing its
robustness and enabling it to perform competitively on a regional and international level. The
government has undertaken a series of reforms to strengthen the banking sector. The reform steps
taken by the government includes addressing asset quality problems, increasing minimal capital
requirements, privatization of public sector banks and consolidation of small private banks.
Currently, the Egyptian banking sector consists of 41 banks, down from 61 in 2004, with
3,116 branches. This number fell as the government has expressed its intention to consolidate
the sector because it felt that the number of banks in Egypt is very high, with few of these
banks having enough capital to be competitive and most facing a larger risk of collapsing
should borrowers fail to pay back large sums of money.
Chart 18: Number of Banks in Egypt

70 3,200
3,100
60
3,000
50
2,900
40
2,800
30 2,700
Jun 04 Dec 04 Jun 05 Dec 05 Jun 06 Dec 06 Jun 07 Sep 07
Number of Banks Number of Branches
In order to deal with the problem of SME defaulters, CBE announced in February 2006 that
the large state-owned banks would cancel 75% of debts that are worth less than LE500,000
and 70% of debts that are worth less than LE1mn, if borrowers repaid the remaining amount
in cash before the end of June. The governor of the Central Bank stated that the aim was to
ease the burden not only on around 13,000 small and medium-sized enterprises, which will
see their cash flow improve substantially, but also on the judicial system, which incurs costs
associated with chasing up non-payment.
The mortgage financing market in Egypt continues to evolve. A newly established government
institution, the Egyptian Company for Mortgage Refinance (ECMR), will enable the mortgage
finance companies to offer more competitive terms. The expansion of the mortgage financing
industry has been helped since 2005 by a lowering of property registration fees from 12% to
3% of the purchase price (or a maximum flat fee of LE2,000) and property taxes from 46%
to 10%. A new law is also making it easier to prove ownership of property, which facilitates
the use of assets as collateral. The entry of new mortgage lending companies should establish
a more competitive residential housing market and challenge the traditional shortcomings of
informal lending agreements and (mostly) unregistered property trading.

Assets
Growing at a CAGR of 12.9% between 2002/03 and 2006/07, the Egyptian banks’ aggregate
assets reached LE937.9bn , mainly driven by the 78.6% hike in the balance with banks in
Egypt as well as the 71.4% surge in the balances with banks abroad. Both balances’ share in
total assets increased from 25.5% previous year to 36.4% in 2006/07. The Egyptian banks’
consolidated assets in 2006/07 grew by a healthy 23.2% over 2005/06 figure.
Table 14: Consolidated Assets of Egyptian Banks (End of period)

In LE mn 2002/03 2003/04 2004/05 2005/06 2006/07
Cash 5,557 5,412 6,594 6,813 7,705
Securities and investments in treasury bills 111,337 137,431 172,177 193,965 176,098
Balances with banks in Egypt 110,874 116,290 124,986 121,695 217,363
Balances with banks abroad 29,798 43,290 51,204 72,554 124,366
Loan and discount balances 284,722 296,199 308,195 324,041 353,746
Other assets 35,650 34,814 41,990 42,494 58,645
Total Assets 577,938 633,436 705,146 761,562 937,923
For the first time since 2002/03, the securities and investments in treasury bills account
dropped in 2007 along with an increase in the total credit facilities offered by banks in Egypt.
As the spread between the lending rates and the treasury bills rates widened, the banks were
encouraged to increase their lending facilities. In 2006/07, the securities and investments
in treasury bills account dropped by 9.2%, the same rate by which the loans and discount
balances rose.
Chart 19: Lending rates vs. the treasury bills interest rates
14%
13%
12%
11%
10%
9%
8%
7%
6%
2004 2005 2006 2007
Lending Rate (less than one yr loans) 91 day bills 182 day bills 264 day bills
The non-government sector accounted for the lion’s share, 92.5%, of the total credit facilities
distribution in 2006/07. Out of the non-government share from the total lending portfolio,
72.7% were in local currency reaching LE237.8bn.

Chart 20: Sectoral Distribution of Non-Govt. Credit Facilities in Local Currency for
2006/07 (Total Credit – LE237.8bn)
2.9%
23.7% 31.3%
26.3% 15.8%
Agriculture sector Industry sector Trade sector

Services Sector Household & external Sector
The industrial sector accounted for 31.3% of the total credit facilities granted in 2006/07.
The services sector came in second with a share of 26.3%, followed by the households and
external sector at 23.7%. The total credit to non-government sectors in local currencies grew
by only 4.5% during 2006/07.
Chart 21: Sectoral Distribution of Non-Govt. Credit Facilities in Foreign Currency for
2006/07 (Total Credit-LE89.3bn)
8.1% 1.0%
41.2%
36.4%
13.2%
Agriculture sector Industry sector Trade sector

Services Sector Household & external Sector
As for the credit facilities in foreign currencies granted to the non- government sectors,
again the industry sector had the highest share at 41.2%. Also, the services and trade sectors
followed with 36.4% and 13.2%, respectively. It is worth noting that the growth of lending
facilities in foreign currencies rose to reach LE89.3bn in 2006/07, an 18.4% rise over 2005/
06 figure.
Liabilities
Deposits, which rose by 14.3% in 2006/07 to reach LE650.0bn, are the primary source
of financing for the Egyptian banks. They account for 69.3% of the total banking sector
liabilities. The banks deposits grew at a CAGR of 12.7% between 2002/03 and 2006/07.

Table 15: Consolidated Liabilities of Egyptian Banks (End of period)

In LE mn 2002/03 2003/04 2004/05 2005/06 2006/07
Capital 18,155 20,346 22,949 27,112 33,037
Reserves 11,805 11,454 12,419 13,418 12,552
Provisions 40,099 44,584 49,541 54,950 53,469
Long-term loans and bonds 14,866 15,012 14,254 17,526 26,351
Obligations to banks in Egypt 35,579 29,933 22,671 21,488 82,619
Obligations to banks abroad 16,247 10,332 12,262 8,770 10,006
Total deposits 403,144 461,697 519,649 568,841 649,953
Other liabilities 38,043 40,078 51,401 49,457 69,936
Total Liabilities 577,938 633,436 705,146 761,562 937,923
The reform program initiated since 2005 has been to able impact the banking sector positively.
After the successful privatization of Bank of Alexandria, there are plans to privatize Banque
du Caire, Egypt’s third largest bank, by mid-2008. JP Morgan has been selected from a group
of 14 institutions to advise the government on the sale. The government has indicated that
it will retain ownership of the National Bank of Egypt and Bank Misr, the country’s two
remaining state-owned banks.
Efforts are continuing to clean up banks’ balance sheets and reduce non-performing loans.
Defaults by state-owned enterprises have come down through cash infusions, sales of their
investments, and settlements with private creditors. Also a comprehensive plan is being
implemented to improve bank regulation and supervision and align it with international
best practices. The establishment of a private sector credit bureau, regulated by the CBE, is
expected to improve contract enforcement and creditor protection, thereby addressing key
obstacles to bank lending to small and medium enterprises (SMEs).
The steps taken by the government have resulted in huge interest from a large number of
foreign investors, who wants to enter the Egyptian market through the acquisition route since
the Central Bank of Egypt (CBE) has not been willing to issue any new licenses. Lebanon’s
Blom Bank and Bank Audi Saradar, France’s Credit Agricole and Greece’s Piraeus Bank are
some of the foreign lenders that have bought stakes or acquired Egyptian lenders from the
private and public sectors. Gulf lenders, such as the National Bank of Kuwait who acquired
El Watany Bank of Egypt by the end of 2007, have also been vying to snap up stakes in
Egyptian lenders as they seek to take advantage of Egypt’s booming banking industry.

Oil
Oil production continued its decline witnessed since the 1990s, to reach 678,000 barrels
per day (bpd) in 2006, on the back of the depletion of the current oilfields. Currently, most
of the foreign oil producers are spending intensively in the oil exploration projects. BP, for
instance, which is one of the leading foreign oil producers in Egypt, has invested around
US$14bn in Egypt’s oil and gas sector. BP’s exploration activities contributed to about 40%
of Egypt’s oil production in the last 40 years.
One of the major discovered oil finds is the Saqqara field, located in the Gulf of Suez and is
expected to start production by 2008 with 20,000 bpd production capacity. Another reservoir
was found in the North Ramadan Concession in the Gulf of Suez and it is believed that it
could yield around 200mn barrels of crude oil. Furthermore, Shell has announced in February
2007, that four significant oil and gas finds were revealed in the Western desert. Additionally,
Tri Ocean Company along with BP have discovered lately a new crude oil field offshore the
North Shedwan area in the Gulf of Suez.
Egypt’s proven oil reserves stabilized at 3.72 bn barrels by the end of 2006, around 0.3% of
the world’s total reserves and 3.2% of Africa’s total reserves. Of Egypt’s oil production, 70%
came from the Gulf of Suez fields, while the remaining 30% are extracted from the fields
located in the Western desert, Sinai Peninsula and the Eastern desert.
Gulf of Suez Petroleum Company (Gupco), a joint venture between BP and the Egyptian
General Petroleum Company (EGPC), is the main oil producer in Egypt, followed by
Petrobel (joint venture between EGPC and Eni). Other major oil producers are Badr El Din
Petroleum Company (EGPC and Shell), Suez Oil Company (EGPC and RWE-DEA), and El
Zaafarana Oil Company (EGPC and BG). Obviously, EGPC, government’s arm in the oil
sector, dominated the oil production in Egypt, accounting for 20% of Egypt’s oil production
through its stakes in around 30 oil producing companies.
Chart 22: Egypt Oil Production, Consumption and Exports (Thousand barrels per day)
800 180
154 160
700
600 140
120
500
100
400
73 80
66
300 60
200 36
40
100 721 567 696 623 678 612 660 624 20
- -
2004 2005 2006 2007e
Oil Production Oil Consumption Oil Exports
Source: BP and Business Monitor International (BMI)
Oil consumption declined slightly by 2%, to reach 612,000 bpd in 2006, on the back of the
huge increase witnessed in the oil prices, which surpassed the US$77 per barrel during 2006,
along with the decline in the local oil production Nevertheless, the current economic reforms

witnessed in the country and the establishment of 1,000 factories, as per the presidential
election program in 2005, are expected to raise demand on oil in the coming years. In order
to lessen the huge demand on the oil, the government is currently encouraging the plants to
switch to natural gas as an oil substitute, due to the relatively lower cost and the availability
of the natural gas in Egypt (as illustrated in the next section of this report).
Chart 23: Egypt Crude Oil Exports

3,500 17% 20%
18%
3,000
14% 16%
2,500 14%
14%
14% 14% 12%
2,000
10%
1,500
8%
1,000 6%
4%
500 1,117 1,414 1,938 3,214 3,128
2%
- 0%
2002/03 2003/04 2004/05 2005/06 2006/07*
Crude Oil Exports (US$mn) Contribution to Total Exports
*Preliminary
Source: CBE
The foremost negative outcome from the increase in the oil consumption and the decline in
the oil production is the drop in the oil exports, which plunged by 10% in 2006. Moreover,
the contribution of the oil exports to Egypt’s total exports value went down from 17% to 14%
between 2005/06 and 2006/07. Egypt used to be a major oil exporting country. However if
the consumption continued increasing at a high pace, Egypt might be a net oil importer, based
on the fact that the current production is barely covering the consumption.
The government is seeking different ways to avoid putting the country in such situation. It
encourages the investment in new oilfields exploration and development projects via its arm
EGPC. Additionally, the application of the new Enhanced Oil Recovery (EOR) technology,
which allows ageing wells to continue production for a longer period than originally estimated,
will raise Egypt oil production. Eni has announced that it will apply the EOR technology in
its oilfields in the Gulf of Suez. Furthermore, the recently discovered oil fields are expected
to boost the Country’s oil production to reach 800,000 bpd by 2010, as per the Egyptian
Ministry of Petroleum.
Egypt’s crude oil refining capacity, through its nine operating refineries, is considered the
largest in Africa. Moreover, the Minister of Petroleum announced that five new refineries
and petrochemical plants are planned to come on stream in the next couple of years. He also
added that two petroleum refineries and petrochemical projects are planned to be built in
Suez Governorate, with Bahraini, Kuwaiti and Egyptian investments. The first project will
have an investment cost of US$1.8bn, and production capacity of 100,000 bpd of petroleum
products in the first phase, to be increased to 150,000 bpd in the second phase. The other
project will have an investment cost of US$1.2bn, and production capacity of 130,000 bpd of
petrochemical and petroleum products.
Furthermore, India’s Essar Global announced that it will invest US$3.4bn in a 300,000 bpd
refinery in north Egypt and to start operations by 2010. Citadel Capital, an Egyptian private
equity firm, will also build a US$2.4bn refinery with a production capacity of 140,000 bpd
that is scheduled to start operations within four years. It is worth mentioning that EGPC holds
a 15% stake in Citadel’s refinery.

Energy Subsidy
Cutting the energy subsidy was a major event in the last couple of years. The increase in oil
prices has burdened the government’s budget, leading to its firm decision to cut the energy
subsidy. During the FY 2006/07, the petroleum subsidy reached LE40bn, accounting for 18%
of the total government expenditures. The subsidy reduction started in 2006, when the Egyptian
government raised the price of 90-octane gasoline by 30%, diesel fuel by 25% and natural gas
by 25%. Further actions were taken in 2007, as the government announced its plan to liberalize
the natural gas and electricity prices for industrial usage over the next three years.
The obvious reason behind this increase is to reduce the energy subsidy, which rose
significantly in the previous years, growing to a huge figure in the government’s budget.
The government defended this cut by the fact that the wealthiest 10% of Egypt’s population
receive LE700 per capita in fuel subsidies annually, while the majority of the low-to middle-
income people receive only LE300 per capita. Furthermore, the Minister of Trade and
Industry has affirmed that the new energy tariff will save LE15bn (US$2.67bn) to the budget
over the coming three years.
The new energy pricing scheme is thought to be an initial move to liberalize the sector and to
attract more foreign investments. Most of the current oil and gas producers are positive with
the government’s new direction and they believe that new investors will continue to enter the
market. However, the inflation rate is expected to wheel upward after the full implementation
of the subsidy cut, even with the government promises to identify and deliver the subsidy
to the intended segment of the population. The government announced that it will enforce a
sophisticated subsidization system, which will offset price increases to the poorest segment.
Oil Transport
The strategic geographical location of Egypt has given it a competitive edge for world
trade. Suez Canal and the Su-Med Pipeline are two primary routes for the GCC countries oil
exports. The Egyptian government is in continuous development of the Suez Canal to allow
it to receive the world’s largest bulk carriers, and it is planning to further deepen the Canal to
accommodate the very large crude carriers (VLCCs).
The Su-Med pipeline is a 200 mile tube, which begins in Al Ain Al Sokhna on the Gulf of
Suez and ends at Sidi Kerir on the Mediterranean, with a current oil pumping capacity of
3.1mn bpd. The pipeline is owned by the Arab Petroleum Pipeline Company (APP), a joint
venture between Egypt (50%), Saudi Arabia (15%), Kuwait (15%), the U.A.E. (15%), and
Qatar (5%).

Gas
Natural gas production witnessed rapid growth in Egypt during the last couple of years,
reaching 45 billion cubic meters in 2006, a 29% y-o-y growth. Egypt’s ongoing exploration
efforts resulted in around 1.94 trillion cubic meter of proven natural gas reserves in 2006.
Egypt is the second natural gas producer in Africa, capturing around 25% of the continent’s
total production. Owing to the remarkable growth and exploration projects, Egypt has become
the world’s sixth largest Liquefied Natural Gas “LNG” exporter, behind Indonesia, Qatar,
Malaysia, Algeria and Nigeria.
Chart 24: Natural Gas Production and Consumption in Egypt (billion cubic meters)
60 23.0 25
50
20
40
16.1 15
30
8.8 10
20 45 29 53 30
27 26
35 26
10 5
0.7
- -
2004 2005 2006 2007f
Gas Producction Gas Consumption Gas Exports
Source: Business Monitor International (BMI)
The local natural gas sector is mostly run by the Egyptian government. The Ministry of
Petroleum holds stakes (through its subsidiary, the Egyptian Natural Gas Company “EGAS”)
in around 20 natural gas production companies in Egypt, which range from upstream
exploration and production to the exportation of the LNG. The government’s major joint
venture partners are BG, which currently produce about 40% of Egypt’s daily gas supply, as
well as, Eni, BP and Shell.
Given the fact that the local oil production declined in 2006, along with the hike witnessed in
the oil prices, Egypt is implementing a shifting program to use the natural gas as a substitute
for oil. The Egyptian government is planning to intensify the usage of the natural gas in the
industrial sector, as well as the motor fuel vehicles. The Ministry of Petroleum is facilitating
the supply and the delivery of the natural gas to the current non-natural gas-using plants, as
well as pushing forward the new plants to depend on the natural gas as a source of energy.
Moreover, the government managed to switch the public buses to use the gas and is currently
encouraging the taxis and private automobiles to run on natural gas.
Egypt exported around 36% of the natural gas local production, reaching US$2.7bn in FY
2006/07. The exportation of natural gas is somehow complicated as it requires either the
construction of costly pipelines or the condensation of gas into a liquid form prior to storage
and shipment. The major pipelines, through which the natural gas is exported, are the Arab
Natural Gas pipeline, Mubarak Complex for Gas and Petrochemicals, at Damietta port and
the East Mediterranean Gas underwater pipeline (an Egyptian-Israeli joint venture). These
pipelines have cemented the Country’s position as a regional gas exporter. Additionally, the

Minister of Petroleum stated that an agreement was reached among Egypt, Syria, Jordan and
Lebanon to transform the Arab Gas pipeline to an Arab Gas network to be linked with the
European one. Accordingly, Egypt’s LNG will have an access to be sold in the European,
Asian, and the United States markets.
Chart 25: Egypt Natural Gas Local Consumption vs. Exports

2005 2006
Export 25% Export 36%
Local Local
Consumption Consumption
75% 64%
Source: BMI
The government targets to increase the Country’s reserves to reach 120 trillion cubic feet by
2010, from the current proven reserves of 68.5 trillion cubic feet. One of the most significant
projects is BP field located in North Alexandria. The field is estimated to have 4 trillion cubic
feet of natural gas. Furthermore, BP announced that, along with its partners, it has discovered
a 1 trillion cubic feet natural gas reserves in Giza. Furthermore, BG Egypt declared that it
would invest further US$3bn in the exploration and production of natural gas in Egypt.
Gas Price
The Egyptian government decided to reduce the energy subsidy and consequently increasing
the natural gas end price. Local natural gas price was fixed for many years regardless of any
increase in the production cost; in fact local price is far below the world natural gas price
(about US$1.25 per Million British Thermal Unit (MBTU) compared to US$6-8 per MBTU
in the international markets).
The natural gas subsidy reduction started in 2006, where the natural gas price rose by 25%. In
2007, the Minister of Trade and Industry declared the new pricing scheme to be implemented
over the following three years, where the natural gas price will increase gradually from
US$1.25 to US$2.65 per MBTU, which represents the current cost that the government
pays.

Tourism
In 2006/07, the tourism sector picked up after the drop witnessed in 2005/06, subsequent
to the terrorist attacks in Dahab, Taba and Sharm El Sheikh. The tourism industry was
negatively impacted by these attacks, which was apparent in the number of tourist arrivals
and tourist nights. However, the sector recovered quickly in 2006/07, where 9.8mn tourist
arrived, reporting an increase of 12.6% over 2005/06 arrivals. The fact that Egypt holds
one third of the world’s historical monuments as well as sunny beaches made the country
attractive to various types of tourism.
Chart 26: Tourist Arrivals

12,000 50.0%
43.4%
10,000 40.0%
8,000 30.0%
6,000 15.1% 20.0%

12.6%
4,000 10.0%
0.5%
2,000 0.0%
9,788
7,512 8,650 8,693
- -10.0%
2003/04 2004/05 2005/06 2006/07*
Tourist Arrivals (in 000) Growth %

* Preliminary
Tourism income grew at a CAGR of 21% during the four years from 2002/03 to 2006/07,
reaching US$8.0bn. During the same period, the number of tourist nights also increased at
a CAGR of 31%. Moreover, the tourist arrivals reached 9.8mn, reporting a CAGR of 17%
over the same period.
Table 16: Tourism Indicators

2003/04 2004/05 2005/06 2006/07 *
Tourist Arrivals (in 000) 7,512 8,650 8,693 9,788
Growth % 43.4% 15.1% 0.5% 12.6%
Total Number of Tourist Nights (in 000) 73,002 85,730 85,113 96,270
Growth % 121.1% 17.4% -0.7% 13.1%
Tourism Income (US$ mn) 5,475 6,430 7,235 8,012
Growth % 44.2% 17.4% 12.5% 10.7%
* Preliminary
In 2006/07, the average number of nights per tourist increased slightly by 0.5%, reaching
9.84 nights per tourist. However, this figure went up to 11.2 during the period July-October
2007/08. The average income per night and the average income per tourist were down by
2.1% and 1.6%, respectively in 2006/07. Though the average number of nights per tourist
rose in 2006/07, the decline of both the average income per night and the average income per
tourist reveals that the extra tourists attracted have low spending nature. Most of the increase
came from the Eastern European tourists, whose spending levels are low in comparison to
Western European, Japanese and American tourists.

Chart 27: Tourism Average Figures

1,000 9.95
9.91
900 85.0 83.2 9.90
800 75.0 75.0
700 9.84
9.85
600 9.79
9.80
500
400 9.75
9.72
300 9.70
200
9.65
100
728.8 743.4 832.3 818.6
0 9.60
2003/04 2004/05 2005/06 2006/07*
Average Income per Tourist (US$) Average Income per Night (US$) Average Number of Nights per Tourist
* Preliminary
Source: Ministry of finance
Table 17: Tourist Arrivals by Region

2005/06 2006/07 Growth %
Europe 5,818 6,690 15.0%
East Europe 1,620 2,187 35.0%
West Europe 4,198 4,503 7.3%
Middle East 1,834 1,860 1.4%
Africa 280 342 22.1%
Americas 325 356 9.5%
Asia and Pacific 432 534 23.6%
Other countries 4 6 50.0%
Total 8,693 9,788 12.6%
Source: CBE
During 2006/07, the European tourist arrivals accounted for 68.3% of total arrivals. Egypt’s
fine weather, marvelous beaches, as well as its central location, is considered a prime
destination for the European countries. The Middle East arrivals came in second with a
market share of 19.0%, followed by the Asian and Pacific countries with a share of 5.5%.
Chart 28: Tourist Arrivals by Region (2006/07)

Middle East 19.0%
Africa 3.5%
Americas 3.6%
West Europe 46.0%
Asia & Pacific 5.5%
Other countries 0.1%
East Europe 22.3%
Source: Central Bank of Egypt (CBE)
The tourism sector is expected to flourish in the coming years, on the back of the government
efforts to promote Egypt as a tourist destination, along with the improvements witnessed

in the infrastructure facilities serving the tourism industry. Egypt is targeting to host 14mn
tourists by 2011, accordingly 15,000 hotel rooms are expected to be built annually, to reach
240,000 rooms in 2011, as per the Minister of Tourism. Moreover, the investments in hotels
and restaurants, which stood at LE4.13bn in 2006/07, are expected to grow further, supported
by the new resorts to be established in the Mediterranean and the Red Sea coasts, such as
Marassi, Gamsha Bay, Serrenia and Port Ghaleb Resorts.
Additionally, there has been extensive development in the tourism infrastructure, as reflected
in the renovation of Cairo, Aswan and Luxor Airports, while Hurghada and Sharm El Sheikh
Airports are under renovation. Meanwhile, the first phase of Cairo airport renovation project
was inaugurated in July 2007, in addition to the expansion plans of Marsa Alam Airport,
which was the first airport to operate by BOT system.

Telecom
The Egyptian telecom sector witnessed significant changes in 2007, impacted by the
emergence of the third mobile operator, Etisalat Misr, in a duopolistic mobile market
governed by Mobinil and Vodafone Egypt.
In July 2006, the consortium headed by UAE’s operator (Etisalat) won the bid on the third
mobile operator license in Egypt at a total consideration of LE16.7bn (US$2.9bn). The
winning consortium is 66% owned by Etisalat, 20% by Egypt Post, 10% by the National
Bank of Egypt (NBE) and 4% by Commercial International Bank - Egypt (CIB). In Addition
to the LE16.7bn, Etisalat will pay 6% of the operator’s annual revenues to the National
Telecommunication Regulatory Authority (NTRA). Moreover, the license duration is for
15 years, after which a five-year renewal contract with new terms will be signed. The new
operator launched its 2G and was the first to introduce the 3G mobile services in May 2007,
under the brand name of Etisalat Misr. The entrance of the third mobile operator, Etisalat
Misr, has altered the structure of the mobile market, as well as intensifying the already
existing competition, in a low penetrated market.
The Egyptian mobile business is currently run by three operators, the two well-branded
operators, Mobinil and Vodafone and the newly entrant Etisalat Misr. Mobinil was the first
operator in Egypt, being operational in May 1998, followed by Vodafone which started
providing the mobile service by the end of the same year. Both companies were operating
under the 2G-based network, where Mobinil and Vodafone market shares were 51.6% and
48.4%, respectively in 2006. Etisalat Misr market share reached 4.8% in September 2007,
and it plans to capture 30% market share in the next 3 to 5 years.
Chart 29: Share in Total Mobile Telecom Subscriber Base (September 2007)
4.8%
50.6%
44.6%
Mobinil Vodafone Etisalat Misr

Source: Mobinil, Vodafone, Telecom Egypt and NTRA
As Etisalat Misr introduced the 3G technology in Egypt, Vodafone Egypt and recently
Mobinil acquired the license. Both operators acquired the 3G license at a total value of
LE3.34bn (US$610mn) each, as well as paying 2.4% of total annual revenue to the NTRA.
It is worth mentioning that Etisalat Misr license’s conditions stipulated that the 3G services
stand for 20% of the total license value (LE16.7bn), which is equivalent to LE3.34bn (the
amount paid by Vodafone and Mobinil) and 40% of the annual revenues (6%), which stands
at 2.4% (the rate agreed on with Vodafone and Mobinil).

Vodafone and Mobinil’s main reason behind providing the 3G service was to free up the
populated 2G network. The 3G technology is not only a high speed data carrier but also it
expands the network capacity and improve the quality of the voice and data transfer. Actually,
Vodafone realized this fact earlier than Mobinil, which believed that the huge investment
costs needed to acquire the 3G service is not rewarding. However, Mobinil recently was
convinced, after it witnessed a spectrum shortage in its network, to acquire the 3G service
license and is expected to provide the service by May 2008.
The 3G new services, such as video calling, internet connectivity and television streaming,
is expected to attract a limited segment of the market. The majority of the Egyptians cannot
afford the costs of the 3G service, as well as the extremely expensive mobile handsets,
which apply the 3G technology. In view of that, the impact of the 3G technology on the
operators’ revenues cannot be realized unless the 3G tariffs became affordable, along with
the availability of cheap 3G handsets.
Chart 30: Mobile Telecom Revenues and Subscribers

18.0
14,000
18
12,000
12.8 15
10,000
12
8,000
7.6 9
6,000 5.7
4.4
4,000 6
14,495
11,309
2,000 3
4,766
6,794
8,919
- 0
2002 2003 2004 2005 2006
Total Telecom Revenues (LE mn) Number of Subscribers (millions)
Source: Vodafone and Mobinil
In 2006, the mobile subscribers soared by 40%, reaching 18mn compared to 2005. During
the same period the mobile revenues rose by only 28%, reaching LE 14.5mn, on the back of
lower call tariffs by the competing service providers. The existing players were presenting
reduced and discounted offers to maintain their subscriber base from shifting to the new
operator. In September 2007, the mobile subscribers reached 27mn, with a penetration rate
of 36.2%.
Chart 31: Average Revenue Per User (LE)

120
100
80
60
40
20
-
2001 2002 2003 2004 2005 2006 Sep-07
Vodafone Egypt Mobinil

Source: Vodafone and Mobinil

Upon the entrance of the third mobile operator, the average revenue per user (ARPU) went
down, as a direct result for the harsh competition between the three players, which came
mainly from the new operator, causing the decline of ARPU from LE 82 in 2005 to LE 74 in
2006. The ARPU dropped again in 2007, after Etisalat Misr started operations to reach LE
58 in September 2007. Obviously, the entrance of the third operator has reduced prices and
pressured the existing operators to further lower their tariffs. The prime factor for clients to
switch between the current operators is thought to be the lower tariffs. Another factor lies
in the quality of the services offered, including the network coverage and the voice quality.
Having three well-built mobile operators will definitely result in a higher quality and better
service to prevail in the mobile market during the next year.
The government moved forward to liberalize the sector and terminating the current monopoly
in the international calls, as well as the fixed line service. In October 2007, NTRA approved
granting the mobile operators the international voice gateway license, where the licensed
company will provide the service to its subscribers only. The value of the license will be
based on the number of subscribers, where LE 100 will be paid for each existing subscriber,
with a preset minimum of LE100mn, to be paid once. In addition, the mobile operator will be
required to pay LE 20 for each new subscriber at the beginning of every year. Etisalat Misr
was granted the international gateway license in late 2007, whereas Mobinil and Vodafone
announced that the decision to obtain the international license will depend upon the results
of their ongoing negotiations with Telecom Egypt (TE) over reviewing the interconnection
agreements between them.
On the fixed line segment front, Telecom Egypt (TE) is the sole supplier of the service
all over the country. The government sold 20% of the stake in TE in December 2005. It
is worthy to mention that TE, which is also the current sole international calls provider,
will continue providing the service for the mobile operators who might not acquire the
international gateway license.
Upon the liberalization of the telecom sector, TE will drop off its exclusivity in providing
these services. In fact, Egypt’s international call prices are 30% more expensive than the
regional average.
Furthermore, the NTRA is finalizing the terms and conditions handbook for Egypt’s second
fixed line license, which will be offered to the international, regional and local companies. It
is expected to offer the second fixed line license for bidding by the end of the 1st quarter of
2008, so as to start the service by 2009. Moreover, the new operator will be entitled to offer
international voice services. Etisalat Misr and Orascom Telecom Holding (OTH) announced
earlier their interest to acquire the fixed line license.

Chart 32: Fixed Line Revenues and Subscribers

10,000 15
10.7 11.0.
8,000 10.8 12
10.4
9.5
8.7
6,000 7.7 9
4,000 6
2,000 6,219 3
7,177
7,749
8,548
9,488
6,922
7,478
- -
2002 2003 2004 2005 2006 9M-06 9M-07
Revenue (LE mn) Number of Subscribers (mn)
Source: Telecom Egypt
The fixed line subscribers, as reported by TE, witnessed a steady growth at a CAGR of
9% during the period from 2002 and 2006, reaching 10.8mn by the end of 2006, with 15%
penetration rate. This increase came after the Company’s network capacity expansions,
as well as facilitating all procedures for the installation of new fixed lines, along with the
enhanced after sale services. Moreover, the fixed line revenues grew at a CAGR of 11%
during the same period, reaching LE9.5bn in 2006. In September 2007, the number of fixed
line subscribers showed a slight increase of only 3% to reach 11mn compared to September
2006. It is worth mentioning that the government, which holds an 80% stake in TE, is planning
to offer another 20% stake in TE in the stock market by 2009.
We believe the Egyptian telecom sector is expected to continue its growth in the coming
years on the back of the low penetration rate. Egypt’s mobile penetration rate is far below
its neighbor countries in the region, with almost 100% in Kuwait, Bahrain and the UAE.
Furthermore, the entrance of a third mobile operator along with the offering of the second
fixed line license will boost the sector further and enhance the overall service provided.

Real Estate
The Egyptian Real Estate sector flourished on the back of the positive economic conditions,
reflected in the real GDP growth of 7% in 2006/07, as well as the structural economic reform
that is adopted by the current cabinet. Demand is currently surpassing supply for all segments
of the market, from residential properties to administrative centers to commercial and tourism
facilities.
The surge in demand has resulted in an unprecedented interest from both local and regional
developers to enter the Egyptian real estate market. Besides, Egypt owns a number of criteria
that makes it a good destination for real estate developers to penetrate the market. The high
population, the economic growth, the declining real estate taxes and the developing mortgage
system are major catalysts for any developer to step in the market.
Though the Real Estate sector declined as percentage of GDP between 2005/06 and 2006/07,
from 3.3% to 3.1%, it grew by 9.9% during the same period. Between 2001/02 and 2006/07,
the real estate sector grew at a CAGR of 8.5%.
Another sector that is directly related to the real estate sector, the Construction and Building
sector hiked by 27% and its contribution to the GDP moved upward to reach 4.4% in 2006/
07, as opposed to 4.1% the year before. The growth in Construction and Building sector is a
promising indicator for a further growth in the real estate sector over the coming years.
Chart 33: Real Estate and Construction & Building sectors growth
50,000 5.0%
4.7% 4.3% 4.4%
45,000 4.1%
4.5%
4.1% 4.0%
40,000 4.0%
3.9%
35,000 3.7% 3.1%
3.5%
3.5% 3.5%
30,000 3.3% 3.0%
LE mn
25,000 2.5%
20,000 2.0%
15,000 1.5%
10,000 1.0%
5,000 0.5%
- 0.0%
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
Construction & Building Real Estate Construction & Building as % of GDP Real Estate % of GDP
Source: CBE
Also, the share of the real estate sector of the FDI inflows reached US$39mn, compared
to US$16.5mn in 2004/05, a surge of 136%. This in turn reflects the foreign interests in
the sector for its attractiveness and relatively low valuation compared to surging prices in
neighboring countries, especially the GCC countries.

Chart 34: FDI inflows to the Real Estate Sector
40
39.0
35
30
25
US$ mn
25.7
20
15
16.5
10
5
-
2004/05 2005/06 2006/07
Source: CBE
Egypt’s large population, amounting to over 75mn people, with almost 60% under the age
of 30, has been and will always be the real trigger for the residential units buoyant demand.
The estimated annual number of marriages reaches 600,000, while the annual supply of
affordable housing units does not reach quarter this figure. The real demand comes from
the lower and lower middle classes, while most of the supply goes to the upper and upper
middle economic classes. Currently, the government is pushing towards the establishment
of affordable 500,000 units by 2011, as well as encouraging the private sector to enter the
low cost housing segment, which has a higher demand. It is worth mentioning that Orascom
Hotels and Development Company (OHD), one of the main private sector tourism developers,
announced that it will build about 50,000 affordable units.
The government has planned 59 new cities to absorb approximately 12mn people. Up till
now, 17 cities have been built, of which are Sheikh Zayed City, New Cairo, El Obbour, El
Rehab and El Shourouk. But still these cities are mainly targeting the upper middle class. The
current gap between demand and supply for this segment is estimated at about 50,000 units,
while the gap for the low end residential units amounts to more than two times of this figure.
Parallel to the economic reform and the ameliorating business atmosphere in Egypt, the need
for office and administrative buildings surged. Now, many international as well as regional
companies are opening branches or rep offices in Egypt. The supply of office space is very
limited; however, the emergence of real estate developers from the Gulf has introduced the
idea in several of their projects. At present, the need for office space is no longer dependant
on multinationals and large companies only, but the medium and small businesses as well.
As for the commercial and retail space, the demand is significantly high as a result of the
increasing purchasing power parity (PPP) and the decline in tariffs and taxes on imported
goods. The concentration of shopping malls, hypermarkets and commercial centers in Egypt
are low in comparison to the population. The City Stars mall and office spaces project has
proved success and raised the appetite of local, regional and international developers to
engage in similar projects.
By 2011, Egypt will be ready to receive 14 mn tourists per year. Currently, Egypt is adding
about 15,000 hotel rooms per year until 2011, in order to reach 240,000 new hotel rooms. The
need to satisfy this enormous demand is a major driver for the Egyptian real estate sector. In
addition, the expansions in airports building all over the country have pushed the sector to
substantial growth.

On the back of the surging demand, local and regional developers have began penetrating the
real estate sector on all fronts, the residential, commercial and tourism related. The following
table sums up the major mega projects that are currently taking place in Egypt.
Table 18: Current Real Estate Projects

Estimated Expected
Project/ Type Area
Developer Location Description Cost Date of
Residential mn m2
US$ bn Completion
Uptown Cairo Emaar Misr 4.00 Mokkattam Hills Mixed-use, residential 2.10 2013
- Cairo villages, leisure facilities and
a world-class golf course
New Cairo City Emaar Misr 3.80 5th district, New Residential Complex 1.00 NA
Cairo City
Madinaty TMG 33.60 Cairo-Suez Residential Complex 10.50 2026
Highway
Allegria SODIC 2.38 West Cairo Residential Community and NA 2011
Golf Course
Westown SODIC and 1.20 West Cairo Mix of upscale residential, 2.40 2013
Solidere retail and office space
CASA SODIC (20%) 0.29 West Cairo Low density upscale building NA 2011
and others complexes
Eastown SODIC and 0.86 East Cairo Mix of upscale residential, 1.60 2013
Solidere retail and office space
Kattameya Plaza SODIC 0.13 East Cairo Upscale apartment complex NA 2010
Cairo Festival Al Futtaim 0.20 New Cairo Mixed-use, residential, 3.50 NA
Group commercial, hospitality
Residential Barwa Co. 8.10 Kattamya Residential Complex 1.00 NA
compounds
Efad Residential Efad Co. 1 New Cairo Residential Complex 1.00 NA
Almaza City Center Futtaim Group NA kattamya Residential Complex 0.50 2008
Nile Corniche Diar 0.01 Cairo Mixed use luxury residential 1.00 NA
Tourism
Marassi Emaar Misr 6.25 Sidi Abdel Residential Tourism 1.74 2012
Rahman - North
Coast
Gamsha Bay DAMAC 30.00 Gamsha Bay - Red Residential Tourism 16.00 2017
Sea
Serrenia Shahin Group 3.00 Sahl Hashish - Red Mixed-use, residential units 3.00 2010
Sea and leisure facilities
Port Ghaleb Resort Al-Kharafi 0.13 Marsa Alam Residential Tourism 0.32 2008
Group
Sharm Al Sheikh Diar 0.34 Sharm Al Sheikh Residential Tourism 0.33 NA
Retail
Cairo Gate Emaar Misr 0.67 Cairo - Alexandria Mega Shopping Mall 0.70
Desert Road
Park Avenue DAMAC NA 6th of October Shopping Mall NA NA
Dahshur Showrooms SODIC 0.19 NA Two upscale adjacent strip NA 2010
malls
Total 46.69
Source: Companies announcement and Global Research.

On May 2007, the government of Egypt carried out a two-phase auction on six land plots,
3 plots each, located in New Cairo City, Sixth of October City and El Sheikh Zayed. The
auction was concluded by the sale of a total area of 19.5mn m² and a total consideration of
LE17.5bn (around US$3bn). The obvious outcome of this auction was the hike witnessed in
the land prices, to reach over LE4,000 per m² for an un-built property, meanwhile the average
price reached LE560 per m² in the auction held on May 2006 on land plots in New Cairo City
and Sixth of October City. Though the land auction has been a great source of finance for the
government, it has inflated the land market prices and consequently, the housing prices.
Table 19: Government’s land auction held on May 2007:

Area Total Value Average Price
Land Location Developer Nationality
(m²) (LE 000s) (LE/m²)
Phase 1
Land Plot 1 New Cairo City Ro'ya for Tourism and Real Egypt 1,932,000 2,488,416 1,288
Estate Development
Land Plot 2 New Cairo City DAMAC UAE 6,300,000 4,740,750 753
Land Plot 3 New Cairo City Barwa Real Estate Company Qatar 8,316,000 6,099,786 734
Phase 2
Land Plot 4 New Cairo City Lakeside Company Egyptian - 336,000 1,345,680 4,005
Libyan
Land Plot 5 Sixth of October Egyptian Centers & Al Egyptian - 882,000 1,148,364 1,302
City Hakeer consortium Saudi
Land Plot 6 El Sheikh Zayed Prince Meshaal bin Abdel Saudi 1,722,000 1,700,000 987
City Aziz Company
Total 19,488,000 17,522,996
Source: Al Ahram Newspaper
The recently implemented luxurious housing projects, such as Katameya Heights and Palm
Hills, have mostly covered the market demand of high quality housing units. Meanwhile, the
middle and low class units’ supply is far below demand. The middle and low cost housing
is facing a severe shortage, based on the fact that most of the new real estate projects are
targeting the upscale segment, as it yields higher margins. In fact, the Egyptian Real Estate
sector faces a disparity in the supply and demand, regarding the quality of the housing units,
where the high quality housing units are oversupplied, while the middle and low quality
housing units, which are more demanded, are in scarce.
Though the mortgage finance law was issued since 2001, the real enforcement was not
effected to date. The government is trying to overcome the hurdles against the application
of the mortgage finance, which once implemented will result in surge in the demand of real
estate development projects.
As per the Chairman of the Mortgage Finance Authority (MFA), the value of the mortgage
finance reached LE2bn in 2007, compared to LE1bn in 2006 and it is expected to reach
LE 5bn by the end of 2008, reflecting the government’s continuous efforts to facilitate all
the obstacles that hinder the full application of the mortgage finance. Currently, there are
five mortgage finance companies, which contribute together to 25% of the total mortgage
finance value, leaving the remaining 75% to the banks. The five companies are the Egyptian
Housing Finance Company, Al Taamir, Al Tamweel, Amlak and Al Tayseer. In addition,
a new mortgage company is under incorporation to securitize long-term receivables of the
public stake of the Holding Company for Building and Construction’s subsidiaries.

One main obstacle was the property registration (an obligation to provide loans), which was
overcome by cutting the registration fees from 12% to 3% of the property value, with a
maximum of LE2,000. However, the property registration is still optional. The government is
currently trying to increase the awareness about the benefits of being registered and it wishes
to register all the country’s properties over the next five years.
Another impediment to the full execution of the mortgage finance system in Egypt is the
availability of cheap long-term funding, which is the main reason of the current high lending
rates, at 13-14%. However, the establishment of the Egyptian Liquidity Facility (ELF),
which will take the role of the market maker through re-financing the portfolios of banks
and mortgage companies at fixed interest rates, lower than the prevailing market rates, is
expected to push down the lending rates to 10-11% in 2008.
Apparently, the government continuous efforts to put into effect the mortgage finance
coupled with the growing demand are expected to encourage housing developers to build and
to manage selling the middle and low cost housing units. The mortgage finance system will
facilitate the process of selling the housing units, where demand will find a mean of finance
and the supply will be more confident of getting his investment back.
The Egyptian Real Estate sector’s current boom is expected to move further on the back of the
positive outlook on the Egyptian economy, with an expecting growth rate of 8% in 2007/08.
The economic reforms implemented by the government have created more confidence and
strength in the country’s business environment. Nevertheless, there are some concerns that
might slow down the sector development. The apparent one lies in the tremendous increase
witnessed in the land prices, subsequent to the government’s land auction held on May
2007. These price increases would definitely raise the housing units’ costs. Furthermore, the
increase in the building materials’ prices, as well as the liberalization of the energy prices
would push prices upward. According to the market developers, the housing units’ prices
increased significantly by more than twice since 2005.
We believe that the Egyptian real estate sector will still grow, maybe at a lower pace, on the
back of the demand for office and commercial facilities, as well as the growth in tourism
facilities. The housing demand, though is still high, have to be met by the appropriate
supply.

Cement
In 2007, the cement sector in Egypt witnessed major changes in its structure and future
capacities. Demand for cement has been growing at high pace, both locally and for export
markets, on the back of a regional construction boom with total investments amounting to
US$1.5trn. Though the cement sector produces beyond the local consumption figures, the
local market faces tremendous increases in the price. This was due to the lucrative export
prices in comparison to the local market, which forced many cement traders and agents to
orient their inventories towards export market.
Egypt enjoys various competitive edges when it comes to cement production. The cheap and
abundant raw materials, the cheap labor and up till now the cheap energy, more and above
the geographical location of Egypt has set it as a major cement exporter, for its proximity to
Europe through the north coast and to the GCC, where the demand is extremely high, through
the east coast.
As the exports increased, the available quantities for the local market squeezed, causing a
hike in the local cement prices from an average of LE240 per ton in 2005 to LE360 per ton in
2006, to reach LE415 in 2007. The government of Egypt, trying to ensure the local supply of
cement to cover the increasing demand locally, has put a price cap of LE290 per ton on the
ex-factory prices and the maximum consumer price will be LE330 per ton. In addition, it has
decided to limit exporting activity to the factories only and banning agents and distributors
from selling abroad.
As a matter of fact, the government intervention should have limited the export market to
the cement producers only, with no price ceiling enforcement. The real problem lied in the
actions taken by many cement agents and distributors, who were driven by the surge in export
prices in neighboring countries (up to US$200/ton in Sudan and an average of US$84/ton in
the GCC, as compared to US$59/ton locally) and stored considerable amounts of cement for
export market, creating a shortage in the local market.
In another attempt from the Egyptian government to ensure local supply of cement at
reasonable prices, a decision was taken on the 28th of February 2007 to impose a duty of
LE65 (US$12) per ton of exported cement. The government’s decision was a reaction of the
fictitious shortage of cement for the local market, while the local production exceeds the
current country’s demand.
Apparently, the export duty was not severe enough to slow down the cement agents exportation
activities, so that the government further increased it to LE85 (US$15.5) per ton of exported
cement in August 2007. The problem is that the agents and distributors began passing the
new duty on the consumers, depriving the local market with its soaring demand on building
materials.
Another issue that might harm the competitive edge of Egyptian cement, for its relatively low
cost of production, is the liberalization of the energy prices for industrial purposes. As the
cement manufacturing is energy intensive, the government felt that the subsidy that should
go to the local consumers, is passed to exports and that the producers, as well as the agents
and distributors are making high profit margins. Consequently, the government has set a

3 years period, which began in August 2007, to liberalize the power prices for the energy
intensive industries, of which cement comes on top of the list. The government claims that
the liberalization of energy prices will save the country’s budget about LE15bn over the next
three years.
But again, this increase in energy prices is passed to the local consumers and more precisely
to the end user that is the property purchaser.
Currently, the Egyptian cement sector consists of 12 players, most of them are ruled by
Multinationals, who showed interest in the Egyptian cement market at the end of the 1990s.
Only one company among the twelve is owned by the Egyptian government that is National
Cement Company, while three firms are owned by the Egyptian private sector, these are Misr
Beni Suef Cement, Misr Cement Qena and Sinai Cement.
Table 20: Production Capacities (000s tons)

2006 2007
Italcimenti Group 11,800 11,800
Suez Cement 4,000 4,000
ASEC Cement (Helwan) 4,500 4,500
Torah Cement 3,300 3,300
The Egyptian Cement Company (OCI) 8,500 10,000
Assiut Cement (Cemex) 5,000 5,000
National Cement 3,500 3,500
Alex Cement Co. & Beni Suef Co. (Lafarge – Titan) 2,800 2,800
Amereyah Cement (CIMPOR) 3,700 3,700
Misr Cement - Qena 1,500 1,500
Sinai Cement 1,500 1,500
Misr Beni Suef Cement 1,500 1,500
Total 39,800 41,300
Source: Cement Companies Financials
In 2007, the total production capacity of the Egyptian cement sector reached 41.3mn tons,
while the actual production hit 38.4mn tons, an increase of 6% over 2006 production levels.
The country’s average utilization rate is 93%, with some companies operating over 100% of
their installed capacities. The local and regional demand has pushed cement manufacturers
to operate near their maximum capacities. The Italcimenti Group, consisting of Suez Cement,
Torah Cement and ASEC Cement (Helwan), controls over 29% of the Egyptian cement
production capacity, followed by Orascom Construction Industries’ cement arm, Egyptian
Cement Company with 24% of the total country’s capacities.
Chart 35: Egyptian Cement Producers in 2007

10,000,000
9,000,000
8,000,000
7,000,000
Tones
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
-
Torah ASEC National Assuit Ameryah Beni-Suef & Suez Cement Egyptian Sinai Misr Cement Misr Beni
Cement Cement Cement Cement Cement Alexandria (Italcimenti) Cement Cement Qena Suef Cement
(Helwan) (Cemex) (Cimpor) Cement Company
(Lafarge) (OCI)
Capacity Production

In 2007, cement demand attained about 34.5mn tons, with a rise of 14% over the previous
year, on the back of the construction boom, which is taking place in Egypt since 2004. It
is reported that the three Egyptian private sector cement producers are the ones with high
exportation levels, even after the government has set an export duty of LE80 per exported
ton of cement.
Chart 36: Egyptian Cement Producers’ Total Sales in 2007

10,000,000
9,000,000
8,000,000
7,000,000
Tones
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
-
Torah ASEC National Assuit Ameryah Beni-Suef & Suez Cement Egyptian Sinai Misr Cement Misr Beni
Cement Cement Cement Cement Cement Alexandria (Italcimenti) Cement Cement Qena Suef Cement
(Helwan) (Cemex) (Cimpor) Cement Company
(Lafarge) (OCI)
LocalSales Exports
The Italcimenti Group controls the highest market share in Egypt, through its subsidiaries,
with 31% of the total tonnage sold in Egypt in 2007, followed by Egyptian Cement Company
(ECC) with 21% market share. It is worth noting that ECC is the single biggest cement plant
in Egypt, with an installed capacity of 10mn tons per annum, after raising capacity in 2007
from 8.5mn tons/year.
Chart 37: Egyptian Cement Producers Market Share

2006 2007
Misr Beni Suef Misr Beni Suef

Cement Cement
1.7% Torah Cement 2.5% Torah Cement
Misr Qena Cement 3.7% Misr Qena Cement 3.5% 7.9%
9.2%
Sinai Cement 4.0% Sinai Cement 4.5%
ASEC Cement ASEC Cement
(Helwan) 9.6% (Helwan) 11.4%
National National
Egyptian Cement Egyptian Cement Cement 7.3%
Cement 8.7%
Company (OCI) Company (OCI)
18.0% 21.4%
Assiut Cement
Assiut Cement
(Cemex) 16.3%
(Cemex) 14.4%
Suez Cement Suez Cement

12.1% 11.3%
Amereyah Cement Beni-Suef& Amereyah Cement

Beni-Suef&
(Cimpor) 8.9% Alexandria (Cimpor) 7.9%
Alexandria
Cement (Lafarge) Cement (Lafarge)
9.7% 8.7%
Egypt’s total cement exports declined by some 30% between 2006 and 2007. During 2007,
the total cement exports reached 4.2mn tons as opposed to 5.8mn tons the year before. The
government export duty has proved its effectiveness in decreasing the exported volume but
failed in maintaining local prices at reasonable levels. After an average price per ton of
cement of LE326 in 2006, prices soared to LE415/ton in 2007, a surge of 27%.

By the end of October 2007, the Egyptian government opened bids for licenses of new cement
capacities, either for new entrants or existing players who wish to increase their production
capacities. The bid resulted in 8 out of 10 new licenses, worth LE1bn and an estimated total
investment cost of LE17bn.
Table 21: Cement licenses bid winners

License Capacity
Company License Type Governorate Area
Cost (LE mn) (mn tons)
Nile Valley Cement Co. Greenfield 251 Beni Suef Upper Egypt 1.5
El Sewedy Cement Co. Greenfield 201 Suez East 1.5
El Arabeya El Wataneya Greenfield 200 El Menya Upper Egypt 1.5
El Nahda for Industries Greenfield 83 Qena Upper Egypt 1.5
Sinai Cement Co. Greenfield 44 North Sinai North East 1.5
Egyptian Kuwaiti Holding Greenfield 22 Assiut Upper Egypt 1.5
No Bids Greenfield - Sohag Upper Egypt -
El Wadi Cement Company5 Greenfield N.A El Wadi El Gedid South West 1.5
Assiut Cement Co. (Cemex) Expansion 202 Assiut Upper Egypt 1.5
Beni Suef Cement Co. (Lafarge) Expansion 135 Beni Suef Upper Egypt 1.5
Total 1,138 13.5
Source: Industrial Development Authority (IDA)
Most of the licenses were oriented towards Upper Egypt, where the country is far less
developed and the government has announced developmental plans worth LE3.2bn in the
period between 2007 and 2012. The 13.5mn tons of new capacities are to drastically change
the Egyptian cement sector. It is forecasted that by 2010, the total production capacity of
cement would be over 60mn tons per annum, while the consumption is projected to grow to
approximately 50mn tons.
It is worth noting that the capacities additions will synchronize with regional cement
expansions, especially in the Kingdom of Saudi Arabia, where the cement production
capacities would reach 54.4mn tons by 2010 compared to the estimated 2007 production at
32.5mn tons. Also, the UAE is to double cement capacities from 13mn tons in 2006 to 26mn
tons in 2010. In turn, the added capacities will create an over supply in the region, leading to
price wars. Only those who can produce at a competitive price, will be able to survive.
5 On January 2008, the IDA announced that a new cement plant license in South Valley governorate has been
granted to El Wadi Cement Company. The new plant will have a 1.5 mn ton production capacity, with production
starting within a maximum 3-year period. On the other hand, the license for the new plant in Sohag governorate
will be re-offered within a month, after all the companies that applied for the license have been disqualified.

Stock Market
In 2007, the Egyptian stock market, represented in the CASE 30 index, recorded a 51%
return, ranking Egypt as the 3rd highest growth among the Arab stock exchanges, after Oman
and Abu Dhabi.
Chart 38: CASE 30 Index performance in 2007

11,000
51%
10,500
10,000
9,500
9,000
8,500
8,000
7,500
7,500
6,500
6,000
12/29/07
12/14/07
11/29/07
11/14/07
10/30/07
10/15/07
9/30/07
9/15/07
8/31/07
8/16/07
8/1/07
7/17/07
7/2/07
6/17/07
4/3/07
6/2/07
3/19/07
5/18/07
3/4/07
2/17/07
5/3/07
2/2/07
4/18/07
1/18/07
1/3/07
Source: CASE
This strong return came on the back of the positive outlook on the Egyptian economy in
general with a GDP growth of 7.1% in 2006/07 as well as the buoyant corporate earnings.
The Egyptian stock exchange, as a maturing market, is more closely correlating to the
performance of the whole economy.
Table 22: Arab Indices 2007 return

Exchange Index 2007 Return
Oman MSM 30 61.88%
Abu Dhabi ADGI 51.74%
Egypt CASE 30 51.29%
Dubai DFM 43.72%
KSA TASI 40.87%
Jordan ASE 36.27%
Qatar Global General Qatari Index 40.40%
Morocco MASI 33.92%
Kuwait Global General Index 29.50%
Bahrain Global Bahraini Stock Index 26.50%
Tunisia TUNINDEX 12.36%
Source: Arab Stock Exchanges websites, Global research.
Also, the Cairo and Alexandria Stock Exchanges (CASE) managed to execute various
developmental measures that have positively affected the stock market performance during
2007. Increasing the number of companies traded without a price ceiling from 55 to 151,
in addition to, shortening the settlement period on all the listed stocks to (T+2), instead of
partially having (T+3) stocks, have positively affected the market’s performance. In turn,
resilience to market shocks has boosted, directly affecting the local and the foreign investors
confidence in the Egyptian stock market. This was revealed in the increasing volume and
value of the traded stocks by 47% and 19%, respectively in 2007 comparison to 2006.

At the same time, CASE new listing rules along with effecting the compliance with the
corporate governance on the listed companies has decreased the number of listed companies
by 27% but the Market Capitalization soared by 44% at the end of the year, compared to the
end of 2006. Moreover, the percent of the traded companies as opposed to the number of
listed companies has moved up to 77% by the end of 2007, compared to 68% the previous
year.
Chart 39: Market Cap. vs. number of listed and traded companies
1,000 1,000
800 800
600 600
LE Bn
Companies
400 400
200 200
- -
2003 2004 2005 2006 2007
Market capitalization end of year (LEbn) Number of listed companies
Number of traded companies
Source: CASE
The Egyptian stock market efficiency rose over years as shown by the continuous increase
in the Market Cap. Another reflection for the measures taken by both CASE and the CMA
to increase the market’s efficiency is the development of both volume and value of trading
over the years.
Chart 40: Volume vs. value development
16 400
14 350
12 300
LE Bn
Billion Shares
10 250
8 200
6 150
4 100
2 50
- -
2003 2004 2005 2006 2007
Total value traded (LE Bn) Total volume (Bn)
Source: CASE
All these measures have encouraged family businesses to widen their asset base through
Initial Public Offerings (IPOs) on CASE. Two successful IPOs have taken place in 2007,
Ghabbour Auto, the first automotive company to be listed on the Egyptian exchange, and
Talaat Mostafa Group (TMG), the real estate developer, which offering was covered 42
times, a new record for an offering coverage on CASE.

Table 23: Stock Market Indicators

2004 2005 2006 2007
Volume of listed securities 1.79 4.20 7.76 11.38

Volume of unlisted securities 0.65 1.11 1.32 3.71
Total volume (Bn) 2.43 5.31 9.08 15.09
Value traded (listed securities) 36.14 150.92 271.11 321.52

Value traded (unlisted securities) 6.23 9.71 15.63 41.20
Total value traded (LE Bn) 42.37 160.63 286.74 362.72
Average monthly value traded (listed securities) 3.01 12.58 22.59 26.79
Average monthly value traded (unlisted securities) 0.52 0.81 1.30 3.43
Total (LE Bn) 3.53 13.39 23.90 30.23
Number of transactions (Listed securities) 1,675 3,922 6,590 8,713

Number of transactions (unlisted securities) 68 218 231 301
Total number of transactions (000s) 1,744 4,210 6,821 9,014
Number of listed companies 795 744 595 435

Number of traded companies 503 441 407 337
Average monthly traded companies 200 186 183 199
Market capitalization end of year (LE Bn) 234 456 534 768
Market cap. as % of GDP 51% 90% 92% 112%
Turnover Ratio (%) 14.2 31.1 48.7 38.7
The Turnover Ratio is calculated annually
Securities include stocks, bonds and mutual funds
Source: CASE
After a 17% increase between 2005 and 2006, the Market Capitalization, as aforementioned,
surged by 44% at the end of 2007 compared to end of 2006. The main sectors contributing in
this hike in Market Cap were the Construction and Materials sector, supported by Orascom
Construction Industries (OCI), followed by Telecommunications, assisted by Orascom
Telecom Holding (OTH) and Telecom Egypt. The Banking sector came in third with support
of Commercial International Bank (CIB) and National Societe General Bank (NSGB).
Chart 41: Sectoral contribution to Market Cap. (as of Dec. 2007)

6.7% 6.6%
6.8%
5.3%
9.0% 4.2%
1.8%
3.6%
1.8%
1.6%
4.6%
10.3%
0.4%
0.3%
0.3%
0.2%
20.8%
20.3%
Construction & Materials Telecommunications

Banks Real Estate
Financial Services excluding Banks Industrial Goods & Services & Automobiles
Basic Resources Travel & Leisure
Chemicals Personal & House Products
Healthcare & Pharmaceuticals Oil & Gas
Food & Beverage Technology
Utilities Media
Retail
Source: CASE Monthly Report (December 2007)

It is worth noting that the non-Arab foreign institutional investors have been net buyers of
shares every month throughout 2007, with a total value of LE 15.7 billion, representing 19%
of the market. The Foreigners, both Arab and non Arabs, trading value of 2007 reached an
unprecedented 32%, which further reflect the confidence that grew in the Egyptian market.
In September 2007, CASE inaugurated 12 sector indices, based on new sectors distribution,
which decreased the number of sectors from 22 to 17 sectors after redistributing the traded
companies among these sectors based on their main activities and their main source of
revenues. The existence of these indices has helped investors better allocate their money
among different sectors.
In October 2007, CASE announced the establishment of Nile Stock Exchange (Nilex) as the
first bourse in the MENA region for Small and Medium Enterprises (SMEs). Nilex offers
SMEs, including family-owned businesses, from any country and any industry sector, a
simple access to capital and the benefits of being traded. The launch of Nilex gives CASE a
closer step towards maturity and brings in more depth to the Egyptian stock market.
The Egyptian stock market despite its continuous rise is still in the low range in terms of
PEs and high on the DY, when compared to other Middle Eastern and African markets. The
attractiveness of the Egyptian market lies in its relatively cheap valuation, when compared to
other stock markets in the Middle East, in addition to strong companies’ fundamentals and
high forecasted growth, as well as, the diversity of the traded stocks under different sectors.
In 2008, CASE plans to be the first stock exchange in the region to introduce the Market
Makers legislations, as a new tool to attract more investors. Also, the regulations ruling the
Exchange Traded Funds (ETFs) are concluded and the bid is open for investment companies
to propose for the establishment of the first local CASE 30 index ETFs. The bid winners are
expected to launch the ETFs by the second quarter of 2008.

Corporate Earnings
The Egyptian companies witnessed moderate growth in terms of profitability throughout
2006. The top 55 companies by market capitalization in the Egyptian stock exchange achieved
an increase of 14% in the net profit in 2006. The top 55 companies represent around 66%
of the total market capitalization. The Real Estate and the Technology sectors reported the
highest growth by 115% and 70%, respectively. Meanwhile, the Construction and Materials
and Telecommunications sectors, which contributed together to about 57% of the earnings of
the top 55 companies, rose by 46% and 9%, respectively.
Moreover, the Travel and Leisure sector’s earnings grew by 62% in 2006, Oil and Gas by
54% and Chemicals by 22%. On the other hand, some sectors’ earnings went down, the
Banking sector, for instance, declined by 34%, followed by the Food and Beverage and
the Retail sectors, which decreased by 6% and 4%, respectively. This drop in the Banking
sector’s earnings is considered a non-recurring one, as it reflects the impact of the mergers and
acquisitions deals implemented throughout the year, which negatively affected the earnings of
these banks, namely National Societe Generale Bank (NSGB) and Credit Agricole - Egypt.
Table 24: Profitability of the Top 55 Companies by Market Capitalization

Net Profit/Loss Net Profit/Loss Sector % YoY Sector
Sectors No. of % Growth
(LE 000) (LE 000) Weight Growth Weight
FYE (December) Co. s* 2006
2005 2006 2006 Sept 2007 Sept 2007
Real Estate 7 189,853 407,522 115% 2% 177% 1%
Technology 1 39,702 67,596 70% 0% 13% 0%
Travel & Leisure 1 180,913 293,925 62% 1% 26% 1%
Oil and Gas 1 517,472 795,590 54% 4% -10% 1%
Construction and Materials 7 2,590,963 3,776,088 46% 18% 40% 16%
Chemicals 3 924,101 1,126,572 22% 5% 15% 4%
Healthcare and Pharmaceuticals 1 161,952 196,544 21% 1% 12% 1%
Financial Services excluding Banks 5 805,646 975,972 21% 5% 72% 6%
Media 1 29,648 34,525 16% 0% 8% 0%
Personal and Household Products 8 968,748 1,079,745 11% 5% -4% 2%
Telecommunications 3 7,485,764 8,160,718 9% 39% 75% 42%
Basic Resources 2 2,826,241 3,002,365 6% 14% 19% 14%
Industrial Goods and Services and
2 (24,610) (24,623) 0% 0% 61% 2%
Automobiles
Retail 1 46,109 44,113 -4% 0% 998% 0%
Food and Beverage 6 162,167 152,392 -6% 1% 37% 0%
Banking 6 1,614,725 1,067,781 -34% 5% 61% 9%
Total 55 18,519,392 21,156,826 14% 100% 49% 100%
* It includes the top 55 companies by market capitalization, representing around 66% of the total market
capitalization, as of December 31st, 2007.
Source: CASE
In 2007, the y-o-y growth up to September reached 49%, supported by the Telecommunications
and Construction and Materials sectors, which rose by 75% and 40%, respectively. It is worthy
to note that these sectors contribute to the bulk of the total earnings, 58% as of September
2007. Furthermore, the Banking sector turned its negative performance to an increase of
61%, showing the real profitability of the sector, after covering the costs of the mergers and
acquisitions, as well as meeting the Non Performing Loans’ provisions.
We believe 2008 corporate earnings will be mainly led by the growth in the banking sector,
as well as the real estate conditional to the mortgage finance implementation. Also, the
telecommunication sector will still be the growth driver of the corporate earnings.

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Kuwait. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any
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by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this
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Global Research Economic

Egypt Economic & Strategic Outlook

1 Egypt’s ﬁscal year begins July and ends in June

February 2008 Economic & Strategic Outlook 1

The overall balance of payments registered a surplus of US$5.28bn in 2006/07, compared to

2 Economic & Strategic Outlook February 2008

February 2008 Economic & Strategic Outlook 3

4 Economic & Strategic Outlook February 2008

February 2008 Economic & Strategic Outlook 5

Economic News Flow (January 2007 to January 2008)

6 Economic & Strategic Outlook February 2008

February 2008 Economic & Strategic Outlook 7

8 Economic & Strategic Outlook February 2008

February 2008 Economic & Strategic Outlook 9

• Accelerating the privatization program by means of more liberal practices in asset

10 Economic & Strategic Outlook February 2008

February 2008 Economic & Strategic Outlook 11

Gross Domestic Product

Table 1: Gross Domestic Product

Chart 1: GDP Growth

Nominal GDP (LEbn) Real GDP Growth Rate (%)

12 Economic & Strategic Outlook February 2008

Table 2: GDP Composition by Economic Activity

February 2008 Economic & Strategic Outlook 13

Table 3: GDP Composition by Expenditure Activity

14 Economic & Strategic Outlook February 2008

Table 4: Government Finances (Budget Sector)

February 2008 Economic & Strategic Outlook 15

Table 5: Breakdown of Government Revenues

16 Economic & Strategic Outlook February 2008

Table 6: Breakdown of Government Expenditures

February 2008 Economic & Strategic Outlook 17

18 Economic & Strategic Outlook February 2008

Table 7: Public Debt (End of Period)

Chart 2: Public Debt as % of Nominal GDP

Gross Domestic Public Debt/GDP Gross External Debt/GDP

February 2008 Economic & Strategic Outlook 19

20 Economic & Strategic Outlook February 2008

Chart 3: Composition of Merchandise Exports for 2006/07*

February 2008 Economic & Strategic Outlook 21

Chart 4: Exports by Region (2006/07*)

Europe (excl. EU)

22 Economic & Strategic Outlook February 2008

Chart 5: Composition of Merchandise Imports (US$ millions)

Fuels, Mineral Oil & Products Raw Materials

Chart 6: Imports by Region (2006/07*)

USA Europe (excl.EU)

February 2008 Economic & Strategic Outlook 23

Table 8: Current Account

24 Economic & Strategic Outlook February 2008

Chart 7: Suez Canal Trafﬁc

Capital & Financial Account and Balance of Payment

Table 9: Balance of Payment

February 2008 Economic & Strategic Outlook 25

Foreign Direct Investment

Chart 8: Foreign Direct Investment (in US$ mn)

USA EU Arab Countries Others

26 Economic & Strategic Outlook February 2008

Table 10: Sectoral Distribution of Net FDI Inﬂows (US$ mn)

Chart 9: Net FDI Inﬂows distributed by sector

Source: Ministry of Investment

February 2008 Economic & Strategic Outlook 27