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Government grapples with bread shortages
The government made a series of decisions last month aimed at alleviating the recent crisis caused by a shortage of subsidized bread, which sells for five piastres a loaf. Rising international wheat prices, which have gone up 83 percent in the past year, have made bread more expensive to produce and widened the gap between subsidized and unsubsidized loaves. Some bakers have exploited this gap, using subsidized flour to produce bread sold illegally at market prices.
In one example, two bakers in Cairo’s Sayyeda Zeinab district were arrested after police found 232 bags of subsidized wheat in their possession allegedly intended for sale on the black market.
The shortages coincide with rising food prices that have made low-income citizens more dependent on subsidized bread for sustenance. Increased tensions surrounding the distribution of subsidized bread and flour, particularly in low-income neighborhoods, led to a number of violent confrontations last month. At least seven people died, two in knife fights and five due to health problems exacerbated by waiting in bread queues.
The government has allocated LE 4 billion to purchase additional wheat from international buyers. President Hosni Mubarak has ordered the army, in cooperation with the Ministry of Social Solidarity, to assist by producing and distributing subsidized bread. The army and interior ministry are baking the bread in Cairo and Giza governorates and distributing it with Central Security trucks there, as well as in other governorates.
In an attempt to reduce demand for subsidized bread, which sells for five piastres a loaf, the Ministry of Social Solidarity announced it will subsidize a higher quality bread as well, which will sell for 10 piastres. The government also committed to increasing its purchases of local wheat.
Gov’t slashes national debt
The gross national debt is shrinking due to higher state revenue and economic growth, according to a Ministry of Finance official. The official projected that the debt would come down to 71 percent of GDP by the end of the current fiscal year in June, from 81 percent the previous year. The budget debt is also falling. The debt currently stands at 6.9 percent of GDP, compared to 7.5 percent in FY 2006-07 and 8.2 percent in FY 2005-06.
The ministry attributes the reduced debt to structural changes, such as a lower corporate tax, that boosted revenue by discouraging tax evasion. Income tax receipts grew 21 percent in FY 2006-07 to LE 58.5 billion. Similarly, sales tax revenues shot up 30 percent year-on-year over the first 10 months of FY 2007-08 to LE 23.2 billion, the biggest jump in years. Authorities say the increase is due to a public awareness campaign, urging consumers to ask for an invoice, as well as higher spending.
State revenue is expected to reach LE 232 billion in FY 2008-09, which should help offset spending. Meanwhile, the government faces pressure to increase spending, particularly on subsidies and public wages. The government plans to spend LE 312 billion in FY 2008-09, up from LE 244 billion this fiscal year.
Nonetheless, the long-term forecast is for gross domestic debt to decline to 54 percent of GDP by 2010-11, the official said.
CBE lifts interest rates
Inflation reached an 11-month high in February, driven by rising food and beverage prices, according to figures released by the Central Authority for Public Mobilization & Statistics (CAPMAS), the government’s statistics agency. The consumer price index (CPI) jumped 12.1 percent year-on-year due to rising international prices of imports, a shortage in supply of locally produced goods and higher feedstock costs.
Responding to the surge in inflation, the Central Bank of Egypt (CBE) raised key interest rates. On March 24, the bank lifted its overnight deposit and lending rates by 50 basis points to 9.5 percent and 11.5 percent, respectively.
The bank previously raised interest rates in February, its first change in over a year. The move did little to dampen inflation, though analysts point out that a lag exists until CBE interest rate movements cycle through the banking system.
The annual inflation rate was 9.3 percent last September when a new consumer price index was introduced. The inflation rate had fallen each month until January 2008.
Higher diesel costs fuel price hikes
Business owners are reportedly beginning to pass on the higher diesel fuel prices to consumers. In early January, the government raised the price of diesel fuel to LE 1,000 per ton, up from LE 500 per ton. The price hike has raised costs for businesses that rely on diesel fuel for services, such as trucking, irrigation and maritime transport.
The higher energy costs have contributed to rising food prices, such as for fruits and vegetables, in which transportation and irrigation costs are a big component of total costs.
Despite the increase, diesel prices here remain below those in Europe. Reports say local fuel smugglers are now exploiting that difference by selling diesel fuel to ships headed abroad.
Anti-dumping duties slapped on Chinese, Indian tires
Egypt has levied anti-dumping duties on bus and truck tires from China and India following an 18-month investigation by the Ministry of Trade & Industry.
The investigation found evidence that companies from China and India had violated the World Trade Organization’s anti-dumping agreement by selling tires in Egypt for less than in their respective home markets. The ministry also concluded that domestic producers had been injured by China and India’s trade practices, while dismissing the same allegation against Indonesia, stating there was only a small margin of dumping by Indonesian exporters.
Minister of Trade and Industry Rachid Mohamed Rachid said the newly implemented anti-dumping duties on Chinese and Indian imports should provide some relief to Egypt’s tire producers. He did not disclose the amount of the duty.
Steel merchants under investigation
The government announced March 5 that state prosecutors are investigating 11 steel traders for allegedly unjustifiably increasing prices. The merchants are accused of violating a ministerial decree governing steel sales by raising the price of their product without legitimate cause. Law enforcement officials seized LE 7.5 million worth of steel in connection with the case.
Steel prices have skyrocketed in recent years, reaching over LE 5,300 per ton last month.
Investigations into the alleged manipulation of steel prices are ongoing, but until now have focused largely on producers rather than merchants.
Consumer watchdog bites electronics retailers
The government’s consumer watchdog has issued warnings to eight electronics retailers regarding alleged misconduct, following numerous complaints by consumers. The companies are accused of selling defective products and not honoring warranties.
The Egyptian Consumer Protection Authority (CPA) warned the eight companies that it would seek prosecution following further misconduct, and directed the retailers to honor warranties, which the agency said should list products’ components.
Oil ministry officials confirm Israeli gas exports
Oil ministry officials have dismissed media reports that Egypt has suspended natural gas exports to Israel, saying gas exports have continued uninterrupted since beginning in February.
A 2005 agreement commits Egypt to supply 1.7 billion cubic meters of gas a year over 15 years to Israel via a 100-kilometer underwater pipeline from Al Arish to the Israeli port of Ashkelon. The deal is valued at $2.5 billion.
Responding to criticism that export targets will be difficult to meet in light of growing domestic demand, chairman of the Egyptian Natural Gas Company (EGAS) Mahmoud Latif told reporters that Israeli exports represent a tiny fraction of Egypt’s total production, estimated at 6.3 billion cubic feet per day.
Nonetheless, he said that Egypt would not sign any more export contracts so that reserves serve the local market, except in the case of new discoveries.
Critics allege that Israel is paying for gas at prices less than international levels. Officials, however, deny the claim, though they have refused to disclose pricing details other than to say that Egypt’s average export price is $5 per MBtu, well above the cost of production of between $0.80 and $1.25 per MBtu.
Rice exports banned
The government announced last month the imposition of a six-month ban on rice exports, in effect from April 1 through September, in an attempt to ensure domestic supply. Earlier in March, the government announced an increase in the export duty on rice from LE 200 to LE 300 per ton. The duty on rice was initially imposed in September of last year to keep rice in the local market and prices down. The price for domestic rice has risen drastically in recent months, increasing 30 percent. Egypt exports over 1 million tons of rice a year.
Middle East tourism performing well
Total economic activity in the Middle Eastern travel and tourism sector will reach $251.4 billion in 2008, rising to $456.1 billion by 2018, according to a recent report by the World Travel & Tourism Council (WTTC).
Real GDP growth for the Middle East’s travel and tourism economy is projected to be 7 percent in 2008, over twice the global average of 3 percent. According to the report, the global average has slowed due to the deteriorated economic situation in the developed world, with challenges including high oil prices and a weak dollar. The same factors have benefited the oil-rich economies of the Middle East, which are developing new tourism infrastructure and facilities to support higher tourist numbers.
Gov’t to increase local wheat purchases
Egypt will increase its purchases of domestically grown wheat by two-thirds, according to agriculture minister Amin Abaza. The government plans to purchase 3 million metric tons in the marketing year from April to June, compared to 1.8 million metric tons the previous marketing year. The purchases will be made at international prices, currently LE 391 per ardab, whereas previously government buyers offered only LE 180 per ardab.
Egypt, the world’s second largest importer of wheat, depends on imported wheat to produce sufficient quantities of subsidized bread, a staple for many Egyptians. Local farmers planted wheat on 2.7 million feddans last year.
Gov’t lends support to Upper Egypt industry
The inauguration of a state-owned cement factory in Qena last month marked the first of several projects in Upper Egypt the government intends to support, Minister of Investment Mahmoud Mohieldin said. The government invested LE 1.7 billion in the cement factory, and plans to invest LE 4 billion in two other companies in Upper Egypt – Misr Aluminum and Egyptian Chemical Industries – over the next few months.
After four years of reform and numerous privatizations, Mohieldin says many state-owned companies are better managed, commercially viable enterprises, even if they retain a social and developmental mandate. He said the ministry has replaced up to 80 percent of top executives in state-owned firms over the past three years, and that these companies have benefited from more professional and qualified management teams.
Egypt’s public portfolio turned losses of LE 1.3 billion in FY 2002-03 into profits of LE 3.9 billion in FY 2006-07. Misr Aluminum, located in Nag Hammadi, increased net profits by 12.6 percent in the first half of FY 2007-08 to LE 450.8 million.
Doctors seek better pay
Doctors frustrated over long working hours, poor medical equipment and low salaries staged a week-long sit-in from March 15 to 21 at the Doctors’ Syndicate headquarters in Cairo demanding better conditions. The protest followed a decision by the Doctors’ Syndicate to postpone plans for a 90,000-strong two-hour strike, though its general assembly voted to hold protests outside hospitals on April 23.
The doctors, some working in public hospitals for as little as LE 220 per month, are demanding a minimum monthly salary of LE 1,000. The health ministry said that it sympathizes with the doctors’ cause, and that it will gradually increase pay based on performance. But it claimed it did not have the budgetary resources to meet the union’s demands.
Before the planned strike took place, Prime Minister Ahmed Nazif told the doctors that as public employees they were prohibited from striking. Critics allege that the Doctors’ Syndicate caved in to political pressure.
Doctors in other governorates have also held protests in recent months. Security forces have in some cases prevented them from entering union branches to demonstrate.
Legislation to lure private sector to power sector
A draft law submitted to parliament aims to revive private sector involvement in power generation, years after private companies abandoned such projects because they were too costly. The legislation would allow investors to develop plants independent of the government.
Analysts consider the initiative vital because additional power supply must be created to meet the country’s skyrocketing demand for electricity. The private sector built three power projects in the late 1990s on a build-own-operate-transfer (BOOT) basis near Suez, Port Said and Sidi Krir. But companies lost their enthusiasm after the government decided in 2000 to pay developers in Egyptian pounds, rather than dollars as agreed, following a currency devaluation.
The Ministry of Electricity & Energy would like the private sector to get involved in conventional power prjects and renewable energy schemes on a build-own-operate (BOO) basis.
To meet exploding local demand, Egypt is constructing 11 new power stations that should be operational by 2012. The new projects include two power plants near Cairo that will operate at a combined capacity of 1,400 megawatts by 2010.
‘Trickle down’ could take a generation
A World Bank (WB) official has applauded Egypt’s economic reforms, but warned that it could take the span of a generation before the benefits of these reforms are felt by working-class Egyptians. “You only have 10 years of [economic] reforms [in Egypt] and certainly more accelerated ones for only five years, [but] it takes one generational period – between 25 or 30 years – [to move] from lack of development to development,” Juan Jose Daboub, recently appointed managing director of the World Bank (WB), said during a visit to Cairo last month.
He discussed the need for a new social mechanism to help close the gap between rich and poor. The plan, he said, should address “the needs of the poorest of the poor in a way that doesn’t become a handout model, but rather one that removes obstacles for people to take destiny in their own hands.”
Egypt reported 7.1-percent real GDP growth in FY 2006-07 and claimed the title of top reformer in the 2007 World Business Report, an annual ranking presented by the World Bank Group. However, many economists claim that the lower classes have not received the benefits of this economic growth. Annual inflation reached as high as 13.1 percent in 2007, while the number of people living under the poverty line rose almost 3 percent between 2000 and 2005 to 19.6 percent, according to a World Bank estimate.
New trading platform for bonds proposed
The stock market will introduce a new trading system for government and corporate bonds, according to Cairo & Alexandria Stock Exchanges (CASE) chairman Maged Shawky. A new system will spur greater trading activity for bonds and cut borrowing costs, he said.
The ability to issue new government debt is particularly important in light of the country’s long-standing fiscal deficit, which has averaged 8.4 percent of GDP since FY 2003-04. Outstanding Egyptian government bonds were worth LE 67.6 billion and Egyptian corporate bonds were worth LE 5.1 billion at the end of 2007.
The platform type and implementation date of the new trading system have not been determined.
School lunches send students home sick
More than 100 students in Minya governorate got food poisoning last month after eating subsidized meals in a school cafeteria. Some 112 students were treated for stomach sickness at a hospital in Abu Qurqas, a town 240 kilometers south of Cairo, after becoming sick from eating their school lunches.
The subsidized school meals program was revived in 1996 after a long dormancy. The Ministry of Education spends over LE 350 million a year on the program. Suppliers are required to obtain a license to distribute subsidized school meals to public schools. The Ministry of Health monitors the quality of the food, though some schools have been found to purchase food from unauthorized suppliers.
Last month’s food poisoning incident was not the first for the program. Since the reinitiation of the program in 1996, there have been several episodes, including one in 1998 when 2,000 students across seven governorates became sick from school meals.
Regulator rejects AMOC stock split
The Capital Market Authority (CMA) has rejected a request by Alexandria Mineral Oils Company (AMOC) for a five-for-one stock split that would lower its share price from LE 10 to LE 2. The proposal did not meet the criteria for authorizing a split in terms of the percentage of actively traded shares, number of investors and ownership structure, the CMA said in a statement.
AMOC’s board unanimously approved the stock split hoping that a lower share price would make the stock more accessible and boost trading levels. The firm has 86.1 million shares at a nominal value of LE 10 each, of which 43.1 million are free floating.
New traffic law ratified
The parliament has ratified a new traffic law that legalizes tuk tuks and changes licensing regulations for taxis, among other provisions. Sales of tuk tuks are expected to rise significantly following their legalization, although the three-wheeled vehicles can already be found in many rural communities and low-income areas of Cairo. The new law also prohibits the granting of licenses to taxis built over a decade ago, or renewing licenses for taxis built over 20 years ago
CBE plans bank sale
The government has announced its intent to sell state-owned United Bank either to a strategic investor or through a public offering after completing a restructuring plan to improve the bank’s loan portfolio.
United Bank was formed in June 2006 from the merger of United Bank of Egypt, Islamic International Bank for Investment & Development and Nile Bank because the three banks failed to meet the central bank’s minimum capital requirement of LE 500 million.
Al Ahly takes on state television
Al Ahly football club has threatened to prevent the airing of its home matches due to a dispute with Egyptian state television over broadcasting revenues. The football club’s spokesperson said early last month that the decision would go into effect from the date of their first Confederation of African Football (CAF) Champions League match, which was set to be with Eritrean club Al Tahrir on March 21. Coincidentally, Al Tahrir withdrew from the match, forfeiting the win to Al Ahly.
At the time of press, the issue had not been resolved and it was unclear whether Al Ahly’s games would air on state television.
Explosion rocks oil platform
An explosion on an offshore oil platform in the Gulf of Suez injured two workers and caused serious damage to the rig. The explosion closed nine nearby wells for three days, resulting in financial losses of $78 million due to lost production of 40,000 barrels of oil a day. Fireboats and onboard firefighting equipment was used to put out the blaze.
The rig is owned by Saipem, an Italian oil and gas contractor and subsidiary of Italian energy giant Eni. Petrobel, a joint venture between Eni and state-owned Egyptian General Petroleum Corporation, operates the rig.
The explosion occurred on March 8, near Abu Rudeis, about 130 kilometers south of Suez City. Investigators are still trying to determine the cause of the explosion. One expert speculated that gas leaked out and ignited because a well might not have been “killed” or sealed properly after removing a pump.
The same rig was damaged in another fire four years earlier.
Alkan seeks strategic investor
Egypt’s Alkan Holding plans to offer 25 percent of its subsidiary, Cairo Financial Center, in a private placement to a strategic investor. The deal could be worth up to LE 400 million, according to Alkan chairman Mohamed Nosseir, who said he would prefer a foreign investor as a partner.
Cairo Financial Center (CFC) is a 60,000-square-meter business and commercial complex that is set to be built at the foot of the Moqattam Hills in Cairo. Alkan is a 100-percent family-owned conglomerate, and the sole shareholder of CFC, which has faced construction delays due to its proximity to the Citadel, a UNESCO World Heritage site.
Gov’t to disconnect unregistered mobile lines
The Egyptian government will begin cutting unregistered mobile lines this July, according to Al Dostour, an independent weekly. The National Telecommunication Regulatory Authority (NTRA) has neither confirmed nor denied the report.
Egypt’s three mobile networks provide service to over 31 million customers. It is estimated that between 5 and 10 percent of these customers are unregistered, as purchasers of prepaid lines often sell their lines to others without notifying the mobile operator.
New oil and gas concessions ready
Twelve new blocks will be available for oil and gas exploration and production, according to state-owned Ganoub El-Wadi Petroleum Company (Ganope). The blocks are located in the Red Sea, Gulf of Suez, and the Eastern and Western Deserts. Companies must submit their bids by mid-July. Ganope said it would negotiate gas prices following discovery with the respective producer based on prevailing international prices.
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