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# 52013SC0089

**JOINT STAFF WORKING DOCUMENT Implementation of the European Neighbourhood Policy in Egypt Progress in 2012 and recommendations for action Accompanying the document JOINT COMMUNICATION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS European Neighbourhood Policy: Working towards a Stronger Partnership /\* SWD/2013/089 final \*/**

  

1.         Overall
assessment and recommendations

This document reports on
progress made on the implementation of the EU-Egypt European Neighbourhood
Policy (ENP) Action Plan between 1 January and 31 December 2012, although
developments outside this period are also taken into consideration when deemed
relevant. It is not a general review of the political and economic situation in
Egypt. For information on regional and multilateral sector processes readers
should also refer to the Partnership for Democracy and Shared Prosperity
progress report.

In 2012, the EU-Egypt
dialogue resumed at the highest level. President Morsi visited Brussels on 13 September and met President Barroso. The High Representative for Foreign Affairs
and Security Policy/Commission Vice President, (HR/VP) Catherine Ashton chaired
the EU-Egypt Task Force in Cairo on 13-14 November  - an event which convened top business leaders, ministers and civil society. The
President of the European Council Van Rompuy paid a visit to Egypt on 13 January 2013. Formal dialogue under the ENP, which had been suspended since January
2011, resumed in February 2013, through an Association Committee.

During 2012, Egypt continued its democratic transition to which the Egyptian authorities had committed
following the democratic revolution in January 2011 and the subsequent ousting
of ex-President Mubarak. In this process of transition several significant
milestones were achieved, in particular the orderly organisation of elections
the end of the state of emergency and the smooth transition from military to
civilian rule. However, there have also been some serious set-backs, such as the
dissolution of the People's Assembly and the lack of progress on human rights.
President Morsi’s constitutional declaration of 22 November giving him near
absolute power, the rushed adoption of a draft Constitution by the Constituent
Assembly,  the abrupt interruption of the dialogue on its provisions, and  the
President’s subsequent call for a constitutional referendum have  pitched the nation
into a deeply divisive political crisis between supporters of the President, on
the one hand and the secular liberal opposition, mainly represented by the
National Salvation Front on the other.

In late 2011 and early
2012, Egypt held parliamentary elections under full judicial supervision, in a
peaceful and transparent environment.  The elections gave the Islamist parties
a strong lead in the parliament. The next step was to establish a Constituent
Assembly to draft the new Constitution.

Presidential elections
were held in May, with run-offs in June, in a highly charged and polarised
political climate. Observers concluded that the elections were largely free and
once again no systematic attempts were made to   fix the results. The turn out
was 51%. Mohamed Morsi from the Muslim Brotherhood/Freedom and Justice Party
defeated Ahmed Shafiq, the former Prime Minister under Mubarak, by a small
margin.

Just days before the
Presidential run-offs, the Constitutional Court ruled that parts of the
parliamentary election law were unconstitutional. This led the military
transitional regime to dissolve the parliamentary lower house, the People’s
Assembly, on 17 June.

On 30 June Mohammed Morsi
was inaugurated as the first democratically elected President of Egypt. He appointed
a largely technocratic government headed by former Water Minister Hisham
Kandil, and a Presidential Team, half of whom are Islamists.

In early August, the
President took a number of decisions de facto handing down powers,
including judicial power and in the absence of a parliament legislative power,
to the civilian government.

The parliamentary upper
consultative house, the Shura Council, and the Constituent Assembly continued
their work. However, the secular and liberal members walked out of the discussions
because, in their views the draft Constitution contained too many provisions
restricting human rights and fundamental freedoms or provisions inspired by
religious considerations. In late November, President Morsi issued a
controversial decree giving him sweeping powers and decided to put the draft
constitution to a swift popular referendum. The constitutional referendum took
place on 15 and 22 December. On 25 December the results
of the referendum were announced. 63.8% of voters approved it, but the turnout
was only 32.9% of eligible voters. The referendum was marred by reports of
procedural irregularities and other breaches. The Higher Electoral Commission
investigated the claims and found them all to be without merit.

Street
protest peaked again on 25 January 2013, the second anniversary of the
revolution which coincided with the sentencing to death in Port Said of 21
local football supporters for the killing of 72 rival fans from Cairo. The
clashes resulted in some 60 people dead over that week-end with troubling
reports of human rights abuses. As these events unfolded, the opposition
parties within the National Salvation Front kept raising their demands on
President Morsi to engage in a meaningful dialogue. Their main demands included
the establishment of a national unity government (with the related postponement
of the parliamentary elections); the appointment of a committee to discuss
amendments to the constitution; the replacement of the Prosecutor General and
the independent investigation of recent human rights abuses; and the
secularisation of state institutions. The electoral law is another bone of
contention. In February, President Morsi announced the dates for parliamentary
elections (from end April to end June) and an official invitation was extended
to the EU to observe the elections. Due to an administrative court ruling on 6
March 2013 to refer the electoral law to the Supreme Constitutional Court, it
is likely, however, that the elections will be postponed.

The state of emergency was
lifted in May 2012 after 31 years. However, the law allows prosecutions
initiated under the state of emergency and the trials of persons before the
state of emergency courts to continue after the lifting. Thus a number of cases
continue to be brought before emergency courts which fall short of
international standards. Hundreds of civilians, including juveniles, were
convicted by military courts during the transition and remain in prison. It is
still possible to refer civilians to military courts, but this has not been
used systematically in recent months. A government-appointed panel has reviewed
their cases and President Morsi has pardoned several hundred of those
convicted.  Under the new constitution, civilians can still continue to be
tried before military courts.

Current NGO legislation
continues to hinder the work of NGOs in terms of registration and funding. The
issue of revising the legislation has been under discussion since August 2011.
It was high on the agenda of the first parliament elected after the uprising.
The People’s Assembly did not reach an agreement before it was dissolved and
reportedly a new law will have to wait under a new People’s Assembly is in
place.

The economic situation has remained challenging. By
mid-2012 the economy started to stabilise on the basis of increasing non-oil
exports, the stabilising of the external position and strong remittance flows.
It was also supported by the approval of the new Economic and Social Programme
with a strong fiscal adjustment component, and the prospects of concluding
negotiations with the IMF on a stand-by arrangement amounting to USD 4.8
billion which would open the door to substantial external donor financing.
However, towards the end of the year, in a context of further political
instability, Egypt requested a postponement of the IMF Board decision on the
IMF arrangement, due in all likelihood to political fragility in the run-up to
the constitutional referendum. It suspended the unpopular tax increase and
subsidy-reduction measures that the government had agreed to put in place prior
to the signature of the agreement. The Central Bank of Egypt was forced to put in place emergency restrictive measures in the face of falling foreign
exchange reserves and downward pressures on the currency. The heightened
political uncertainty by the end of 2012 could have further impact on the
domestic economy.
However, despite a long and protracted economic
transition, and provided that Egypt follows through with the fiscal and
structural reforms to reduce the vulnerability of the economy and rebuild
fiscal and external buffers, the country could restart a sound, if slow,
recovery process, one that should be more inclusive and responsive to its
people’s aspirations.

In 2012 Egypt addressed only some of the key recommendations contained in the last year's ENP progress
report. Power was handed over to a civilian government, and the state of
emergency was lifted. A constitution was drafted and adopted by popular
referendum, although the process was controversial and heavily criticised by
the opposition, and led to a deeply divisive political crisis. Many other key
recommendations still need to be addressed. On the basis of this year’s report
and to sustain implementation of the ENP Action Plan in 2013, Egypt is invited to:

·
Ensure an inclusive dialogue with all political
parties and other actors including religious leaders to ensure that the
Constitution is co-owned by all Egyptians and enshrines respect for human
rights and fundamental freedoms, notably preserving the freedom of religion and
protecting minorities.

·
Organise within the set timetable fair and
transparent parliamentary elections with the participation of foreign election
observation missions.

·
Completely halt the use of military courts to
judge civilians.

·
Create conditions conducive to an active and
independent NGO community and adopt NGO legislation in line with international
standards.

·
Pay particular attention to the protection of
women’s rights and gender equality.

·
Implement the Economic Reform Programme that
ensures macroeconomic stability and strengthens public finance management in line
with international standards.

·
Ensure and implement social safety net systems
to protect the most vulnerable from the impact of commodities subsidy
reductions.

·
Engage in the Deep and
Comprehensive Free Trade Area (DCFTA)
preparatory process in line with the EU-Egypt task force conclusions.

·
Sign and ratify the regional Convention on
pan-Euro-Mediterranean preferential rules of origin.

2.         Political dialogue and reform

Towards deep and sustainable democracy

Egypt held parliamentary elections in late 2011 and early 2012,
under full judicial supervision. Observers found no evidence of any systematic
attempt on the part of the authorities to rig the results of these elections in
favour of any one party. Presidential elections were held in May, with run-offs
in June in a highly charged and polarized political climate.  Although some
restrictions on foreign monitors were imposed, observers concluded that the
elections were largely free. The turn-out was at 51%.

New political parties are
regularly formed. There have been no reports of any official efforts to
obstruct the formation of new parties, and no reports that any application has
been rejected by the judicial committee in charge of vetting party
applications.

No progress was achieved
with regard to improving the working conditions for civil society
organisations. Their work continues to be hindered by the current NGO law,
which is still not in line with international standards.

Protests are regularly
held at locations that were previously considered unapproachable, including the
Presidential Palace and various state ministries. However, there have been
increasing concerns of rising violence in recent months during public demonstrations,
in particular from security forces.

Despite the greater room for freedom
of expression since former President Mubarak stepped down, cases of
interference towards individuals and the media are still reported,
including prosecutions against critics of the President and of the ruling
party, and arrests and prosecutions under the blasphemy law, which predates the
new administration.

A committee set up by
President Morsi to investigate abuses perpetrated by the security services
against demonstrators since the revolution has yet to issue a report.

The June decision of the
Supreme Constitutional Court to dissolve the entire Islamist-dominated lower
house of parliament, based on the allegedly unconstitutional electoral law
governing elections to a third of the seats, was perceived by many as a
political decision, and it contributed to the polarisation of the country. In
April, an administrative court dissolved the elected, Islamist-dominated,
Constituent Assembly charged with drafting a new constitution, also on
questionable legal grounds.

The state of emergency was
lifted in May 2012 after 31 years of continuous imposition. However, the law
allows prosecutions initiated under the state of emergency and tried before
state emergency courts to continue after the lifting. Hundreds of civilians,
including juveniles, were convicted by military courts during the transition
and remain in prison.

A number of high-profile corruption
cases, chiefly focused on individuals associated with the former regime, have
been and continue to be brought before the courts, which have handed down
prison sentences and massive fines in several cases.

The President replaced the
head of the Government Oversight Agency after allegations that the former head
was complicit in concealing evidence of financial impropriety by members of the
former government. Major land sales concluded under the previous regime have
been annulled when found to have violated the law, or deliberately undervalued,
or in cases where companies have been forced to pay market prices to make up
the difference.

In August, the President undertook an
extensive reshuffle of the military and subordinated the military
establishment to the elected civilian executive.

Other human rights and governance-related issues

The
culture of violence and torture in the police, the security sector, and
in some cases the military, did not change dramatically after January 2011. The
Egyptian authorities have announced their intention to undertake a general
reform of the police, including measures against the use of torture, but it is
unclear to what extent this has materialised. Investigations
have also been conducted to assess army and police involvement in torture, but
no reports have yet been issued.

As regards freedom of
religion, Article 43 of the Constitution guarantees freedom of belief, but
requires the State to safeguard the right to practice and build places of
worship for the Abrahamic religions. This raised concerns on the part of other
religious groups such as the Baha’is and the Shias. Article 3 specifies that
the canons of Egyptian Christians and Jews will be the principal source of
legislation that regulates minorities’ personal and religious affairs. In 2012
no progress was achieved on authorisations to build places of worship or on
investigations into disputed construction permits for churches announced in
2011.

Women played a very active role in the 2011 uprising, but their rights
are now being severely challenged in the process of political transition. The
new constitution obligates the state to provide equal opportunities, but the
previous provisions on gender equality have been dropped. Egyptian women activists feel that women have been intentionally
excluded from the political and civil scene and that
women's voices are not represented in the political process. There is deep concern about the Islamist
political parties and their stance towards women's rights. Egypt still lacks a legal environment to protect girls and women from violence, to encourage them to
report attacks, and to deter perpetrators from committing abuses against them. In the 2012 upper house elections, women won
only 4 out of the 180 seats. Reported violence against women participating in
demonstrations is a matter of serious concern.

Child labour persists and the children involved are
subjected to harsh working conditions. Street children,
reportedly in the hundreds of thousand, are exposed to sex trafficking. Egyptian children are also recruited for household services and
there are frequent charges that wealthy people from the Gulf have come to Egypt to buy temporary wives under 18.

As regards the situation of minorities,
relations between Bedouins and the government remain tense and Bedouins
consider themselves to be marginalised. The situation in the Sinai is
complicated by the government’s security concerns for the area, safeguarding
the borders with Israel and
Gaza, and controlling smuggling activities, in which Bedouins are sometimes
implicated.

In the aftermath of the
Egyptian uprising, the Ministry of State for Administrative Development
provided administrative and technical support to the democratic transition and
electoral processes. This work helped to build up the capacity of the Egyptian
administration by developing and streamlining voter databases and improving
access to information on the voting process.

Several ongoing national
programmes address the improvement of public services and administrative
simplification, the development of national databases of Egyptian households,
institutional development of different administrations, including the
introduction of results based management, piloted in the Ministry of Planning
and International Cooperation, the Ministry of Finance, and the Ministry of
Local Development, and the National Planning Institute. There is no formal
national strategy on public administration reform.

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

Egypt is an active partner on many CFSP matters in the region and has
been a key player in Palestinian reconciliation. Representatives from both
Hamas and Fatah, including at the highest level, have visited Cairo on a number
of occasions and Egypt has pushed both to the Doha Declaration of 6 February
2012. President Morsi and his team played a fundamental role in achieving the Gaza ceasefire on 21 November.

Egypt has increased its engagement with its African partners in general.
For the first time since 1995, the Egyptian President was present at the
African Union Summit of 2012. Egypt has stepped up its efforts to find a
solution to the Syrian crisis. An Egypt-led quartet on Syria, including Turkey, Saudi Arabia and Iran, has met three times.

Since the attacks on its
border troops on 5 August 2012, Egypt has undertaken security-related
operations in the Sinai aimed at curbing the presence of Jihadists in the
peninsula. Despite the recent domestic political turmoil, Egypt has continued its active regional policy in the field of disarmament, both bilaterally and via
its membership in the Non-Aligned Movement especially on the issue of a
nuclear-free Middle East.

3.         ECONOMIC AND SOCIAL REFORM

Macroeconomic framework and functioning market economy[1]

The 25 January revolution
continued to contribute to a depressed economy in 2012. Egypt recorded GDP growth of 2.2% in Fiscal Year (FY) 2011/12, following a 1.9% growth the year
before, far from the 7% growth achieved prior to the financial crisis. Whereas
by the autumn of 2012, Egypt’s economy showed some clear signs of stabilisation
and the basis had been set for a much-awaited recovery following the drafting
of a new economic reform programme and the agreement on a Stand-by Arrangement
with the IMF, Egypt reversed course in end-November, thereby bringing back a
period of macroeconomic instability. As these events took place on the back of
an already vulnerable economy, their consequences are still being felt.

Egypt’s inflation has traditionally been high, reflecting in part the supply-side
market inefficiencies. Since mid-2012, however, inflation has been on a
significantly declining path – an average of 4.7% in 2012, relative to 10.1% a
year earlier - owing to a negative output gap, although projected to increase
again due to depreciation pressures and to energy-administered prices likely to
go up.

The FY 2011/12 fiscal
deficit stood at 10.8% of GDP – up from 9.7% the year before. The FY 2012/13
budget deficit will likely exceed the previous year’s deficit, as the
government has not yet been able to adopt an economic programme with a strong
fiscal consolidation component. The reform of the generalised subsidies system
should be central to these efforts.

The current account deficit
increased to 3.1% of GDP in FY 2011/12 from 2.6% the year before, primarily due
to the increasing import price of commodities, namely oil, and to a drop in
tourism receipts. The greatest pressure continued to be exerted on the
financial account, with a flight of portfolio investments of USD 12.8 billion
since early 2011 through end-2012, as well as drastically lower FDI inflows. These
pressures accelerated since end-2012. Whereas the reserves position had stabilised
since February 2012 thanks to the drying up of portfolio investment outflows
and the receipt of various financial pledges, the political instability since
end-2012 led to a renewed period of heightened external pressures. By
end-January 2013, international reserves had dropped to USD 13.6 billion,
despite significant offsetting foreign contributions.

After three failed
attempts to adopt a financial arrangement with the IMF, which would provide
access to USD 4.8 billion and open the door to further donor financing,
negotiations were expected to be re-launched in 2013.

Social situation, employment and poverty reduction

Unemployment
remained a major problem, and was expected to increase from 12% in 2011 to 12.7%
in 2012. The unemployment rates of higher education graduates were
particularly high; overall unemployment remained much higher for women than for
men.

Geographical
disparities remained, with poverty levels at 43.7% in rural upper Egypt
and major inequalities between rural and urban areas throughout the country.
The country appears not to be “off track” and unlikely to achieve some of the Millennium
Development Goals by the set date of 2015, especially with regard to the gender
gap. Further efforts are needed in many social fields, particularly in higher
and technical education, primary health care, employment and social policy.

In 2012, the new Government endorsed the National Action Plan on Youth
Employment for 2010-2015, which had been prepared in 2010.  The Plan has three policy priorities: (i)
increasing youth employability; (ii) obtaining technical assistance for business
incubators and (iii) developing a career guidance system. The main problem continued
to be the lack of funds for its implementation and an integrated employment and
social policy is also still lacking.

The new Government
disregarded the Labour Law that had been submitted during the transition
period. A new law was tabled by the Muslim Brotherhood within the Parliamentary
Committee in charge of Labour issues before the dissolution of the Parliament,
but the debate stagnated. According to independent trade unions, the amendments
to the already restrictive Trade Union Law 35/1976 would further weaken
workers' and trade unions' rights, including in relation to freedom of assembly
and freedom of association. It would also weaken the protection of trade union
members and representatives from unjustified dismissals. In November, the EU agreed
to support Egypt (EUR 70 million) in creating short term employment
opportunities for unskilled and semiskilled workers in small scale
infrastructure projects and in community services in the poorest Governorates
of the country.

4.         Trade-related issues, market and
regulatory reform

The EU is Egypt's main trading partner accounting for 30% of its trade volume in 2011[2]. Bilateral trade flows increased
and during the first eleven months of 2012 amounted to EUR 21.8 billion. EU exports to
Egypt consisted mainly of machinery
and chemicals. EU imports from Egypt consisted mainly of energy products, chemicals,
textiles and clothing.

Egypt continued to dismantle its tariffs on imports of EU industrial
goods, as laid down in the Association Agreement. Egypt formally lifted an
import ban on cotton in March 2012. However, not a single permission to import
cotton has been granted. This goes against the Association Agreement and WTO
rules. Egypt initiated safeguard investigations on imports of cotton yarn, cotton
textiles and polypropylene, which led to a final imposition of safeguard fees
on cotton yarn in August 2012. The two remaining investigations were suspended
in September 2012 and the fees were lifted.

In February 2012, Egypt imposed restrictions on imports of dairy, meat and live cattle from the EU following the
outbreak of the Schmallenberg virus (SBV) in Europe. The restrictions on meat
and dairy were lifted in May 2012 and the ban on live cattle imports was lifted
in July under certain conditions. The EU’s import restrictions for seeds and
sprouts from Egypt, related to the E. coli outbreak, expired in March
2012 and were not renewed due to the measures taken by Egypt in compliance with the FVO’s recommendations.

Negotiations on the
liberalisation of services and establishment made no progress. The
preparatory process for the Deep
and Comprehensive Free Trade Area with Egypt has yet to be launched. Egypt has
yet to notify the EU of the completion of internal procedures for the entry
into force of the Protocol on the Dispute Settlement Mechanism signed in
November 2010.

Egypt failed to modernise and simplify customs legislation and
procedures, as a new Customs Law, which was expected to
be adopted already in 2011, has
yet to be approved by the Parliament. Egypt has yet to sign and ratify the regional Convention on pan-Euro-Mediterranean preferential rules
of origin, but it did regularly participate in the meetings of pan-Euro-Med Working
Group, which is currently discussing the revision of the rules of origin in the
framework of the regional Convention.

Little progress was made
on free movement of goods and technical regulations. Preparations
for the EU-Egypt Agreement on Conformity Assessment and Acceptance of
industrial products (ACAA) did not progress significantly, since further
progress depends largely on the adoption of new legislation. Egypt established a National Quality Council for strategic coordination of quality infrastructure;
its future role in the ACAA process remains to be clarified. New standards,
aligned to those of the EU, were issued for a number of products (e.g.
household appliances, cement and furniture). Egypt introduced two new technical
barriers to trade: compulsory pre-shipment inspection for imports of textiles
and leather products, which constitute disproportionate and unnecessary
obstacles to trade.

Regarding sanitary and
phytosanitary issues work on the draft unified food
law and the establishment of a single food safety authority remained pending. Thanks to improved control measures in Egypt, the EU lifted import restrictions for certain seeds and simplified import conditions for
potatoes from Egypt. Egypt participated in a Commission/European Food Safety
Agency/TAIEX-supported seminar for Mediterranean ENP countries on regional
coordination of animal identification and disease
control measures held in Cyprus in September.

The suspension of the
granting of licences for the establishment of tourism companies
(domestic or foreign) was extended until March 2013. In February 2012 Egypt amended its rules for public private partnerships (PPP) to allow disputes to be
resolved through arbitration rather than through Egyptian courts. In January 2012 a decree-law for the Integrated Development
of the Sinai Peninsula opened the way for foreign participation (up to 45%) in
investment and development projects in the region.

Some concerns related to the
business climate persisted, more particularly over physical security
(especially in the Sinai but also in the Cairo area), often related to labour
disputes, legal uncertainty in relation to contracts and the increase in
payment arrears. Several rulings on privatisations by administrative and civil
courts have raised questions about the definition of competences in the
judiciary, and on the compliance of these decisions with Egypt’s international commitments on investment. Egypt’s rank in the World Bank’s Doing Business
report remained stable but weak, rising to 109th (out of 185).

In the
area of financial services, Egypt suspended trade in foreign securities
in July 2012. This measure was intended to protect investors from losses
abroad; however, one of its main consequences is that it limits the
cross-border movement of capital.

Other key areas

In July, Egypt began to use difficult-to-counterfeit banderols and stickers to indicate payment of customs
duties and sales tax. New tax accounting rules and principles and
procedures for profit tax collection were issued for SMEs, the aim being to
reduce the administrative burden. Egypt also brought a number of incentives for
tax settlement, reducing the amount of tax payable to reward prompt payment.

The Egyptian Competition
Authority continued to improve its institutional performance with the support
of an EU twinning project.

In April a decree was issued requiring
the administrative bodies of the State with separate budgets (except in the
defence sector) to publish the results of tenders on the Government procurement
web portal.

Egypt improved training for statisticians with the creation of a
statistics training committee within the Central Agency for Public Mobilisation
and Statistics. It also started preparations for a household survey on
migration, to be carried out in 2013.

Concerning enterprise
policy, Egypt participated in the 2011-2012 work programme for industrial
cooperation and welcomed in November 2012 an EU task force with a delegation of
EU entrepreneurs with the set up of a business and tourism forum.

There were no significant
developments on intellectual property rights, company law, including
accounting and audit, or public finance management.

5.         Cooperation on justice,
freedom and security

On 27
February 2012 the European Commission adopted a Decision establishing the list
of supporting documents to be presented by visa applicants in Egypt. From 1 March 2012, all EU Member States require the same set of documents from visa
applicants wishing to travel to the European Union (Schengen area). This
measure is a huge simplification for the some 120,000 visa applicants in Egypt, who now no longer face differing requirements.

The EU
reiterated in 2012 its offer to start with Egypt a Dialogue on Migration,
Mobility and Security leading towards the conclusion of a Mobility Partnership,
similar to what the EU is doing with other Southern Mediterranean countries.
However, Egyptian authorities continued to decline the offer.

Concerning
asylum issues, the UN High Commissioner on Refugees (UNHCR) confirmed
records of 44 refugees and asylum seekers in detention in Egypt. 29 689 Syrian nationals were registered in Egypt as of February 2013 according to UNHCR. The
number of Syrian nationals wishing to register as asylum seekers in Egypt is expected to increase further, given the continuing humanitarian and refugee
crisis.

Hundreds
of African nationals (most of them Eritreans) are reportedly detained in police
stations in Sinai in conditions that fall well below minimum detention
standards required by human rights law. The Egyptian government has
consistently denied UNHCR contact to the detained refugees and asylum seekers.
It claims that the detained persons are economic migrants and not asylum
seekers, and as such it perceives no obligation to give UNHCR access to these
centres.

Human
trafficking in Sinai remains a matter of concern.
Migrants, primarily from Eritrea and Sudan, are being held for ransom and seriously
abused by human traffickers and other criminals before they are allowed to
continue their journey to Israel. Egypt has a strong law against human
trafficking, but prosecutions are very rare.

According
to the MFO (Multinational Force and Observers) the flow of migrants has
decreased since Israel started building a fence at the Egypt-Israel border.

Since mid 2011, the EU has
granted EUR 2.5 million in support for the "fight against corruption, money
laundering and asset recovery" project, being run by the UN Office on
Drugs and Crime (UNODC) in close cooperation and partnership with the Egyptian
authorities. It aims to create an effective mechanism to combat corruption and
money laundering, to foster asset recovery procedures and to create a solid
framework to implement the United Nations Convention against Corruption
(UNCAC). Several events took place in 2012, notably a workshop on asset
recovery, training courses on UNCAC review mechanisms, and a workshop on formulating
an anti-corruption strategy.

Egypt participated in a Multi-Country Workshop on Drug Prevention
and Monitoring: Situation and Perspectives in the ENP Southern Partnership
countries, organised by the European Commission and the European Monitoring
Centre for Drugs and Drug Addiction (EMCDDA). This took place under the
auspices of the Cypriot Presidency, and was held in Cyprus in October.

In the area of police
reforms, Egypt participated in the regional Euromed Police III programme.  In
July it attended the first meeting of the General Directors of Police and
Security Forces of the Southern ENP partners and EU Member States. In October,
the EU offered support to the Ministry of Interior in its security sector
reform.

Due to
the heavy electoral agenda in the first half of 2012, with judges responsible
for supervising polling stations, the workload of the Egyptian Ministry of
Justice prevented any substantial progress in the implementation of the EU bilateral
projects in the justice sector. It also hampered Egypt’s effective participation
in the Euromed Justice III regional Programme. No significant progress was
achieved in the field of judicial and law-enforcement cooperation, and
several international conventions regarding family law (notably children)
remain unsigned.

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

In the area of transport, Egypt launched a feasibility study for a mass transit system linking the 10th of Ramadan City to Cairo. It also launched a detailed study and an action plan to implement the
east Port Said master plan, aiming to create a regional hub. In September an agreement to co-finance the Cairo Metro line 3 was signed,
involving the Neighbourhood Investment Facility (EUR 40 million in grants), the
EIB (EUR 600 million) and Agence Française de Developpement (AFD) (EUR 300 million).
In November, the EIB and Egypt agreed on a project to
upgrade the air traffic management systems of the National Air Navigation
Services Company (NANSC). On maritime issues, the
Egyptian flag remained on the grey list of the Paris Memorandum of
Understanding on Port State Control.

Energy cooperation
with Egypt continued in 2012 including in the context of the EU-Egypt
Memorandum of Understanding on a strategic partnership on energy. In January, a
major EU energy sector policy support programme (EUR 60 million) got started.
It includes reform commitments on electricity and renewable energy sources. In
2012, Egypt faced electricity black outs and fuel shortages. Egypt continued working on electricity tariffs, market rules, grid codes, investment promotion plans
and the creation of a web-based register for market operations. It further
upgraded its electricity networks, partly in the framework of a project funded
by the Neighbourhood Investment Fund (NIF), EIB, KfW (German development bank)
and AFD. In April, the League of Arab States, in cooperation with, inter alia,
the EU organised a Forum on renewable energy and energy efficiency, promoting
Euro-Arab cooperation. Egypt progressed on several renewable energy projects.
In June, an agreement was reached with an Italian private investor to install
120 MW of wind power at Gulf El Zeit, which will supply electricity to cement
factories. Egypt made progress on a feasibility study, co-funded under the NIF
(EUR 3 million), for the Kom Ombo 100 MW concentrated solar plant. In
September, a NIF-supported (EUR 0.8 million) tender for a pre-feasibility study
of the Kom Ombo 20 MW photovoltaic power plant was launched. Work on the 200 MW
Gabal El Zeit wind power plant also continued. Egypt is encouraged to continue
focusing on renewable energy sources and energy efficiency and to address the
heavy burden of energy price subsidies.

In the field of climate
change, Egypt
is encouraged to build up capacity and engage in the new carbon market
mechanism to be developed following the 17th and 18th session
of the UN Framework Convention on Climate Change Conference of the Parties.
With the support of the newly launched regional technical assistance project
for climate change and related matters, Egypt is encouraged to devise a
low-carbon development strategy as well as to develop a nationally appropriate
mitigation action. Additional efforts should be made to fully implement the
Cancun and Durban agreements.

As
regards the environment, the Government established the Ministry of
Utilities for Drinking Water and Wastewater, with responsibility for
investment, service provisions and regulatory functions. In 2012 the EU scaled
up a NIF participation to a joint European programme to improve water and
wastewater infrastructures in Upper-Egypt by EUR 10 million bringing total EU
contribution to EUR 23 million.

Dealing
with solid waste was one of President Morsi's key priorities. A Solid Waste
Management Unit, the nucleus of a Solid Waste Management Agency, was
established and the hiring of staff started. The EU assistance to Egypt in 2013 will notably include EUR 20 million that are earmarked for a project in the
field of solid waste management.

Since January,
the EU has been assisting the Government in introducing an innovative mechanism
for recharging treated wastewater into the Egyptian aquifer with a view to
enhancing the water management efficiency. As part of the integrated pollution
reduction programme for Lake Burullus, the wastewater handling expansion for
the Kafr El Sheikh Governorate is one of the four leading projects of the
Mediterranean Hot-Spot Identification Programme (MeHSIP) financed under the Facility for Euro-Mediterranean Investment and Partnership (FEMIP) and managed by the European Investment Bank (EIB).

Egypt continued its participation in the Integrated Maritime Policy
(IMP-MED) technical assistance project under the ENPI South programme.

In the area of civil
protection, the flagship programme for Prevention of, Preparedness for, and
Response to natural and man-made disasters (PPRD South) contributed to the
establishment of a regional framework of disaster management authorities that
could intervene collectively in the event of disasters overwhelming the
affected country. Indeed, sustainable development requires adequate disaster
risk reduction efforts. Egypt is among the 168 governments that adopted in 2005
the "Hyogo Framework for Action: Building the Resilience of Nations and Communities
to Disasters", which emphasizes the central role of disaster risk
reduction for all development policies. However, work on Disaster Risk
Reduction (DRR) and climate adaptation is only at the beginning and it will
require considerable further support to develop capacities and processes. DRR
policy is fostering dialogue with Civil Society and NGOs, thus contributing to
a more sustainable democracy. Analysis of the regulatory and institutional
frameworks started with the aim of strengthening capabilities and
inter-ministerial coordination in the second phase of the programme.

Regarding the development
of information society policies in Egypt, a number of initiatives
continued to be discussed, including in the context of the Arab Spring. In many
cases, progress remains linked to the current political situation. For example,
a new draft telecommunications law has been prepared but is yet to be approved.
The move towards a more unified licensing system was also under review.
Plans to issue a second fixed licence to liberalise the fixed line market have
been set back due to the international financial crisis. A National Broadband Plan
was finalised in 2012 and an action plan was being drawn up combining
infrastructure and education-related projects. The Egyptian national
telecommunications regulator NTRA took over the chair of the joint EU-Southern
Mediterranean telecommunications regulator forum EMERG in 2012. Information
society consultations took place in November under the auspices of the EU-Egypt
Joint Task Force.

No significant progress was made in
the area of audiovisual policy. There is no comprehensive policy for the
audiovisual sector, and censorship remains an issue to be addressed. The EU supported
Egypt’s audiovisual sector through the Euromed Audiovisual III Programme to
analyse the challenges and future of the industry.

Progress was made on
integrating Egypt into the European Research Area (ERA). Under the EU’s RDI II programme, the Egyptian authorities put in place an
effective network, across the country, of contact points for the EU’s Seventh
Framework Programme for Research and Technological Development (FP7). In
2012, there were 81 FP7-funded projects with 54 Egyptian partners, with a total
of 101 Egyptian participations. Cooperation was also
pursued in the context of the EU-Egypt Innovation Fund. The total EU
contribution to these projects amounts to EUR 295 million, more than EUR 12
million of which went to the Egyptian partners. The EU-Egypt Science,
Technology and Innovation Cooperation Portal was launched in October as part of
the EU FP7 BILAT project ShERACA (Shaping Egypt’s association to the European
Research Area and Cooperation Action). It was funded under the FP7 INCO
programme, with the overall objective of getting more Egyptian R&D
stakeholders and key players involved in ERA activities. In November 2012, at
the EU and Egypt Joint Task Force meeting, the parties agreed to give support
to science and innovation. This support will build upon EU-Egypt cooperation in
FP7 in synergy with other instruments (e.g. RDI) and will boost stronger
cooperation in research and innovation in Horizon 2020 programme.

7.         People-to-people
contacts, education and health

Education reforms continued to stagnate since the events of January 2011 and
the ensuing political transition. Key staff in the Ministries of Education and
Higher Education resigned due to serious disagreement with the new political
leadership. However, the new Presidency reiterated the strategic importance of
education for the development and competitiveness of the country, promising
more resources for next year. The new authorities said they were committed to
an organisational restructuring of the sector and to increasing of academic
staff salaries.

Reforms in pre-university education
continued stagnating and the National Education Strategic Plan (NESP) expired
in 2012. The new Minister of Education started evaluating the NESP with a view
to developing a new strategy, and agreed to carry out a joint review with the
OECD, the World Bank and the EU of the pre-university education sector in early
2013. Despite remarkable successes during the first two years, there were no
further developments regarding the EU education budget
support programme (thus putting next payments at risk).  The National Authority of Accreditation and Quality Assurance of
Education (NAQAAE) completed its work on quality standards and accreditation
manuals for the whole education sector.

Technical and Vocational Education
and Training (TVET) continued to be a major concern
in Egypt, with poor educational outcomes, high institutional fragmentation and ineffectiveness
in the allocation and use of resources. The post-revolutionary authorities
declared the sector as a key priority given its links with the competitiveness of
the economy and youth employment. A governmental committee was tasked with
formulating a proposal on how to revive the tripartite Supreme Council for
Human Resources and Development (SCHRD). The first draft also includes
provisions for the potential creation of a National Employment Agency. The EU
continued to provide support to the National TVET system through a EUR 50 M
project decided in 2012. Furthermore, a twinning project with the Productivity
and Vocational Training Department (PVTD) continued smoothly.

Egypt remained
very active in the Tempus and Erasmus Mundus programmes.
Bologna-oriented reforms, piloted through Tempus projects, helped raise the
quality upgrade of the sector. Egypt was involved in 33 Tempus projects,
representing 30% of approved projects in the Southern Mediterranean region to
date.  The number of selected projects rose significantly, from four to twelve,
due to the increase in budget available for the ENP South countries.  98
Egyptian students were selected for Erasmus Mundus joint Masters or
Doctoral programmes, 88 of whom were under a special regional window for the
ENP South countries under the revised ENP, together with a further 150 mobility
grants organised within a university consortium. Since 2007, 32 Egyptian
researchers have benefited from Marie Curie Actions, which involved 29
organisations located in Egypt.

2012 saw a large increase
in the number of young Egyptians and Egyptian youth organisations participating
in the Youth in Action Programme. Compared to 2011, the number of young
people participating in the programme rose from 142 to 273, and the number of
projects rose from 50 to 74.

Access to culture in Egypt remained an issue, and the absence of a national–wide cultural
strategy hampered the development of the sector. The
Parliament Committee for Culture, Media and Tourism adopted the main basis for
a future cultural strategy before being dissolved in June 2012. Implementation of the legal framework was difficult due to the lack
of capacity in relevant Departments within the Ministry of Culture, the lack of
cooperation with other institutions and the absence of an overarching policy
and vision.  The EU took the necessary administrative steps to extend financial
support to the Bibliotheca of Alexandria under the "Enhancing
Cultural Diversity and Creativity" Programme. Furthermore, the EU
supported the policy-making process and access to culture through the
"Culture for Development Indicators Suite in Egypt" (in partnership
with the UNESCO) and through the Annual Call for Proposals for Cultural
Operators.

Following the June
Presidential elections, a new Minister of Health and Population and two
deputies for primary health care and for social health insurance were
appointed. The health policy dialogue between Egypt, the EU and other institutional stakeholders
remained strong. Egypt confirmed that its top priorities were to modernise and
standardise public primary health care and to devise a new social health
insurance scheme. Under the new Government some
progress was made on the ambitious and longer-term health reform. The drafting of the new social health insurance legislation is
almost finalised. The primary health care reform is progressing well, improving
basic health service for the most vulnerable. The EU
Health Sector Policy Support Programme II (EUR 110 million) contributed
positively to the health reforms. Egypt continued participating in the EU supported ‘Episouth Plus’ project
aimed at increasing health security in the Mediterranean region and South East
Europe. Egypt participated in a Commission/European Centre for Disease
Prevention and Control conference and training course aiming to strengthen
capacity building for communicable diseases prevention and control in the Mediterranean. The aim is to jointly explore the scope for developing a regional training
programme on intervention epidemiology.

[1] Figures on GDP, inflation, trade and
employment are generally from Eurostat based on data supplied by the
national statistical offices; or IMF or Commission Staff estimates, as indicated in the Statistical Annex.
When other data sources are used these are then indicated.

[2] Data for 2012 was not available at the time of writing.

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