Source: EURLEX
Language: en
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# 52011SC0647

**JOINT STAFF WORKING PAPER Implementation of the European Neighbourhood Policy in 2010Country Report: Egypt JOINT STAFF WORKING PAPER Implementation of the European Neighbourhood Policy in 2010Country Report: Egypt /\* SEC2011/0647 final \*/**

  

JOINT STAFF WORKING PAPER

Implementation of the European
Neighbourhood Policy in 2010
Country Report: Egypt

1.
Overall assessment

Egypt and the European Community first
established contractual relations in 1976 by the signing of a Cooperation
Agreement. The EU-Egypt Association Agreement entered into force in June 2004
and constitutes the legal basis for EU-Egypt relations. On this basis, and in
the framework of the European Neighbourhood Policy (ENP), the EU-Egypt ENP
Action Plan was approved in March 2007 for a period of three to five years.

In 2008 Egypt expressed its interest in
enhancing relations with the EU. The Association Council in April 2009 gave a
political commitment to work in this direction. An ad-hoc group was
established to discuss possible areas for deeper cooperation.

Assessment
of progress during the reporting period

This document reports on progress made in the
implementation of the EU-Egypt ENP Action Plan between 1 January and 31
December 2010. Developments outside this period are taken into consideration
when deemed relevant. They concern in particular the popular demonstrations
which started on 25 January 2011 and lead in February to the resignation of
President Hosni Mubarak and the establishment of temporary rule by the army.
This report does not present a general review of the political and
economic situation in Egypt.  For information on regional and multilateral
sector processes, please refer to the sectoral report.

The
Association Council, the Association Committee and seven of the eight sub-committees
met in 2010 within the framework of the EU-Egypt Association Agreement. An
Economic Dialogue took place and the Working Group on Migration, Social and
Consular Affairs met. The ad-hoc group on enhancing relations held two
meetings in the first half-year and the dialogue stalled towards the end of the
year.

The lack of credibility of the results of
the 2010 legislative elections engendered a deep sense of frustration and
discontent among opposition groups and in much of the population. In the Shura
Council elections (Upper Chamber) in June and the People’s Assembly elections
(Lower House) in November/December, the ruling National Democratic Party
obtained more than 90% of the seats. Numerous cases of irregularities and vote
rigging were reported throughout the country.

Egypt was subject to the Human Rights UN
Universal Periodic Review in 2010. The Egyptian authorities accepted most of
the recommendations made, and rejected some, but have yet to begin putting
their commitments into practice. The Emergency law, which has been in force for
29 years, was extended in May 2010 for two years. Against this background, the
state security apparatus continued to exercise unrestrained power over the
population.

Egypt remained a key trading partner for
the EU in the region. Trade integration advanced in June 2010 with the entry
into force of the EU-Egypt agreement on further liberalisation of trade in
agricultural, processed agricultural products and fish and fishery products.
However, the process towards liberalisation of trade in services stagnated.

Challenges remained in finding the right
social policy mix that would enable the benefits of growth to be more evenly
spread among various social groups and in providing access to education and
health to the nearly 40% of the population who live in poverty.

During 2010 the economy had started to
regain momentum through a pick-up in exports and investment as well as partly
due to structural reforms. At the same time fiscal and monetary measures taken
by the authorities in the past years have contributed positively to reduce both
the budget and the current account deficit which helped to maintain
macro-economic stability. Against this background, the objectives of the Action
Plan – consolidating the progress made with a view to improving macroeconomic
stability and to promoting growth and employment, and moving towards a
functioning market economy – were reasonably well fulfilled in the period under
examination.

On the whole,
Egypt's progress in the implementation of the Action Plan was concentrated in
the areas of trade and economic reform. There was no progress on political and
social reforms.

Events
following the 25th January protests

The democratic deficit, police brutality
and impunity, corruption and poor living standards triggered popular
discontent. Inspired by the Tunisian revolution, popular demonstrations in
Egypt began on 25 January 2011, organised mainly by the youth movements. They
started in Cairo but quickly spread to other major cities. Following 18 days of
protests, President Hosni Mubarak resigned on 11 February 2011. The governance
of the country was handed over to the Supreme Council of Armed Forces.

The military council suspended the
constitution, dissolved parliament and declared rule for six months or until
elections are held. The council has promised a democratic transition leading to
open presidential and parliamentary elections. A new transitional government
was sworn in on 7 March 2011

Following a referendum on constitutional
amendments held on 19 March 2011, the date for new parliamentary elections was
set to September 2011 and presidential elections two months later. The state of
emergency is to be abolished prior to the elections. The conduct of the March
referendum indicates more transparency and fairness in reflecting the people’s
vote.

The mass demonstrations
of January 2011 and the ensuing departure of former President Mubarak have
opened a period of deep change for Egypt.  Commitments made by the temporary
government established by the military have started addressing several of the
political issues that have been a constant obstacle to deepening EU-Egypt
relations. If these changes are consistently translated into action during and
beyond the transition period, Egypt could go a long way towards meeting the
objectives put forward in the Action Plan and implementing the values at the
core of the ‘advanced status’ under the ENP and the principles laid out in the
Partnership for Democracy and Shared Prosperity. Security sector reform and
enhanced civilian control over enforcement agencies will be particularly
critical.

As regards the Egyptian
economy, the revolutionary events experienced at the beginning of 2011 have had
immediate negative repercussions on the Egyptian economy by affecting tourism
revenue and capital flows and by disrupting domestic economic activity. The precise
consequences are difficult to quantify at such an early stage but economic
growth in 2011 is set to be lower than in 2010, while the budget deficit is expected
to widen significantly.

2.
political dialogue and reform

Democracy and the rule of law

The year was marked by legislative elections; in the interim
elections to the Shura Council (Upper Chamber) in June 2010, the ruling
National Democratic Party (NDP) won 80 of the 88 seats. In the People’s
Assembly (Lower Chamber) elections, which were held in end November/early
December, the NDP secured 420 seats out of 508. This figure rises to over 90%
with the addition of independent deputies known to be NDP members. The women's
quota of 64 seats was filled. The Muslim Brotherhood independent deputies lost
all their 88 seats. After the first round the Muslim Brotherhood and Al Wafd
withdrew from the elections, claiming voting and ballot box irregularities. The
voter turn-out was remarkably low and varies between the official figure of 23%
and civil society estimates of 5%.

Despite the government’s stated commitment
to transparency, local civil society organisations were largely prevented from
observing the elections. The High Election Commission received numerous reports
of irregularities, including limited access to polling stations for observers
and candidates’ representatives, media restrictions, vote rigging and violence.
The EU High Representative for Foreign and Security Policy expressed
disappointment over reported irregularities, asked for appropriate follow-up
and reiterated the EU’s offer for international observation of the elections.
The Higher Election Commission ruled that only a handful of claims of irregularities
were valid. Administrative Courts ruled that election results in a number of
constituencies were invalid; the rulings were challenged by the state.

On 13 February 2011 the Supreme Council of
Armed Forces dissolved both houses of parliament.  New parliamentary elections
are to be held in September 2011 and should be followed by presidential
elections two months later.

The state of emergency, in force for
29 years, was extended by a Presidential Decree on 10 May 2010 for an
additional two years until 31 May 2012, despite a previous commitment to remove
the law once appropriate counter-terrorism legislation had been introduced. The
application of the law has been limited to cases of terrorism and its
financing, and drug trafficking. However, the government has retained a number
of powers which include the restriction of all forms of public gathering,
including public demonstrations, and the power to search any person or place
without abiding by the Law on Criminal Procedures. The Supreme Council of Armed
Forces undertook in February 2011 to remove the state of emergency “when the
security situation allows”. This was later changed to “before the elections are
held”.

No progress was made on the independence
of the judiciary, which remained subject to the Emergency
law. The State Security Emergency Courts and the military courts continue to
exercise jurisdiction over cases related to national security, but not limited
only to these. Civilians continue to be tried before these specialised courts
whose judgements are not open to appeal.

Efforts were made to gradually improve the administration
of justice, including the establishment of specialised child-friendly
courts, training of judges and automation of justice. The EU approved financing
of EUR 10 million in support of this effort.

The government continued the reform of
local administration through the implementation of the national
decentralisation strategy, testing pilot projects in several governorates
nationwide.

Some efforts could be noted in the fight
against corruption. The national Transparency and Integrity Committee
(TIC) released its third report in February 2010 suggesting improvements in
adopting new legislation, raising efficiency of the state administration,
conducting field research, enhancing the role of the media and pursuing
international cooperation. In October 2010 the Attorney General recommended the
establishment of a national anti-corruption committee to work on implementing
the UN Convention against Corruption, including cooperation with civil society.
Development of e-government services, online publication of government
procurement procedures and the active role of civil society contributed to
enhancing transparency. An EU programme with UNODC will support implementation
of the UN Convention.

In February 2011 the public prosecutor
began investigating a growing list of former ministers and NDP officials on
grounds of corruption, and formally sought the co-operation of the EU and other
partners in freezing the assets of a number of those under investigation.

Human
rights and fundamental freedoms

Egypt’s human rights record was subject to the 2009-2010 Universal
Periodic Review (UPR). Out of the recommendations made, Egypt agreed to
speed up the adoption of anti-terrorism legislation, to consider lifting the
state of emergency, change the definition of torture, strengthen its policy on
the rights of the child, consult NGOs in drafting the new NGO law, fight
against discrimination and violence against religious minorities, combat trafficking
in human beings and promote the rights of migrants. Egypt rejected
recommendations on discrimination, abolishing the death penalty, the NGO law
and foreign funding, allowing independent trade unions, election monitoring,
torture, and libel. Consultation between the government and civil society took
place during the UPR process, although a number of those who participated were
critical of the quality of the consultation. To date no steps have been taken
towards implementing the recommendations. Many of these areas are being
supported through a bilateral programme on human rights.

Concerning the death penalty, there are no official data
available on the carrying out of death sentences. At the UN General Assembly,
Egypt voted against the Resolution on a Moratorium on the Use of the Death
Penalty.

Egypt has six pending mandatory periodic reports to UN treaty
bodies. It has not extended an open invitation to UN Special Procedures. Egypt
hosted the visit of the Special Rapporteur on Trafficking in persons, especially
women and children.

Conditions in prisons and detention centres, as well as the estimated large number of administrative detainees,
remain a cause for concern. Access to the places of detention is limited to the
Public Prosecutor. Egypt did not grant access to the UN Special Rapporteur. The
military leadership gradually began releasing political prisoners in February
2011, although a number of activists were detained by the military during the
same period.

In the UPR process Egypt committed to reformulating
the definition of torture in accordance with the UN Committee against
Torture (CAT). Torture and ill treatment, mainly in police stations, State
Security investigation centres and places of detention, remain a very serious
human right abuse. Seven cases of death in detention are listed in the 2010
report of the United Nations High Commissioner for Human Rights (UNHCHR). Following
the death of blogger Khaled Said in Alexandria in June 2010, EU Heads of Mission
issued a statement calling for the proper investigation of police abuse
allegations and prosecution of offenders. The death caused widespread revulsion
in Egypt and triggered a debate on torture and police impunity that subsequently
merged into the popular demonstrations in January 2011 which, under the banner
‘we are all Khaled Said’, called for an end to police brutality and torture. In
March 2011 the State Security Investigation Office, carrying most of the blame
fore the torture cases, was dissolved and is to be replaced by a new national
security agency.

Egypt has not yet responded to the repeated
requests made since 1996 (and echoed by the EU) for an invitation to be issued
to the UN Rapporteur on Torture to visit Egypt. It is not a party to the
Optional Protocol of the UN Convention Against Torture (OPCAT).

The scope for freedom of expression has expanded in recent
years, as evidenced by the growing number of independent newspaper, television
and internet news and media outlets in Egypt. However, the election period at
the end of November 2010 witnessed a number of restrictive measures, limiting
the work of journalists and media, restricting text message news services and
satellite broadcasting. Human rights organisations reported an increase in the
harassment and detention of internet bloggers and journalists.

At the end of January 2011, when the
popular demonstrations intensified, the Egyptian authorities first blocked the
access to the social networking websites, then ordered the switching off of all
internet and e-mail services. The three mobile networks were shut down
nation-wide, and subsequently in selected areas such as Cairo. Mobile phone
text messaging was blocked for a longer period.

Freedom of association and freedom of assembly continue to be restricted by the Emergency law and the NGO law, and
by trade union legislation. The registration, operation and funding of
non-governmental organisations remain under the control of the Ministry of
Social Solidarity, with the involvement of the Ministry of the Interior. There
was no progress on the revision of the NGO law.

Despite the provisions of the Egyptian constitution on freedom of
belief, Copts and other non-Muslims continue to face discrimination and
inaction from the authorities to effectively ensure the equality of all
citizens in law and in practice. Incidents of sectarian tension and violence
between Christian and Muslim communities continued in 2010. The worst
expression of violence took place on New Year’s Day 2011, when a bomb was
detonated outside a Coptic church in Alexandria, killing more than 20 people
and injuring around 100. Two Coptic protestors, angered at a refusal to convert
a community centre into a place of worship, were killed when confronted by
police in Cairo in November.

The draft unified code on places of worship was withdrawn from
parliament. The draft code was intended to establish equal rules for all
religions on the construction and maintenance of places of worship. Copts have
been pressing the authorities for several years to ease restrictions on permits
for constructing churches.

Although Egypt is a signatory to the 1951
Refugee convention and to its 1967 Protocol, hosting some 41,000 registered
refugees, violation of the rights of migrants, refugees and asylum seekers
continue to be reported. Some migrants in need of international protection (in
particular those fleeing from Eritrea) have difficulties to have access to
asylum. In 2010, 34 unarmed refugees and asylum seekers were killed at the
Israeli–Egyptian border. A number of Egyptian border police were killed in
clashes with criminal gangs of human traffickers and smugglers in the frontier
area with Israel. The EU, the United Nation High Commissioner for Refugees
(UNHCR) and civil society organisations have all expressed concerns about
hundreds of refugees and asylum seekers from Sub-Saharan Africa being held
hostage and mistreated by illegal traffickers in Sinai, a region where UNHCR is
not permitted to carry out its mandate. Egypt has still not adopted adequate
asylum legislation. Refugees registered with the UNHCR face great difficulties
in finding jobs and meeting minimum survival needs.  Unfortunately Egypt has
not yet lifted the reservations which the country made when joining the Geneva
Convention, and which prevent even refugees registered with UNHCR from having
access to some forms of social assistance.  Egypt has
been designated for the implementation of the Regional Protection Programme
(also covering Libya and Tunisia), which now needs to be developed.

The National Council for Women (NCW) continued
promoting rights of women, combating discrimination and violence
against them. A draft personal status law defining and regulating
marriage and divorce, amending the Personal Status Law has not yet been put
before the parliament. The law on sexual harassment has been withdrawn from
parliament without any indications about future adoption. The strategy to
combat violence against women is still under preparation.

Efforts to combat female genital
mutilation continued, and positive results have been reported. Nonetheless,
the practice remains widespread. Women's rights and the fight against FGM were
supported through EU programmes. Egypt maintains its reservations on the
provisions of the Convention on Elimination of all forms of Discrimination
against Women (CEDAW). In the framework of the UPR process Egypt promised to
lift its reservation to Article 2 on non-discriminatory policy measures and to
consider lifting the reservation on provisions related to marriage and family
life.

With regard to rights of the child, Egypt undertook in the
UPR review to strengthen the legal framework to combat all crimes against
children. Significant progress has been made on the right of identity. Amendments
to the Child Law recognize the legal right to free birth registration and give
the mother the right to obtain a birth certificate for her child under her
name, even if the marriage relationship cannot be proven. The amended law also includes
specific provisions for family financial assistance.

Revisions to the legislation (Law 126) introduced
the prohibition of work for children under 15, and the obligation of medical
checks before work. An ongoing project with the support of UNICEF and the US
Department of Labour addresses the worst forms of child labour and occupations.

Egypt has not signed the Hague Convention on the Civil Aspects of
International Child Abduction.

Limited progress was made as regards fundamental
social rights and core labour standards. The Egyptian case was reviewed by
the International Labour Organization (ILO) Committee on the Application of
Standards at the ILO annual Labour Conference. Egyptian authorities undertook
to review the labour legislation in order to comply with ILO Convention No. 87
on the Freedom of Association and Protection of the Right to Organise No draft
legislation was submitted to the parliament.

With regard to rights of persons
belonging to minorities, relations between the Bedouins and the government
remained tense. Several clashes occurred in the Sinai between Bedouins and the
police. The situation in the Sinai is complicated by the government’s security
concerns for the area and the need to safeguard the borders and control
smuggling activities.

Cooperation on foreign and security
policy, regional and international issues, conflict prevention and crisis
management

Egypt is an active partner on CFSP matters.
Egypt has been part of the renewed efforts in 2010 to find ways for a
comprehensive solution to the Middle East Peace Process. It contributed
to the re-launch of the Israeli-Palestinian direct peace negotiations in
September 2010 and hosted the second round in Sharm el Sheikh the same month.

Egypt has a strong engagement in Africa
and played an active role in the Africa-EU political dialogue ahead of the
Africa-EU Summit in Tripoli in November 2010. Egypt actively supported
developments in Sudan, promoting reconstruction activities in Darfur and
mediation between North and South Sudan ahead of the referendum on the secession
of South Sudan. Egypt began to adopt a more conciliatory approach in its dialogue
with Nile Basin states seeking a greater share of Nile river waters. However, Egypt
and Sudan opposed the Cooperative Framework Agreement signed in May by
Ethiopia, Kenya, Rwanda, Tanzania and Uganda.

Egypt continued in its role as co-president
of the Union for the Mediterranean (UfM) throughout 2010 and co-chaired
five Ministerial level meetings.

In February 2010 Egypt expressed its
interest to participate in the EU crisis management operations in the
framework of the European Security and Defence Policy. Egypt was included in
the group of third countries with which the EU is ready to conclude a framework
agreement on their participation in EU crisis management operations.

Since the political dialogue on counter-terrorism
between the EU and Egypt which was held in Brussels in March 2009, Egypt has
expressed a willingness to deepen the cooperation. Dialogue continued within
the sub-committee on political matters and the sub-committee on justice and
security. For several years Egypt has declared its intention to introduce a new
anti-terrorism law in preparation for rescinding the Emergency law. The
anti-terrorism legislation is still awaiting discussion by the parliament.

Egypt continued to play an active role on
multilateral non-proliferation and disarmament fora, most notably in the
Non-Proliferation Treaty (NPT) Review Conference in May 2010. Establishment of
a Middle East zone free of nuclear weapons and all other weapons of mass
destruction (WMD) remains a key security objective for Egypt. EU services
continued close consultations with Egypt on the planned EU seminar in 2011 on
Middle East security and WMD non-proliferation.

In 2010, the EU established a regular
political dialogue with Egypt on non-proliferation and disarmament issues. The
first meeting, held in Brussels in February 2010, focused on the preparations for
the 2010 NPT Review Conference and the Arms Trade Treaty negotiation process.

Egypt has not yet signed the Ottawa
Convention on the Prohibition of the Use, Stockpiling, Production and Transfer
of Anti-Personnel Mines and on their Destruction. It signed the Rome Statute of
the International Criminal Court in 2000, but has not yet ratified it.

3.
Economic and social reform

Macroeconomic framework and
functioning market economy

In fiscal year 2010[1], the Egyptian
economy outperformed expectations, with a very positive GDP growth of 5.1% – up
from 4.7% in fiscal year 2009. This growth was driven mostly by private sector
consumption, on the back of three government fiscal stimulus packages, each
amounting to roughly 1% of GDP.

However, the global economic crisis did
affect some key growth sectors in Egypt, such as the Suez Canal and
remittances, which at the end of 2010 were still below their pre-crisis level. Foreign
Direct Investment also remained at low levels, while exports suffered as a
result of weak consumer demand from the main trading partners, such as the EU
and USA.

Having peaked at an average of 18% in
fiscal year 2008, inflation dropped to an estimated 11% in fiscal year 2010.
The Central Bank of Egypt (CBE) started loosening monetary policy accordingly
since the beginning of 2009 on the back of a negative external demand shock
that gradually slowed inflation. The Central Bank intends to introduce an
inflation targeting regime.

Although fiscal year 2010 was a difficult
year, owing to tax reforms, the government deficit increased to 8 % of GDP from
6.6% of GDP in fiscal year 2009. The size of the fiscal deficit and the high
public debt-to-GDP ratio of around 75% remain a constraint for Egypt’s overall
macroeconomic strategy. However, the government is committed to a gradual
fiscal consolidation strategy that can be stepped up if the gains from the
improved economic activity permit. Ongoing reforms, such as the introduction of
VAT and the reduction of fuel subsidies for the industrial sector, are
commendable and will help to keep the deficit under control.

During the global crisis, a widening trade
deficit, lower tourism revenues, lower remittances and lower Suez Canal
revenues served to push the current account into negative territory for the
first time since the 1990s. A slight improvement was recorded in the current
account deficit of the fiscal year 2010: it narrowed to 1.4% of GDP, compared
to 1.6% of GDP in fiscal year 2009.

The Egyptian pound continued to largely
track USD-EUR movements, although exchange rate flexibility appears to have
increased. On the back of high inflation differentials with Egypt’s trading
partners and a relatively stable currency in nominal terms, the real exchange
rate has appreciated in the recent past (the real effective exchange rate
appreciated by around 21% in fiscal year 2009 and is estimated to have
appreciated further in fiscal year 2010). Even though non-oil export performance
has been good, suggesting that structural reforms have helped productivity,
further real appreciation could have a negative impact on medium-term growth
prospects.

Employment and social policy

In spite of a general
upward trend recorded in human development over the past 20 years, geographical
disparities remain, with extremely high poverty levels in upper Egypt (43.7%)
and significant inequalities between rural and urban areas throughout the
country. Egypt continued to implement the “1000 villages most in need”
programme initiated in 2009 and there is a special programme to address urban
areas. Living conditions remain very poor for the estimated 20% of Egyptians
living on less than $ 1 (EUR 0.76) per day. The Ministerial Committee for
Social Development was enlarged by including the Minister of State for Family
and Population, the National Council for Youth, the National Council for
Sports, the General Authority for Adult Education and the Post Authority.

Social dialogue continued to take place in an over-structured framework, and
bilateral social dialogue remained underdeveloped. However,
the establishment of a new trade union centre was announced on 31
January 2011. Egypt has yet to adapt the Labour Law and Trade Unions Act
in compliance with the International Labour Agreements to which it is a party.
The provisions on social dialogue, child labour, health and safety at work,
sending labour abroad, training centres and collective bargaining are among the
issues to be included in future legislative amendments.

There was no development towards
establishing the Economic and Social Council.

Unemployment
remains a major problem in Egypt, in particular for young people. After having
risen to 9.4% in 2009 (from 8.7% the previous year), unemployment rose again in
2010 to 9.7% (around 2.37 million people). The Youth Action Plan to promote
youth employment was revised to take account of the impact of the economic
crisis and presented to the Cabinet of Ministers. There
are three policy priorities: (i) Technical Vocational Education and Training
(TVET) to increase youth employability; (ii) Enterprise development, to improve
the success rate of micro, small and medium enterprises (SMEs); (iii) Labour
market policies and programmes, to activate the minimum wage rule and its
enforcement, and to upgrade employment offices and encourage the establishment
of private recruitment agencies. The Ministry of
Manpower and Immigration restructured some employment offices to lay the basis for
developing a National Employment Agency but the approach to establish this Agency
has yet to be developed.

An occupational health and safety Strategy
was developed with the support of a Twining project, which ended in July 2010
as well as pilot actions in one governorate.

Egypt prepared a new draft law on social
insurance and pensions. The new law would add new social categories to the
beneficiaries, ensure a better maintenance of the benefits’ and pensions’ real
value in conditions of inflation, combat illiteracy, improve the income
generating capacity of families and reinforce the partnership with NGOs.

The National Council for Women (NCW) has
organised training courses for women community leaders and awareness campaigns
to enhance the participation of women in political, economic and social life.
NCW opened a Business Women Centre in Cairo and aims to establish similar
centres in all governorates. An Ombudsman was established at the NCW. Three-quarters
of women remain outside the labour force.

Some progress was achieved in
the area of agriculture. During the reporting period the Ministry of
Agriculture and Land Reclamation presented the Business Plan covering the
period 2010 – 2017 that will implement the National Strategy's recommendations.
The plan encompasses nine Development Programmes. They address inter alia
agricultural human resource needs, sustainable development of natural resources
– particularly land and water - improving production to meet food security
needs and upgrading the livelihood of rural populations. The investments
of approximately EGP 107 billion (around EUR 14.3 billion) over seven years
will be shared between the private sector (approximately 54%) and the
government (46%). Although the productivity of agriculture is increasing, Egypt
is still dependent on imports, especially as far as cereals are concerned. The
food trade deficit accounts for 17% of the total trade deficit. Furthermore,
food insecurity and malnutrition remain an issue for the country, despite the
large food safety net system which absorbs 7% of the State budget's subsidies
(1.8% of GDP). An EU Rural Development Programme implemented by the Ministry of
Agriculture will support these reforms by improving water use, farming methods
and income for farmers.

4.
Trade-related issues, market and regulatory
reform

During the reporting period, bilateral trade
between Egypt and the EU regained its increasing trend and exceeded the trade
volumes of 2008.  In 2010 Egypt’s exports to the EU increased by 14.5% and EU
exports to Egypt increased by 16.6%. The dismantling of Egypt's tariffs
applicable to imports of industrial goods originating in the EU proceeded as
laid down in the Association Agreement. The EU-Egypt agreement on further
liberalisation of trade in agricultural products, processed agricultural
products and fish and fishery products entered into force in June 2010. Egypt did
not adopt any new trade distortive measures, such as export taxes and export
bans, during the reporting period. However, the Ministerial Decree of September
2010 extended the application of trade restrictive measures regarding Egyptian
rice exports until 1st October 2011. The export ban on Portland cement and
clinkers expired on 1st October 2010. In November 2010, the EU and Egypt signed
the Protocol establishing a Dispute Settlement Mechanism applicable to disputes
under the trade provisions of the EU-Egypt Association Agreement.

Limited progress was registered during the
reporting period as far as the implementation of the customs-related
sections of the Action Plan was concerned. The new customs law was still
not approved by parliament. The interactive English version of the Egyptian
Customs Authority website has been in operation since September 2010. Egypt
participated in the "SIROCCO" operation carried out in June 2010.
SIROCCO is a joint customs operation, coordinated by the European Commission
Anti Fraud Office (OLAF) and carried out by the customs administration of the
EU and 11 partner countries from the southern rim of the Mediterranean[2].

On free
movement of goods and technical regulations, Egypt continued its active
preparations for the negotiation of an Agreement on Conformity Assessment and
Acceptance of Industrial Products (ACAA). Egypt selected the following priority
sectors to be approximated with EU technical legislation: toys, gas appliances,
construction products, electrical appliances, pressure equipment, medical
devices, machinery and vehicles and their parts. Draft Egyptian legislation,
aligning the new legislative framework (on accreditation, conformity assessment
and market surveillance) was submitted to the
European Commission for assessment. In October 2010, the Egyptian draft legislation on
Liability for Defective Products was aligned to the relevant EU Directive. A memorandum of understanding and cooperation agreements were signed
with European notified bodies in the priority sectors. Egypt also continued to
adopt EU standards in the priority sectors.

Regarding sanitary and phyto-sanitary
(SPS) issues, the draft law establishing a single food safety authority
remains under discussion in parliament. The unified food law, aimed at
introducing the ‘farm to fork approach’, is still in a preparatory phase. As
Egypt provided sufficient guarantees regarding controls, the European Commission
allowed potato exports also for the 2010/11 season. The European Commission’s
Food and Veterinary Office (FVO) carried out three missions to Egypt on
pesticide residues in fruit and vegetables, horses and the production of
casings. Egypt started to address the deficiencies identified by FVO. Following
the missions, the European Commission suspended Egyptian casings exports to the
EU. It also suspended trade in horses, due the outbreak of a serious horse
disease in the region. Egypt pursued the fight against animal diseases
including avian influenza, which has had a serious impact on human beings and
animals since its outbreak in 2006.

In the field of establishment, business
climate and company law, there was no progress on the adoption of the draft
Unified Company Law. The General Authority for Investments, which is the only
institution responsible for company registration since July 2009, operated a
one-stop-shop benefiting from an ISO 9001 certificate and worked on a
system of electronic registration for companies. A new law on Public-Private
Partnerships (PPP) was enacted in May 2010. It is expected that the law will facilitate
foreign direct investments (FDI) as it eliminates the preference for Egyptian
contractors and some performance requirements. The new law has the potential to
contribute to the improvement of Egypt’s infrastructure in areas such as
hospitals, roads, railways, ports and wastewater treatment. However, caution is
needed in relation to the associated potential increase in contingent
liabilities. The Ministry of Housing has already planned a PPP tender for a
major wastewater facility west of Cairo, and other PPP tenders are under
preparation.

In March 2010, the Egyptian Corporate
Responsibility Centre launched an index for social and environmental corporate
governance: Egypt Stock Exchange Economic Social and Governance Index based on
a Standard and Poor’s methodology.

Egypt's strategy for regulatory reform and
administrative simplification started to bear fruit: from March 2009 to July
2010, more than 34,000 regulations that affect the business environment in
Egypt were identified and introduced into an electronic database; about 30% of
the inventoried regulations have been reviewed and streamlined since 2009.

Bilateral
negotiations for the liberalisation of services and establishment made
no progress.

On financial services,
Egypt weathered the global financial crisis relatively well, as the level of
financial intermediation is low and the state maintains a strong presence in
the financial sector. Thanks also to progress in reforming the government debt
management and pensions Egypt’s creditworthiness was never in doubt. The
Central Bank of Egypt strengthened banking supervision by enforcing minimum
capital requirements, improving assessment of state owned banks, providing resolution
to non-performing loans and working towards introducing the Basel II framework.
The Egyptian Financial Supervisory Authority (EFSA) continued supervising all
non-banking financial transactions and markets. Several draft laws, e.g. on
mortgages, licensing for non banking companies, and pension funds are under
preparation. A regulation aimed at separating life and non-life insurance
services is also under consideration. A draft law on micro-finance companies is
before Parliament.

Other key areas

There was limited progress in the
implementation of the priorities of the Action Plan related to tax.
The 2010/11 budget included an across-the-board tax increase of 40% for
cigarettes and 100% for tobacco.

In the area of competition policy, the
most recent amendments to the Competition Law are awaiting approval by
the parliament. They mainly address the issue of full leniency, and possibly
mergers and acquisitions. The Egyptian Competition Authority (ECA) and the
Regulator for Telecommunications are currently discussing a memorandum of understanding
that would clarify the respective competences and establish a coordination
mechanism between them. In 2010, the ECA published three decisions and pursued their
investigations. The ECA also worked on a number of market studies. ECA was
active in awareness raising and dissemination of information; it regularly organizes
training events and seminars in the field of competition. On state aid,
ECA is working on a paper that would help provide a better understanding of
state aids, including in reference to WTO and EU law, to be disseminated among
various stakeholders.

In the area of Intellectual property
rights, Egypt made no progress in the ratification of the Rome
Convention for the Protection of Performers, Producers of Phonograms and
Broadcasting Organisations, the International Convention for Protection of New
Varieties of Plants (UPOV) and the Budapest Treaty on the International
Recognition of the Deposit of Micro-organisms for the Purposes of Patent
Procedures. There is an ongoing reduction of software piracy, and piracy rates as
measured in a study by an independent organisation have declined since 2006 to
59% in the 2010 edition.

Egypt drafted executive regulations for the
implementation of the law governing public procurement, based on the
2009 gap analysis conducted by the Organisation for Economic Co-operation and Development
(OECD). The Ministry of State for Administrative Reform developed the platform
for e-procurement, which is divided into three parts: publishing, bidding and
evaluation. The first part is expected to be operational and made mandatory at
the end of 2010. The Ministry of Finance amended the executive regulations on
public bids and tenders in September 2010. The new guidelines prescribe the
publication of a full list of all specifications, a copy of the draft contract
to be signed, noting the rights and obligation of the contracting parties, and
the timeline for the tender. Contractors will also be required to identify all deliveries
provided under the advance payment, with the possibility of seizure of the contractor's
letter of guarantee as a penalty.

During the first half of the year the Central
Agency for Public Mobilization and Statistics (CAPMAS) developed a draft
national statistics law with the assistance of the EU Twinning project.

Egypt finalised the revision of its accounting,
broadly in compliance with the International Financial Reporting Standards. A
new authority, the Audit Oversight Board - which is a member of the
International Forum of Independent Audit Regulators - began supervising the
quality of the work of registered auditors on the basis of the new auditing
standards, which fully reflect international standards.

With regard to public financial management,
the Ministry of Finance created a fiscal decentralisation committee in February
2010 which was responsible for overseeing all public finance reforms, including
internal audit. The pace of reform remains slow and there remains a need to
develop the internal audit function for overall budgetary expenditure. Greater
transparency is needed in external audit.

On enterprise policy, Egypt
continued to participate in the industrial cooperation activities, including the
implementation of the Euro-Mediterranean Charter for Enterprise at national
level. Particular efforts were also made to improve SMEs' access to finance and
to information, notably via training in corporate governance, the creation of an
SME web portal and capital injected by the Social Fund for Development into
microfinance institutions. In June 2010, the Ministry
of Investment announced a set of new laws and amendments aimed at developing
the legal framework governing investment in Egypt. This includes modernising
non-banking financial services, with a focus on SMEs and microfinance, and
adapting legislation.

5.
COOPERATION ON JUSTICE,
FREEDOM AND SECURITY

No progress was
reported on border management. Egypt had declined to enter into dialogue
on this issue.

Egypt has
bilateral migration agreements in place, including provisions on the
economic and social rights of migrants. No major developments were noted in the
reporting period (see also section 2).

In March 2010, the European
Commission and the UN launched the Joint Migration and
Development Initiative in cooperation with the Egyptian Ministry of Foreign
Affairs to help small scale actors to contribute more fully to linking migration
and development. Egypt is rapidly becoming a key transit country for
migrants and refugees from sub-Saharan Africa (to Europe and other neighbouring
countries), placing strains on public services and leading to localized
tensions. Migrants and refugees are also vulnerable to organized crime and
exploitation, particularly smuggling and trafficking networks.

On asylum, Egypt remains committed to
the principle of non-refoulement, hosting some 41,000 registered
refugees. However, it has no domestic procedures and institutions for asylum,
opting to cooperate with UNHCR through a Memorandum of Understanding. In the fight against organised crime, the parliament
adopted the Organ Transplant Law in March 2010, regularising organ transplants
within Egypt and banning their commercial trade abroad in order to curb illicit
trade in human organs. In April 2010, it adopted a Law on Human Trafficking,
which criminalised all forms of human trafficking including
prostitution, slavery, child exploitation in pornography and forced labour. This
important law is predicated on a comprehensive approach of prevention, legal
protection and assistance to victims, while providing for rehabilitation and
education programmes, including cooperation with non-governmental
organizations. The National Coordinating Committee to Combat and Prevent Human
Trafficking took several support measures, including the establishment of a
victim hotline and an intensive media campaign. Egypt made no progress on
ratification of the Third Additional Protocol to the 2003 United Nations
Convention against Transnational Organised Crime on the Illicit Manufacturing
of and Trafficking in Firearms, Their Parts, Components and Ammunition.

Regarding the fight against drugs,
limiting the drug supply and trafficking continued to be Egypt’s priority, with
particular attention being paid to eradicating drug cultivation, trade networks
and precursors. The Ministry of the Family and Population oversaw the implementation
of preventive and harm reduction programmes through schools, youth networks and
higher education institutions in cooperation with civil society. As was the
case in 2009, there is still a need for a greater exchange of information
between all agencies involved, with renewed attention to developing drug-abuse
and harm-reduction programmes in prisons. Egypt participated in the ENP
regional seminar on the EU drug monitoring system organised by EMCDDA (European
Monitoring Centre for Drugs and Drug Addiction) and by the Commission in
Brussels in October 2010. Egypt participated in the work of the Council of
Europe’s Pompidou Group from June 2010 onwards.

In the area of the
fight against money laundering, as was the case in 2009, the relevant
supervisory authorities continued to implement the national control regime
based upon the ‘40 plus 9’ Special Recommendations by the Financial Action Task
Force (FATF). The financial services industry pursued the application of ‘Know Your
Customer’ (KYC) and ‘Know Your Business’ (KYB) practices. Egypt pursued
regional cooperation within the Middle East and North Africa Financial Action
Task Force (MENAFATF) and Egmont Groups.

With regard to international police and
judicial cooperation, Egypt continued to work on the signature and
ratification of the various instruments to which it is party under the Hague
Conference on Private International Law. International police and judicial
cooperation was successfully pursued, particularly in the area of
cross-frontier family disputes, with Egypt showing an interest in capacity
building in forensic medicine.

6.
Transport, energy, environment, the information
society, research and development

The implementation of the ambitious transport
reform programme suffered considerable delays. The Ministry of Transport (MoT)
approved a new organisation chart, which includes the creation of a Strategic
Environmental Assessment (SEA) unit and a Public Private Partnership (PPP)
unit. The new chart should be implemented in early 2011. In March 2010, the
unified transport law was presented to the Parliament.

Egypt completed the first phase of the rail
sector reform. This led to a thorough restructuring and, most importantly, to the
introduction of a new safety culture.

In the field of civil aviation,
negotiations between the European Commission and Egypt on the horizontal
agreement were not completed. The EU encourages Egypt to conclude the
negotiations speedily.

As regards Inland Waterways, the Prime
Minister decided, in March, to start restructuring the inland waterway sector
with the aim of transferring river ports and barge operations to the private
sector.

In the Maritime Sector, the Minister of
Transport’s decree of October 2009, stating that the Egyptian ‘partner share’
in all companies in the maritime services must be not less than 51%, creates a
barrier to the liberalization of services. Despite discussions with EU Member
States, Egypt has shown no sign that it intends to amend the decree. The
Egyptian flag remained on the black list of the Paris Memorandum of
Understanding on Port State Control.

In October 2010, the EU and Egypt, through energy
dialogue, took forward the implementation of their 2008 Memorandum of
Understanding on a strategic partnership on energy. The parties agreed, inter
alia, to cooperate on preparing an Energy White Paper. The paper is to be based
on the Egyptian energy strategy – 2030, which was adopted by the Supreme
Council for Energy in February 2010. The strategy aims, inter alia, to open up
the energy sector, which includes the establishment of a gas and oil regulator
and the gradual elimination of price distortions.

Egypt continued with studies on the future
use of domestic oil shale and uranium. It wishes to become an energy bridge for
the region and the EU. With a view to its rapidly growing energy needs, Egypt continued
the construction of new electricity generators. The country faced electricity
shortages and reduced gas exports. The draft acts on the reform of the electricity
and petroleum sectors are still in a preparatory phase. In July 2010, Egypt
adopted new electricity tariffs. Egypt further developed its electricity and
gas networks and prepared electricity interconnections with its neighbours.

Egypt worked towards a renewable energy
master plan. It commissioned a solar power plant and further developed
additional solar plants. It made advances on wind power plants, which are
expected to become the mainstay of green power production. These projects,
jointly financed by European Development Banks and EU grant funds, contribute,
inter alia, to the development of the Mediterranean Solar Plan. Egypt continued
implementing energy efficiency measures, including on efficient lightning.

Egypt further pursued work for the
construction of a nuclear power plant, which is expected to be located on the
Mediterranean coast in the El-Dabaa area. In May 2010, it adopted a
comprehensive nuclear energy and radiation law, which provides, inter alia, for
the establishment of an independent nuclear regulator. The EU and Egypt
continued cooperation regarding the Egyptian nuclear regulator under the
Nuclear Safety Cooperation Instrument.

In the field of climate change, Egypt
submitted its Second National Communication to the UN Framework Convention on
Climate Change, including a greenhouse gas inventory, mitigation and adaptation
measures. Egypt prepared and approved further Clean Development Mechanism (CDM)
projects. Two new such projects were registered at the UN level, bringing the
overall number of registered projects to seven. Egypt is
encouraged to fully implement the Cancun agreement and in particular devise a
low carbon development strategy including update information on target or
actions that it will implement. Regarding the environment,
Egypt continued to implement the national environmental action plan (2002-2017).
Actions are underway in fields such as reducing vehicle emissions and
strengthening of the air quality monitoring network. The legislative framework
continues to require further development, in particular with regard to
implementing legislation. New legislation on water and wastewater, as well as
on waste management, is still under preparation. Egypt introduced a gradual ban
on the transport of hazardous and toxic substances on the River Nile. A
national solid waste management strategy and an
integrated coastal zone management strategy are still under preparation. A
waste management master plan for Cairo was designed as a model for the rest of
the country. Continuing attention is required in order to implement existing
strategies and plans and to further enhance monitoring and enforcement.

Egypt took some
steps to enhance administrative capacities with regard to integrated coastal
zone management and marine pollution. However, strengthening administrative
implementation capacity at all levels of the country, including coordination
between authorities, remains a major challenge. Steps were taken to integrate
environment considerations in other policy areas, such as transport.

Egypt continued
to publish environmental information on a regular basis, and carried out some activities to inform and involve the public.
Public consultation is still not mandatory for certain environmental impact
assessment studies.

Egypt took some
further steps towards acceding to the Integrated Coastal Zone Management
Protocol to the Barcelona Convention for the Protection of the Marine
Environment and the Coastal Region of the Mediterranean. There were no
significant developments as regards ratifying the amendments to its Land-Based
Sources Protocol and its Emergency Protocol. The implementation of already
ratified agreements requires particular attention.

Egypt continued
to participate in the Horizon 2020 Initiative and the EU Water Initiative.
Cooperation and information exchange took place between the European Commission
and Egypt, including on water, waste management, de-pollution and management of
environmental information.

In the field of civil
protection, Egypt was actively involved in the Euro-Mediterranean Programme
for the Prevention, Preparedness and Response to natural and man-made
Disasters.

The Ministry of Communications and Information
Technology launched the first worldwide internet domain name using Arabic
letters. As part of Egypt's "Green ICT Strategy", the ministers for Communications
and Information Technology and for
Environmental Affairs signed a Memorandum of Understanding regarding a Green Information
and Communication Technology (ICT) Strategy, which aims to reduce the adverse
environmental impacts resulting from the expanding use of ICT devices.

The National Telecommunications
Regulatory Authority (NTRA) announced its new numbering plan, and the board of directors
of NTRA awarded two licences for the construction and operation of (fibre-based)
access telecommunications networks in closed compounds. There are no new
developments or plans regarding the introduction of a second fixed telephony
licence. Consequently, this market remains a de facto monopoly.

Egypt established a national institution
(CERT) to support early discovery and containment of information on security
attacks and incidents. It is also developing a new framework for licensing new
triple play services for voice data and video. There were a number of developments
in Egypt in the field of e-Learning: inauguration of new projects in schools as
part of the Smart Schools Network Project and the organisation of a workshop on
technological infrastructure in schools. During 2010, Egypt also launched new
projects in the field of e-government at local level.

There is no progress to report on audiovisual issues.

In the area of research and innovation, the
Egyptian Ministry of Higher Education and Scientific Research continued to
implement its reform strategy (2007-2012). Egypt significantly increased the
participation of Egyptian researchers in the European framework programme for
research (FP7), also thanks to the setting up of a network of thematic National Contact Points. Three new thematic
contact points were appointed for Energy, Environment and Science in
Society, bringing the total number of contact points to 42. Up to March 2011 Egypt
had a very high number of applicants, 790, of which 109 were successful in
submitting a proposal, receiving a total contribution of about EUR 10 million. The
thematic areas which provoke the main interest are Health, Environment, Food,
Agriculture & Biotechnologies and ICT. In September 2010, a high-level
Delegation from Egyptian Research Centres visited the JRC-Ispra site; five Egyptian research organisations have four collaborative
ventures with the Joint Research Centre. Egypt strengthened its
co-operation with the Enterprise Europe Network.

7.
PEOPLE-TO-PEOPLE
CONTACTS, EDUCATION AND HEALTH

Egypt pursued education
reforms on the basis of the National Strategic Plan for pre- university
education 2007-12, with EU financial support, with advances on fiscal
decentralisation, school-based, curricular and textbook reforms, as well as use
of ICT. Implementation of the first two phases of the Teachers’ Cadre was achieved
in the context of public service reform, but challenges still remain for
early-childhood, girls and out-of-school education, as well as on special
educational needs. A key unaddressed aspect of reform is the permeability
between secondary education streams and student progression from
secondary-technical to tertiary education. The reform of university admission (Thanawiya
Amma) will be crucial in this context. The General Authority for Literacy
and Adult Education continued implementing the National Plan for Adult Literacy,
focusing on integrating literacy, adult education and measures to prevent
school drop-out, in cooperation with civil society

The Government approved the third phase
(2012-17) of the Higher Education Master Plan in October 2010 which provides
for the establishment of a Supreme Council of Education, compatibility of
higher education with international reference points, including on credit
transfer (ECTS), reform of vocational training within higher education
institutions and adoption of a national qualifications framework (NQF). Quality
assurance is prioritised with additional resources to improve quality and
ensure institutional accreditation. In this respect, the work of the National
Authority for Quality Assurance and Accreditation in Education (NAQAAE) made
good progress, completing the development of quality standards and
accreditation manuals for all education branches while establishing links with
European accreditation bodies. It is also tasked with NQF development. The
Ministry of Higher Education showed growing interest in the development of
technological training centres, as well as in reforms under the Bologna Process.
Higher education would benefit from further decentralisation and the use of performance-based
funding as a means to improve cost-effectiveness

In the field of
technical vocational education and training, the
Inter-Ministerial Committee on Human Resources Development initiated
discussions on the implementation of the 25-year strategy to reform the whole
system, with attention to the realignment and definition of mandates as well as
the NQF. Immediate attention is required to address the serious mismatch
between training content and delivery and labour-market needs. The EU-funded TVET
programme served as a catalyst in securing consensus on the policy choices
ahead. Its establishment of 12 sector-based enterprise training partnerships
laid the foundation for future reform work. The Ministries of Education,
Industry, Manpower and Migration participated actively in the self-assessment
analysis under the Torino Process and its linked Education and Business Study.
This led to the discussion and validation of its finding in a national
dissemination workshop in October, co-organised by the European Training
Foundation (ETF) and the Egyptian Observatory for Education, Training and
Employment. In December, the Ministry of Higher Education approved a proposal
for the design of a national career guidance and counselling system, developed
by the National Task Force on Career Guidance with ETF support.

Egyptian
universities and higher education institutions participated actively in the third
call for proposals under Tempus IV, resulting in the selection of four
projects contributing to staff capacity building and innovative curriculum
development. Eight Egyptian students were awarded Erasmus Mundus Masters
scholarships, while student and academic mobility will be further enhanced with
the expected award of 108 grants under Erasmus Mundus Action 2 for the academic
year 2010-11. In addition, one Egyptian organisation is taking part in a
project to promote European higher education in sustainable development under
Action 3. In 2010 a Jean Monnet module and a Chair in Euro-Mediterranean
relations were awarded to Cairo University for the first time.

The National Council for Youth (NCY)
continued implementing youth empowerment programmes in line with its four year
plan (2006-10), in coordination with national stakeholders and civil society.
Egyptian young people and youth organisations continued to benefit from the
opportunities offered by the Youth in Action Programme, which supports
exchanges, voluntary service and cooperation in the field of youth and
non-formal education. Egypt confirmed its participation in the Euro Med Youth
IV programme.

In the area of culture,
the Parliament adopted a new Law on Antiquities. Work proceeded on the ratification
of the UNESCO Convention on Underwater Cultural Heritage. Investment in
capacity to ensure full implementation remains a challenge, as does
coordination between all of the actors concerned. In June 2010, the Ministry of
Culture engaged in a positive dialogue with cultural operators in the framework
of the first Conference on Cultural Policies in the Arab region to be held in
Beirut. Four Egyptian cultural organizations participated in projects selected as
part of the 2010 ENP Special Action under the Culture Programme. In the context
of EU bilateral cooperation, work proceeded on a project to enhance creativity
and access to culture as a means of development. Egypt also continued to play
an active part in the regional Euro-Med Heritage IV programme.

Egypt, with considerable EU assistance, continued
the reform of the health sector, particularly by further implementing
its “Family health model”. The model aims at universal coverage, financial
sustainability and better quality. For example, Egypt established additional
primary health care facilities and made progress with the renovation of
hospitals. In June 2010, the draft health insurance law was submitted to
Parliament, although negotiations on the future financial sustainability of the
health system have been difficult. Egypt completed a first pilot project on
health insurance management in Suez and launched additional pilot projects.
Egypt continued to monitor influenza A (H1N1). The EU and Egypt enhanced the health
sector dialogue through the health reform programmes financed by the EU as well
as, inter alia, by Egypt’s participation in the EU’s global health conference
of June 2010. Egypt continued to take part in the
‘Episouth’ network on communicable diseases for the EU, Mediterranean and
Balkan countries.

8.
Financial cooperation – 2010 key facts and
figures

Cooperation framework

The Mid-Term Review of the programming
document confirmed that the Country Strategy Paper adopted in 2007 remains a
valid framework for cooperation with Egypt. The new National Indicative
Programme (NIP) 2011-13 for Egypt was adopted in March 2010 and has a budget of
EUR 449.3 million. The programme is geared towards supporting the achievement
of key policy objectives as outlined in the EU-Egypt ENP Action Plan and
pursues three priorities: (1) political reform and good governance, (2) competitiveness
and productivity of the economy, and (3) socio-economic sustainability of the
development process.

Implementation

Implementation
of the measures covered by the previous NIP (2007–2010) is underway. In the Education
Sector, the National Strategic Plan is being rolled out to improve the quality
of and access to education, with most of the major system reforms and particularly
those targeting school-based reform, advancing the reform of the civil service
and modernisation of schooling. In the transport sector, the reform programme has
regained momentum and it is improving in the areas of institutional
and regulatory structures, as well as the planning of inland waterways,
railways and roads. The support to social development
has had an impact in deprived rural areas of Egypt, including the generation of
1,651 permanent and 251 temporary job opportunities, 2,260 new drinking water
connections, 30 health care units and 795 medical mobile clinics. Women are
being empowered through literacy and vocational training.

In 2010, the EU continued to support the national reform efforts in
Egypt and committed assistance for a total amount of EUR 192 million under the
bilateral envelope of the European Neighbourhood and Partnership Instrument (ENPI).
The new 2010 Annual Action programme (AAP) focused on sustainable development
and improving the competitiveness and productivity of the Egyptian economy.
Within this envelope, a EUR 120 million reform support programme in the water
sector will help strengthen institutional structures and promote more efficient
use of water resources, while also protecting public health and the
environment. Cooperating with other EU donors, a EUR 20 million contribution
was made to a EUR 300 million Wind Farm project that will produce clean
renewable energy, limiting greenhouse gas and other emissions. An additional EUR
20 million to the ongoing Research, Development and Innovation programme will
help to facilitate Egypt's move towards a knowledge-based economy, while a EUR 10
million Justice Reform Programme will target the juvenile justice system and
the fight against trafficking in human beings. The successful twinning
programmes receive a further EUR 10 million, while EUR 9 million is provided to
support the efficiency and transparency of public administration. Finally, EUR 3 million
was allocated to a cultural programme to broaden access to cultural activities
across the country.

The 2010 AAP also included a sector budget support operation in the
water sector and twinning projects for a value of
around EUR 5 million in support to the Egyptian Water and Electricity Regulators,
as well as Consumer Protection and Real Estate Taxation. Twinning operations were being implemented, among others, in the
areas of maritime safety, water quality management, postal management and
tourism. Other programmes from 2007 and 2008 include a Waste Water project, as
well as support to Good Governance, Human Rights and Civil Society.

In addition to the bilateral allocation, Egypt also benefited from
cooperation activities financed under the ENPI cross-border, inter-regional and
regional programmes. Egypt participates in the Cross-Border Cooperation (CBC)
Mediterranean Sea Basin programme (EUR 173.6 million for the whole programme in
the period 2007-13). The main priorities of the Programme are four-fold (i) promotion
of socio-economic development and enhancement of territories, (ii) promotion of
environmental sustainability at the basin level, (iii) promotion of better
conditions and modalities for ensuring the mobility of persons, goods and
capitals and (iv) promotion of cultural dialogue and local governance.

Under the ENPI-financed
Neighbourhood Investment Facility (NIF) contributions, four projects in Egypt
were approved in 2010, committing EUR 34 million in grants and technical
assistance, expected to leverage broadly EUR 1.6 billion in loans from European
Finance Institutions in the water, energy and power sector.

Other EU Instruments supplement the ENPI assistance package. Egypt
benefited from cooperation activities financed under horizontal instruments such
as the European Instrument for Democracy and Human Rights (EIDHR) and the Development
Co-operation Instrument (DCI) thematic programmes: Non-State Actors and Local
Authorities in Development (NSA-LA) and Investing in People (IIP). Egypt also
benefited from other instruments such as the Instrument for Nuclear Safety
Cooperation (INSC), strengthening the capabilities of Egypt's Atomic Energy
Authority and its National Centre for Nuclear Safety and Radiation Control by
linking it to EU nuclear regulatory authorities.

The European
Investment Bank has signed finance contracts in 2010 for an amount of EUR 906
million in the Energy and Refinery sectors in Egypt, aimed at improving
electricity supply and distribution and increasing refining capacity.

Donor
coordination

In 2010, the EU Delegation in Egypt ensured
the coordination of assistance activities to support the Egyptian authorities who are dedicated to implementing the
aid effectiveness agenda. In 2010 progress was made in setting up a
mutual accountability mechanism between the Egyptian authorities and the donor
community. This is taking place in the context of the 'Cairo
Agenda for Action' and the drafting of a 'Situation Analysis' that summarises
Egypt's key development challenges. From this analysis a number of core areas
have been selected to enable donors to focus their financial support.

[1]               The fiscal year 2010 runs from July 2009 until June
2010.

[2]               SIROCCO focused on deep sea containers loaded in
China or the United Arab Emirates and arriving in countries of the Union for
the Mediterranean. Around 40 million cigarettes, 1243 kg of hand-rolled
tobacco, 7038 litres of alcohol and 8 million other counterfeits were seized
during the operation.

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