Egypt WT/TPR/S/55
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I. ECONOMIC ENVIRONMENT
(1) INTRODUCTION
1. Egypt's economic stabilization programme, initiated in 1990/91, has produced significant
results in most macroeconomic areas.1  Strict fiscal and monetary policy resulted in a halving of the
rate of inflation between 1991/92 and 1993/94;  economic growth, after declining initially, picked up
in 1993/94 and has been maintained, despite external shocks, at a real rate of around 5%;  andunemployment has fallen since 1993/94.  Growth has been mainly driven by increased domestic
demand, with export growth playing a smaller role. Th e Government's goal is to meet the challenge of
a rapidly growing labour force with GDP growth of some 8% a year.
2. Higher export growth, at some 10% a year, a nd increased private investment, is expected to
underpin future GDP growth. There is considerable evidence that private investment has risen; much
of this is taking place in the non-tradeable sectors, where reform has been concentrated.  With
declining foreign exchange revenues from traditional but volatile sources, notably tourism, workers
remittances, the Suez Canal, and petroleum, there is a perceived need to expand Egypt's exports;
growth since 1991/92 has been erratic and closely dependent on the performance of petroleum
exports.  There is also a need for significant deepening of the reform programme, particularly toaddress the lack of external competitiveness especially in traditional sectors such as textiles and
clothing, in order to move the economy to a higher growth trajectory.
(2) R
ECENT ECONOMIC DEVELOPMENTS
(i) Economic growth and structure
3. In 1990, Egypt faced a growth rate that had fallen to just over 1%, compared to 6.6% in 1985,
rising inflation at 17%, a budget deficit of over 6% of GDP, declining per capita income, and a debt to
GDP ratio approaching 150%.  In addition, as noted by the first Trade Policy Review of Egypt, theeconomy, which had become dependent on expansionary economic policies financed by foreign
borrowing, experienced a further economic shock from the Gulf crisis in 1990, leading to severe
consequences for employment and foreign exchange earnings.
2
4. An ambitious stabilization and economic restructuring programme launched in 1990/91 is
bearing fruit through resumed economic growth and macroeconomic stability.  The Egyptianeconomy has grown at an average annual rate of around 4% since 1991/92 and by around 5% since
1993/94 (Table 1.1).  The stabilization programme led to a contraction in public spending and growth
fell to 0.3% in 1991/92.  However, as private investment has responded to economic reform,
especially since 1992/93, growth has accelerated (Chart 1.1 and Table 1.1).  GDP growth in 1997/98
was expected to have been around 5%.  Economic growth appears to have resulted in an improvementin employment and per capita incomes:  unemployment fell from 10% to 8.8% between 1992/93 and
1996/97 and per capita income rose from US$767 to an estimated US$1,340 between 1991/92 and
1997/98.
                                                     
1 Egypt's fiscal year runs from June to July.
2 GATT (1993).WT/TPR/S/55 Trade Policy Review
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Table I.1
Economic performance, 1991-97
(Per cent and LE billion)
1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98a
Annual p ercentage change
GDP at factor cost 0.3 2.5 3.9 4.7 5.0 5.3 5.0
Income and absorption
Consumption .. 3.6 3.7 4.2 4.3 4.3 ..
Private .. 3.2 3.4 3.9 4.0 4.1 ..
Public .. 5.9 5.8 6.0 6.8 5.6 ..
Gross capital formation .. 1.8 15.0 4.7 6.2 10.5 ..
Per cent of GDP
Savings and investment
Gross domestic investment 18.2 16.2 16.8 16.9 16.9 18.1 19.5
Gross national savings 17.0 16.4 16.6 16.9 16.6 18.3 17.0
Current account balance
(including official transfers)6.4 5.8 0.8 0.7 -0.3 0.8 -2.4
Trade balance 15.2 15.2 14.2 13.3 14.3 13.7 -14.7
Competitiveness indicators
Inflationb21.1 11.1 9.0 9.4 7.3 6.2 3.8
Nominal exchange rate (Egyptian
pounds per U.S. dollar – end of
period)3.32 3.33 3.38 3.39 3.39 3.39 3.39
GDP deflator (1991/92 = 100) 100.0 109.9 117.6 131.0 140.3 148.6 ..
Real effective exchange rate       
(% change)c.. 14.7 3.7 -0.5 6.8 10.7 ..
Monetary survey
Private sector creditd (LE billion) 33.4 40.6 49.9 64.5 84.5 107.7 ..
Per cent
Narrow money (M1)e21.1 24.5 28.3 31.6 35.1 39.1 ..
Broad money (M2) 104.6 121.8 136.9 152.1 168.0 193.4 ..
"Dollarization"f37.3 26.7 23.4 25.1 22.9 19.4 17.8
Interest rate (annual 3-month T-bills) 18.6 16.3 14.0 11.0 10.5 9.9 8.8
Unemployment 9.2 10.0 9.8 9.6 9.2 8.8 ..
.. Not available.
a Provisional.
b Period average.
c Rebased by the WTO Secretariat from  data provided by the authorities (1991/92 = 100).
d Stock at end June.e M1 is equal to currency in circulation plus LE current deposits .
f Ratio of foreign currency liquidity to total liquidity (stock at end June).
Source : Central Bank of Egypt (1997), Annual Report, 1996/97 ;  Central Bank of Egypt (1998), Monthly Statistical
Bulletin , various issues;  and data provided by the Egyptian authorities.
5. The sectoral composition of GDP shows a declining contribution by petroleum, from almost
10% of GDP in 1991/92 to 6.6% in 1996/97 (Table 1.2).  The combined share of agriculture andEgypt WT/TPR/S/55
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manufacturing increased during this period from 33% to 36%, while the share of services remained
relatively stable at some 51%.  GDP growth, driven mainly by domestic demand, has shown up
principally in the manufacturing and services sectors, although agriculture, with an average growth of
3%, performed well between 1992/93 and 1996/97.
5101520
1985 86 87 88 89 90 91 92 93 94 95 96 19975101520Chart I.1                                         
Investment rates , 1985-97 (fiscal years)a
Percent of GDP
Egyptian fiscal year runs from July to June.
WTO Secretariat estimates based on IMF Occasional Paper No. 163 (1998), Washington D.C.a
Source :TotalPrivate
Public
6. Growth is mainly attributed to higher investment demand since 1992/93.  Gross domestic
investment, which initially fell in response to contractionary policies, rose steadily to reach around
18% of GDP in 1996/97, mainly due to growing priv ate sector investment and participation in the
economy (Chart 1.1).  Moreover, the private sector 's contribution to GDP rose from 62% in 1992/93
to over 66% in 1996/97, much of the increase taking place in manufacturing and petroleum (58% to
74%).3  In contrast to the pre-reform period, when investment tended to be financed by deficit
financing and foreign borrowing, the economy has started to rely more on private savings and to some
extent on foreign investment (section (4));  the total external debt to GDP ratio declined to 39% in1996/97 from 75% in 1991/92.
4
7. However, the IMF notes that current rates of investment remain lower than their pre-reform
levels (averaging almost 25% during the high investment period in the early 1980s) and than the
developing country average;  however, investment composition has changed drastically, in favour of
the private sector.  The lower investment may in part be due to excess spare capacity and improved
productivity resulting from economic reform.5  Nevertheless, the Government believes that a further
recovery in investment and growth in savings is crucial to accelerate growth.  Reliance on foreignborrowing has declined since the early 1990s, and Egypt has started to invest increasingly out of
                                                     
3 Central Bank of Egypt (1997).
4 Subramanian (1997).
5 IMF (1998).WT/TPR/S/55 Trade Policy Review
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domestic savings and workers' remittances.  Domestic savings had declined from a peak of 21%
during the pre-reform period to 16% in 1992/93 before beginning to rise again.  The Government is
aiming at a savings rate of at least 25% (compared to around 18% in 1996/97), accompanied by
higher investment, to sustain its target of 8% a year GDP growth.6
Table I.2
Basic economic and social indicators, 1991-98
(US$ billion and per cent)
1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98a
GDP (US$ billion)
At market prices 41.7 46.6 51.1 59.1 66.1    75.0 80.5
Per capita (US$) 767 841 909 1,037 1,144 1,250 1,340
At constant prices 30.4 31.0 32.0 33.5 35.2 37.3 ..
Composition of GDPPer cent
Agriculture 16.5 16.7 16.9 16.8 17.2 17.7 ..
Manufacturing and miningb16.6 16.7 17.2 17.4 17.7 18.1 ..
Petroleum and natural gas 9.9 9.5 8.2 7.9 6.9 6.6 ..
Services (including production and
social services)50.1 50.2 50.3 50.9 51.1 50.5..
Construction 5.1 4.9 5.2 5.0 5.2 5.3 ..
Electricity 1.7 2.0 2.1 2.0 1.9 1.8 ..
Share in employment
Agriculture 33.4 33.0 32.4 31.9 31.4 30.8 ..
Manufacturing and miningb12.7 13.4 13.5 13.7 13.7 13.7 ..
Annual p ercentage change
Economic growth
Agriculture -1.4 2.5 3.8 2.9 3.1 3.4 ..
Manufacturing and miningb-0.4 2.9 4.2 7.7 7.5 8.4 ..
Production services .. 2.0 2.5 5.0 5.9 6.4 ..
Social services .. 4.0 3.9 5.1 5.1 6.2 ..
Memorandum Items (1996)
Population (million) 60.60 Education (per cent)c
Urban population (%) 44.8 Primary 100.0
Employment (%) 90.6 Secondary 74.0
Birth rate 26.0
Life expectancy at birth 65.0
.. Not available.
a Provisional.
b Including refined petroleum and petroleum products.c Data for 1995.
Source : Central Bank of Egypt, A nnual Report , various years;  and data provided by the Egyptian authorities.
                                                     
6 Africa Economic Digest,  8 March 1999.Egypt WT/TPR/S/55
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8. Unemployment has been a concern of successive governments.  Increased economic growth
has led to the creation of new employment opportunities mainly in manufacturing, social services and
services.7  However, the Government's privatization programme, which will shed some excess labour
employed by public sector companies before they are privatized, is likely to create new redundancies
in the short run (Chapter III(4)(iii)).  At a current (1996/97) rate of 8.8%, unemployment is lower than
in 1992/93;  however, the ability to sustain this leve l or to reduce it further remains a concern for the
Government, in particular the ability of the economy to absorb new labour-market entrants, which are
projected to be around 2.8% each year.8
(ii) Fiscal stabilization
9. Efforts to reduce the fiscal deficit have been  successful, with the deficit falling from 5.5% of
GDP in 1991/92 to 0.9% in 1996/97 (Table 1.3).  In 1997/98, the fiscal deficit increased slightly to1%.  The decline in the budget deficit has been mainly due to restraint in government expenditure,
including a reduction of subsidies and transfers and a cut in investment for electricity and tourism.
Egypt's interest payments on foreign debt were also substantially reduced as a result of debt
forgiveness and rescheduling in 1991.
9  Central government revenues as a percentage of GDP rose
until 1993/94 but have been declining since.  The new budget for 1999/2000 proposes an increase ingovernment spending on civil service wages and infrastructure, and continued support for food
subsidies.  Budgetary expenditures are set to rise to LE 102 billion (US$30 billion), compared to
LE 88 billion (US$26 billion) in 1998/99, some 29%  of GDP.
10
10. The impact of the declining budget deficit has been positive on interest rates and the
availability of credit.  "Crowding out" of the public sector that had resulted in low historical rates of
private investment were reduced;  as a result credit doubled, to the private sector in particular,
between 1992/93 and 1995/96, boosting private sector  investment. In addition, consolidation of the
fiscal deficit has enabled public sector savings to increase;  these increased from 2.5% to 3.7%
between 1992/93 and 1995/96.11
11. Fiscal revenues are mainly comprised of tax revenue, including income tax receipts and
customs tariffs (with the latter accounting for around 3.2% of GDP), and contributions from the
Egyptian General Petroleum Company (EGPC) and the Suez Canal Authority (around 20% of totalgovernment revenue).  Egypt raises relatively less than neighbouring countries through taxes (around
16% of GDP in 1996/97).
12  This is partly because of the exclusion of wholesale and retail trade and a
number of services from the general sales tax, and because of its relatively low standard rate of 10%.
Personal and corporate income taxes contribute around 3.6% of GDP, compared to an average of
5.4% for neighbouring countries;  this is due, in part, to the extensive corporate tax incentivesprovided by Egypt.  Egypt has plans to widen the base of the sales tax by including wholesale and
retail trade, although implementation has been delayed.  Delays in completing tax reform may have
wider implications for further reductions in tariffs, given the importance of customs revenues in
overall government revenue.
                                                     
7 Central Bank of Egypt (1997).
8 World Bank (1997).
9 Subramanian (1997).
10 Africa Economic Digest , 8 March 1999.
11 The increase is mainly due to a reduction in budgetary subsidies and current transfers as well as the
improved financial performance of public sector companies (World Bank, 1997).
12 IMF (1998).  The comparison is made with government budgets in Algeria, Israel, Iran, Jordan,
Morocco, Pakistan, Syria, Tunisia, and Turkey.WT/TPR/S/55 Trade Policy Review
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Table I.3 
Fiscal operations, 1991-98
(Per cent of GDP unless otherwise indicated)
1991/92 1992/93 1993/94 1994/95 1995/96 1996/97a1997/98a
Total revenue  (LE billion) 43.4 46.7 52.6 55.7 60.9 64.5 68.1
Central Government 25.8 26.5 27.2 25.2 24.6 23.0 22.3
of which:
Tax revenue 17.5 17.4 18.1 17.1 17.1 16.0 16.1
Customs duties 3.3 3.2 3.5 3.5 3.5 3.2 3.3
Non-tax revenue 8.3 9.1 9.1 8.1 7.5 6.9 6.2
Local Government Revenue 1.0 1.1 1.1 1.0 0.9 .. ..
Expenditure (LE billion) 51.0 52.2 56.3 58.3 63.9 66.8 70.8
Current expenditure 26.0 26.3 26.6 23.8 23.2 21.3 20.4
of which:
Wages and salaries 5.8 6.2 6.4 6.2 6.3 6.1 6.2
Interest 6.8 8.5 9.5 7.4 7.2 6.2 5.5
Subsidies and transfers 5.5 2.8 1.9 1.9 1.9 1.6 1.5
Social fund .. 0.1 0.2 0.3 0.2 .. ..
Capital expenditure 7.8 7.0 5.9 5.3 5.3 5.3 5.5
Investment 8.5 7.1 6.2 5.6 5.6 5.6 5.7
Net capital and investment funds -0.7 -0.1 -0.3 -0.3 -0.3 -0.3 -0.2
Overall balance -5.5 -3.5 -2.1 -1.3 -1.3 -0.9 -1.0
.. Not available.
a Provisional.
Source : Central Bank of Egypt, Annual Report , various years;  and data provided by the Egyptian authorities.
(iii) Balance of payments
12. Egypt has traditionally run a large merchandise trade deficit, which has been balanced by net
inflows from workers' remittances and services, especially tourism and Suez Canal dues.  The trade
deficit grew from LE 20.1 billion (US$6.2 billion) in 1991/92 to LE 33.3 billion (US$9.8 billion) in
1996/97 and is expected to have grown further to LE 40 billion (US$11.8 billion) for 1997/98
(Table I.4).
13. While imports have increased steadily, by over 10% a year since 1993/94, export growth has
been erratic and closely dependent on petroleum export revenues, which account for some 50% of the
total. In the period 1991/92 to 1993/94 exports declined, but then rose by some 52% in 1994/95, withthe surge largely due to a record cotton crop;  how ever, export growth has been more subdued since,
and more dependent on petroleum exports.
14. Exports in recent years may also have been affected by the real appreciation of the Egyptian
pound since economic reform was initiated.  The exchange rate of the Egyptian pound was unified in
October 1991.  Responsibility for exchange rate policy lies with the Government of Egypt and isadministered by the Central Bank of Egypt in consultation with the Minister of Economy.  The
external value of the Egyptian pound is determined in  the foreign exchange market;  the Central Bank
of Egypt, however, intervenes if the value of the pound fluctuates above or below the bands specified
by the Government.  (In late 1998, the band was 3%, around a central rate of about  LE 3.39 per
U.S. dollar.)  The intervention currency is the United States dollar.  There are no exchange or
currency controls and foreign currency transfers are unrestricted.Egypt WT/TPR/S/55
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15. Although the nominal exchange rate has been stable at around LE 3.32 to 3.39 per U.S. dollar
since 1991, inflation differentials with major partners have resulted in an appreciation of the pound's
real effective exchange rate (REER), especially since 1994/95 suggesting a possible negative impact
on the competitiveness of Egyptian exports (Table 1.1).13
Table I.4
Balance of payments, 1991-98a
(US$ billion, unless otherwise specified)
1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98b
Current account balance
(including official transfers)4.9 1.8 0.4 0.4 -0.2 0.6 -2.8
Merchandise trade balance -6.2 -7.0 -7.3 -7.9 -9.5 -9.8 -11.8
Exports (f.o.b.) 3.9 3.7 3.3 5.0 4.6 4.9 5.1
of which petroleum and
gas1.9 2.1 1.8 2.2 2.2 2.6 1.8
Imports (c.i.f.) 10.1 10.7 10.7 12.8 14.1 14.8 16.9
Services – net balance 4.5 3.6 3.7 4.0 5.8 6.2 4.6
Receipts, of which 8.2 8.3 8.7 9.6 10.6  11.2 10.4
Suez Canal dues 2.0 1.9 2.0 2.1 1.9 1.9 1.8
Tourism 2.5 2.4 1.8 2.3 3.0 3.7 2.9
Payments - net balance -3.7 -4.8 -5.0 -5.5 -4.8 -5.1 5.9
Workers' remittances 3.0 3.8 3.2 3.3 2.8 3.3 3.5
Official transfers (net) .. 1.4 0.8 0.9 0.9 0.9 0.9
Capital account .. 1.8 2.5 0.4 1.0 2.0 3.8
Medium and long term loans 0.3 0.3 0.4 0.3 -0.08 -0.1 -0.05
Foreign direct investment 1.2 1.1 1.3 0.8 0.6 0.8 1.1c
Overall balance 5.9 4.0 1.7 0.8 0.6 1.9 -0.1
Memorandum items
Gross official reserves 10.1 14.4 16.7 17.5 18.5 20.4 20.1
In months of imports 12.1 16.1 18.8 16.2 16.0 16.8 14.5
Per cent of GDP
Current account balance
(including official transfers)6.4 5.8 0.8 0.7 -0.3 0.8 -2.4
Trade balance -15.2 -15.2 -14.2 -13.3 -14.3 -13.7 -14.7
.. Not available.
a The methodology used to calculate components of the balance of payments was changed in 1993/94;  hence figures before this
period may not be compatible with post-1993/94 figures.
b Provisional data.
c Includes investment by two new mobile telecommunication operators.
Source : Central Bank of Egypt, Annual Report , various years;  Central Bank of Egypt (1998), Monthly Statistical Bulletin ,
various issues;  and data provided by the Egyptian authorities.
16. The large trade deficit is offset, in part, by the net services balance which, after declining
from LE 15 billion (US$4.5 billion) in 1991/92 to LE 12.6 billion (US$3.7 billion) in 1993/94,
                                                     
13 The pound came under pressure in late 1998;  the Central Bank responded by injecting some
US$500 million into the market.WT/TPR/S/55 Trade Policy Review
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increased steadily to reach LE 21 billion (US$6.2 billion) in 1996/97.  Tourism revenues, which
contracted in 1997/98 by around 28% are expected to have rebounded to a great extent by late 1998.14
Another important source of revenue is workers remittances, which grew significantly between
1991/92 and 1992/93, to US$3.8 billion, but averaged around US$3.2 billion a y ear in the subsequent
period to 1996/97.  Preliminary data for 1997/98 shows a slight increase in remittances to some
US$3.5 billion.  The current account surplus has been declining and is expected to show a deficit ofover 2% in 1997/98, from a surplus of almost 1% in 1996/97.
17. Egypt's overall balance of payments had been positive but declining between 1991/92 and
1995/96 (from US$6 billion to US$0.6 billion).  There was an increase in the balance to
US$1.9 billion in 1996/97, mainly due to an increase in net portfolio investment inflows;  a small
negative balance of US$0.1 billion was registered in 1997/98, with net portfolio outflows in thesecond and third quarters.  Initial improvements in the balance of payments also resulted from one-
off, exogenous factors such as debt forgiveness and rescheduling, which improved the balance of
payments (on a flow basis) by around US$15.5 billion between 1990/91 and 1995/96, an annual
improvement of around US$2.2 billion.
15  A substantial build-up of official reserves, equivalent to
almost 17 months of imports in 1996/97, also provides Egypt with some degree of insulation from
volatile changes in financial flows.
(3) DEVELOPMENTS IN TRADE
(i) Overview
18. Egypt's share in world exports declined from around 0.2% in the mid-1980s to 0.08% in 1993
and further to 0.07% in 1996.  The share of exports and imports of goods and non-factor services in
Egypt's GDP has also declined, from almost 90% in 1985 to under 50% in 1996/97.16  Although trade
reform has been carried out in a gradual manner, the trading sector has yet to respond significantly,with both exports and imports as a share of  GDP remaining relatively steady (Chart I.2).
19. Intra-industry trade, which refers to trade within the same product category, accounted for
some 10% of Egypt's total merchandise trade.  Th e degree of Egypt's intra-industry trade with the
world increased gradually between 1992 and 1997, although it remains relatively low.  The increase
can mainly be attributed to Egypt's greater intra-i ndustry trade with its principle trading partner, the
European Union (Chart I.3);  intra-industry trade with the rest of the world (excluding the EU)
declined between 1992 and 1995, before rising in 1997.  The gradually increasing intra-industry trade
with the EU suggests increased integration be tween Egyptian and EU producers, with Egypt's
preferential access to the European Union market under the Cooperation Agreement playing a role.  It
is likely, that as preferential access to the EU's markets improves under the Euro-Mediterraneanagreement currently being negotiated, the intra-industry effects on Egypt's trade with Europe will
increase.
                                                     
14 Economist Intelligence Unit (1998).
15 Subramanian (1997).
16 Subramanian (1997).Egypt WT/TPR/S/55
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05101520253035
1990 91 92 93 94 95 96 19970.00.51.01.52.02.5Per cent of GDP
Right hand scale
Note:         For 1995 and 1997 foreign investment does not include portfolio investment assets.
Source:      International Monetar y Fund, International Financial Statistics (various issues).Exports of goods
f.o.b.Imports of goods
f.o.b.Foreign investment
(FDI and portfolio )Chart I.2
Relative importance of forei gn trade and investment, 1990-97
024681012
World EU15 World less EU15Per cent
Source:      UNSD, Comtrade database (Rev.1 ).1992 1997Chart I.3
Intensit y of E gypt's intra-industr y trade with selected re gions, 1992 and 1997WT/TPR/S/55 Trade Policy Review
Page 10
(ii) Merchandise trade
(a) Composition of merchandise trade
20. Exports of primary products, of which the bulk is petroleum and petroleum products, account
for around 60% of Egypt's total merchandise exports.  This share has declined from 65% in 1992,
mainly due to a decline in agricultural and food exports (Chart I.4 and Table AI.1).  The overall share
of manufactured exports grew from 35.4% in 1992 to 40.3% in 1997, but such exports haveexperienced sharp fluctuations during this period, mainly due to variations in exports of textiles and
clothing, which account for around 50% of manufacture d exports.  The share of textiles and clothing
in overall merchandise exports grew from 18.4% in 1992 to 20.3% in 1997.
21. Egypt's main imports are machinery and transport equipment, whose share accounts for over a
quarter of all imports.  The main change in sectoral share since the previous Trade Policy Review ofEgypt in 1992 has been that of food products, which declined from 29.4% in 1992 to 26.4% in 1997.
The overall share of agricultural imports declined from 35.7% to 32.4% during this period, primarily
reflecting slower growth in the volume of food imports.
(b) Direction of merchandise trade
22. The main destination for Egyptian exports is Eu rope, with the EU accounting for a growing
share (39.7% in 1992 to 41.5% in 1997), compensating in part for the decline in traditional markets in
Eastern Europe (6.4% in 1992 to 3.0% in 1997) (Chart 1.5 and Table AI.3).
17  Italy and the
Netherlands account for the largest share of Egypt' s exports to the EU, although Italy's share declined
from 14.2 to 11.2% of total exports during this period.
23. Egypt's exports to its neighbours in the region have declined, with exports to the Middle-East
falling from 22.6% in 1992 to 17.7% in 1997;  Israel and Saudi Arabia are the main regional export
destinations.  The American market, especially the United States, has accounted for a growing shareof Egypt's merchandise exports;  however, exports to East Asia have been subject to significant
change during the period.
24. There have been few changes in the pattern of Egypt's imports by major trading partner since
1992 (Chart I.4 and Table AI.4).  Around half of merchandise imports originate in European
countries, although as a share of the total, EU imports declined from 41% in 1992 to 38% in 1997.Germany and Italy are the main European exporters to Egypt.
                                                     
17 Trade figures for the EU for the whole period (19 92-97) refer to all 15 current EU member States.Egypt WT/TPR/S/55
Page 11
Chart I.4
Merchandise trade by product, 1992 and 1997
1992 1997
(a)    Ex ports (f.o.b. )
Total: US$ 3,050.0 million
(b) Imports (c.i.f.)
Total: US$ 8,292.9 million Total: US$ 13,095.3 million
Source:   UNSD, Comtrade database (SITC Rev.1).Per cent
Other mining
8.2%Textiles and 
clothing 
18.4%Other 
manufactures
11.5%
Chemicals
5.4%
Wheat and maize
10.6% 
Mining
4.6% 
Machinery and transport 
equipment
26.2%Iron and steel
4.7%Other manufactures
15.7%
Other agricultural 
raw materials
6.3%Other foods
18.8%Chemicals
13.1%Total: US$ 3,908.0 millionCrude 
petroleum
 38.0%Other agricultural
 raw materials
3.1%Food 
11.0%Other 
manufactures
12.9%Other agricultural
 raw materials
3.8%Food 
7.6%
Other mining
8.4%Crude 
petroleum
 17.1%Textiles and 
clothing 
20.3%Chemicals
7.2%
Wheat  and maize
9.2% Other manufactures
15.5%
Other foods
17.2%
Mining
4.7% 
Iron and steel
7.0%Other agr. 
raw 
materials
6.0%
Machinery and transport 
equipment
27.0%Chemicals
13.3%Residual 
fuel oils
22.7%
Petroleum and
MiningManufactures ManufacturesAgr.Agr.
Manufactures ManufacturesAgriculture AgricultureResidual 
fuel oils
4.4%Petroleum and
MiningWT/TPR/S/55 Trade Policy Review
Page 12
Chart I.5
Merchandise trade by partner, 1992 and 1997
1992 1997
(a)    Ex ports (f.o.b. )
Total:   US$ 3,050.0 million Total:   US$ 3,908.0 million
Total:   US$ 8,292.9 million Total:   US$ 13,095.3 million
               
Note:        Figures for the European Union in 1992 include all 15 current Member States.
Source:    UNSD, Comtrade database (SITC Rev.1).Per cent
South and East 
Asia 
10.2%Middle East
22.5%Other
8.9%
United States
9.4%
Rest of Europe
9.3%Netherlands
5.7%European Union
39.7%
Other
10.2% United States
17.5%Australia
3.3%(b)    Im ports (c.i.f.)Rest of 
Europe
6.1%European
 Union
41.5%
South and East 
Asia 
12.2%Middle East
17.7%Other
11.0%
United States
11.4%
South and East 
Asia 
15.4%Middle East
2.3%
Rest of Europe
10.3%European Union
41.1%United States
13.1%
Rest of Europe
12.9%European Union
38.4%Other
12.8%
Australia
3.7%
South and East
Asia 
14.3%Middle East
4.8%Italy
14.2%
Israel
9.5%Italy
11.2%
Israel
8.4%Netherlands
6.8%
Germany
 10.4%
 Italy
        6.6%             8.7%      Germany
 Italy
       7.1%Egypt WT/TPR/S/55
Page 13
(iii) Trade in services
25. Egypt has traditionally maintained a surplus on its external services account. The surplus is
mainly due to receipts from tourism and the Suez Canal, although the importance of the latter has
been declining.  Between 1992/93 and 1996/97 re ceipts on services trade grew in value from
US$9.8 billion to US$11.2 billion.  In 1996/97, the bulk of this came from tourism, around 32%,
rising from around 24% in 1992/93.  Suez Canal receipts declined from around 20% in 1992/93 to
around 10% in 1996/97.
26. Egypt's main payments for services include those for travel, which accounts for around 25%
of total payments,  and investment.
27. No data were available on the main countries providing services to Egypt or on the main
recipients of Egyptian services.
(4) TRENDS IN FOREIGN INVESTMENT
28. Foreign investment flows, the bulk of whic h was foreign direct investment (FDI) until
1996/97, have remained volatile and mainly restricted to the non-tradeable sectors.  According to
Central Bank data, the total stock of FDI declin ed from US$1.3 billion in 1993/94 to US$0.8 billion in
1996/97, before rising to around US$1.1 billion in 1997/98.18  As a percentage of GDP, foreign
investment averaged around 1.3% a year between 1992 and 1996, peaking at some 2.4% in 1994,
before declining again (Chart 1.2).
29. The main foreign investor in Egypt is the United States, which accounted for around 84% of
FDI inflows in 1997/98, down slightly from 1995/96, followed by the European Union (Table I.5).
Investment by neighbouring countries, notably Saudi Arabia, has begun to increase in recent years,
although this still forms under 5% of total FDI in flows.  Provisional data for 1997/98 indicate that
FDI stock was around US$1.1 billion at the end of the fourth quarter.19
Table I.5
Foreign direct investment inflows and outflows, 1995–98
(US$ million and per cent)
1995/96 1996/97 1997/98a
Total FDI inflows (US$ million) 141.1 139.5 204.6
Of which:
United States 87.0 85.6 84.3
Germany 3.3 2.2 1.4
France 4.1 1.5 1.7
United Kingdom 1.6 1.6 0.7
Japan 2.1 1.3 9.2
Korea, Rep. of 0.6 0.7 0.1
Saudi Arabia 0.3 0.8 2.7
Total FDI outflows (US$ million) -0.2 0.0 26.5
a Preliminary, July-December 1997.
Source : Central Bank of Egypt, Economic Review , various years.
                                                     
18 Central Bank of Egypt (1998).
19 Central Bank of Egypt (1998).WT/TPR/S/55 Trade Policy Review
Page 14
30. The main sectors in which FDI has taken place include petroleum and gas, tourism and
financial services.  Although declining recently, FDI has also taken place in the free zones, to avail of
tax and other incentives provided for investors in the free zones (Chapter III(2)(xv)).
31. Although FDI formed the bulk of foreign inve stment inflows into Egypt until 1996/97, its
share in total foreign investment has declined as a result of increased portfolio investment.  Several
factors have contributed to a rise in portfolio investment, which grew from US$20 million in 1995 toUS$1.5 billion in 1996/97;  these include a relaxation in investment regulations, and stepped up
privatization, a significant amount of which has taken place through the stock market.  Portfolio
investment, however, has tended to be extremely volatile.  After peaking in 1996/97, provisional data
for 1997/98 shows negative net portfolio investment inflows of US$250 million, partly due to the
general uncertainty surrounding investment in emerging market economies in the aftermath of theAsian financial crisis.
20
32. With the passage of a new Law of Investme nt Guarantees and Incentives (Law 8/1997),
which consolidates investment rules and incentives and liberalizes investment, FDI in Egypt is
expected to grow.  Egypt's privatization programme, which has recently been accelerated, as well as a
decision to allow private and foreign investment in several services through build-own-operate-transfer (BOOT) schemes are likely also to attrac t both foreign direct and portfolio investment.
(5) O
UTLOOK
33. Egypt's stabilization programme, which was based on orthodox measures, including a
reduction of the fiscal deficit and tight monetary policy, has been successful.  With a population
growth rate of over 2%, however, the Government is aiming for annual GDP growth of 8% by the
year 2000, while maintaining inflation at around 4% per year.  Despite recent exogenous shocks, such
as the fall in oil prices, the Government expects the current account balance to remain manageable.Much of the boost to GDP is expected to come from higher export growth and continued increase in
investment.  The Government's export promotion st rategy is aimed at increasing exports by 10% per
year until the year 2002, rising to 15% per year over the subsequent five years.
34. Although investment, in particular private investment, has been growing, much of it appears
to be taking place in the non-tradeable sector.  Export growth, however, has been relatively erratic,closely shadowing developments in the petroleu m market.  The share of non-petroleum exports,
moreover, has not increased despite economic reform, suggesting the need for a deepening of trade
and industrial reform in important sectors such as textiles and clothing, which have thus far remained
relatively untouched.  Dependence on a few sources of earnings, notably petroleum exports, the Suez
Canal, tourism and workers' remittances, also continues to make Egypt susceptible to exogenousshocks unless the trade base is diversified and economic reform extended to all sectors of the
economy.
                                                     
20 Central Bank of Egypt (1998).