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A 5 pages term paper on Political Stability of Egypt As It Relates To Foreign Trade

     Egypt is a republic with a President nominated by Parliament and approved by national referendum. Egypt is the largest of the Arab countries, with a population of sixty-three million. Population has increased almost six times in the last century and three times since 1950. Even under a moderate growth scenario, Egypt will have over ninety million citizens by the year 2035. Under more rapid growth, as has been the case in recent years, Egypt may reach 103 million in the next forty years. In 1991, faced with large external debt service arrears, declining growth, a worsening balance of payments, 20 percent inflation, and a comprehensive economic reform program. This program was a major departure from the static economic policies of the previous four decades and represented a shift from the piecemeal reforms of the mid-1980s (Principle commercial).

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Political Stability

     Egypt's government has raised the ire of fundamentalists by pursuing secular policies and making peace with Israel. These groups engage in sporadic domestic terrorist attacks.  Egypt has been supportive of recent international actions against terrorism, which has enraged domestic religious groups.


As a part of its stabilization program, supported by an International Monetary Fund (IMF) Standby Agreement, the government freed interest and exchange rates, sharply reduced the budget deficit and disciplined monetary growth. With assistance from a World Bank structural adjustment loan (SAL), Egypt developed a framework for public sector reform and privatization and liberalized trade and investment policies. The result has been exchange rate stability, a balance of payments surplus, a liberalized banking regime and lower inflation rates.

The next stage of the government's reform efforts, already underway, highlights privatization, reduction of trade barriers and the elimination of unnecessary regulations and restrictions. Major structural reforms proposed include: accelerated sales of state enterprises, reductions in the maximum tariff rate and elimination of tariff exemptions, consistent application of quality control standards, unification of the laws governing investment and commercial activity and a labor law that allows employers to dismiss workers for economic reasons.

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Economic stabilization in Egypt has been achieved for the most part, with some important steps made in structural economic reforms. At the same time, internal security problems have adversely affected the tourism industry and have had a negative impact on general business confidence. Muslim extremists, however, are unlikely to destabilize the governing regime. Furthermore, government promotional efforts have brought increases in tourism related revenues.  The Egyptian economy is still not achieving the targeted growth rate of 6 percent. The catalyst for this growth was intended to be the private sector. The accelerating pace of privatization, however, and the increasing interest in the Cairo stock market may yet provide a boost to the real economy.

As part of the Camp David accords, Egypt receives more than US$ 2 billion per year in US-based economic and military aid. Foreign reserves are estimated at over US$ 18 billion and rising, exceptionally high for an economy engaged in many of the liberal economic reforms that Egypt has undertaken. Egypt's budget deficit is now under 2 percent of GDP. Inflation is also down to under 6.5 percent of GDP. Because Egypt served as a linchpin in the 1990-91 Gulf War, it has benefited from a US$ 10 billion write-off in debt relief.  (Principle Commercial)

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Current Government Policies

     Egypt carefully balances domestic and international threats from fundamentalists while maintaining their close relationship with the international community.  Increasing security for investment and tourism is a priority.

International Reputation

     Egypt is highly regarded internationally due to its moderate political stance and cooperation in international activities.  Human rights groups, for its often brutal suppression of opposition, particularly religious extremists, have criticized Egypt.

Economic Conditions

     The Egyptian economy is beginning to rebound, although it remains sensitive to fluctuations in oil prices. The tourism industry, which is a major part of foreign earnings, has been damaged by fundamentalist attacks.
Privatization efforts are continuing, and the government is actively seeking to attract foreign investment.

     Egypt's Chairman of the General Authority for Investment and Free Zones Mohammad A1 Ghamrawi said the Egyptian political an economic stability is considered one of the most attractive factors for the foreign investments into Egypt.  He further said there are great investment opportunities in Egypt, especially in the domains of natural gas petrochemicals, food industries, textiles and ready-made clothes.

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     During his meeting with Dedier Lombard, the special representative of international investment in France, Ghamrawi affirmed the importance of direct foreign investment in Egypt, which he said, would bridge the gap between local savings and the requirements of development.  He called on French businessmen to come to Egypt to establish joint ventures, benefiting from tax breaks offered by currently the new investment law.

     The Egyptian Constitution provides for a strong president who was empowered to appoint one or more vice presidents, the Prime Minister, the cabinet, and the governors of Egypt's 26 provinces. In 1993, President Hosni Mubarak was endorsed in a national referendum, in which he ran unopposed, to serve a third six-year term as President by the People's Assembly. The People's Assembly has 454 members, 444 popularly elected and 10 appointed by the President. The constitution reserves 50% of the Assembly seats for workers and farmers.

     President Hosni Mubarak supported a strong U.S.-Egypt relationship based on shared interests in promoting regional peace and stability, revitalizing the Egyptian economy, and strengthening trade ties.  Over the years, Egypt and the United States have worked closely to help further the Middle East peace process.  In 1993-94, Egypt hosted many of the negotiating rounds for the Gaza-Jericho autonomy agreement, which was signed in Cairo in May 1994 by Israeli Prime Minister Yitzhak Rabin and Palestinian Authority Chairman Yasir Arafat.  In November 1996,Cairo hosted the Middle East/North Africa (MENA) Economic Conference (Political environment).

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     Major Political Issues Affecting Business Climate Terrorism:  Since 1992, extremist groups seeking to overthrow the Egyptian government have staged attacks on Egyptian Government officials, security forces and foreign tourists.  Terrorist attacks do not threaten the stability of Egypt's secular government, but they do affect overall business climate and Egypt's tourist industry in particular.  The November 1997 attack in Luxor, the country's largest single terrorist incident that resulted in the death of 58 foreign tourists, led to a sharp downturn in numbers of tourists.  Nevertheless, the wave of terrorism has receded since Luxor, partially owing to a much stronger and more aggressive security presence throughout the country.  The number of terrorist attacks in the first half of 1998 was the lowest since 1993, and there are initial signs that the tourism industry is beginning to bounce back.

Political Reform:  The Egyptian political system has undergone significant liberalization since the Nasser era of the 1950s and 1960s.  Today, citizens enjoy a substantial degree of freedom of expression, and the judiciary has demonstrated its independence from the executive branch, although the media has recently been the target of increased government scrutiny.  The government's anti-terrorism campaign has raised serious allegations of such human rights abuses as torture, arbitrary arrest, prolonged detention without trial, and the use of military courts to try civilians accused of terrorism.  Moreover, the governing National Democratic Party (NDP) dominates the political scene to such an extent that, as a practical matter, people do not have a meaningful ability to change their government.  In 1997, the People's Assembly approved a three-year extension of the Emergency Law, and Egypt has been under an official state of emergency continuously since 1981, the year in which the late President Sadat was assassinated.

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     Chief of the giant German Siemens when visited Egypt said Egypt's Political stability is one of its important elements that help in luring more foreign investments. He added that despite of its transitional economic problems, such as big trade deficit, the government is paying great efforts and following up some policies to overcome these problems. 

     In an interview with Al Ahram, he boasted of paying LE 140 million to transfer the up-to-date technology to Egypt in a way that led to having excellent expertise, which made Siemens Egypt a center to export it to the neighboring countries.  He indicated that his company is seeking to move from the stage of assembling to local manufacture as Egypt possesses major capabilities that help in decreasing its trade deficit and raising exports. Commenting on the shortage of liquidity, he said it is a tensional one and it may have cropped up due to some projects that were set up on incorrect feasibility study in a way these projects failed to bear their financial responsibilities. He denied facing any problems on the way of their business, praising the government for solving any problem.

     Egypt is the land of investment opportunities. The benefits and opportunities offered to foreign investors in Egypt are diverse and inviting.  Egypt provides a fertile market for investment and has the largest market in the Middle East (62 million consumers). Egypt constitutes a springboard to the Middle East, the Mediterranean and Africa, and has emerged as a haven for foreign investment. This advantageous position derives from Egypt's financial and political stability, low financial risks, free market mechanism, liberal foreign exchange rates, liberal investment regulations, successful economic, structural, financial and monetary reforms, guarantees and lucrative incentives for investors, favorable investment climate, massive rehabilitation of infrastructure, free repatriation of capital and profits, abundant and growing resources in energy and power, network of roads and railways, skillful and low cost labor, advanced commercial institutions and services, plentiful water resources for industrial purposes, efficient harbor facilities, and daily airline connections to cities around the world.

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     The opportunities for long-term investments abound in Egypt's promising market. The generous incentives offered within the investment laws, as well as the privileges and facilities offered to foreign investors, guarantee gainful returns. Foreign investment enjoys important guarantees and lucrative incentives. Investment projects are not subject to price controls and profit ceilings. These projects enjoy guarantees against nationalization, seizure, requisition, confiscation, custody, or sequestration of project assets or funds.

     Contrary to practices in the past that hindered the expansion of foreign investment, Egypt has succeeded in alleviating over-regulated investment laws and in stimulating new business partnerships between Egyptians and foreign investors. Egypt has streamlined and simplified the regulations for investment approval.

     The Egyptian government, in its relentless efforts to create a most favorable climate for foreign investment in Egypt, is continuing to introduce additional reforms and incentives to allow foreign investments to reach their true potential. Egypt is now open to foreign investment. Foreign investment companies operating in Egypt are reinvesting their profits in expanding their existing businesses, thus giving their approval and support for the market stability and economic structural reforms introduced by the Egyptian government. Egypt is indeed one of the ultimate destinations for foreign investors.

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Egypt is America’s most important Arab ally in the Middle East, I wanted to share my observations of this fascinating country.

     Economic poverty, political stagnation, and cultural wealth describe the most ancient civilization in the world. With a population of 65 million people and growing, Egypt competes with Iran as the most populous country in the Middle East. Situated in northeast Africa, Egypt draws its heritage from numerous racial, cultural and linguistic influences throughout its long historical experience. They include its own indigenous African/Pharaonic identity, as well as European/Byzantine and Greek, Arab/Islamic, Turkish/Ottoman and modern British and French colonial influences. Egyptians consider themselves first and foremost “Egyptian”, second as “Muslim”, third as “African”, and fourth as “Arab”; an interesting ordering of identities which testify to the nation’s cultural richness (Fassihian).

Works Cited

Egypt's political, economic stability lures foreign investments

Egypt, Economics, 7/1/2000Arabnews.com.  Nov. 28, 2001 <http://www.arabicnews.com/ansub/Daily/Day/000701/2000070154.html>
Fassihian, D.  Report on Egypt.  Nov. 28, 2001 <http://www.sais-jhu.edu/studorgs/foreignobserver/1097/egypt.html>

Principle Commercial and Political Characteristics.  Nov. 28, 2001 <http://www.infoprod.co.il/country/egypt1a.htm>


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