Egypt launched an ambitious economic and structural reform economic and structural reform programme in the early 80s and the five year plans that have been implemented ever since led to innumerable achievements in all fields of development. A major trend was the change of the state role in managing the economy and the privatization programme launched in 1991. Egypt was thus capable to make a major take-off, with national mega projects aimed at charting a new economic map and facilitating relocation from the narrow valley to new expanses in the desert.

Economic performance

As a result of these programmes, inflation rate was brought down from 22% in 1981/82 to 3,5% in 2001/02. As a percentage of GDP, state budget deficit went down from more than 20% to 3% over the same period.
After a slowdown at the beginning of the millennium , the economy has started to recover. Economic growth was 4,1% in real terms in 2003/2004, compared to 3,2% in 2001/2002. The rebound was consistently driven by export revenues, increased receipts from the Suez Canal and resurgent tourism, which grew at an average of 16,6% in real terms during the last two years. Driven by strong growth in exports of goods and services, real GDP advanced by 4,8% in the first half of 2004/05. Confidence has rebounded as reflected in the surge of the stock market and the appreciation of the Egyptian pound.
Egypt's external position has also strengthened further. The surplus in the external current account rose to 4,4% of GDP in 2003/04 and was expected to be slightly higher in 2004/05. This strength reflects improved competitiveness stemming from the depreciation of the pound and higher oil prices. Total external debt remained stable at about US$29 billion (31% of GDP) at end-2004.
Notwithstanding the substantial progress attained since 2004, the challenges ahead to build a dynamic, private sector-driven economy remain considerable. Efforts are needed to absorb labour force growth, to strengthen the financial sector and to reduce government debt.
In July 2004, a new Cabinet was charged with the mandate to accelerate economic liberalization and promote greater integration of Egypt into the global economy. A number of significant actions are underway to facilitate trade and investment, improve the efficiency of government administration, reduce the budget deficit and accelerate privatization.
Recognizing the major role of foreign direct investment in enhancing the economy, the Government issued law no, 8/1997 for investment guarantees and incentives aimed at creating an investor friendly environment. Total foreign direct investments have increased from $408 million at the end of June 2004 to $1,4 billion currently. Full convertibility of the Egyptian pound was introduced in 2003 and formed a major step forward to help attract foreign direct investment and establish the credibility of economic policy.

Future outlook

The economic policy and the business environment now offer investors a plethora of attractive incentives and opportunities: duty-free zones and industrial cities benefiting from the most advanced infrastructure, a stable economy, liberal conditions for trade, a freely convertible currency with full rights to affect all transfers abroad. Offices have been established across the country, streamlining bureaucratic procedures and in April 2002, the General Authority for Investment (GAFI) was charged with the development of an investment service pool adopting the "One-Stop Shop" approach.
Since the reform programme began in 1991-92, the private sector has played an increasingly dominant role in growth. Private activities contributed to over 74% of Egypt's total gross domestic product in 1998-99 and the private sector has taken the lead in agriculture and irrigation, industry and mining, electricity, construction, transportation, communication, trade finance and insurance, hotels and housing. Private investments exceed 80% of total investments in Egypt during 1999, reflecting the government's commitment to facilitating private sector participation. The government also encourages transnational companies to invest in non-traditional areas such as financial services, insurance, utilities and infrastructure through BOT and BOOT agreements.
Egypt joined the World Trade Organization in January 1995 and since that time, .the country has removed most non-tariff measures, decreased tariff protection and rationalized remaining import prohibitions. The EU-Egypt Association Agreement, signed in June 2001, is expected to have many positive results on the Egyptian economy. Among the main features of the agreement is the establishment of a free trade zone between both partners over a period of 12-15 years starting from the date of ratification. Egyptian industrial exports to the EU are to be exempted from customs and the Egyptian side is expected to reduce customs imposed on industrial imports from Europe over a period ranging between 3 to 15 years.

The agreement will contribute to industrial modernization, protection of existing Egyptian industries thanks to a relatively long transitional period, increased agricultural exports (the increase potentially amounts to 650%), improved government services to exporters and enhanced foreign trade. The free zone agreement is likely to increase trade with the EU and contribute to the liberalization of the economy through the creation of an attractive environment for foreign investors.
Today, besides being the largest economy in North Africa, Egypt has a well diversified economy and is poised to reap the benefits of reform, thanks to its experience in dealing with the global economy and its sound understanding of its variables. This is reflected in the improved key economic indicators and the government's firm will to continue the private sector as a critical engine for economic growth and development.

Egypt is developing rapidly its large gas reserves. Gas production was approximating 30 billion cubic meters in 2002/2003, about double the level of production five years earlier. Five major gas projects are expected to raise annual gas production to 20 billion cubic meters by 2008 and contracts have already been signed to sell abroad the additional output of the new projects. These contracts could place Egypt among the 10 largest net exporters of natural gas in the world. Natural gas reserves were officially estimated at 66 trillion cubic feet at the end of 2004. Additional probable reserves have been estimated at 100 trillion cubic feet. The proven gas reserves would be sufficient to last some 40 years based on projected output in 2008. 

Basic Economic and Financial Indicators, 2001-2005

Sources.: Egyptian authorities and International Monetary Fund.

Gross Domestic Product (Egyptian pounds million)

Sources.: Ministry of Foreign Trade.