Rapid resuscitation

EGYPT is soon to receive the sum of $1 billion from the World Bank in the form of a quick loan to support its fiscal policy changes after the recent floatation of the pound.

The soft loan, which has a seven-year grace period and a 15-year repayment duration, bears an interest rate of between 2.5 and 2.75 per cent.

According to Prime Minister Atef Ebeid, the Central Bank of Egypt will inject the funds in the dollar-strapped banking sector to meet market demand and to finance imports.

A World Bank team of economists was in Egypt this week to examine the economic and fiscal changes required for extending a policy-based loan after the Egyptian government asked to reinstate discussions from the Consultative Group meeting of a Sharm El-Sheikh conference last year.

WB sources were quoted by Reuters as saying that Egypt has reactivated its request for a combined one billion-dollar loan from both the WB and the African Development Bank.

The statement said the team is led by the WB's chief economist, Mustapha Nabli, and would look at ways of deepening structural reform in the Egyptian economy.

Egypt has recently floated its currency in a move long advocated by international donors, led by the International Monetary Fund and the WB. The liberalisation has not reaped any fruits yet, with the pound constantly losing ground due to the dearth of the dollar and a still-present parallel market. The difference between the official prices in banks and foreign exchange offices hiked to one pound at the beginning of this week.

The statement nevertheless praised the step, adding that the objective of the visit will be to agree on some accompanying measures in the areas of trade, the financial sector and social safety net. The team met representatives of various ministries, the private sector and civil society.

Egypt had first applied for loans from international institutions in February 2002 through a donors conference held in Sharm El-Sheikh, after the 11 September attacks on the US hit its hard currency revenues. Negotiations were later put on ice as the government fears were calmed by a revival in tourism and exports revenues.

AFTA dilly-dallying

INTER-Arab free trade areas leave a lot to be desired, according to Gamal Bayoumi, secretary-general of the Arab Investors' Union. "We have to do better between us," he said, addressing the industrial committee of the German Arab Chamber of Industry and Commerce (GACIC).

While free trade area (FTA) agreements should mean a commitment to liberalise all trade between the concerned parties during a reasonable time span, he said this has not been the case with either Arab bilateral or multilateral FTA agreements.

He pointed out that over 2,500 commodities are on the negative list, that is, exempt from liberalisation within the framework of the Arab Free Trade Area (AFTA) agreement. "If we want to establish an FTA, we have to be earnest about it," he said.

The negative list was placed because of the lack of consistent rules of origin. "The lists are necessary to ensure that only products manufactured in Arab countries benefit from the agreement," he said.

Arab countries embarked in 1997 on the creation of an AFTA. So far, 60 per cent of the tariffs on manufactured products have been removed. By 2005, all tariffs between the 16 countries party to the agreement are expected to be dropped.

Inter-Arab trade is estimated at nine per cent of total Arab trade. Oil represents 70 per cent of Arab exports, while machinery represents 70 per cent of their imports. "Our problem is that we do not produce what we need," Bayoumi said.

By contrast, Bayoumi said, Egypt has a serious FTA agreement with the EU. Egyptian industry is working according to a set timetable to meet its requirements.

EIB sets up in Cairo

THE EUROPEAN Investment Bank (EIB) will be opening a representation office in Cairo under an agreement signed last week between the bank and the Egyptian government, reports Niveen Wahish. The establishment of the new office falls within the framework of the Facility for Euro- Mediterranean Investment and Partnership (FEMIP).

EIB, the European Union's financing institution, was entrusted with the task of creating FEMIP by the EU government in March 2002 during their meeting in Barcelona. The aim of this large-scale initiative is to promote economic development and political and social stability in the Mediterranean Partner Countries (MPC). This is done by supporting private-sector development, promoting direct investment by EU companies in the MPC, supporting regional cooperation projects with a social dimension, as well as assisting the process of economic reform and privatisation and the provision of innovative financial products and technical assistance.

With FEMIP in place, the annual volume of EIB lending in the countries concerned will be gradually increased by EUR1.4 to EUR2 billion, making available between EUR8 and EUR10 billion by 2007.

One of the cornerstones of FEMIP is the broad involvement of MPCs in the deployment of EIB assistance through a Policy Dialogue and Coordination Committee (PDCC) bringing together representatives of the EU member states and beneficiary Mediterranean countries twice a year. The Cairo office is one of two EIB is planning to open in MPCs with the aim of establishing closer links with economic operators and local authorities.

According to Helen Kavvadia, EIB's head press officer for the MPCs, the Cairo office staff will be limited in number, as it is expected to be a facilitator of local cooperation rather than an operational unit. Projects will still be appraised at the EIB's headquarters.

A number of contracts for initial operations in support of private sector development are underway. Examples involving Egypt include building a natural gas liquefaction plant in Egypt, a joint venture between British Gas, Gaz de France, Edison and Egyptian operators in the hydrocarbons sector. The first private-sector cement plants in Tunisia and Algeria, implemented by the Egyptian Group Orascom, are also being constructed.

EIB has 30-years of experience in MPCs. Between 1974 and 2001, the bank lent a total of EUR12.6 billion in these countries, of which Egypt has been allotted 16.8 per cent.

Al-Ahram Weekly Online : 6 - 12 March 2003 (Issue No. 628)
Located at: http://weekly.ahram.org.eg/2003/628/ec1.htm