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Egypt about to realize its economic potential

In the bank's August economic report Nicola writes: "Egypt has always had great potential. Perhaps it is on the brink of achieving it."

Egypt is the third largest economy in the Middle East with a population of 75 million. Real GDP growth for FY2006/07 was 6.8 per cent "and it increasingly looks as though this is a sign of things to come," she says. This was up from 4.5 per cent in 2005 led by consumer spending and investment.

The outlook for the next fiscal year is described as "bright". Recent tax cuts have increased disposable incomes and GDP per capita is now $1,629 (up from $1.265 in 2005, according to the IMF). The report also cites a recent survey by MasterCard that showed consumer confidence in Egypt in the first half of 2007 rising to 94.3 per cent, up from 78.2 in the second half of 2006 and higher than any other country in the Middle East.

But the country's weak financial position is acting as a constraint, on government spending, states the report, although the situation is improving as the fiscal deficit narrows as a result of privatisation receipts. Strong domestic demand for imports is also slowing growth and is helping to push up prices. At 8.5 per cent, inflation remains high.

Egypt's public finances are described as "precarious". In 2006, public debt reached almost 70 per cent of GDP. The aim is to reduce the deficit by more than 1 per cent of GDP annually over the next five years. Steps taken towards achieving this include the energy subsidy reduction plan, the cutting of necessary state jobs and the restructuring of the pension and social assistance programmes.

Privatisation is also helping. The government has finalised the privatisation of the Bank of Alexandria and has privatised over 87 state-owned firms since the reform agenda began. The framework for a sustainable free market economy has also been established, including the creation of industrial free zones and shielding foreign investors from bureaucratic red tape.

A lack of transparency and a high degree of bureaucracy continue to hinder economic growth, explains the report. The World Bank's "Ease of Doing Business Report" ranked Egypt 165 out of 175 countries. However, the government has acknowledged the importance of remedying these problems, especially if the country is to attract foreign investment, and has put measures in place to deal with them.

For example, a ministerial committee has been established to work solely on settling commercial disputes with the government, cutting the bureaucratic process in half. Authorities have also reduced custom tariffs, cut income taxes in half and simplified tax filings procedures. Nicola says: "This should give investors a reason to believe that things will get easier going forward."