Testimony 

Before the House Committee on 

International Relations

United States General Accounting Office 

GAO

For Release on Delivery 

Expected at 10:30 a.m. EST 

Thursday, June 17, 2004 FOREIGN ASSISTANCE

Observations on USAID’s 

Commodity Import Program 

in Egypt 

Statement of David Gootnick, Director 

International Affairs and Trade Team 

GAO-04-846T 
www.gao.gov/cgi-bin/getrpt?GAO-04-846T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact David Gootnick 

at (202) 512-3149 or gootnickd@gao.gov. 

Highlights of GAO-04-846T, testimony 

before the House Committee on 

International Relations 

June 17, 2004

FOREIGN ASSISTANCE

Observations on USAID's Commodity 

Import Program in Egypt 

The CIP provides loans to Egyptian importers of U.S. goods and, through 

loan repayments, supplies funds to the government of Egypt. During fiscal 

years 1999-2003, about 650 Egyptian firms used the CIP to import $1.1 billion 

in U.S. products from approximately 670 U.S exporters. In a 2003 USAID 

survey, about two-thirds of CIP importers said that they would have 

imported U.S. goods without the program, but half said that it helped 

increase their firm’s production capacity and one-third said that it helped 

increase their firm’s employment levels. The Egyptian government and 

USAID jointly determine the uses of the funds from loan repayments. In 

fiscal years 1999-2003, about three-quarters of these funds supported Egypt’s 

general and sector budgets and about 15 percent supported USAIDadministered activities and operating expenses in Egypt. 

 

Despite the positive results reported by some CIP users, various factors have 

limited the program’s ability to foster a competitive private sector in Egypt. 

According to the State Department, the slow pace of Egypt’s economic 

reforms has created a climate not conducive to private enterprise. Further, 

according to several U.S. government studies, the Egyptian government’s 

inconsistent foreign exchange policies have hampered firms’ ability to do 

business in Egypt, limiting the extent to which the CIP can relieve the 

country’s foreign currency needs. In addition, because of experience with 

bad loans, the recent economic slowdown, and the resulting increased risk 

of nonrepayment, bank officials told us that they are generally reluctant to 

provide loans to entrepreneurs. Finally, because the CIP is not designed to 

reach firms in Egypt’s large informal economy, the program’s ability to foster 

a competitive private sector is necessarily limited. 

Flow of CIP Transactions 

The Commodity Import Program 

(CIP), managed by the U.S. Agency 

for International Development 

(USAID), is intended to foster a 

competitive private sector in Egypt, 

in addition to assisting U.S. 

exporters. The program also 

supports the government of Egypt 

and USAID activities and expenses 

in Egypt. Since 1992, Congress has 

appropriated at least $200 million 

per year for the CIP. 

In 1998, the United States 

negotiated a reduction in its 

economic assistance to Egypt, 

including the CIP, through fiscal 

year 2009. In this context, GAO 

was asked to discuss its ongoing 

analysis of (1) program 

participants’ use of the CIP and the 

Egyptian government’s and 

USAID’s use of program funds and 

(2) factors that have affected the 

CIP’s ability to foster a competitive 

private sector in Egypt. 

We received comments on a draft 

of this statement from USAID, 

which we incorporated where 

appropriate. In general, USAID 

agreed with our observations. 
Page 1 GAO-04-846T 

Mr. Chairman and Members of the Committee: 

I am pleased to be here today to discuss our ongoing work on the 

Commodity Import Program (CIP), a component of U.S. economic 

assistance to the Arab Republic of Egypt. U.S. policy objectives in Egypt 

include supporting the country’s economic growth and development and 

strengthening its investment environment. The CIP is intended to further 

these objectives by fostering a competitive private sector in Egypt, in 

addition to assisting U.S. exporters. The program, managed by the U.S. 

Agency for International Development (USAID), enables Egyptian firms to 

obtain loans with favorable financing terms to import U.S. goods. The 

Egyptian government and USAID use importers’ loan repayments for 

budget support and operating expenses, respectively, among other 

activities. Since 1992, Congress has appropriated at least $200 million per 

year for the CIP. 

In 1998, the United States negotiated a reduction in its economic 

assistance to Egypt, including the CIP, through fiscal year 2009. In this 

context, you asked us to examine the extent to which the CIP contributes 

to the Egyptian private sector’s growth and development. Today, I will 

discuss (1) program participants’ use of the CIP and the Egyptian 

government’s and USAID’s use of program funds and (2) factors that have 

affected the CIP’s ability to foster a competitive private sector in Egypt. 

We analyzed data on trends in the use of the CIP during fiscal years 1999-

2003, as well as the results of a USAID-sponsored 2003 survey on the CIP’s 

impact. (We determined that these data were sufficiently reliable for our 

analysis.) We also collected and analyzed documents describing program 

operations and outcomes. In addition, we interviewed officials from 

USAID and other government agencies; Egyptian government officials; 

representatives of Egyptian companies and banks; and experts on private 

sector development in Egypt. (See app. I for a more detailed description of 

our scope and methodology). We performed our work between January 

2004 and May 2004 in accordance with generally accepted government 

auditing standards. 

The CIP provides loans to Egyptian importers of U.S. goods and, through 

the loan repayments, supplies local currency (Egyptian pounds) to the 

government of Egypt. During fiscal years 1999-2003, about 650 Egyptian 

firms used the CIP to import $1.1 billion in U.S. products from 

approximately 670 U.S exporters. Two-thirds of respondents to a 2003 

USAID survey said that they would have imported U.S. goods without the 

Summary 
Page 2 GAO-04-846T 

program, half said that the CIP helped increase their firm’s production 

capacity, and one-third said that it helped increased their firm’s 

employment levels. The program gives Egyptian importers access to the 

foreign currency they need to finance U.S. imports; it also provides them a 

fixed exchange rate and interest-free loan repayment grace periods. In 

addition, USAID offers several incentive programs—for example, for 

importers in Upper Egypt—that extend the loan’s grace period for 

qualifying Egyptian firms. USAID and the Egyptian government jointly 

determine the uses of local currency from loan repayments, based on an 

annual memorandum of understanding. From 1999 through 2003, about 

three-quarters of CIP-generated local currency supported Egypt’s general 

budget and the budgets of various government ministries, and about 15 

percent supported USAID-administered activities and operating expenses 

in Egypt. 

Despite the positive results reported by some CIP users, various factors 

appear to have limited the CIP’s ability to foster a competitive private 

sector in Egypt. First, the slow pace of the Egyptian government’s 

economic reforms has created a climate not conducive to private 

enterprise. According to a senior USAID official, there are also concerns 

that the CIP may have reduced pressure on the Egyptian government to 

speed economic reforms. Further, the government’s inconsistent foreign 

exchange policies have hampered firms’ ability to do business in Egypt 

and limited the extent to which the CIP can relieve the country’s foreign 

currency needs. For example, a private sector representative estimated 

that the private sector requires about $15 billion in foreign exchange 

annually; however, the CIP provides less than 2 percent of this amount. In 

addition, because of the recent economic slowdown and the increased risk 

of nonrepayment, Egyptian banks have been reluctant to provide loans to 

entrepreneurs. Egyptian bank officials stated that they generally provide 

CIP loans only to well-established customers with proven credit. Finally, 

because the program is not designed to reach firms in Egypt’s large 

informal economy, which comprises 80 percent of the country’s 

businesses, its ability to foster a competitive private sector has necessarily 

been constrained. 

The U.S. government’s economic assistance in Egypt focuses primarily on 

partnering with the Egyptian government to promote economic growth 

and development. This support has three core components: 

Background 
Page 3 GAO-04-846T 

• Traditional project assistance, managed by USAID, focuses on, among 

other things, private sector development, health and education, and the 

environment. 

• The Development Support Program, or “cash transfer program,” provides 

assistance funding conditioned on the Egyptian government’s achievement 

of specific reform goals. 

• The CIP supplies financing to Egyptian private sector importers of U.S. 

goods and funding to the Egyptian government that is not specifically 

conditioned on any reforms. 

Between 1975 and 1986, the CIP funded only public sector imports. In 

1986, USAID established a private sector CIP, providing foreign exchange 

to finance imports of capital and noncapital goods1

 from the United States. 

Since 1986, the CIP has facilitated more than $3.1 billion in loans to the 

private sector for the purchase of U.S. exports. In 1991, USAID ended the 

public sector CIP. 

In 1998, the U.S. and Egyptian governments agreed to reduce U.S. 

economic support from $815 million to $407 million per year in fiscal year 

2009.2

 Annual CIP appropriations are projected to remain constant until 

fiscal year 2007 and decline to $150 million by fiscal year 2009 (see fig. 1). 

 1

Capital goods (e.g., construction equipment) are used to produce other goods or services. 

Noncapital goods include raw materials (e.g., plastics) and intermediate goods (e.g., air 

conditioner compressors). 

2

The planned changes also include establishing an enterprise fund—an independent 

corporation authorized by the U.S. Congress that primarily makes loans to, or invests in, 

businesses in which other financial institutions are reluctant to invest. As of May 2004, the 

United States had not established a fund in Egypt, although USAID funding was set aside 

for this purpose. 
Page 4 GAO-04-846T 

Figure 1: Planned Changes to Economic Assistance to Egypt 

CIP transactions have two main components (see fig. 2 for a depiction of 

the CIP transaction flow). 

• First, USAID issues letters of commitment to participating U.S. banks 

(nine as of 2004). These letters authorize the banks to pay U.S. exporters 

that sell goods through the CIP. After the goods are shipped and the 

exporter provides the required documentation, the U.S. bank pays the 

exporter and requests reimbursement from USAID. 

• Second, the Egyptian importer seeks a loan, denominated in Egyptian 

pounds, from 1 of 31 participating local banks (27 private and 4 public), 

which assumes the credit risk for the loan amount. The importer must 
Page 5 GAO-04-846T 

document a reasonable number of bids and certify that the goods are new 

and unused; made in, and shipped from, the United States; and consistent 

with the U.S. government’s list of eligible commodities.3

 Before the 

Egyptian bank issues a letter of credit authorizing the transaction, USAID 

again reviews the application. Regardless of whether the importer repays 

the loan, the local bank is required to send the net proceeds4

 in Egyptian 

pounds to a special account at the Central Bank of Egypt. 

 3

Eligible commodities include capital and intermediate goods and raw materials. Ineligible 

commodities include military and surveillance equipment and luxury goods. USAID also 

generally prohibits the importation of bulk grain commodities, such as wheat and corn. See 

U.S. Agency for International Development, Commodity Eligibility Listings, rev. ed. 

(Washington, D.C.: 1988). 

4

According to USAID, Egyptian banks have not defaulted on any loan repayments to the 

Central Bank of Egypt. The net proceeds equal the loan principal plus interest, minus the 

local bank’s administrative costs, which vary between 2 and 4 percent depending on the 

type of commodity purchased. 
Page 6 GAO-04-846T 

Figure 2: Flow of CIP Transactions 
Page 7 GAO-04-846T 

The CIP provides favorable financing to importers of U.S. goods and, 

through the loan repayments, supplies funds to the Egyptian government. 

From fiscal years 1999-2003, about 650 Egyptian firms used the CIP to 

import just over $1 billion in U.S. products from approximately 670 U.S 

exporters. The program gives Egyptian importers access to foreign 

currency at fixed exchange rates5 and offers varying interest-free grace 

periods and repayment periods, as well as incentive programs that extend 

the grace periods. To ensure that all transactions comply with CIP rules 

and regulations, USAID has established several management controls. 

USAID and the Egyptian government mutually determine the uses of the 

local currency from CIP loan repayments, which are held in a special 

account at Egypt’s Central Bank. 

In fiscal years 1999-2003, approximately 650 Egyptian firms used the CIP 

to import $1.1 billion worth of U.S. products.6

 Midsized to large firms7

accounted for 75 percent, or about $850 million, of CIP transactions. 

During this period, an average of 90 new Egyptian importers used the CIP 

each year; the average and median loan values were $300,000 and 

$153,000, respectively (CIP loans can range from $10,000 to $8 million). 

Egypt’s industrial sector accounted for about two-thirds of CIP loans, with 

most of the remaining loans used for agriculture, construction, and health 

care equipment imports. During fiscal years 1999-2003, commodities 

imported by Egyptian businesses included items such as computer 

systems, diesel engines, hydraulic pumps, irrigation equipment, and chick 

incubation systems. In addition, according to USAID, approximately 670 

U.S. exporters from 43 states, plus the District of Columbia and Puerto 

Rico, used the CIP to export to Egypt in fiscal years 1999-2003. 

In a 2003 USAID-sponsored survey, 66 percent of Egyptian importers 

surveyed said that they would have imported U.S. goods without the CIP.8

 5

The exchange rate is fixed at the Egyptian bank’s rate at the close of business the day 

before the bank issues the letter of credit. 

6

Sixty-four percent of the importers were end-users, 23 percent were traders, and 12 

percent were both end-users and traders. The remaining one percent did not identify 

themselves as belonging to either category. 

7

According to the Organization for Economic Cooperation and Development, midsized to 

large firms as those with 50 or more employees. More than 90 percent of Egyptian 

companies have fewer than 50 employees, according to Egypt’s Ministry of Foreign Trade. 

8

Development Associates, Inc., Impact Analysis Study: USAID/Egypt Commodity Import 

Program (Cairo: 2004). 

CIP Assists Egypt’s 

Private Sector and 

Supplies Funds to the 

Egyptian Government 

CIP Financing Assists 

Egyptian Importers and 

U.S. Exporters 
Page 8 GAO-04-846T 

However, 49 percent of survey respondents said that the CIP helped 

increase their firm’s production capacity and 32 percent said that the 

program helped increase their firm’s employment levels. The importers 

surveyed reported that they used the CIP chiefly because of three program 

features—the fixed exchange rate, interest-free grace periods, and the 

ability to repay loans in Egyptian pounds. Although three-quarters of the 

U.S. exporters surveyed indicated that they would have exported goods to 

Egypt without the CIP, almost half said that the CIP helped their firm 

increase its exports to Egypt. 

CIP financing helps Egyptian firms obtain from Egyptian banks the foreign 

currency loans needed to import goods. Representatives of several 

Egyptian firms told us that the CIP had helped them procure part or, in 

some cases, all of the foreign currency they needed for U.S. imports. 

Foreign currency can be difficult to obtain because, according to bank 

officials we interviewed, Egyptian banks often receive more requests for 

foreign currency loans than they can accommodate. In addition, Egypt’s 

Central Bank instructed banks in 2003 not to make foreign currency loans 

unless their clients are able to repay the loans in foreign currency. 

The financing terms that the CIP offers Egyptian importers depend on the 

type of commodity and how and where it will be used. Under the 

program’s standard terms, USAID allows participating Egyptian banks to 

extend the interest-free grace period to traders and end-users9

 for 

noncapital goods for up to 2 and 4 months, respectively; for capital goods, 

the grace period may be extended for 9 and 18 months, respectively. 

Egyptian importers can take 6 months to 8 years to repay their loans after 

the grace period ends. The terms of CIP loans have been adjusted in 

response to changes in demand for the CIP. For example, when demand 

for the program has been high, USAID shortened the duration of the 

interest-free grace period to reduce distortions of the commercial trade 

finance market.10

USAID also offers three incentive programs extending the interest-free 

grace period to Egyptian firms that (1) are increasing their exports, (2) 

 9

Traders resell the goods to other Egyptian firms. End-users are producers or 

manufacturers that process or use the imported goods. 

10In August 2002, USAID shortened the duration of the interest-free grace period for 

noncapital goods from 6 months to 2 months for traders and from 9 months to 4 months for 

end-users. 
Page 9 GAO-04-846T 

invest in Upper Egypt, or (3) invest in environmentally friendly equipment. 

According to USAID, during calendar years 1999-2003, about 12 percent of 

CIP’s resources ($133 million) supported imports by firms that qualified 

for these programs. Over the last 5 years, nearly half of all loans related to 

the special incentive programs, or $60 million, went to importers who 

increased their exports, $45 million went to Upper Egyptian importers, 

and $28 million went to importers of environmentally friendly equipment. 

Officials from USAID’s Office of the Inspector General told us that the 

percentage of fraud in the CIP is relatively low given the high volume of 

transactions in the program. To ensure that the CIP complies with the 

agency’s rules and regulations, USAID uses a series of management 

controls. These include site visits and physical checks to ensure that goods 

are used for their intended purpose, as well as posttransaction reviews to 

detect overpayment for imported goods and noncompliance with program 

requirements. USAID conducts 25 end-use checks in Egypt annually to 

ensure that commodities purchased through the program meet these 

requirements—for example, that goods are used promptly for their 

intended purpose. Importers who have not complied with CIP 

requirements have been debarred from the program for 3 months to 3 

years. According to USAID officials, seven importers have been debarred 

from the CIP since 1999. In addition, USAID requires that U.S. suppliers 

refund overcharges for transactions in which goods were not made in and 

shipped from the United States. From 1999 to 2003, USAID obtained 120 

refunds totaling about $4.7 million. 

In an annual memorandum of understanding, USAID and Egypt’s Ministry 

of Foreign Affairs jointly determine how much of the local currency from 

the repayment of loans in the special account will support Egypt’s general 

and sector budgets and USAID’s activities. (See fig. 3 for a depiction of the 

account’s funding flow). The special account comprises multiple discrete 

accounts for the CIP as well as for the cash transfer program.11 For 

 11The cash transfer program receives an annual appropriation of $200 million. The 

government of Egypt may use up to 25 percent of cash transfer appropriations, or about 

$50 million, to support its budget deficit (this portion does not generate local currency). 

Egypt must use the remaining 75 percent to import U.S. goods. However, this funding is 

conditional on Egypt’s completing comprehensive economic reforms agreed to by USAID 

and the Egyptian government. Once USAID has certified that the government has met these 

conditions, the agency transfers additional dollar disbursements to the government, which 

uses the funds to purchase U.S. goods. The Egyptian government must then deposit into 

the special account Egyptian pounds equivalent to the dollar value of the cash transfer. 

Egyptian Government and 

USAID Jointly Determine 

Use of the Special Account 
Page 10 GAO-04-846T 

planning purposes, these are considered one large account, but USAID and 

the Egyptian Foreign Affairs Ministry can track the funding to a CIP or 

cash transfer deposit from a prior year. Although the Foreign Assistance 

Act and the annual memorandum give USAID a role in determining the 

uses of the funds in the account, the local currency belongs to the 

Egyptian government.12

 12For example, see P.L. No. 108-199, 118 Stat. 178-79, and USAID implementing guidance, 

Automated Directives System, sections 624.3.2 and 624.3.3. These provide that host 

country–owned local currency generated through the Foreign Assistance Act (including the 

CIP) must be deposited into a separate account and not commingled with funds from other 

sources. As may be agreed by USAID and the foreign government, the local currency may 

be used only for project or sector assistance activities, debt or deficit financing, or the 

administrative requirements of the U.S. government. 
Page 11 GAO-04-846T 

Figure 3: Egyptian Government’s Special Account 

For fiscal years 1999-2003, about three-quarters of the CIP-generated funds 

from the special account were used for general and sector budget support 

to help reduce Egypt’s budget deficit. In addition, USAID used about 6 

percent of CIP-generated funds in the special account for some of its 

operating expenses.13 USAID also used about 9 percent of this local 

currency to finance various projects, technical and feasibility studies, 

 13In fiscal year 2003, about 80 percent of USAID’s $14.5 million in total operating expenses 

in Egypt were paid for with CIP-generated funds. 
Page 12 GAO-04-846T 

evaluations, and assessments, among other things; the remaining 8 percent 

covered other disbursements such as refunds for cancelled transactions. 

Over the years, congressional committee reports have encouraged USAID 

to use funds from the account to support specific projects, such as the 

construction of a new campus for the American University in Cairo.14

Table 1 lists examples of activities funded with CIP-generated funds from 

the special account during fiscal years 1999-2003. 

Table 1: Examples of Projects and Activities Supported by CIP-generated Funds 

from Egypt’s Special Account, Fiscal Years 1999-2003 

Fiscal year

Type of support/ 

recipient 

Total funding 

(nominal dollars 

in millions)a

 Purpose 

1999 Sector Support/Ministry 

of Health 

10.3 Equip medical centers and 

public hospitals, as well as 

the National Center for 

Liver and Communicative 

Diseases 

2000 USAID Activity/Egyptian 

Center for Economic 

Studies 

14.4 Ensure the steady flow of 

resources to sustain the 

center’s operations 

2001 Sector Support/Ministry 

of Communications and 

Information 

10.1 Train new graduates in 

information technology and 

programming, purchase 

equipment and vehicles 

2002 Sector Support/Ministry 

of Public Enterprise 

7.7 Fund (1) studies related to 

restructuring failing 

companies, (2) leadership 

training for these 

companies, and (3) a 

technical office in the 

ministry 

2003 USAID 

Activity/American 

University in Cairo 

34.2 Construct a new campus 

Source: Government of Egypt, Ministry of Foreign Affairs. 

a

Conversions from Egyptian pounds to U.S. dollars for fiscal years 1999-2003 were calculated with 

the annual average exchange rate (see International Monetary Fund, International Financial 

Statistics, January and May 2004). 

 14H.R. Rep. No. 106-254, 106th Cong., lst Sess. 35-36 (1999). 
Page 13 GAO-04-846T 

Various factors have limited the CIP’s ability to foster a competitive 

private sector in Egypt. First, the CIP has been operating in a policy and 

economic climate not conducive to business activity. Although the 

government of Egypt took steps, beginning in 1991, to shift from a 

centrally planned economy to one more hospitable to private enterprise, 

the pace of reforms slowed in the late 1990s. For example: 

• Subsidies and government spending. The budget deficit as a percentage 

of gross domestic product declined from more than 17 percent in the early 

1990s to 3 percent at the end of the decade. However, the deficit 

subsequently increased steadily, reaching 6.3 percent in 2002-2003. The 

Economist Intelligence Unit forecasts that Egypt’s budget deficit will 

widen to about 7 percent in fiscal years 2004 and 2005, mainly because of 

subsidies to protect citizens from price increases and slow private sector 

economic activity. According to the State Department, Egypt’s real gross 

domestic product growth slowed from nearly 6 percent in fiscal year 1999 

to roughly 3 percent in fiscal year 2003, and the private sector’s share of 

this growth fell.15

• Tariffs and custom duties. In the early 1990s, Egypt agreed with the 

World Trade Organization (WTO) that it would abide by multilateral trade 

rules and liberalize its trade policies. Accordingly, by the end of the 1990s, 

Egypt reduced the maximum tariffs for most imports from 50 percent to 40 

percent16 and lifted a ban on fabric imports, among other actions. 

However, many high tariffs persist—for example, on products related to 

the automobile and poultry industries and on some textiles. The full 

implementation of the Egyptian government’s WTO commitments is 

expected to take several more years. 

• State-owned enterprises. The Egyptian government’s pace in privatizing 

government-owned enterprises also slowed. According to Egypt’s Ministry 

of Public Enterprise, 191 of more than 300 state-owned enterprises were 

privatized between 1993 and 2002. Although the number of entities 

privatized each year increased from 6 in 1993 to a high of 32 in 1998, it 

steadily declined to 6 in 2002. According to a September 2003 U.S. 

 15According to Egypt Ministry of Foreign Trade data, the private sector’s share of GDP has 

remained stable at about 70 percent since 2000. 

16Egypt also reduced its 40- and 35-percent tariff rates to 30 percent. 

Several Factors Limit 

CIP’s Ability to 

Strengthen Egypt’s 

Private Sector 
Page 14 GAO-04-846T 

Embassy report, two privatization transactions took place in the first 

quarter of 2003.17

Further, according to a senior USAID official, there are concerns that the 

CIP may have eased pressure on the Egyptian government to speed the 

pace of economic reforms. Although the $200 million that the CIP brings 

into the country is relatively small—roughly 0.3 percent of the gross 

domestic product—the funds generated by the program represent, on 

average, 4.2 percent of the government’s budget deficit in the last 5 years. 

Because CIP funding is not tied to specific conditions, the funding may 

ease the government’s resource constraints without requiring it to reform. 

A second factor affecting the CIP’s ability to strengthen the private sector 

has been the perceived inconsistency in the government’s foreign 

exchange policy, according to several U.S. government studies and a 

senior Egyptian economist. For example, between 2000 and 2003, the 

government devalued the Egyptian pound several times; in 2003, it 

announced that it was adopting a free market exchange rate but 

subsequently continued to try to support the value of the pound. These 

actions have undermined the confidence of foreign and domestic investors 

and contributed to the persistence of a parallel “black” market for foreign 

currency and to foreign currency shortages, hampering firms’ ability to do 

business in Egypt. In this context, the CIP can provide only limited relief 

to the country’s foreign currency needs. A representative from the 

Egyptian Chamber of Commerce stated that the private sector requires 

about $15 billion in foreign exchange annually, but the CIP supplies less 

than 2 percent of this amount. 

A third factor limiting the CIP’s effect on the private sector has been 

Egyptian banks’ hesitancy to provide financing. Because of experience 

with bad loans, the recent economic slowdown, and the resulting 

increased risk of nonrepayment, Egyptian banks are reluctant to finance 

entrepreneurial activity, according to the Economist Intelligence Unit. 

Egyptian bank officials told us that they generally provide CIP funds to 

firms they deem creditworthy, usually well-established customers with 

proven credit records. Further, officials at one bank indicated that the 

bank is moving away from corporate lending in general, including use of 

the CIP, to concentrate on “less risky” activities such as consumer lending. 

 17Embassy of the United States of America, Economic Trends Report: Egypt, September 

2003 (Cairo: 2003). 
Page 15 GAO-04-846T 

Finally, the CIP’s impact on the private sector has been constrained by 

Egypt’s large number of informal businesses, which the program is not 

designed to reach. These businesses, which make up more than 80 percent 

of the country’s 1.4 million firms, generally have no access to formal 

sources of credit such as the CIP, because they are unable to use their 

assets as collateral for loans. Until broader reforms bring the informal 

sector into the legal and economic mainstream, the CIP’s ability to foster a 

competitive private sector in Egypt will likely remain limited. 

In conclusion, Mr. Chairman, while the CIP provides benefits to program 

participants and supports the Egyptian government’s budget, several 

factors have affected its ability to foster a competitive private sector in 

Egypt. In this context, it is important that policymakers continue to 

evaluate whether this program offers the most effective means to achieve 

U.S. policy goals in Egypt. This completes my prepared statement. I would 

be happy to respond to any questions you or other Members of the 

Committee may have at this time. 

For questions regarding this testimony, please contact David Gootnick at 

(202) 512-3149 or Phillip Herr at (202) 512-8509. 

Other key contributors to this statement were Martin De Alteriis, Kathryn 

Hartsburg, Julie Hirshen, Simin Ho, Reid Lowe, Seyda Wentworth, and 

Monica Wolford. 

Contacts and 

Acknowledgments 
Page 16 GAO-04-846T 

At the request of the Chairman of the House International Relations 

Committee, we examined the Commodity Import Program (CIP) in Egypt. 

For fiscal years 1999-2003, we analyzed (1) program participants’ use of 

the CIP and the Egyptian government and USAID’s use of program funds 

and (2) factors that have affected the CIP’s ability to foster a competitive 

private sector in Egypt. 

To determine the CIP’s goals, we examined the U.S. Agency for 

International Development’s (USAID) Congressional Budget Justifications 

for this timeframe. We reviewed various laws and congressional reports 

that mentioned the CIP as part of the overall mandate for economic 

support funds to Egypt, and we also reviewed applicable international 

agreements. We spoke with representatives from the Department of State, 

the Department of Agriculture’s Foreign Agricultural Service, and the 

Department of Commerce’s Foreign Commercial Service. We also 

reviewed and analyzed applicable USAID regulations, program 

documentation and descriptions, as well as USAID-sponsored reports and 

analyses. In addition, we interviewed USAID officials in Washington, D.C., 

and Cairo and Alexandria, Egypt, and officials of the Egyptian ministries of 

Foreign Affairs and Finance. We obtained from the Egyptian Ministry of 

Foreign Affairs data on Egyptian government projects and activities 

supported by CIP-generated local currency. To determine the reliability of 

the data provided by the Ministry of Foreign Affairs, we questioned 

officials at USAID in Egypt, who informed us that they had seen bank 

statements confirming deposits and releases of funds and that they had a 

sufficient level of confidence in the data. We determined that the data 

were sufficiently reliable to indicate the general purposes for which 

special account funds were used and to provide illustrations of the sums 

allotted to particular types of projects. We also interviewed eight Egyptian 

companies from various sectors (e.g., industry and agriculture) and 6 of 

the 31 participating Egyptian banks that used the CIP during fiscal years 

1999-2003. Finally, we spoke with industry and bank representatives from 

the Egyptian Chamber of Commerce in Cairo who are familiar with the 

program. 

Specifically, to determine trends of the program’s users and uses, we 

analyzed USAID data on CIP transactions during these 5 fiscal years. In 

addition, to obtain information about participants’ experiences with, and 

opinions of, the CIP, we analyzed data from surveys, conducted by a 

USAID contractor, of (1) firms that export to Egypt from the United States 

and (2) Egyptian firms that import from the United States under the CIP. 

To calculate the number of firms that used the CIP in fiscal years 1999-

2003, the average and median value of the transactions, and the annual 

Appendix I: Objectives, Scope, and 

Methodology 
Page 17 GAO-04-846T 

number of first-time CIP users, we analyzed USAID data on individual 

export and import transactions. 

To examine the internal controls that USAID uses to manage the CIP in 

Egypt, we reviewed reports of USAID’s Office of the Inspector General 

from 1999 through 2003. We also interviewed officials from the Inspector 

General’s office in Washington, D.C., and the Regional Inspector General’s 

office in Cairo. In addition, we spoke with officials from USAID’s Office of 

Management Planning and Innovation in Washington, D.C., regarding the 

actions that USAID had taken to address recommendations from the 

Inspector General’s office during this time frame. 

To assess the reliability of the survey data, we reviewed the contractor’s 

description of the methodology, queried the contractor and USAID 

officials in Egypt, and examined the data electronically. We determined 

that most of the survey responses were sufficiently reliable to report on 

respondents’ opinions and experiences; however, we noted that we could 

not generalize from the survey respondents to all CIP participants. 

Furthermore, because the survey was designed to collect the opinions of 

firms that participated in fiscal years 1994-2002, we could not focus our 

analysis exclusively on 1999-2003. 

To assess the reliability of the transactions data, we performed basic 

reasonableness tests and queried USAID officials in Egypt. In the course of 

our assessment, we found a relatively small number of data entry errors. 

We were able to correct these errors in the importers’ transaction data, 

and we were also able to combine data for firms that were clearly linked, 

such as firms with a parent-subsidiary relationship. However, we were not 

able to make these corrections for the exporters’ database and, as a result, 

the figure reported likely includes a small number of duplicate firms. 

Nevertheless, we determined that the importers’ and exporters’ 

transactions data were sufficiently reliable for the purposes of this report. 

To gain a better understanding of Egypt’s macroeconomic environment 

during fiscal years 1991-2003, we conducted a literature review and 

interviewed researchers in Egypt, Egyptian government officials from the 

Ministry of Finance, and officials from Egypt’s private and public banks. 

For the statistical analysis, we used data from Egypt’s Central Bank and 

other official sources, as well as country reports provided by the U.S. 

Embassy in Cairo and independent economic forecasting agencies. 

(320244) 
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