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FREE-TRADE AGREEMENT: THE NEXT PRIORITY
With inflation down below four percent, real GDP growth rising to 5.7 percent in 1997/98 and an unemployment rate nudging down towards eight percent, it is easy to see what has prompted the International Monetary Fund to shower accolades on Egypt in recent years.
Hammered by the oil price crash of the mid-1980s, tentative moves to liberalize the economy initiated by President Mubarak's predecessor, Anwar Sadat, appeared to have been stopped in their tracks. Suddenly, the country was to all intents and purposes insolvent and increasingly dependent on the international community and, in particular, the IMF, to get by.
After a decade or so of IMF-backed reforms which initially ran against the grain in some quarters of a country where the state has traditionally been at the center of life, Egypt has emerged as an economic force which few could have envisaged.
"We have opened up to the world, with a steady pace of liberalization and a structured approach to free trade with our partners," President Mubarak said recently. The old centralist ways linger in a the bulky form of an overweight bureaucracy, and some would say the speed of economic reform and the privatization program could be faster. But the Egyptian government counters that cautious progress and a lasting improvement in the economy is a better bet than the sort of overheating which led to the Asian economic meltdown.
President Mubarak's commitment to change remains intact. Besides seeking closer trading ties with America, the European Union and the Arab world, he has forged agreements to open up his country to trade with the rest of Africa. He has also appointed a man very much of the new school to hold the economic reins. Economy Minister Yousef Boutros-Ghali is an MIT-trained economist in his mid-forties who initially worked at the IMF before swapping over to advise his own government in its dealings with the agency. After playing an important role behind the scenes, Boutros-Ghali took over the top economic job two years ago and has set about introducing the legislation needed to reassure private investors.
He points to the International Capital Adequacy rules that have been part of legislation for the best part of a decade as one crucial guarantee that Egypt will not get sucked into an Asian-style banking crisis. To that, Egypt is adding new banking, insurance, capital market and mortgage laws to provide a platform for growth through the private sector.
As part of a drive towards financial transparency, the Ministry of Economy has also started to produce since May this year, a "monthly economic digest" of up-to-date economic data which Boutros-Ghali says "springs from the government of Egypt's conviction that the availability of data and the transparency of decision-making is at the root of an efficiently run economy with properly functioning markets."
America is clearly pleased with Egypt's economic progress. The Trade and Investment Framework Agreement (TIFA) that is very much on the cards could be a precursor to a full free-trade agreement between the two sides. While some observers say Egypt has a way to go before the economy is freed up sufficiently to warrant such a prize, others say the best way to ensure Egypt's economic reforms are carried all the way through is for America to encourage them via exactly such trade agreements.
The business leaders from Egypt and America that will meet in consultation groups held during the Washington summit will be anxious to promote an FTA. American firms are as eager as Egyptian companies, having had significant success in Egypt. The value of American investment in Egypt reached $1.6 billion in 1997.
As the American government's 1999 country commercial guide says, "Egypt is a market opening wider to U.S. exporters and is increasingly attractive for an eclectic mixture of U.S. goods," adding that "over the past year, a variety of economic legislation has been passed or introduced which will serve to facilitate private-sector activity in Egypt as well as better enable American firms to do business in Egypt."
Spurred by such high-level recommendations, there is real optimism among the business communities in both Egypt and America that President Mubarak's steady but progressive privatization and economic development programs will bear fruit through even closer ties in coming years.
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