Growing pains, illusive gains

FOR THE SECOND year in a row, the pro-reform policies of Prime Minister Ahmed Nazif's cabinet are paying off, at least when it comes to economic indicators. The long-awaited seven per cent growth rate was finally realised in the first quarter of 2006/2007 -- a figure unseen since the 1980s. The expansion of the natural gas industry and a construction boom, partly supported by oil-rich Gulf states, were key growth factors. An increase in Foreign Direct Investments (FDIs) to $6 billion and around LE15 billion in privatisation proceeds are regularly quoted by Nazif's second cabinet.

A better organised banking sector with a strong presence by international heavyweights, a buoyant tourism sector and more real estate investments, all made for a rosy economic picture. Furthermore, the exchange rate almost stabilised at LE5.71 to the dollar, and is expected to rise with the increased inflow of dollar investments together with a 3.5 per cent interest rate differential between the two currencies.

While these developments were praised by the local business community, the man in the street struggled to put bread on the table. Subsidy reductions resulted in hiked electricity and petrol prices, while the outbreak of bird flu also inflated the cost of foodstuffs. This resulted in an untamed inflation rate of as high as 11 per cent in October, compared to three per cent in October, 2005.

The popularity of the government was also shaken by a sharp decline in the local bourse during the first quarter of 2006, with thousands of small investors losing an average of 30-40 per cent of their investments. Moreover, controversies surrounding some privatisation deals drew question marks about the transparency of government decisions.

Altogether, the outlook for 2007 appears to be positive, with optimism prevailing in the stock market and more FDIs expected. A boom in the tourism sector is also anticipated due to strong growth in European economies, as well as more Arab tourists diverted to Egypt because of the war in Lebanon. Growth in the sectors of building materials and textiles should help boost exports, while gas exports show a positive outlook.