EGYPT

COUNTRY OVERVIEW

LOCATION AND SIZE.

The Arab Republic of Egypt is located in North Africa, bordering on the Mediterranean Sea to the north, Libya to the west, the Gaza Strip to the east, and Sudan to the south. With an area of 1,001,450 square kilometers (386,659 square miles) and a coastline of 2,450 kilometers (1,522 miles), Egypt is slightly more than 3 times the size of New Mexico. Egypt's capital city, Cairo, is located in the north of the country.

POPULATION.

The population of Egypt was estimated at 69,359,979 in July of 2000, an increase of 17,115,079 from the 1990 population of 52,244,000. In 2000, Egypt's birth rate stood at 25.38 per 1,000, while the death rate was reported at 7.83 per 1,000. With a projected annual growth rate of 1.5 percent between 2000 and 2015, the population is expected to reach 92 million by the year 2030.

Egypt's population is the largest in the Arab world, and is generally young, with 35 percent below age 14 and just 4 percent older than 65. Almost 50 percent of the population is below 20 years of age and 39 percent under 15, presenting a real challenge to government in creating job opportunities. The vast majority of the population—94 percent—is Sunni Muslim. Coptic Christians, and other smaller religious groups represent 6 percent of the population, while smaller minorities—primarily Nubians, Armenians, and other Europeans—make up approximately 1 percent of the population.

A large number of Egyptians—44.9 percent in 1998—live in urban areas. The capital city of Cairo and its suburbs is home to the largest concentration of Egyptians, with a population of almost 7 million. Other major cities include Alexandria, which has a population of 3.3 million, and Port Said, with 469,000 inhabitants. Migration from rural to urban areas presents a serious problem for policy planners due to the heavy stress it places on services in major cities. Egypt is over-populated and continuing population growth places a major strain on land and resources alike. Most Egyptians are concentrated in the Valley and Delta of the Nile River, areas that account for only one-third of the entire land surface of Egypt. The rest of the country is largely uninhabited desert.

Family planning policies were first adopted in the 1950s, but it was not until the mid-1980s that a government family planning body, the National Population Council (NPC), was established. The country's population policy has addressed multiple issues, focusing on the promotion of primary health care, encouragement of family planning in rural areas, and the reduction of infant and maternal mortality. The annual population growth rate has dropped dramatically in recent years, reaching 1.9 percent in 1998. The drop can be credited to carefully designed and well-financed family planning policies adopted since the mid-1990s by the government of President Mubarak. In 1995, the Family Planning Association (FPA) was formed to complement government health services and to provide family planning services through its clinics and voluntary organizations. In conjunction

INDUSTRY

MINING.

Egypt's main mining activity revolves around the extraction of crude oil. The country is not a major producer of oil, and its reserves are small by regional standards. According to the EIU Country Profile for 2000-01, oil reserves were estimated at around 3.8 billion barrels in July 2000; in comparison, Saudi Arabia has over 260 billion barrels of proven and unproven reserves. Until 1998, Egypt produced an average of 880,000 barrels a day of crude oil, the majority of which was refined domestically, but production has steadily declined since 1998, mainly due to the depletion of the main oil fields. In July 1998, production reached 840,000 barrels a day, but had declined to 787,660 barrels a day in 1999.

Despite declining production, however, oil remains a significant source of government revenue and export earnings. The decline in crude oil exports in recent years has been mainly due to rising domestic demand and depressed world oil prices in 1998. As a result, crude oil exports, which accounted for 55 percent of overall export earnings in 1992-93, accounted for only one-quarter of overall export earnings in 1998-99.

Most oil production is concentrated in the Gulf of Suez, which produces 79 percent of Egypt's oil. Oil exploration activity is also taking place in the Western Desert near the Libyan border, offshore in the Mediterranean, and in the Sinai Desert. Unlike their neighboring Arab countries, where the state maintains full control of the oil industry, Egypt's oil production is dominated by foreign companies, working in conjunction with the state-owned Egyptian General Petroleum Corporation. The bulk of oil exploration activity is undertaken by large foreign companies, mainly British Petroleum and the Italian company AGIP. In recent years, the government has awarded exploration rights to a number of small local companies, but their presence is minimal in comparison to the foreign giants.

According to the EIU Country Profile for 2000-01, Egypt is one of the largest producers of refined oil goods in Africa, producing 35 million tons of refined goods annually. Refineries are based in Suez and Sidi Keir. Output in the sector has increased since 1994, when the private sector was allowed to enter the refineries business.

In addition to the extraction of crude oil, Egypt has natural gas reserves estimated at 45 trillion cubic feet, while potential reserves were estimated at a further 75 trillion cubic feet in year 2000. So as to increase oil exports, the government has adopted a policy of promoting the use of natural gas for domestic consumption. Gas production is mostly concentrated in the Nile delta region and the Western Desert, and is mostly used for power generation. Natural gas production is expected to rise in the coming years as the government concludes several agreements with its neighbors, mainly Israel, Jordan, and the Palestinian Authority. In July 2000, the government signed an agreement with the Spanish electricity company Union Fenosa to supply almost 25 percent of Spain's annual natural gas consumption.

Most of Egypt's coal reserves are located in Sinai and are estimated at 50 million tons. Egyptian coal, however, is of poor quality, and previous plans to increase production have been abandoned due to the sector's lack of economic viability. Egypt also produces limestone and phosphates, which are mined near Bur Safaga and Quseir on the Red Sea, and iron ore is extracted at the Baharia oasis in the Western Desert. Other minerals, such as manganese, gold, zinc, tin, lead, copper, potash, sulphur, and uranium, can also be found in Egypt, but their mining is limited because of the high cost involved in their exploitation and transportation.

MANUFACTURING.

The manufacturing sector is an important and growing contributor to the Egyptian economy, with production dominated by large state-owned enterprises. Industrial activity grew rapidly in the 1970s and early 1980s as a result of the oil boom in the Gulf and the influx of large Arab investments in Egypt, recording an annual growth rate of 10 percent or more. Growth, however, has since slowed down, although the private sector has expanded since 1996, and its contribution has increased dramatically as a result of economic liberalization. By contrast, growth in the public sector's industrial production has declined sharply, mainly thanks to the legacy of centralization and inefficiency that characterizes state-controlled manufacturing industries. One example is textile manufacturing, once one of the largest industries in Egypt. The sector, which continues under state monopoly , has been largely inefficient, and beset by problems ranging from the lack of modern machinery to over-employment of workers. By contrast, the privately owned ready-made garment industry has been booming.

Egyptian companies produce a wide range of goods. Textiles and food processing account for the largest share of Egypt's manufacturing revenue. Other manufactured goods include furniture, ceramics, and pharmaceuticals. The termination of public sector monopoly over the production of automobiles in 1991 has led to a considerable growth in the car assembly sector. Egypt has a fledgling computer software industry that the government has encouraged. Heavy industries, including iron and steel production, are based in Helwan, outside Cairo, and in Dikheila, near Alexandria. Aluminum production is based in Nag Hammadi, while the production of chemicals is concentrated in Aswan. Since the 1970s, the government has attempted to encourage industrial production in non-agrarian regions in order to relieve the congestion in the main cities. As a result, 7 free zones (areas within which goods are received and stored without payment of duty ) have been established throughout the country, and industrial production in those areas is subject only to minimal regulations.

The country's large defense industry employs around 75,000 workers. The sector assembles arms for export, mainly to the United States, and manufactures industrial goods for consumption in the civilian sector. Egypt has attempted to capitalize on one commodity where it maintains a significant advantage: cheap labor. The government has moved in recent years to develop an information technology industry, which has been growing at the rate of 35 percent annually. Plans were underway in 2001 to train software engineers and programmers to increase the fledgling industry's potential and to boost computer software export over a 3-year period from US$15 million to US$1 billion.

CONSTRUCTION.

The construction sector is a major contributor to the Egyptian economy and one of its fastest-growing sectors. This growth, estimated at an average of 20 to 22 percent annually since the 1980s, is fueled by the ever-increasing demand for housing and by the state's large infrastructure projects. Among these projects are the Greater Cairo Wastewater Project, considered one of the largest sewerage developments in the world, and the US$88.5 billion South Valley Development project, which aims to create an alternative delta along the Nile and relocate urban communities so as to ease the severe congestion in the major cities.

Most of the material required for the construction sector is produced locally. Local cement production, amounting to 24 million tons annually and meeting more than 70 percent of domestic demand, is expected to increase over the coming decade due to heavy government investment in the sector. Private companies have also been allowed to compete in the production of cement, which continues to be dominated by state-owned companies. The construction industry is expected to continue its upward trend in the coming years as a result of continued government and private business expenditure, anticipated to reach 20 billion Egyptian pounds annually.

SERVICES

TOURISM.

Despite the drop in revenue as a consequence of political violence, tourism remains a significant contributor to Egypt's economy and the premier source of its foreign exchange earnings. The sector has huge potential, owing to the country's rich archeological heritage, such as the pyramids and other major attractions, as well as attractive tourist destinations on the Red Sea. The majority of visitors to Egypt, almost 61 percent, come from Western and Southern Europe. Tourists from other parts of the Middle East, especially from the Arab Gulf region, account for 19 percent of the total number, while Americans and Eastern Europeans each represent 6 percent of the total, and Asian visitors make up 5 percent.

The sector's growth has been stifled by periodic Islamic political violence, the absence of adequate facilities, and poor government management of state-owned tourist enterprises. The tourism industry suffered a sharp decline from October 1992, when the militant Islamic movements waged their war to discredit the state. The sector began to recover in 1995, with a record 4 million tourists visiting the country in 1996-97 and generating some US$3.7 billion in tourist receipts. This upward trend was reversed after the November 1997 massacre in which 58 tourists were killed while visiting the Luxor archeological site. The sector has managed to recover quickly, with some 4.8 million tourists visiting the country in 1999, spending some US$4 billion. According to the EIU Country Profile for 2000-01, tourism revenue is believed to have risen by 33 percent in 1999-2000, generating a record US$4.3 billion. Plans are underway to achieve a 12 percent growth in the tourism sector by the year 2005 by attracting some 9.5 million tourists annually over the next 5 years. The sector employs some 2.3 million people.

Major international hotels have a presence in Egypt. These include the Four Seasons, Sheraton, Hilton, and Marriott chains, among others, and there are major resort complexes, especially on the Red Sea. The most visible growth area of the tourist industry is the operation of Nile cruises. Dozens of cruise ships, many owned and operated by foreign companies, and particularly popular with British visitors, ply the river between Aswan and Luxor, stopping to take visitors ashore to the major cultural sites of Ancient Egypt. These cruises are accompanied by teams of licensed and highly qualified Egyptian guides.

THE SUEZ CANAL.

The other major component of Egypt's service industry is the Suez Canal, which links the Red Sea to the Mediterranean. The canal generates revenue from fees charged for shipping to pass through the canal. Some 13,490 ships passed through the Suez Canal in 1999. Twenty-five percent of the tankers that pass through the canal carry petroleum and petroleum products from the Gulf region to the United States, while the remaining 75 percent carry dry goods. According to the EIU Country Report for 2000, revenue from the canal has declined steadily since 1994, down to US$1.7 billion in 1998, from US$2.1 billion in 1994. Despite the government's efforts to promote the Suez Canal, receipts have remained sluggish, largely due to competition from alternative routes and the effects of the economic slowdown in Asia. The government is currently attempting to deepen the canal to accommodate huge tankers, and has changed its pricing policies to make usage of the canal more lucrative to international traffic.

FINANCIAL SERVICES.

For an economy of its size, Egypt's banking system is underdeveloped. Most of the services provided by the banking sector remain basic, with the majority of transactions in the country still conducted using cash. Regulatory controls are inefficient, and the banking sector in general is not only overstaffed, but also suffers from a lack of well-trained or experienced employees. State-owned banks suffer from low capitalization and a high percentage of poorly performing loans.

The roots of the banking sector's inefficiency can be found in the nationalization policy implemented by President Nasser between 1957 and 1974. In that period, private banking was banned and only state banks were allowed to operate. State-owned banks still dominate the banking market, even though private banks were once again allowed to operate in 1974. In 1992, foreign banks were allowed to engage in local operations, reversing a policy that had restricted them to foreign currency business since 1974. But it was not until 1995 that foreign banks were allowed a majority ownership in local banks, a right denied them under the previous 1974 regulations. Efforts to reform banking and raise it to international standards are ongoing, with reform focused on improving the regulatory and institutional aspects of the sector. The government, however, has thus far been reluctant to cede control of the financial sector for both financial and political reasons. The privatization of the 4 state-owned commercial banks has been delayed on the pretext of popular opposition to such a move. The commercial banks provide banking and credit services to remote areas, and are profitable partners in the government's large development projects.

The banking sector is controlled by the Central Bank of Egypt, which sets banking and monetary policies through the control of interest rates, liquidity , and reserve ratios . The central bank also sets fees charged for the various transactions conducted in the sector. According to the EIU Country Report for 2000-01, there are currently 81 banks operating in Egypt, including 28 commercial banks, 32 investment banks, 2 real estate banks, 18 agricultural banks, and 3 specialized banks. The commercial banks are by far the most important, providing more than 75 percent of loans and accounting for more than 90 percent of deposits. As a result of the excessively large number of banks operating in the market, the Central Bank has placed a ceiling on the entrance of new banks, both Egyptian and foreign, into the market. The banking sector has been hit by a liquidity crisis that has affected the market since 1998, mainly as a result of indirect pressure from the government to limit credit to importers in order to control currency fluctuation. Interest rates have, as a result, remained high, averaging over 10 percent in the first 6 months of 2000.

Egypt has one of the oldest stock markets in the Middle East. Established in 1906, the Cairo and Alexandria stock exchanges were forced to close in 1961 as a consequence of President Nasser's nationalization drive. The 2 markets re-opened in 1986 in line with President Mubarak's privatization program. A 1992 law paved the way for the reorganization of the stock markets in Egypt, granting the Capital Markets Authority wider regulatory powers. A 2 percent capital gains tax was abolished in 1996 to encourage investment in the stock market. The 2 markets are now open to foreign investors, but interest in trading has declined over the last few years as a result of government mismanagement and eroding confidence in the country's political environment. According to the EIU Country Profile for 2000-01, the market grew by 157.9 percent in 1994, following the passage of the Capital Markets Law. The market's inconsistent performance since 1994 has been largely determined by the pace of the government privatization program.

INSURANCE.

Egypt has a large domestic insurance market, dominated by 4 state-owned companies that control almost 90 percent of the insurance market. Since May 1995, the lifting of restrictions that prevented foreign companies from being majority holders in domestic insurance companies has encouraged foreign activity in the Egyptian insurance market. The government is currently reviewing the viability of privatizing the 4 state-owned companies.

RETAIL.

The absence of large commercial centers other than Cairo and Alexandria has resulted in a poorly developed retail sector. While Cairo and Alexandria are home to a variety of retail stores, including fast food franchises such as KFC and McDonald's, the majority of towns in the interior of the country rely on small family-owned shops, farmer's markets, and temporary roadside stands.

DEPENDENCIES

Egypt has no territories or colonies.

BIBLIOGRAPHY

Bush, Ray. Economic Crisis and the Politics of Reform in Egypt. Boulder, Colorado: Westview Press, 1999.

Economist Intelligence Unit. Country Profile: Egypt, 2000-01 .London: Economist Intelligence Unit, 2000.

Handy, Howard, et al. Egypt: Beyond Stabilization, Toward a Dynamic Market Economy. Washington, D.C.: International Monetary Fund, 1998.

Marr, Phebe, ed. Egypt at the Crossroads: Domestic Stablity and Regional Role. Washington, D.C.: National Defense University Press, 1999.

U.S. Central Intelligence Agency. World Factbook 2000. <http://www.odci.gov/cia/publications/factbook/index.html> . Accessed July 2001.

U.S. Department of State. FY 2001 Country Commercial Guide: Egypt. <http://www.state.gov/www/about_state/business/com_ guides/2001/nea/index.html> . Accessed July 2001.

Waterbury, John. The Egypt of Nasser and Sadat: The Political Economy of Two Regimes. Princeton, N.J.: Princeton University Press, 1983.

—Reem Nuseibeh

CAPITAL:

Cairo.

MONETARY UNIT:

Egyptian Pound. One hundred piastres equals one Egyptian pound. Notes are in denominations of 1, 5, 10, 20, 50, and 100 pounds, and coins in denominations of 5, 10, 20, 25, and 50 piastres.

CHIEF EXPORTS:

Crude oil and petroleum products, cotton, textiles, metal products, and chemicals.

CHIEF IMPORTS:

Machinery and equipment, foodstuffs, chemicals, wood products, and fuels.

GROSS DOMESTIC PRODUCT:

US$200 billion (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US$4.6 billion (f.o.b., 1999 est.). Imports: US$15.8 billion (f.o.b., 1999 est.).