The history of Egypt The profile of Egypt

The Economy of Egypt
[Introduction] [Background] [Economic Structure] [Egypt and the Global Economy] [Summry]
[Special Features]


Egypt is a large and fast expanding economy. It is the largest in the Arab World, the second largest in the Middle East and North Africa, and is in the process of positioning itself to become one of the fastest growing emerging economies in the world by the year 2000. In fact the past few months saw several prominent observers marking Egypt among the most promising economies, and one that can achieve the highest levels of growth. A sample of the international publications which reflect this judgments includes:
? Merrill Lynch (1996), which expressed its belief that Egypt's reforms had proved successful in several significant aspects and that their ".... outcome places Egypt among the best performers in the emerging markets of Eastern Europe, the Middle East and Africa "
? James Capel Emerging Markets Research, (1995) that states that "This country represents a giant consumer market that could become one of the biggest markets in the region, and one of the main links between the Arab market and those of the Asian and African continents.";
? The World Economic Forum's 1995 World Competitiveness Report in which Egypt has an overall ranking of 27 out of 49 countries that are covered, a very favorable position when it is noted that the total includes the 25 most advanced OECD economies. The same report places Egypt among the key emerging markets, with top ranking for equal treatment of foreign business and a high ranking on several aspects important to foreign investment including that its national culture is open to foreign cultures. Major strengths are seen to be the country's manufacturing base, industrial location and fast growing services sector. Egypt also ranks first in import coverage of reserves and export coverage by imports.
? The UNCTAD World Investment Report (1996), according to which Egypt numbered ninth in the ranking of host developing economies to FDI flows in the decade 1981-92, with a cumulative value of $7.8 billion. In 1995, Egypt was the top recipient of FDI in the Middle East and North Africa with a flow of $1 billion, and the stock of FDI had reached $14.5 billion.
? An Economic Research Forum 1996 opinion survey shows that TNCs in Egypt plan to expand their investment, hire additional labor and increase exports. Foreign business agrees that in Egypt, the costs of setting up a company and the level of taxes are reasonable. Full foreign ownership and free movement of capital and foreign currency are judged as strong incentives.


The Main elements:
At the beginning of the 1980s, Egypt initiated a program that had three broad and overlapping elements :
? Rebuilding the infrastructure, which was increasingly becoming a bottleneck obstructing growth.
? Achieving macro-economic stability, through prudent fiscal and monetary policies oriented to restoring confidence in the economy.
? Promoting structural reforms, in order to speed up growth in the real economy, and creating jobs, through increased investment specially in export oriented industries.

Infrastructure development:
Almost $70 billion were invested in increasing electricity, telecommunications and transport capacity since 1982. According to the World Bank's World Development Report (1994), Egypt's per capita increase in the production of electricity, the expansion of telephone lines and the coverage of sewage networks over the past fifteen years has far surpassed that of all other higher and lower income developing countries.
In order to maintain the development of its infrastructure, Egypt allocates an additional $30 billion for infrastructure investment for the current 5 year program, which runs through 2002. Moreover, and as a to involve the private sector in the development of infrastructure projects, a special law has been introduced in mid 1996, which allows private investment in telecommunications, transport, power, water and highways. Judging by the number of BOT projects in electricity, airports and toll roads underway or in progress, those schemes are proving to be an attractive proposition.

Macro-Economic Stabilization:
Fiscal and monetary consolidation was pursued with a single-minded determination aiming at bringing public finances under firm and sustainable control, and to maintain a stable and non-inflationary monetary system. As a result, the budget deficit was sharply reduced from 25% in the late eighties to 1.2% of GDP in 1995/1996. High inflation rates had to be tackled through curtailing the growth of money supply and liberalizing interest rates, while using treasury bill auctions to manage liquidity and to finance the deficit by real resources. As a result the inflation rate has declined from 22% in 1990 to 7% in 1995/96 and real interest rates are significantly positive. The exchange rate was unified and valued at a realistic level, and the capital account liberalized, consequently foreign currency reserves reached US$ 19.2 billion in 1997, the balance of payments has shown a consistent surplus since 1991, and debt servicing is current.

Structural Reform:

Prices were freed and foreign trade was liberalized by removing all quantitative restrictions on imports and by reducing and rationalizing import tariffs. With a few exceptions, the maximum tariff was reduced from 160% in 1988 to 55% in 1996, and the average tariff fell from 31 % in 1988 to 24% in 1996. In December 1993, the marginal tax rate was reduced from 65% to 48%. The new law exempts corporate dividends to avoid double taxation, lowers the corporate tax rate to 42%, with a further reduction to 34% for manufacturing.

As of January 1996, the Egyptian government has adopted a strategy aiming at integrating Egypt's economy into the world's by pursuing its reform, providing a competitive business climate, promoting its stock market to become one of the region's leading financial centers, and executing a well designed program to speed the process of privatization of the major public holdings in all sectors of economic activity.

In May 1997, Egypt introduced a new investment law, which offers foreign direct investment one of the most attractive and liberal incentive and guarantee packages in the region and the world, covering essentially all possible areas of activity, including tax holidays, and which puts no constraints on the level of equity participation and capital repatriation. The government has also strengthened its channels of consultation with the country's private sector, in order to identify and eliminate any remaining obstacles which could possibly undermine Egypt's investment appeal.

Recent Measures Undertaken by the Egyptian Government:
1. Removing all remaining restrictions on foreign trade, introducing an incentive system to promote exports, as well as the establishment of a new Export Council under chairmanship of President Mubarak.
2. Introducing the "BOT" system that allows the participation of the private sector in infrastructure projects including the power stations, water treatment plants roads, airports and sea ports.
3. Eliminating restrictions on investment, introducing generous investment incentives, including granting foreigners land ownership rights, and creating an investment map and a data base on investment opportunities.
4. Enhancing the stock exchange, which is already playing an effective role in encouraging investment, by abolishing the tax on mutual fund earnings and on capital gains from securities.
5. A banking law allowing foreign majority ownership in joint venture banks, and allowing banks to set their own interest rates, has been formulated, submitted to the Parliament and now approved.


Egypt has a fully diversified economy with enormous potential for sustained high growth across all sectors.

Oil and gas:
Oil is now fifth in importance as a source of foreign exchange, and dozens of multinationals operate in the energy sector. Reserves of natural gas will last for fifty years and prospecting for new fields is active as a result of attractive incentives. Energy consumption has nearly doubled over the period 1983 to 1994 from 12.3 million tons of oil equivalent to 23.6 million tons. Crude oil production increased from 34.1 million metric tons (MMT) in 1983 to about 45 MMT in 1994, and natural gas production has more than quadrupled from 2.6 MMT to 11.3 MMT. Over the same period, refinery capacity increased from 17.5 MMT to 29 MMT and output of petroleum products from 16.8 MMT to 25 MMT. Oil production stands at 867,000 barrels a day (b/d). Proven oil reserves plus condensates are now put at 3.7 billion barrels compared with an average 3.2 billion over the last ten years.

Installed capacity for electricity has increased from 5,030 Megawatt in 1982 to 13,500 MW currently, with an average annual increase in peak load generation of 11%. Additional generation capacities of 7,050 MW are required to meet the demand up to the year 2007. The electricity sector leads BOT initiatives and has invited private ownership and operation of new electric power generating facilities of up to 20% of total planned capacity.

Egypt enjoys near ideal agronomic conditions, and yields for rice and sugar cane are the highest in the world. Output, yields and exports are responding positively to the elimination of controls in agriculture and the potential is still vast for marketing fresh fruits and vegetables internationally.

Egypt has considerable potential for developing its tourism sector. A major advantage is the variety of tourist locations and attractions, with projections for an annual seven million visitors by the year 2000. Coastal tourism projects are becoming progressively larger, and plentiful conference facilities are available.

Construction is an integrated multi-billion dollar sector, with a work force of 1.2 million serving Egypt and the region. A major strength is its diversified and competitive manufacturing base for steel, cement and other building materials. A recent success story is in the export-oriented ceramics, tiles and sanitary ware industry.

The size and competitiveness of the manufacturing sector ensures that it is and will continue to be Egypt's engine of growth. Industrial strategy promotes export orientation and the use of frontier technology, with a major role for transnational corporations. Egypt's National Export Development Strategy aims at raising the value of exports fivefold over the next decade. According to the UNIDO database of industrial statistics, Egypt's manufacturing sector has achieved significant progress in labor productivity, while maintaining a constant level of dollar wages. What this means is that the country has an obvious and significant cost advantage for businesses operating in Egypt.

The food processing industry relies on Egypt's high quality and low priced agricultural output. It is attracting a growing number of transnationals to serve expanding domestic and foreign markets. Egypt ranks fifth in terms of exports of processed food to the large Arab market. Over the past decade, land reclamation has added several thousand acres to vegetable and fruit cultivation which give food processing a plentiful supply of varied inputs that are highly cost competitive by international standards.

Food processing as a whole has registered an annual growth rate of 22% over the past 10 years, mostly in response to the sustained increase in domestic demand. The local market is boosted by the annual addition of about 1.2 million persons to the population, by the rise in the number of working women from the middle class, and the influence of the media on people's preference for convenience foods, pre-cooked meals, snack foods and confectionery.

Private establishments in the textiles and garments industry are fast multiplying, and exports are forecast to triple by the year 2000. A key attraction is the use of Egypt's finest cotton whose top world quality has remained unchallenged for two centuries. Another advantage is high labor productivity, with wages that are only 19% of those in Turkey and 8% of those in Israel.
Garment exports have steadily increased from $14 million in 1985 to $392 million in 1995, with about 7,840 tons of exports in 1991 and 10,662 tons in 1994. Some major exporters have entered into arrangements with retail chains in Europe and the US (some examples are K. Mart, Macy's, Marks & Spencer and C&A;) or opened their own retail outlets (Concrete, Mobacco and Octopus) in Australia, Bahrain, France, Jordan, Kuwait, Libya, Saudi Arabia and UAE. Others are producing under designer labels such as Liz Claiborne, Calvin Klein and Perry Ellis.
The Egyptian fertilizers industry enjoys a distinct competitive advantage on the international market, based on abundant supplies of natural gas.

With 9 multinationals and 19 domestic companies, Egypt is the largest producer and consumer of pharmaceuticals in the region. The share of the public firms has declined from 80% in the mid 1980s to a current 40% of domestic production. Total sales have been growing at 30% in the 1990s and have reached more than $1 billion in 1995, making Egypt the largest market in the Middle East, accounting for a share of about 20%.

Market demand for transport and engineering products makes scale production attractive, with a growing export success. A World Bank study indicates that Egypt's consumer durables industry is highly efficient and competitive.

The electronics industry has also multiplied in size and in the number of competitors in the market. Industry analysts cite Egypt amongst the fastest growing Information Technology markets in the world. Investment opportunities are huge, based on a large pool of skilled manpower and preferential access to foreign markets.

With a population of 62 million and growing by one million every ten months, demand for practically every type of consumer good, capital good and intermediate is constantly on the rise. There are over one million commercial vehicles on Egypt's roads, and as many private passenger cars. Annual sales of consumer durables such as TV sets, refrigerators and washing machines have each averaged 280 thousand, 240 thousand and 197 thousand respectively from 1990 to 1995. Over the same five years, annual output of processed food, textiles and pharmaceuticals has been growing at 22%, 9% and 30 percent, with domestic sales of $3.3 billion, $2.5 billion and $1.0 billion respectively in 1995.


On the external front, Egypt today is more confident in its ability to compete in international markets and contribute to world economic development, and is, thus eager to open new foreign markets. The country is a founding member of the World Trade Organization, and is abiding by a strict time-table of trade liberalization. Preliminary contacts with the Organization for Economic Cooperation and Development (OECD) were undertaken to reinforce the process of consultations with the Organization and its members.

Egypt's central location in the Arab World and the Middle East, and as a gateway for both Europe and Africa, its large market opportunity enlarged by free access to its partners, provide together, a unique opportunity for investment and business. The country is expected to reap important gains as a result of peace in the region, as well as in response to the Partnership agreement under negotiation with the European Union which will liberalize and encourage trade and investment. The Egyptian-American Partnership for Growth and Development will also raise Egyptian exports to the United States.

Egypt has been undergoing major legislative and policy changes to further enhance its investment climate. At the international level, stability has contributed to creditworthiness and donor confidence. Looking to the future, there is every reason to believe that the economy will experience sustained high performance. The pillars of growth in Egypt are:
1. Macro-economics stability is guaranteed over the next decade. Significant and sustainable adjustments are reflected in a current account surplus of 1.5% of GDP, a budget deficit of only 1.2% of GDP and inflation of 6%. "This fiscal outcome places Egypt among the best performers in the emerging markets of East Europe, Middle East and Africa" (Merrill Lynch, 1996). Foreign exchange reserves have risen from $ 5.3 billion mid 1991 to over $19 billion in 1997, representing over 19 months of imports, and providing a cushion against fluctuations in the exchange rate or capital outflows. In the past two years, Egypt's stock market has become one of the most dynamic emerging markets in the world, attracting foreign as well as domestic savings.
2. Non-oil exports are accelerating, with more than 120 products showing dynamic export growth to an increasingly diversified range of markets. Egypt enjoys the advantages of a highly diversified production base, as well as extremely low labor costs.
3. These have been boosted by increased competition, the introduction of international quality control standards and new opportunities arising for Egyptian products to penetrate markets in the region and the industrial world. The Free Trade Agreement currently under negotiation with the European Union is expected to improve Egypt's export opportunities in Europe, which already accounts for 45% of Egypt's trade. As a result of the Uruguay Round and the European Partnership, the prospects for Egyptian goods of penetrating EU & US markets are better than ever. Egypt's economy is also expected to reap important gains as a consequence of the regional peace process.
4. The service sector is growing dramatically and Egypt boasts highly sophisticated and cost-competitive services that support domestic market and export oriented industry. With the fast expansion in tourism, finance, transport, distribution and recreation activities over the past ten years, Egypt's services sector has sustained its growth performance. The export of services has become the major contributor to Egypt's balance of payments.
5. Skilled and low cost labor is abundant. The combination of a significant rise in labor productivity and stable wages over the past decade make Egypt's unit labor cost one of the lowest in the world (based on comparisons from UNIDO's INDSTAT 3, 1995).
6. Laws and policies are business friendly. A complete overhaul of Egypt's legislative and judicial systems has recently been undertaken, in line with the needs of an increasingly complex economic, social and political environment. Since 1991, major pieces of legislation have further been passed to reduce taxation, eliminate exchange controls, liberalize the banking and insurance sectors and reactivate the capital market. Domestic and foreign banks are autonomous in setting interest rates and exchange rates. As signatory to the latest GATT agreement, Egypt now allows foreign intermediaries to operate on the same non-discriminatory basis as national firms.
7. The stock market is taking off. Egypt's financial sector is one of the soundest and fastest growing in the world, and the outstanding performance of its capital market makes it "one of the most attractive emerging stock markets for the second half of the decade" (Flemings Research, 1996). Portfolio investment opportunities are better than ever. By June 1996, foreign investors accounted for 20% of the value of transactions, with over 125 overseas financial institutions participating in the market. Egypt's own mutual fund industry has flourished over the past two years, under the same system of regulations as the most developed financial markets, and institutional investors are soon to take up a significant share of the stock market.
8. Private enterprise leads the economy. Egypt's vibrant private sector is taking bolder initiatives across all sectors, and the trend is towards more complex partnerships and alliances with foreign capital. Policy makers are in close consultation with a dynamic private sector which has demonstrated its success in all fields of economic activity. The share of the private sector in the economy has thus increased from about 50% in the mid 1970s to two thirds in 1995, and it now accounts for more than half of aggregate investment. In 1996, the privatization process has gained a strong momentum, with a total of 46 privatization transactions taking place and even a higher number planned for the current year (1997). In April 1996 the government allowed majority sale of privatized companies which resulted in heavy buying by international institutional investors. Furthermore, capital gains tax on capital market stocks was eliminated, and Investment Funds were exempted from income tax on profits.


Foreign investors have long been welcome in Egypt. Laws and regulations governing investment have been greatly simplified recently, and today, Egypt's investment climate is one of the most liberal and least complex by world standards.
? Foreign business can incorporate under Egyptian law, and the most common forms of incorporation are joint stock companies and limited liability companies. Investors often choose to have domestic partners to share in the capital costs and operation of projects. There are now well over five hundred successful joint ventures operating in Egypt across the petroleum, banking, and tourism sectors as well as in all branches of manufacturing.
? There are no restrictions on the repatriation of capital or profits and no foreign exchange controls.
? Tax holidays range from 5 to 10 years depending on the activity and location of the project. And standard tax rates are considerably reduced by generous allowances.
? Expatriates can account for up to 10% of employment in any one firm.
? The current phase of FDI flows is increasingly utilizing Egypt as an export platform. The contribution of foreign direct investment (FDI) to the economy has been impressive in transferring capital, technology and managerial skills. More than 400 transnational corporations operate in Egypt, with cumulative investments of $14.5 billion and employment of 375 thousand. (UNCTAD 1996)
? Egypt is highly sophisticated and cost-competitive in the supply of a wide range of services for both the domestic industry and for export.
? A large number of professional firms have joined with service-oriented multinational companies to provide high quality services of international standard.
? To date, there are twelve new industrial cities that have attracted almost 3000 factories with employment of 200 thousand.
Egypt has been given a vote of confidence by international business and investor institutions. Growth forecasts show that GDP will continue its climb after the three-year recession which accompanied the comprehensive Economic Reform and Structural Adjustment Program (ERSAP) that was launched in 1991. Five major sources of renewed optimism are: Egypt's remarkable success at maintaining fiscal and monetary stability; continued strength of the balance of payments and foreign reserves; aggregate demand which is picking up as evidenced by indicators of construction activity and electricity usage; an emerging capital market which is fast attracting domestic and foreign savings; and positive actions taken by the government in the realms of legislative reform and privatization.

Foreign Direct Investment (FDI) flows into Egypt are likely to soon regain their levels of the early 1980s when they reached over $1 billion per year. FDI from Europe, US and Korea has shown significant interest in Egypt over the past year, especially in response to the success of ERSAP and to the government's series of institutional and administrative reforms aimed at making the investment climate at par with that of OECD countries. To date, there are more than 100 TNCs operating in Egypt in the fields of petroleum, manufacturing, tourism and banking. Accumulative FDI from American TNCs alone reached $4.3 bn at the end of 1994 and an additional $2.0 bn are expected to flow into the country by 1997, especially in response to the Egyptian - American Partnership Agreement for Growth and Development. The Partnership Agreement -signed in 1994- is also aiming at increasing Egyptian exports to the US which grew by 20% in 1994 to reach 612 mn.

In 1995, the World Economic Forum based in Geneva included Egypt for the first time in its widely quoted World Competitiveness Report, which covers 49 countries and is based on 378 indicators of economic strength and business opportunities that are of interest to the TNCs. According to the report, Egypt has an overall ranking of 27 out of 49 countries that are covered, a very favorable position when it is noted that the total includes the 25 most advanced OECD economies. Egypt compares especially well in the executive opinion survey (Egypt is the 9th from among the 24 non - OECD countries) which gives weight to a country's investment climate and economic prospects as perceived by TNCs. Egypt's major assets are seen to be in the strength of its manufacturing base, the appropriateness of industrial location, the development of the country's services sector, the progress and adaptability of government policy in facing new economic realities, the fair and equal fiscal treatment to all enterprises, the relative absence of lobbying by special interest groups, the low cost of living and low inflation, and strong parallel economy which supports the operation of large formal enterprises.

The opinion survey also gives Egypt top ranking in terms of the equal treatment of foreigners as compared to citizens of the country, and a ranking of 4th on the national culture being open towards foreign cultures. The business community provides positive forecasts for the economy's future development, based on a relatively stable exchange rate over the next two years, effective central bank control on currency speculation, the availability of credit from a trustworthy banking sector which has a positive influence on industry. The survey questionnaire also gives Egypt high scores with respect to the adequacy of the road, air, ports and telecommunications infrastructure which meets with business requirements. Moreover, survey results show that Egypt's fast growing labor market boosts significant numbers of qualified engineers and R & D personnel, that women enjoy the same career opportunities as men and that the society places high value on hard work, tenacity and loyalty, all signs of the relative ease of recruiting and retaining various skills needed by an enterprise.

The hard data comparisons also provide many useful insights into the relative position of Egypt in comparison with high performing advanced and developing countries as judged by national income statistics. Although the size of Egypt's market (GDP) and per capita incomes are among the lowest -39 and 42- respectively,
Egypt is the 19th in terms of domestic market growth and the 4th in terms of its low cost of living. Macro comparisons also highlight Egypt's diversified production base, with scores of 7 to 14 for its ranking in the production of energy, crude petroleum, industrial chemicals, rice and maize.

Egypt's overall scores are more than average on economic risk rating ( a score of 39.5 out of 50 with a rank of 18th) and are high on a large number of indicators pertaining to its balance of payments. Egypt in fact ranks first both in terms of the import coverage of official reserves excluding gold and in the coverage of import by export revenue; second in the change on coverage of imports by exports; fifth in the growth rate of exports of commercial services, and sixth in the share of commercial services to GDP.

Egypt's human and natural resources are the real wealth of the nation. Egypt enjoys the largest labor force and the lowest unit labor costs in the Arab region. The 1995 World Competitiveness Report confirms that Egypt's labor market has significant numbers of qualified engineers and personnel. Society places high value on hard work, tenacity and loyalty. The strategy is to promote skills and productivity and to enhance the quality of the environment.
Egypt has committed itself to prioritizing education as a primary area for the development of human resources and President Mubarak has defined the achievement of specific educational targets by the turn of the century as the "National Project of the Nineties". The contribution of the private sector to education has witnessed a dramatic increase over the recent past. In 1996, 3,000 one-room schools were established in distant hamlets. A newly created agency and its regional branches also provide more than 33,000 classes benefiting adults aged 15 to 35.
Egypt's health sector has achieved impressive results in improving the health profile of the population, especially in the field of child care. Over the 1982 to 1995 period, infant mortality has declined by 45% from 108 to 59 per thousand births. Vaccination coverage has increased from 30% in 1984 to 90% in 1991. Oral rehydration therapy use has also increased from 66% in 1983 to 98% in 1991. Bilharzia prevalence has decreased from 36% in 1981 to 10% in 1991. Consequently, the proportion of deaths due to infectious and parasitic diseases has dropped from 17% in 1982 to less than 10% in 1989. Life expectancy has thus increased from 57 years in 1982 to 63 years in 1992.

The dramatic decline in population growth has been one of the most positive impacts of improved access to education and health services, with a significant decline in the dependency ratio. In 1995, the population of Egypt stood at 61.2 million, including 2.7 million living abroad. Due to improved access to basic education and health services, population growth has dropped from 3% in the 1980s to 2.1% in the mid 90s, with a more rapid decline in birth rates than death rates. A decline in the population rate of 1.2% over the coming 20 years, as predicted by the rapid decline scenario, will result in Egypt's population reaching 75 million by the year 2015, as compared to 87 million in case of a slower decline.

Protection of Egypt's environment is an essential component of the country's strategy, particularly land use and conservation of water resources. A major long term improvement is expected from the process of relocation which started in the mid 1970s with the creation of new desert cities. Egypt's twelve new industrial cities provide low density and clean environmental conditions.

Privatization is one important component of the Economic Reform and Structural Adjustment Program (ERSAP) which started in 1991. 1997 plans are worth 50% more than the combined sales for the previous two years. The trend towards selling majority shareholdings in State Owned Enterprises has given privatization a big boost. Already by 1991, small businesses owned by local governorates were privatized. The following wave began by 1992 with the enactment of the stock exchange law, allowing the process to gain momentum by conferring ownership rights and generous tax exemptions.

The privatization program started with the development of awareness and changing certain perceptions among senior government officials, as well as among public opinion and intellectuals. Then an organizational setup was established that included two elements; the first was the identification of the 314 publicly owned companies that will be subject to reform.
The Government organized these companies under 17 Holding Companies, and each one had the task of managing portfolios of investment in a group of companies. The whole portfolio was reorganized under the supervision of only one minister, the Minister of Public Enterprise Sector. Once the organizational setup was established, the holding companies initiated the program of public sector reform.

As of January 1996, a number of procedures to speed up the process of privatization has been adopted and an ambitious program is currently being implemented. The new procedures include offering a second tranche of 16 affiliated companies, initial public offerings (new offerings) of 46 companies, and the total sale of 14 affiliated companies.
The government also reactivated the bank privatization scheme in two consecutive stages; by the end of December 1996, equity were offered in banks and companies in which public sector banks own 49% or less. Stage two involves the sale of banks and companies in which the government holds a majority stake. One example is the sale of public stake in the top joint venture bank in Egypt in the form of offering GDR's in the international capital markets, including Tokyo, the second bank to go into such an offering.

A major breakthrough of the Economic Reform and Structural Adjustment Program in Egypt is the strengthening and liberalization of the financial and banking sector. Banking sector legislation has been amended and liberalized: Banks are now allowed to be 100% foreign owned and can operate in local as well as foreign currency. Banks are free to set their interest rate and service charges according to market forces. Joint venture banks are being majority privatized. Banks are increasingly involved in merchant banking, portfolio management and setting up of mutual fund.

The banking sector has become more efficient and many joint venture banks are today in the process of being privatized. The banking sector is divided into three major categories, namely, commercial banks, business and investment banks and specialized banks. There are some 102 banks operating in Egypt of which 38 are commercial banks, 18 foreign bank branches and the remaining 46 are joint venture and specialized banks. These banks have an extensive geographical network of branches covering every major city in Egypt.

The stock market activity in Egypt goes back as far as 1881. The Alexandria Stock Exchange is the fifth oldest in the world. The Cairo Stock Exchange was later established in 1903. As a result of nationalization in 1959, however, the market dwarfed and stagnated.

In 1991, the Government implemented a plan to revitalize the capital market through the enactment of the Capital Market Law of 1992 which reorganized the primary and secondary financial markets, and encouraged investment and private savings. There are no restrictions on foreigners buying and selling shares. Capital gains tax on securities and tax on profits from mutual funds have been abolished. More than 70 brokerage firms and five portfolio managers are in operation. To ensure high quality services rendered to investors, the fixed commission structure has been abolished and commissions are negotiable.

The new legal framework has been enacted to replace the multiplicity of laws, achieve consistency across the whole spectrum of market activities and to simplify the regulatory environment. The law extends incentives to the supply and demand for securities, as well as to all forms of securities services. Legislative restrictions on bond issuance have been removed and as a result, the bond market was tremendously encouraged. The law restored domestic and overseas' confidence and interest. The stock market is witnessing tremendous growth:

The value of total shares trading recorded an elevenfold increase from 1992 to 1995. It increased from LE 597 million to LE 6.8 billion. The number of traded securities increased from 30 million in 1992 to 143 million in 1996. The number of transactions increased similarly from 12.5 thousand to 1.7 million in 1996 (9 months). Market capitalization increased by 3.4 times from 1992 to 1995. It was LE 11 billion in 1992 and reached LE 36.9 billion in 1996. The Price/Earnings ratio is 7 to 8 and yields range from 8 to 12%.

According to the international financial community, Egypt's market is expected to witness tremendous growth on account of the outstanding performance and the attractiveness of new issues that are being launched. Egypt is fast catching up with the other emerging markets and its current securities' market capitalization at just 17.6% of GDP is a witness to the huge potential available for more enterprises to secure financing from the market, and for investors to increase their stock holdings.

International fund managers have recently confirmed the attractiveness of the portfolio investment opportunities offered by the securities market in Egypt as evidenced by their increased investments. Egypt's Capital Market Authority expects the share of foreign portfolio investment to fast exceed its current level before the decade is over. In fact, by July 1996, foreign investment accounted for about 35% of the total value of trading, up from 6% in 1995, with over 126 overseas institutional investors participating in the market. As signatory to the GATT agreement of 1994 resulting from the Uruguay Round of multilateral trade negotiations, Egypt allows foreign securities' intermediaries to operate on the same non-discriminatory basis as national firms, with no limitation on capital mobility and no restrictions on foreign exchange. Egypt's own mutual fund industry has flourished over the past two years, under the same regulatory standards as most developed securities markets.