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Al-Ahram Weekly 23 - 29 March 2000 Issue No. 474 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 23 - 29 March 2000 Issue No. 474
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Features Focus Travel Living Sports Profile People Time Out Chronicles Cartoons Towards a true partnership
By Ibrahim Nafie
US-Egyptian economic relations appear to be solidifying into a strategic economic partnership. But before any discussion of current levels of economic relations, the scope for enhancing them or the principles that should be observed in the process, it is important to make several observations.
With a GNP of $7.921 trillion for 1998 -- 27.4 per cent of the global product -- the US is the largest economic power in the world. It is also the largest single trading power in the world, with visible exports worth $680.406 billion for 1998, or 12.4 per cent of the total value of visible trade for that year, and with invisible exports of $231.896 billion, some 17.5 per cent of the total volume of international service exports. The US economy, moreover, leads the world in terms of technological development. Given this economic prowess, it follows that any country with an open economy must maintain good relations with the world's leading economic power. At the same time, however, it must be stressed that such relations must be founded upon the principles of fairness so as to ensure equitable returns for both parties.
If maintaining strong economic relations with the US is vital for international and regional powers in general, it is all the more so for an emerging regional economy such as Egypt, which is striving to further its assimilation into the global economy. This is a difficult and multifaceted process that entails restructuring international economic relations in the form of partnerships. It is essential that the necessary adjustments are made to allow Egypt to become a magnet for the direct investment which constitutes a primary drive for comprehensive development in general and industrial development in particular. We must develop our capacities as an international tourist destination, and engineer the transformations necessary towards becoming a more effective commercial power capable of garnering more significant ratios of the volume of world trade. Realising these aspirations inherently requires that we strengthen our relations with the world's major economic centres.
Egypt has considerable hopes pinned on its economic relations with the US, though it must be admitted that these relations are not without flaws.
Egypt's economic relations with the US operate on diverse levels, although trade, investment and tourism receive the greatest share of attention. In these domains there is considerable scope for enhancing bilateral cooperation.
According to the most recent IMF figures, the volume of Egyptian export trade to the US stood at $635 million in 1998, or approximately 13 per cent of Egypt's total export trade that year. At the same time, Egyptian imports from the US reached $3.366 billion, or 15.2 per cent of total Egyptian imports for that year. On the other hand, US imports from Egypt amount to 0.1 per cent of the total volume of US imports for 1998 and its exports to Egypt account for approximately 0.5 per cent of its total exports. Put otherwise, Egypt ranks as the 65th largest exporter to the US and 53rd largest importer of US products.
The US is Egypt's most important individual trading partner. While the EU as a whole occupies a stronger trading position with respect to Egypt, none of its member nations, taken individually, can compete with the US, especially in light of the large volume of Egyptian imports from the US, a significant portion of which is linked to US aid to Egypt. Yet, clearly, as the above figures indicate, although our trade with the US is very important for us, it is of marginal importance for the US. While it is true that the rapidly growing Egyptian market holds future potential, for the time being it is still only minimally attractive to the US economy.
To illustrate further, US-Egyptian commodity trade is heavily skewed in favour of the US. According to IMF figures, Egypt's trade deficit with the US in 1998 stood at $2.731 billion and its cumulative trade deficit over the four years since 1995 reached $7.842 billion. This enormous deficit, relative to the Egyptian economy and the volume of its foreign trade, reflects a grave disparity. It seems most unjust, in light of this disparity, that quota restrictions should hamper the flow of Egyptian products into the US. Furthermore, it is reasonable to suggest that the further development of US-Egyptian trade relations should begin by rectifying this imbalance, above all by eliminating the barriers hampering the entry of Egyptian products into US markets. Such a move would supply a great stimulus to local producers to strive to meet the quality standards and prices capable of enabling them to compete effectively in the US marketplace.
It was under the banner of fair and equitable trade that the US, in 1995, resolved its differences with Japan over trade regulations. The two sides agreed that Japan would commit itself to a minimum percentage of imports from the US -- a condition, incidentally, running counter to GATT provisions. Their agreement also specified numerous measures to facilitate US exports to Japan in order to help the US redress its considerable trade deficit with that country. Certainly, the US could apply similar standards to Egypt as a way of stimulating our bilateral relations in this domain.
In the field of investments, the US ranks third in terms of direct non-petroleum related investments in Egypt. Until the middle of 1999, the cumulative value of US investments in Egyptian based enterprises reached a meagre $844 million, a figure which contrasts sharply with a total of $1.5346 trillion cumulative direct investment abroad in 1996. In other words, US direct non-petroleum related investments in Egypt account for less than 0.1 per cent of its cumulative direct investments abroad, placing Egypt behind Saudi Arabia and Kuwait in this form of investment.
It is true that the level of US direct investment in Egypt is somewhat higher when the petroleum sector is taken into account. At the beginning of this year, total US direct investment in Egypt reached $17 billion or more than one per cent of the cumulative US direct investment abroad. Regardless of this fact, however, the volume of US non-petroleum related direct investment in Egypt is not at all commensurate with the considerable advantages the Egyptian investment climate furnishes at present, a result of Egypt's political stability and the hefty tax exemptions accorded to local and foreign investment. That ten and 20 year tax exemptions are granted, respectively, to companies that are founded in the new industrial cities and the new development zones constitutes a highly attractive incentive.
Egypt requires US direct investments in particular in industry, and specifically high-tech industries where such investments implicitly entail both the transfer of technology and the development of the Egyptian labour force. In addition, major US direct investment in the development of advanced industry in Egypt will contribute to enabling the Egyptian economy to interact more positively with the global economy and will help in creating a favorable climate for the Egyptian private and small enterprise sector, the cornerstone of development in Egypt at present. Furthermore, as greater levels of direct investment are poured into Egypt, Egypt will no longer require foreign aid because our various industries will be able to generate far more productive results than condition-linked aid.
With regard to US-Egyptian bilateral relations in the realm of tourism: in the 1998/99 fiscal year approximately 170,000 American tourists visited Egypt, which accounts for only four per cent of the number of tourists that year. This is an extremely low figure in light of the millions of American tourists who travel the world every year. Egypt has great potential to expand the volume of US tourism. It is sufficient to contemplate the diverse types of tourism that are available -- educational and cultural tourism centering around Egypt's abundant Pharaonic and Islamic monuments, various types of recreational tourism from desert trekking to scuba diving and leisurely seaside resorts, not to mention religious tourism as well as conference tourism -- to realise the many ways Egypt and the US can collaborate to up the volume of US tourism to Egypt.
With so much potential for improvement in the trade, investment and tourist dimensions of US-Egyptian relations much is dependent upon the convergence of wills between the two countries and their respective business communities. Given the great benefits collaboration in these domains can bring to both parties, there is little doubt that our joint resolve will grow more positive by the day, and the most fertile ground for strengthening that resolve is through a form of partnership based on fairness and equity. This, in turn, means remedying the imbalances in our economic relations through eliminating the impediments obstructing the entry of Egyptian exports to the US market and facilitating the transfer of technology to Egypt with the knowledge that this will spur popular enthusiasm in Egypt for economic cooperation with the US. The US can also do much to help encourage greater levels of direct investment in Egypt by, for example, offering government guarantees for such investments, and it can contribute more effectively to promoting American tourism to Egypt by reaffirming an accurate image of Egypt as a politically stable and safe country.
In exchange, Egypt is always ready to maintain a positive and flexible attitude towards the ideas of foreign and, in particular, American entrepreneurs keen on investing in manufacturing enterprises in Egypt whether geared for export trade or for domestic consumption. The Egyptian government has already done so much towards bringing its economy into step with the global economy, furnishing excellent incentives to foreign investors and generating an attractive tourist climate. Still, it is fully prepared to compound its efforts towards developing the investment climate in Egypt and its economic environment in general. Indeed, it is for this reason that Egypt has linked itself with African and Arab regional economic associations and will soon link itself to a European economic bloc, for that means that anyone who invests in Egypt will benefit from greater access to these extensive and attractive markets. These factors should undoubtedly lend added momentum to the progress of fair and equitable economic relations that are certain to benefit both the American and Egyptian peoples.
