Egypt 1997-98 - COUNTRY PROFILE - International University of Japan
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COUNTRY PROFILE Egypt Our quarterly Country Report on Egypt analyses current trends. This annual Country Profile provides background political and economic information. 1997-98 The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom
The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent Street The Economist Building 25/F, Dah Sing Financial Centre London 111 West 57th Street 108 Gloucester Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.171) 830 1000 Tel: (1.212) 554 0600 Tel: (852) 2802 7288 Fax: (44.171) 499 9767 Fax: (1.212) 586 1181/2 Fax: (852) 2802 7638 e-mail: london@eiu.com e-mail: newyork@eiu.com e-mail: hongkong@eiu.com Website: http://www.eiu.com Electronic delivery EIU Electronic New York: Lou Celi or Lisa Hennessey Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 London: Moya Veitch Tel: (44.171) 830 1007 Fax: (44.171) 830 1023 This publication is available on the following electronic and other media: Online databases CD-ROM Microfilm FT Profile (UK) Knight-Ridder Information World Microfilms Publications (UK) Tel: (44.171) 825 8000 Inc (US) Tel: (44.171) 266 2202 DIALOG (US) SilverPlatter (US) University Microfilms Inc (US) Tel: (1.415) 254 7000 Tel: (1.800) 521 0600 LEXIS-NEXIS (US) Tel: (1.800) 227 4908 M.A.I.D/Profound (UK) Tel: (44.171) 930 6900 Copyright © 1998 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author’s and the publisher’s ability. However, the EIU does not accept responsibility for any loss arising from reliance on it. ISSN 0269-5227 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK
1
January 15th 1998 Contents
2 Basic data
3 Political background
3 Historical background
6 Constitution and institutions
7 Political forces
10 International relations and defence
13 The economy
13 Economic structure
13 Economic policy
20 Economic performance
24 Regional trends
25 Resources
25 Population
26 Education
27 Health
28 Natural resources and the environment
30 Economic infrastructure
30 Transport and communications
35 Energy provision
38 Financial services
41 Other services
43 Production
43 Industry
45 Mining and semi-processing
46 Agriculture and fishing
49 Construction
50 The external sector
50 Merchandise trade
53 Invisibles and the current account
54 Capital flows and foreign debt
57 Foreign reserves and the exchange rate
59 Appendices
59 Sources of information
61 Reference tables
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 19982 Egypt: Basic data
Egypt
Basic data
Land area 997,739 sq km, of which only 4% is inhabited and cultivated territory
Population 48.2m (resident; 1986 census); 59.27m (resident; 1996 census)
Main urban centres Population in ’000, 1996 census (town populations only, excluding nationals
abroad)
Cairo (Greater Cairo estimated at 12,000) 6,789
Alexandria 3,328
Port Said 469
Suez 418
Climate Hot and dry, with mild winter
Weather in Cairo (altitude Hottest month, July, 21-36°C (average daily maximum and minimum); coldest
116 metres) month, January, 8-18°C; driest months, July, August, 0 mm average rainfall;
wettest month, December, 5 mm average rainfall
Language Arabic
Measures Metric system. Local measures are also used, especially for land area: fed-
dan=0.42 ha or 1.04 acres; cereal crops: ardeb=198 litres or 5.6 US bushels; 8
ardebs=1 dariba; cotton: Egyptian bale=720 lb (325.5 kg), qantar (metric)=50 kg
(replacing the traditional qantar equivalent to 44.93 kg)
Currency Egyptian pound (E£)=100 piastres. End-1997 exchange rate: E£3.39:$1
Time 2 hours ahead of GMT (summer time, 3 hours ahead)
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1998Egypt: Historical background 3
Political background
Egypt is an Arab republic with a limited democratic system, headed by the
president, Hosni Mubarak, who was re-elected to his third six-year term in
October 1993. The government, under the prime minister, Kamal al-Ganzouri,
is supported by the majority party in parliament, the National Democratic Party.
Historical background
The present borders of Egypt are almost identical to those in pharaonic times,
the country’s heartland being the Nile valley and the delta where Egyptian
civilisation emerged over 5,000 years ago. The pharaonic era lasted for around
30 centuries, from the end of the fourth millennium BC until conquest by the
Assyrians in 671 BC, but from being the paramount world power the monarchy
passed into decline from the mid-13th century BC. Persian conquest followed
that by the Assyrians, and then rule by Greek, Roman and Byzantine empires
until, with the birth and advance of Islam in the 7th century AD, the Arab
armies conquered Egypt, an invasion completed by 641 that the country’s
Coptic Christian inhabitants did not oppose. Gradually the country became
Arabic-speaking and Islamic, although there remained a Coptic minority.
Egypt was ruled as part of the Abbasid caliphate in Baghdad, the Tunisian
Fatimid empire, then by the Ayyubid dynasty and the Mameluk sultans until
the Ottoman Turks conquered the country in 1517.
While remaining nominally an Ottoman province, by the late 18th century
Egypt had become involved in the war between Britain and France. Napoleon
invaded in 1798 but by 1801 the French had surrendered to British and Otto-
man forces. After a power struggle, Mohammed Ali, an Albanian officer in the
Ottoman army, took control. Widely regarded as the founder of modern Egypt,
Mohammed Ali opened the country up to the West. However, a nationalist
coup in 1881, fed by increasing resentment at French and British control of the
country, was put down by British forces, and thereafter Egyptian adminis-
tration was effectively controlled by British officials even though Egypt did not
formally become a British protectorate until 1914. A popular nationalist move-
ment secured the country nominal independence in 1922, although Britain
reserved the right to protect the Suez Canal and defend Egypt. Full inde-
pendence had to wait until after the second world war when widespread
anti-British strikes and riots led to the evacuation of British troops in 1947. The
following year Egypt joined Iraq, Syria and Jordan in military action to protect
Arab Palestine after the declaration of the state of Israel in May 1948. The
conflict left the coastal Gaza Strip of Palestine under Egyptian administration.
After 1952 After the revolution of 1952, when a group of young army officers sent King
Farouk into exile, Gamal Abdel-Nasser quickly moved to assert his leadership of
the new republic and replaced General Neguib, Egypt’s first president, in 1954.
Before Nasser died in office in September 1970 his authoritarian rule had trans-
formed the country through the introduction of state central planning and
ownership, social welfare services, the promotion of industrial development,
land redistribution, and the nationalisation of banks and companies and of the
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 19984 Egypt: Historical background
Suez Canal Company. Egypt was the recognised leader of the Arab world, and
Arab unity became the main plank of Egyptian foreign policy. Dependent on
Soviet economic and military support, as the West, and the US especially,
intensified its backing of Israel, Egypt under Nasser fought two major wars
against Israel, in 1956 and 1967, which resulted in the loss of the Gaza Strip
and Sinai.
The Camp David accords Nasser was succeeded by his vice-president and fellow revolutionary, Anwar
Sadat. The need to atone for the humiliating defeat in 1967 dominated Egyptian
concerns, leading Mr Sadat in October 1973 to go to war against Israel in co-
operation with Syria. Egypt’s military gains, an initial withdrawal by Israel from
part of Sinai, brought the US into action to broker a solution. Judging that the
US rather than the Soviet Union held the key to solving the Arab-Israeli conflict,
Mr Sadat had already expelled all Soviet personnel from Egypt in 1972. He
proceeded to renew relations with the US in 1974, after a seven-year break, and
terminated Egypt’s treaty of friendship with the Soviet Union in 1976. Despite
considerable Arab criticism, the president took the unprecedented step of visit-
ing Israel in November 1977 to revive the peace process. This resulted in a
summit meeting in the US in September 1978 and the Camp David accords.
These provided the basis for the comprehensive peace treaty between Egypt and
Israel signed in Washington in March 1979 which led to an Israeli withdrawal
from Sinai, finally completed in April 1982. However, the second part of the
accords, widening the peace process to include other Arab parties, failed to be
implemented owing to Arab condemnation of Egypt’s separate peace. The
country was expelled from the Arab League and all Arab states except Oman,
Sudan and Somalia broke off diplomatic and economic ties.
Internal unrest Although peace with Israel was on the whole popular at home, the government
was meeting growing opposition despite the implementation of a more liberal
political and economic regime. Discontent over inflation, overcrowding and
administrative shortcomings became manifest in the riots of January 1977,
when the withdrawal of price subsidies on food was proposed. The idea was
subsequently dropped, but there was increasing domestic unrest, much of it
inspired by the Islamic revival which Mr Sadat had originally supported as a
useful counterweight to the Nasserists but which spread after the Iranian revo-
lution of 1979. In September 1981 the president ordered a major crackdown on
dissent, which resulted in the arrest of over 1,600 people and the bringing
under government control of Egypt’s 40,000 privately owned mosques. On
October 6th 1981 Mr Sadat was assassinated by members of Islamic Jihad, a
small militant group within the army. Eight days later his vice-president, Hosni
Mubarak, was sworn in as Egypt’s fourth president.
International A more cautious and pragmatic ruler than Anwar Sadat, Mr Mubarak has main-
realignments tained the major thrust of his predecessor’s policies, including limited political
liberalisation, but has also tried to overcome some of their costs. On assuming
power, Mr Mubarak made a priority of extracting Egypt from its relative isola-
tion within the Arab world while remaining committed to the peace treaty
with Israel. This approach has meant an occasional diplomatic distancing from
the US, which nevertheless remains Egypt’s chief ally and source of foreign aid,
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1998Egypt: Historical background 5
and a rapprochement with the Soviet Union with which diplomatic relations
were resumed in 1984. Rebuilding ties with the Arab world took much longer
but was assisted by patient Egyptian diplomacy and Arab fears of Iran’s progress
in its 1980-88 war with Iraq. In November 1987 the Arab League voted to
restore relations with Egypt, which rejoined the league in May 1989. However,
Egypt’s pivotal role in forging an Arab coalition to counter Iraq’s invasion and
annexation of Kuwait in August 1990 and its deployment of around 32,000
troops in the Gulf (the second largest foreign contingent after that of the US)
led to strained relations with countries seen to be sympathetic to Iraq, such as
Jordan, Yemen, Sudan, Algeria and Tunisia.
Important recent events
August 1990: Iraqi invasion of Kuwait. Egypt organises an Arab coalition to liberate
Kuwait and sends troops to Saudi Arabia and the UAE which subsequently participate
in the allied offensive against Iraq.
May 1991: Egypt signs an IMF stand-by accord, followed by a Paris Club debt relief
and rescheduling agreement.
October 1992: An earthquake in Cairo kills 561 people and injures around 10,000.
A British tourist is killed by Gamaat Islamiya militants, the first foreign casualty in the
war between Islamist extremists and the security forces.
December 1992: Some 3,000 suspected members of Islamist organisations are
arrested in a security sweep of the Cairo suburb of Imbaba.
September 1993: Egypt signs a three-year IMF extended fund facility.
November 1993: Islamic Jihad militants attempt to assassinate the prime minister,
having already made attempts on the lives of the information and interior ministers
earlier in the year.
November 1994: Severe flooding in Upper Egypt kills 580 people and leaves
thousands homeless.
May 1995: Egypt refuses to endorse the indefinite extension of the Nuclear
Non-Proliferation Treaty (NPT) at a UN conference, owing to Israel’s refusal to sign
the NPT.
June 1995: President Mubarak survives an assassination attempt en route to an
Organisation of African Unity summit meeting in Addis Ababa. Gamaat Islamiya
claim responsibility one week later.
November 1995: The trade counsellor at Egypt’s UN mission in Geneva is
assassinated. The Group for International Justice (GIJ), an offshoot of Gamaat Islamiya,
claims responsibility. A suicide bomb inside the Egyptian embassy compound in
Islamabad, Pakistan, kills 16 people and wounds 60. Gamaat Islamiya, the GIJ and
Jihad all claim responsibility. Mr Mubarak visits Israel for the first time as head of state
to attend the funeral of the assassinated Israeli prime minister, Yitzhak Rabin.
April 1996: Gamaat Islamiya militants kill 17 Greek tourists and an Egyptian and
wound 15 people.
June 1996: Egypt hosts the first pan-Arab summit for six years, having organised
strenuously for it to occur.
October 1996: Egypt signs a two-year IMF stand-by arrangement.
July 1997: Jailed Gamaat Islamiya leaders announce an unconditional ceasefire.
November 1997: Gamaat Islamiya militants kill 58 foreign tourists and four
Egyptians in Luxor in the bloodiest and most brutal attack on Egypt’s tourism
industry to date.
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 19986 Egypt: Constitution and institutions
Renewed authoritarianism At home, the maintenance of law and order has been a priority as the govern-
ment pushes through an IMF-regulated economic reform programme and con-
centrates its energies on crushing the sharp rise in Islamic militancy. Between
March 1992, when militant groups began to launch attacks against the security
forces, government officials, tourist targets, banks and the country’s Coptic
Christian minority, and December 1997, about 1,200 people were killed and
over 1,000 injured. Islamist violence has finally forced the government to pay
more attention to the underlying causes of popular discontent: poverty, un-
employment and a lack of public services. Nevertheless, there is liberal concern
that Egypt’s traditionally tolerant secular society is threatened by the govern-
ment’s reversion to a more authoritarian rule and its tendency to pander to the
country’s conservative religious trend in the name of containing militant Islam.
Constitution and institutions
The constitution of 1971 provides for the separation of powers between the
executive, the legislature and the judiciary. Islamic law is officially the prin-
cipal source of legislation but the Napoleonic code is a more significant pro-
genitor. The head of state is the president, nominated by a two-thirds majority
of the Majlis al-Shaab (People’s Assembly) and elected by referendum. He has
executive powers, including the ability to veto legislation, and enjoys vast
powers of patronage. Presidential appointees include the one or more vice-
presidents, the prime minister and ministers, provincial governors (who have
ministerial rank), armed forces and security heads, major religious figures, High
Court judges, university presidents, senior civil servants and other officials. The
president is supreme commander of the armed forces.
The People’s Assembly The People’s Assembly comprises 444 directly elected members (half of whom
are, in theory, farmers and labourers, but in practice this is not observed) and
ten additional members nominated by the president, and exercises legislative
power. Presidential decrees also have the power of law. The president may
dissolve the assembly only if he gains the support of the people in a referen-
dum, and the assembly can require a minister to resign if it passes a vote of no
confidence in him. Should a motion of no confidence in the prime minister be
passed against the president’s wishes, the matter may be put to a referendum.
However, in a poll marred by violence and allegations of widespread official
fraud, the ruling National Democratic Party (NDP) emerged from the parlia-
mentary election on November 29th 1995 with its usual commanding majority
intact. Stormy debate may take place but the assembly’s ability to change the
government or amend legislation is severely limited. The next election is due
by November 2000.
The judiciary The president appoints one-third of the members of the Shura Council, a
264-member consultative body; half of its elected members face election every
three years, while all members sit for six years. Elections for the council, in
which the NDP dominates, were held in June 1995. Egypt’s overloaded judici-
ary is independent both in theory and in practice, but the government tends to
circumvent rulings not to its liking, for example by employing the state of
emergency regulations which have been uninterruptedly in force since Anwar
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1998Egypt: Political forces 7
Sadat’s assassination. Extended in February 1997 for a further three years, these
allow the police virtually unlimited powers of search and arrest and control of
the media. “Fast-track” military courts are used to try Islamist cases; these are
considered more effective in achieving convictions than civilian trials, which
can take years over procedural matters, in part because of the complexities of
legislation: over 60,000 laws are currently in existence.
Although formally accountable to parliament, the prime minister is the pres-
ident’s primary lieutenant and is responsible for implementing his policies
throughout the bureaucracy. The cabinet is not necessarily the main decision-
making body, although it is often an arena for rivalries among the elite. Impor-
tant decisions are made by the president in consultation with ministers and
advisers in the particular given area. The key ministries are defence, foreign
affairs, information, economy and the interior.
Political forces
The ruling party The National Democratic Party (NDP), has been in power since its estab-
lishment by Mr Sadat in 1978 to replace the Arab Socialist Party, which had
itself supplanted Nasser’s Arab Socialist Union in 1976. The NDP holds large
majorities in both the People’s Assembly and Shura Council. More of an ap-
pendage to government than an autonomous political force, the NDP also
effectively controls local government, the mass media, organised labour and
Egypt’s massive public sector. Possessing only a vague ideology standing for a
middle way between socialism and capitalism, the NDP is an umbrella political
party containing within its ranks those who favour greater state intervention as
well as those wishing for increased political and economic liberalisation. There
are 12 recognised opposition parties but to date these have posed little chal-
lenge to the NDP. This is more a reflection of the ineffective and unrepresenta-
tive nature of the traditional opposition parties than a strong mandate from
the people for the ruling elite, which is widely regarded as remote and tired and
is beset by persistent allegations of corruption, cronyism and incompetence.
Legal opposition groups The main opposition party is the centre-right New Wafd, founded in 1978 by
members of the original Wafd, which was formed in 1918 by the landed elite
to press for national independence and outlawed in 1952. New Wafd has
evolved into a party of professionals championing the advancement of the
private sector and genuine political liberalisation, including competitive elec-
tion of the president. Of the other leading opposition groups, the Socialist
Labour Party (SLP), established by Mr Sadat in 1979 to be a tame opposition
party of the left, soon moved into outright opposition, championing the public
sector and critical of alliance with the West and peace with Israel. By the early
1980s the party had abandoned secularism and in 1987 entered into an elec-
toral pact with the Muslim Brotherhood. Today it is a parliamentary front for
Egypt’s Islamists, and the application of the sharia (Islamic law) is the central
plank of SLP policy.
The Socialist Liberal Party, formed from a right-wing faction of the Arab
Socialist Union (ASU) on Egypt’s return to a multiparty system during 1976-77,
was originally the leading party of the loyal opposition. Its political platform
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 19988 Egypt: Political forces
favours private enterprise but it has embraced most political tendencies during
its history and is currently vaguely Islamist; it tends to survive mainly on the
personality of its leader, Mustafa Kamal Murad. The left-wing National
Progressive Unionist Party (Tagamu) also originated in the ASU. It defends
Egypt’s Nasserist past and possesses a small but well-organised group of sup-
porters, drawn principally from workers and trade unions. In the past the party
has based its platform on opposing rapprochement with Israel and strengthen-
ing the public sector. But recently it has focused more on attacking Islamist
extremism. The Democratic Arab Nasserist Party, licensed in 1993 after
considerable delay due in part to doubts as to whether the party actually
possessed a different political platform from Tagamu, has capitalised on its
emotive name and performed well in national elections. More radical than
Tagamu, it remains totally opposed to peace with Israel and to any form of
privatisation, but is not averse to co-operation with the Islamists.
Election results
May 1984: People’s Assembly (448 seats plus ten additional members nominated
by the president). National Democratic Party 390 seats; New Wafd Party and Muslim
Brotherhood 58 seats.
May 1987: People’s Assembly (444 directly elected members plus ten additional
members nominated by the president). National Democratic Party 346 seats; Islamic
Alliance (Socialist Liberal Party, Socialist Labour Party and the Muslim Brotherhood)
60 seats; New Wafd Party 35 seats; Independents 3 seats.
October 1987: Presidential referendum. Hosni Mubarak received 97.1% of the votes.
November 1990: People’s Assembly. National Democratic Party 383 seats;
National Progressive Unionist Party 6 seats; Independents 55 seats.
October 1993: Presidential referendum. Hosni Mubarak received 96% of the votes.
November 1995: People’s Assembly. National Democratic Party 415 seats
(including 99 NDP members who stood as independents and rejoined the party after
the elections); New Wafd Party 6 seats; National Progressive Unionist Party 5 seats;
Liberal Party 1 seat; Democratic Arab Nasserist Party 1 seat; Socialist Labour Party 1
seat (candidate stood as an independent with affiliation to the Muslim Brotherhood
but joined the SLP post-election); Independents 15 seats.
The Islamist trend The main challenge to the regime comes from the Islamic trend, which can draw
on a significant groundswell of popular support. The largest, best-funded and
organised Islamic group is the Muslim Brotherhood, founded in 1928 and
dissolved by Nasser in 1954. The group is illegal, as the constitution bans polit-
ical parties based on religion or race, but in the past has generally been tolerated.
However, since January 1995 the government has moved against it, accusing the
Brotherhood, in effect, of being the civilian wing of the militant Islamist groups,
in an attempt to destroy its organisational structure. In November 1995 54 of
the Brotherhood’s most effective grass-roots organisers faced military trial and
received prison sentences. But with the government firmly rejecting any assimi-
lation of the Islamist opposition into the political process, there are concerns
that repression of the mainstream may merely breed a more violent fringe. The
Brotherhood seeks to work within the existing political system to make Egypt a
strict Islamic state based on the sharia. Its success in dominating the professional
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1998Egypt: Political forces 9
unions (mostly through a low turnout of members at elections) prompted the
government to rush through a new syndicate law in February 1993. This re-
quires voter turnout of 50% of members in the first round and 30% for the
second round. Failing this, union control passes to the Cairo Court of Appeal
pending new elections. An amendment passed in February 1995 gives the judi-
ciary wide powers to supervise union elections, specifically by vetting lists of
candidates and of members entitled to vote.
Main political figures
Hosni Mubarak: Egypt’s president is the crucial figure in Amr Moussa: The energy and informality of the foreign
domestic and foreign policy. A cautious politician, minister was widely welcomed when he took office in 1991.
emphasising stability and only incremental change, he Close to the president, he has imbued his ministry with a
governs with a pragmatic managerial style. While he has clearer sense of purpose, toughened up foreign policy,
boosted Egypt’s standing abroad, at home he has resisted especially in relation to Israel, pioneered the use of
pressure to introduce more pluralism. He insists that the diplomacy to promote trade, and offered more innovative
militant Islamic groups should not gain an electoral voice solutions to foreign dilemmas.
and that political liberalisation is not a necessary adjunct to
economic reform. Osama al-Baz: One of the president’s closest advisers, in
both domestic and foreign affairs, the Nasserist-leaning first
Kamal al-Ganzouri: Appointed prime minister in January under-secretary at the foreign ministry and director of the
1996, the former deputy prime minister and minister of Presidential Bureau of Political Affairs wields enormous
planning is a consummate political insider whose efficiency influence and has ensured Egypt’s continued political
and tough and decisive style have imposed cohesion and dominance in the Arab world. Because of his less outspoken
direction on a previously warring cabinet. Economic success nature, he often tends to deal with Israel rather than
has increased his political dominance and he has begun to Mr Moussa.
widen his portfolio from its economic core and to take a
more active role in political and economic affairs. Youssef Wali: The deputy prime minister has been minister
of agriculture and land reclamation since 1982, despite a
Habib al-Adli: The new interior minister, a former director long-running feud with the former prime minister, Atef Sidqi.
of state security investigations, is reportedly honest and He has been a controversial minister of agriculture, enforcing
competent. He aims to modernise the Egyptian police force policies of privatisation and close co-operation with Israel,
and to make it more professional. As the government’s prime but Mr Wali’s political skills have ensured his survival and his
strategist in the fight against the Islamists, a reassessment is long-standing position as secretary-general of the National
expected under his tenure of the collective, heavy-handed Democratic Party.
and brutal policing methods prevalent in Upper Egypt,
which have stoked public resentment, hampered intelligence Fathi Sorour: Second in protocol terms to the president,
gathering and helped to maintain the cycle of violence. the speaker of the People’s Assembly would, under the
constitution, assume power if the president were
Magdy Hetata: Although officially answerable to defence incapacitated or killed until a successor was chosen. A
minister Mohammed Tantawi, the chief of staff of the armed shrewd lawyer and former minister of education, Mr Sorour
forces is in fact the main power. Reportedly President is charged with keeping the People’s Assembly in line with
Mubarak’s first choice for defence minister, but unable to the government, a task at which he appears to excel.
take the post due to Mr Tantawi’s seniority, he is believed to
be his designated successor. He remains in the background Safwat al-Sherif: A long-standing member of the
politically and gets no press coverage outside his role as presidential inner circle, the 61-year-old information minister
military commander, but he presumably shares the has received considerable public criticism in recent years for
president’s views on the issues of peace with Israel, economic his heavy-handed attempts to ensure government control
liberalisation, and the political marginalisation of Islamist over the media and was the target of an assassination
extremism. attempt by Islamists in 1993.
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 199810 Egypt: International relations and defence
It is the extremist Islamists, generally from two main factions, Gamaat
Islamiya (Islamic Groups) and Jihad (Holy War), that have been responsible
for the intensification of violence since March 1992, aimed at overthrowing the
regime and instituting an Islamic state. Drawing their followers mainly from the
young lower and middle classes, the power base of the militants is in the slums
of Cairo and the towns and villages in Upper Egypt where poverty, frustration
and unemployment allow extremism to take hold. Hit hard by the harsh
government clampdown, their leadership imprisoned or abroad and in disarray
over tactics, militant activists are now disbursed into small fugitive groups carry-
ing out operations aimed primarily at demonstrating their continued existence.
While these militant cells lack the resources or public support to pose any real
threat to political stability, they remain a major security problem.
The armed forces The armed forces, while less prominent in political life under Mr Mubarak
who, like his predecessors, is a military man, are still a powerful force behind
the scenes. They have shown strong backing for the regime, most notably in
ruthlessly crushing the February 1986 mutiny by some 20,000 conscripts of the
Central Security Force, and have indicated their willingness to act should Is-
lamist violence threaten the status quo. Although there has been talk since the
massacre at Luxor of using army expertise to secure tourist sites against Islamist
militants, in general Mr Mubarak has confined the armed forces to barracks
away from civilian life. He has resisted pressure to nominate a vice-president
(always previously from the military), but has been careful to ensure that the
military has retained its privileges.
International relations and defence
Close neighbours Egypt’s relations with its immediate neighbour, Israel, had improved consider-
ably in recent years as Israel pursued peace with other Arab states. But the
hardline policies of the government of Binyamin Netanyahu since mid-1996
have strained ties. Relations with the volatile Libyan regime have also become
closer during Hosni Mubarak’s tenure as president, with Libya seeking Egyptian
mediation in its dispute with the US, the UK and France over Libya’s alleged
responsibility for the bombing of a Pan Am aeroplane in 1988 and a French
UTA aircraft in 1989. Despite concern over the nature of Colonel Qadhafi’s
rule, Egypt views Libya as an important workplace for its excess labour force
and as a useful buffer against Islamist extremism in the region. However, rel-
ations with Egypt’s southern neighbour, Sudan, have remained tense in the
wake of alleged Sudanese complicity in the June 1995 assassination attempt on
Mr Mubarak and the subsequent imposition of UN sanctions. Although rel-
ations have recently begun to improve, Egypt remains suspicious of the
Islamist nature of the Sudanese government and its alliance with Iran, and
accuses Sudan of funding and training militant Islamist groups within Egypt.
The two countries are also embroiled in a bitter dispute over the border region
of Halaib. In the wider Middle East, Egypt’s leadership role in the 1990-91 Gulf
crisis, which resulted in it becoming a major political Arab force again, consid-
erably strengthened its relationship with the Gulf states, in particular Saudi
Arabia. The two states are close allies, despite occasional problems, and share
common interests to keep the region’s orientation moderate and pro-Western.
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1998Egypt: International relations and defence 11
Western powers In the broader context, Egypt has forged a special role for itself as a mediator in
international disputes, a role assisted by its ability to preserve close relations
both with Western powers, particularly the US, and within the Middle East,
Africa and the developing world in general. It is extremely active on the inter-
national stage, with a huge diplomatic contingent for a developing country,
and its diplomats’ skills are renowned. Egypt’s key international relationship is
that with the US, backed for the time being by annual aid of over $2bn. The
relationship is set to continue owing to Egypt’s leadership role in the region
and its importance as an advocate of regional peace, despite Egyptian misgiv-
ings over what it perceives as the increasingly open US bias towards Israeli
interests and Egypt’s fear of being marginalised by the emerging US-Israeli-
Jordanian axis. At the same time, ties with Europe have begun to gain a higher
priority as Egypt negotiates terms for an economic partnership agreement with
the EU which will allow membership of the proposed EU-Mediterranean free-
trade zone, to be established by 2010. Egypt is recognised by the US, the EU and
Middle East states as having played a unique role in advancing Palestinian-
Israeli negotiations and as having expended considerable efforts to advance
Israeli-Syrian and Israeli-Lebanese peace talks.
Security concerns Israel is still perceived as the main potential external threat to Egypt’s security.
In the run-up to the renewal of the NPT in early 1995, the government stressed
the fact that Israel’s nuclear arsenal is only 20 km from Egypt’s eastern border.
Nevertheless, another major war against Israel appears unthinkable. Egypt is,
however, deeply concerned about the regional security implications of the
Israeli-Turkish military co-operation agreement of February 1996. Algeria has
become less of a concern as the possibility has receded that an Islamist take-
over in Algeria could affect Libya and lead to a hostile Islamist regime on
Egypt’s doorstep. the boost any regional Islamist success would give to Egypt’s
domestic militant groups, particularly if these were able to receive considerable
backing from outsiders such as Iran and Sudan, is more worrying, as are the
tensions resulting from the continuing impasse in the Middle East peace pro-
cess which Egypt believes could usher in conditions conducive to terrorism. So
far the defence forces have indicated their willingness to crush any militant
Islamist opposition to the regime, but it is possible that the Islamists could
manage to infiltrate the armed forces, thus jeopardising the regime’s security.
Relations with Israel Egyptian-Israeli relations have remained correct during Mr Mubarak’s pres-
idency but also cool as a result of Israel’s continuing occupation of Arab land,
although the beach strip of Taba in the Sinai was returned to Egypt in 1989
after international arbitration. However, progress on peace talks between Israel
and other Arab states since October 1991 and the election of a Labour govern-
ment in Israel in 1992 helped to strengthen diplomatic ties. The first Egyptian-
Israeli summit meeting for six years took place in July 1992, ushering in a string
of high-level contacts which continued as Egypt worked to overcome obstacles
to an Arab-Israeli peace settlement. Egyptian restrictions on its citizens visiting
Israel were relaxed, trade ties improved and joint projects, often including the
Palestinian self-rule areas and Jordan, particularly in the hydrocarbons and
tourism sectors, moved ahead. However, this progress in normalisation has
halted since the victory in Israel’s May 1996 general election of a hardline
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 199812 Egypt: International relations and defence
Likud government which rejects the land-for-peace formula that has been the
basic tenet of regional peace negotiations since 1991. Egypt has been dismayed
at Israeli intransigence, perceived as throwing away the gains of the past few
years, and relations have soured. Egypt has also called on Israel to sign the NPT
and abandon its weapons of mass destruction.
One outcome of the impasse in the Middle East peace process has been closer
Arab co-ordination with, in particular, Egypt pushing for greater Arab inte-
gration as a counterbalance to Israeli economic strength. The government has
announced that it is working towards the establishment of an Arab common
market by 2007.
Military modernisation Egypt launched the first of three five-year military modernisation plans in
1983. Covering air, land and naval forces, the aim has been to replace the
Soviet-dominated inventory totally with Western, primarily US, equipment by
2005. But in mid-1994, 45% of Egypt’s tanks, 40% of its combat aircraft and
50% of its ships were still of eastern-bloc origin. (Military indicators are given
in Reference table 1.) The first five-year modernisation plan concentrated on
rebuilding military infrastructure destroyed in the 1973 war. Improving the
country’s aerial strength and producing a leaner and more mechanised army
have been the focuses of the second and third plans. For the air force, the focus
was the acquisition by 1997 of 190 F-16 combat aircraft, 24 Apache anti-tank
helicopters, and the supply of related equipment such as Maverick air-to-
ground missiles. The US has assisted in the creation of an automated air de-
fence command and control system, which became operational in October
1994. Egypt is in the process of upgrading its ageing fleet. In October 1996 the
first of three Perry frigates from “excess” US stock arrived, while two Knox
destroyers, a minesweeper, topographic surveillance ships and a number of
gunboats have recently joined the fleet. Ten antisubmarine aircraft, to be used
by the frigates, were due to arrive during 1997. Egypt possesses eight subma-
rines. Co-production with the US of up to 555 M1-A1 tanks by 1998 is under
way. Egypt has also asked to purchase 50 M-88A-2 armoured tank recovery
vehicles for $197.9m. These modernisation plans, which made Egypt the sec-
ond largest arms importer in the region in 1996/97 (July-June) at $2.3 bn, are
being funded largely by the $1.3bn annual military assistance that the US has
allocated to Egypt in the past decade, and would therefore be severely jeopard-
ised by any cut in the US aid budget.
The armed forces In mid-1997 the active armed forces numbered some 450,000, according to the
London-based International Institute for Strategic Studies. Of this total some
320,000 were conscripts, with the majority, 250,000, in the army, which num-
bered 320,000 in all. Conscription is selective, and service is for three years.
Personnel in the navy were 20,000, in the air force 30,000 and in the air
defence command 80,000. Reserves numbered 254,000, while the paramilitary
included 150,000 in the Central Security Forces and 60,000 in the National
Guard. Egyptian forces abroad at that time were serving as advisers in Oman,
Saudi Arabia and the Democratic Republic of Congo, and as UN peacekeeping
forces in Angola, Bosnia, Croatia, Georgia, Liberia, the Western Sahara and
Yugoslavia (Serbia-Montenegro).
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1998Egypt: Economic structure 13
The economy
Economic structure
Egypt has the largest population and the second largest economy (after Saudi
Arabia) in the Arab world. The economy is dominated by the services sector
which, including public administration, accounts for almost half of GDP.
Within this, tourism and the Suez Canal are important sectors. They have both
suffered a decline in recent years as a result of the effects of militant Islamist
violence and the substantial decline in oil traffic, although tourism recovered
strongly between 1995 and November 1997, when the attack in Luxor sent the
sector into sharp decline. Agriculture remains an important activity, even
though less than 3% of Egypt’s area is arable land; in 1995/96 the sector
contributed 16% of GDP and 31% of total employment but only 7% of exports,
mainly cotton and rice. Cotton cultivation has increased significantly in recent
years as farmers have taken advantage of a government-guaranteed lint price
higher than the international market price. As a result, cotton exports rose to
$91m in 1995/96 and to $107m in 1996/97, compared with $37m in 1992/93,
although an anomalous sale of stocks pushed cotton exports to $306m in
1994/95. Industry and mining are also important, accounting for nearly 18% of
GDP and almost 14% of total employment in 1995/96, and are heavily concen-
trated in Cairo and the Nile delta, although some of the major public-sector
factories are located in the southern region of Upper Egypt, where a tradition
of economic neglect has led to reliance on agriculture and tourism. Petroleum
and natural gas are mainstays of the economy, accounting for over 9% of GDP
in 1995/96, while petroleum products including crude oil made up over 50% of
total exports in 1996/97. In addition, there is a large informal sector, for which
no reliable data exist but which may account for as much as 30% of total
economic activity. Private consumption is a major expenditure component of
GDP, accounting for 71% of the total in 1995/96, compared with 11% for
government consumption and 22% for capital formation.
Main economic indicators, 1996
Real GDP growth (%) 4.9
Consumer price inflation (%) 7.2
Current-account balance ($ m) –0.2
External debt ($ bn) 32.1
Population (m) 61.5
Source: EIU.
Economic policy
President Nasser built up Egypt’s public sector by bringing banking, insurance,
transport, major trading operations, mining, and even agriculture under the
overall control of the state. But bureaucratic controls, which regulated pricing,
purchasing and profit margins, and provided protection from competition,
also stifled productivity, efficiency and economic growth. Meanwhile, wars
with Israel depleted currency reserves.
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 199814 Egypt: Economic policy
The open door policy In 1974 Anwar Sadat attempted to reduce state control by means of the infitah,
or open door policy, enshrined in Law 43, which aimed to encourage foreign
and domestic private investment. An improvement in economic performance
followed as real GDP rose by an average of over 9% per year from 1974 to 1981.
But the growth was fuelled mainly by four sources of revenue, all of which were
heavily dependent on external factors: oil exports, Suez Canal tolls, tourism
receipts and workers’ remittances. In addition, new investment during this
period tended to be concentrated in the services sector rather than in agricul-
ture or industry.
Egypt’s economic Since the days of President Nasser, when state socialism was the dominant
development plans ideology, Egypt has produced five-year development plans. But while the habit
has persisted, the plans have become increasingly irrelevant as Egypt moves
towards a market-driven economy. Egypt’s first full-scale economic plan cov-
ered the period from 1960 to 1965 and proved quite successful. The 1967 war
with Israel buried the overambitious plan that followed, and it was not until
after the next war in 1973 that the government again turned its attention to
detailed economic planning. A transition plan paved the way for two succes-
sive five-year plans (1982/83-1986/87 and 1987/88-1991/92), the first focusing
on improving Egypt’s infrastructure, neglected during the war years, and the
second on economic reform and an increased role for the private sector. The
1982/83-1986/87 plan allocated 76.5% of planned investment to the public
sector. By the 1987/88-1991/92 plan investment allocation had dropped to
62%, and had fallen to 42% in the 1992/93-1996/97 plan, which concentrated
on job creation (2.45m new jobs by 1996/97), a greater role for the private
sector and achieving average growth rates of 5.1% from 1993/94 onwards.
In April 1997 the government set out its socio-economic development plans
for the next 20 years. These include four five-year plans which aim to expand
the percentage of Egypt’s populated surface area from 4% to 30% by 2017
through the establishment of new industrial and agricultural communities in
the Sinai and in the Southern Valley of the Western Desert (see Construction).
Of the E£100bn ($29.5bn) annual investment over the next 20 years, the
private sector is projected to be responsible for 75% of the total. Other targets
include: a rise in GDP growth to average 6.8% per year until 2002 and 7.6%
until 2017; an improvement in the standard of living in real terms by 2%
annually; the creation of 550,000 job opportunities each year; and an increase
in annual industrial growth from 9% to 11%.
Economic imbalance Hosni Mubarak inherited chronic economic problems when he became pres-
ident in 1981. The government’s attempts , despite insufficient resources, to
cover its commitments to the welfare state led to rising inflation, foreign ex-
change shortages, balance-of-payments deficits, declining growth and massive
foreign debt. By the end of 1986 foreign debt had grown to over $46bn, making
Egypt the second most indebted country in the Middle East and Africa after
Iraq. With repayment arrears mounting, Cairo had no choice but to seek re-
scheduling. In March 1987 the government concluded an 18-month SDR250m
stand-by arrangement with the IMF on terms more generous than had been
granted to other debtor countries but nevertheless linked to an economic re-
form programme. Two months later the Paris Club agreed to reschedule $6.5bn
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1998Egypt: Economic policy 15
owed to 17 OECD creditors, with a separate arrangement for Arab lenders. After
a promising start, the two accords faltered for lack of political will to carry
through economic reform. Efforts to impose a solution by adding further con-
trols merely exacerbated the situation until, in 1991, vast cash infusions from
donors and the promise of debt relief in the aftermath of the Gulf war gave the
government the confidence to embark on a comprehensive economic reform
and structural adjustment programme (ERSAP). In May 1991 a three-year
SDR400m stand-by accord was signed with the IMF and followed by a $300m
structural adjustment loan (SAL) from the World Bank. A Paris Club agreement
was concluded the same month, covering an estimated $27bn-28bn in official
and government-guaranteed civilian and military debt, which linked debt re-
lief to progress on economic reform.
Economic policy-makers
Hosni Mubarak: The president has taken a close interest in Formerly head of the General Authority for Investment (GAFI)
economic affairs in recent years and has personally given the Mr Al-Gharib is expected to show a greater understanding of
green light for accelerated reform. This increased presidential the needs of investors, particularly regarding the notoriously
intervention has ensured greater official commitment to opaque administration of taxation and customs.
liberalisation and an understanding that Egypt has to act fast
to create jobs and attract investment. His first major Ahmed Gueily: A protégé of Youssef Wali, the minister of
economic project—the ambitious Southern Valley trade and supply has quietly and effectively accumulated a
development plan—will be an important test of his powerful portfolio. Economically liberal by nature, he has
government’s economic management skills. steadily gained in stature under the new administration and
is a member of Egypt’s negotiating team with the IMF being
Atef Obeid: In the cabinet since 1984, the minister of viewed at home as less influenced by the demands of donor
public enterprise owes his position to the president. nations.
Nevertheless, Prime Minister Ganzouri has managed to
curtail the power of this potential rival by shifting overall Ismail Hassan: The Central Bank governor is believed to be
responsibility for the privatisation programme to a more understanding of the need to modernise the banking
cabinet-level committee and by removing the environment sector than his predecessor, but his lack of political clout had
and cabinet affairs portfolios from Mr Obeid in the July 1997 allowed Egypt’s highly conservative Central Bank to escape
cabinet reshuffle. Perceived as a reluctant reformer, reform. However, having gained in influence over time, the
Mr Obeid has lately become more active politically, which is former career banker has lately begun to stress the need for
likely to secure his personal power base. structural reform as part of the government’s strategy to
move towards Central Bank independence.
Youssef Boutros-Ghali: Appointed by the president to
shake up a traditionally moribund ministry, the new minister Abdel-Moneim Seoudi: The new chairman of the
of economy may be distrusted by some who fear his Federation of Egyptian Industries, representing some 17,000
liberalism but he still plays an indispensable role as the private-sector industries and 300 public-sector companies,
government’s main economic strategist. Egypt’s youngest holds a post with considerable political power, especially in
minister and previously a senior economist with the IMF, he times of economic change. One of Egypt’s leading
is Egypt’s main technical interlocutor with the donor businessmen, he is also the chairman of the influential Sixth
institutions, whose representatives consider him to be a of October Investors Association, the owner and chairman of
tough negotiator. Suzuki and Nissan car assembler Modern Motors and the
major Egyptian investor in a proposed car assembly plant
Mohieddin al-Gharib: Since monetary policy is the joint venture with Libya; he also has a stake in various other
preserve of the Central Bank, the finance minister’s chief task investments including Egypt’s first private natural gas
is to preserve one of the major successes of the economic distributor, City Gas. He thus exemplifies the strengthening
reform programme by keeping the budget deficit low. alliance between government and big business.
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 199816 Egypt: Economic policy
The Social Fund for To alleviate the impact of privatisation, public-sector reform and price deregu-
Development lation on the poor, a $613m Social Fund for Development (SFD) was estab-
lished in March 1991. A $746m second phase began in January 1997. Regulated
by the World Bank and funded by the EU, the UN Development Programme
(UNDP) and various bilateral donors, the SFD is designed to support labour-
intensive projects intended for specific groups such as workers displaced from
jobs in Iraq and elsewhere, households headed by women, and unskilled and
semi-skilled workers. It also provides physical infrastructure and public services
in Egypt’s poorest regions, as well as family planning and health education
programmes. The SFD’s labour mobility programmes, directed at displaced
public-sector workers, remain limited owing to government sensitivities and
the slow pace of privatisation. But with government hiring virtually frozen, the
SFD’s small loan and public works programme has become the only “govern-
ment” job creation scheme and has created 50,000-70,000 jobs per year, almost
one-quarter of all non-agricultural jobs created annually in Egypt.
According to the SFD, by end-1996 an estimated 19.5m people had benefited
directly from fund sub-projects, and the programme had created about 350,000
permanent and temporary jobs.
Macroeconomic reform, The result of the reform programme was a successful stabilisation of the macro-
1991-93 economy: tight fiscal and monetary policies substantially reduced the budget
deficit and lowered inflation; the balance of payments moved into surplus;
prices were freed except on sensitive goods such as edible oil, rationed sugar
and pharmaceuticals; and the banking sector and capital markets were liberal-
ised and invigorated. In addition, a framework was developed for public-sector
reform and privatisation and for liberalisation of trade and investment policies,
although actual progress was slight. Egypt completed its IMF and World Bank
programmes in March 1993 and a new three-year IMF extended fund facility
(EFF), concentrating on structural reforms, was approved by the IMF in September
1993. Thereafter progress on the economic reform programme was hindered by
a major disagreement between the government and the IMF, made public in
June 1994, over IMF demands for a 20-30% devaluation of the Egyptian pound,
which the IMF claimed would encourage investment and improve export com-
petitiveness. The government, fearful that devaluation would erode confidence
in the currency and threaten capital repatriation, firmly denied that any deval-
uation would take place. However, the 18-month stand-off was resolved in late
1995 when the IMF chose instead to emphasise accelerated structural adjust-
ment. Formal negotiations resumed in March 1996, once the new government
(announced on January 2nd), after over a year of inactivity in the run-up to the
parliamentary election in November 1995, had proved its commitment to
the economic reform process. These negotiations culminated in the signing of
a new two-year stand-by arrangement in October 1996.
Privatisation First phase: Privatisation of Egypt’s huge, inefficient and non-competitive
public-sector industries will remain a major long-term economic policy issue.
Law 203 of 1991 established the legal basis for privatisation by removing from
the control of government ministries the 314 public-sector enterprises, with an
official book value of E£90bn and debts of E£77bn, and restructuring them as
affiliates under 16 independent holding companies. In principle the holding
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1998Egypt: Economic policy 17
companies operate as private-sector companies with full financial and manage-
rial accountability. The Public Enterprise Office (PEO), established in Novem-
ber 1991, is in charge of overseeing public-sector reform and privatisation
under the supervision of the prime minister. However, since January 1996 a
ministerial level privatisation committee has taken overall responsibility for
the privatisation programme, leaving the public enterprise minister and the
PEO to implement its decisions.
Second phase: The pace of privatisation has been slow for a number of
reasons: the state’s reluctance to lose control; a fear of selling national assets to
foreigners and of selling them too cheaply; confusion about privatisation pro-
cedures; and concern about the political effects of subsequent redundancies. As
of end-1995, privatisation transactions included the full divestiture of four
The 1996 IMF agreement
The two-year IMF stand-by arrangement formally agreed in remaining non-tariff barriers on exports and imports. The
October 1996 reveals the main tenets of Egypt’s economic restrictive features of the import quality control system were
policy. It focuses on consolidating the macroeconomic gains removed during 1997 and a five-year programme for
of recent years and deepening structural reforms, in reducing tariffs on automobiles had been decided by January
particular privatisation of state enterprises, reduction of trade 1997.
barriers and deregulation of the business environment, in
order to achieve annual real growth of around 6% and the • Structural fiscal reform measures agreed include: the
creation of some 400,000 jobs per year. The programme also gradual introduction of an input credit mechanism for capital
intends to raise Egypt’s investment/GDP ratio from the goods from January 1997; an extension of the sales tax to full
current 17% to 23% so that higher growth is sustainable. A retail value-added tax on July 1st 1997; administrative
precautionary stand-by credit of SDR271.4m, or around reforms to enhance tax collection; and reform of the income
$400m, is included in the accord but on the understanding tax system to reduce rates in the 1997/98 budget. In
that Egypt will not need to draw on this facility unless it addition, the government is committed to reducing civil
develops a balance-of-payments problem. IMF reviews have service employment by 2% per year from 1996/97 and to
been made on a quarterly basis from January 1997, and reducing the civil service wages/GDP ratio.
Egypt’s progress has been judged satisfactory in all four
completed as of December 1997. • Financial reform measures focus on the improvement of
prudential regulation, on the implementation of monetary
• On the macroeconomic side, the programme concentrates policy, and on the functioning of the foreign-exchange
on keeping the budget deficit to below 1% of GDP in market, including measures to reduce bank exposure to a
1997/98. Inflation is to be stabilised at 5% in 1997/98. single customer to 30% of a commercial bank’s capital, and
to lengthen the maturity structure of public debt.
• The privatisation target is for the divestiture of public
enterprises to yield 5-6% of GDP in both 1996/97 and • July 1999 is the deadline for the implicit energy subsidy
1997/98. In the separate banking privatisation programme, on petroleum products to be eliminated and for gas and
the government is committed to divest the bulk of public electricity tariffs to be raised to their long-run marginal cost.
holdings in joint-venture banks and to privatise one of the This is to be done through a staggered reduction: one-third
four public commercial banks in 1998. One of the two public removed by July 1997; another third by July 1998; and the
insurance companies is to be privatised during 1998. remainder by July 1999, following which an automatic
energy price adjustment mechanism is to operate.
• Trade liberalisation measures include the reduction of the
maximum tariff rate to 40% and a limit on the number of • To deregulate the business environment, a unified
tariff bands at seven by July 1998. This is also the deadline investment law was passed in May 1997, bringing together
for the reduction of the 4% and 3% import surcharge rates regulations pertaining to investment and investment
to a uniform 1% and for the government to eliminate all incentives.
EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1998You can also read
