This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 CAIRO 005344 
 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA, AND EB/IDF 
USAID FOR ANE/MEA MCCLOUD 
USTR FOR SAUMS 
TREASURY FOR MILLS/NUGENT/PETERS 
COMMERCE FOR 4520/ITA/ANESA/TALAAT 
 
E.O.  12958: N/A 
TAGS: ECON EFIN ETRD EINV ENRG EWWT EG
SUBJECT: EGYPT MONTHLY ECONOMIC REPORT: MAY-JUNE 2005 
 
 
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Summary 
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¶1.  In this edition:  More Egyptian companies make it into 
international emerging market stock indices and the GOE 
signs an S&T agreement with the EU.  The Ministry of 
Communication and Information Technology announces a third 
mobile phone license will be issued and minister Tarek Kamel 
visits the U.S.  Orascom Telecom purchases an Italian 
telecom.  President Mubarak inaugurates a new liquid natural 
gas facility, the Ministry of Petroleum announces new oil 
and gas deals as well as new oil discoveries, and Egypt and 
Israel sign an MOU on gas exports.  Air traffic controls go 
on a "go-slow" strike and Suez Canal revenues increase 18% 
over last fiscal year.  End summary. 
 
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Macroeconomic Developments 
-------------------------- 
 
¶2.  In mid-May Morgan Stanley International (MSI) announced 
the addition of seven Egyptian companies to its emerging 
markets indices, bring the total number of Egyptian 
companies on MSI indices to seventeen.  MSI increased 
Egypt's weight in its indices, which cover all emerging 
markets, from 0.77% to 0.78%.  The change raises Egypt's 
market capitalization in the MSI indices to $1.22 billion. 
The seven new companies included are EFG-Hermes Holding, 
Egyptian American Bank, Egyptian Financial and Industrial 
Co., Ezz Rebars, Egypt Beni Souef Cement, Olympic Group and 
Sinai Cement.  The companies were chosen based on largest 
private sector ownership, market capitalization and trading 
activity in the Egyptian market.  Other Egyptian companies 
included in the MSI indices include domestic blue chips like 
Commercial International Bank, AlWatany Egyptian Bank, 
Eastern Tobacco, Media Production, EIPICO, Mobinil, Nasr 
City Construction, Misr International Bank, Orascom 
Construction and Orascom Telecom Holding. 
 
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Science and Technology 
---------------------- 
 
¶3.  S&T Conference:  On May 28, PM Nazif opened the First 
National Conference for Scientific Research in Egypt.  About 
4,000 Egyptian scientists and researchers, including 
Egyptian expatriate scientists, and various Cabinet 
ministers attended the two-day event.  The conference 
focused on soliciting feedback from the S&T community on 
development of a new strategy for promoting scientific 
research, services and technology in Egypt.  For the first 
time in recent memory, ministers fielded direct questions 
from working-level Egyptian scientists and listened to their 
opinions on S&T issues.  Minister of Foreign Trade and 
Industry Rashid discussed plans to increase private sector 
funding of R&D projects and Minister of Higher Education and 
Scientific Research Salama noted that his ministry would 
establish a fund to support R&D. 
 
¶4.  The conference produced a series of recommendations to 
shape a new national S&T strategy for Egypt.  The most 
significant decision was to increase the GOE budget 
allocation for scientific research by 10-50%.  The increase 
would include salaries and administrative costs for 
scientific institutions.  The conference action plan will be 
published at the end of July.  (Comment:  PM Nazif's 
commitment to increasing the S&T budget and the presence at 
the conference of reform-minded ministers such as Rashid 
indicates that the GOE is serious about reform in the field 
of scientific research.  Private sector involvement will be 
key, however, and the GOE's ability to attract foreign 
investment in S&T will depend on continued commitment to 
macroeconomic reform.  End comment). 
 
¶5.  EU-Egypt S&T Agreement:  On June 21, PM Nazif attended 
the signing of a new S&T agreement between Egypt and the EU. 
According to Fawzi El Refaei, President of the Egyptian 
Academy of Scientific Research and Technology, the agreement 
aims to expand S&T cooperation and provides for Euro 11 
million in funding for S&T projects.  The agreement allows 
Egyptian scientists and research institutions to apply for 
funding of specific R&R projects from EU sources.  El Refaei 
indicated that funding from this agreement would be 
channelled into areas of development identified in Egypt's 
new S&T strategy. 
 
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Telecommunications and Info Tech 
-------------------------------- 
 
¶6.  In mid-May, Minister of Communication and Information 
Technology (MCIT) Tarek Kamel announced that the GOE would 
soon issue a license for a third mobile phone operator.  The 
RFP would be issued in 3-4 months and proposals would be 
reviewed by early 2006, with the goal of getting the third 
operator in place by mid-2007.  Kamel indicated that MCIT 
anticipated LE 2.5 billion in licensing fees from the new 
operator.  The coming RFP would be "technology neutral," 
i.e., either GSM or CDMA.  According to a study by the 
National Telecommunications Regulatory Authority (NTRA), 
Egypt's mobile market growth rate is currently 12%, but is 
expected to reach 25% within five years. 
 
¶7.  In late May, the Information Technology Industry 
Development Authority (ITIDA) invited Egyptian and 
international firms to apply for e-signature licenses under 
Law 15 of 2004, which regulates e-signatures.  According to 
ITIDA, use of e-signature technology will encourage new 
investment in e-commerce and e-business projects and 
facilitate access to global e-business sectors.  Details of 
the licensing requirements can be found at 
www.itida.gov.eg/csp. 
 
¶8.  Also in late May, Orascom Telecom (OT) announced the 
$130 million sale of its controlling stake in Libertis, a 
GSM company in the Democratic Republic of Congo, and 
Libertis' operator Oasis Telecom.  Also in late May, Naguib 
Sawiris, CEO of OT, announced the purchase of Wind, the 
telecom subsidiary of Italian conglomerate Enel, by the 
newly established "Weather Investments."  Sawiris owns 73.9% 
of Weather Investments and Enel owns the remaining shares. 
OT plans to eventually transfer 51% of its shares to Weather 
Investments.  The total cost of the purchase was Euro 17.2 
billion. 
 
¶9.  MCIT Minister Kamel made his first official visit to the 
U.S. June 18-28.  The delegation included the Chairman of 
NTRA, the President of Telecom Egypt and representatives 
from approximately 20 Egyptian IT firms.  Kamel held meeting 
with USG officials and on the Hill, and also met with 
Microsoft Chairman Bill Gates and executives from Intel, 
Cisco, and Oracle.  The visit led to establishment of a U.S.- 
Egypt IT consultative council.  Kamel also witnessed the 
signing of several business deals, including a $5 million 
agreement between Egypt's QuickTel and Qualcom to service 
wireless networks in Egypt.  The minister also announced 
that NTRA would soon issue licensing terms for Voice-over 
Internet Protocol (VoIP) service in Egypt. 
 
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Energy 
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¶10.  On May 30, President Mubarak inaugurated the liquefied 
natural gas (LNG) plant at the Mediterranean Gas Complex in 
Damietta.  The LNG facility is owned and operated by the 
Spanish Egyptian Gas Company (SEGAS), which is 80% owned by 
Union Fenosa Gas (50% Union Fenosa of Spain and 50% ENI of 
Italy), and 20% owned by Egyptian State Holding Companies. 
The $1.3 billion facility was built by a joint venture of 
Halliburton KBR, JGC Corporation of Japan, and Tecnicas 
Reunidas of Spain.  The output of the facility, 5.5 mt/yr, 
has already been committed for the next 25 years.  The 
Mediterranean Gas Complex near Damietta is a joint 
investment between the Italian AGIP and British Petroleum. 
 
¶11.  In mid-June, Petroleum Minister Fahmi announced that 
the GOE had signed 36 new oil and gas exploration agreements 
over the last year for a total investment of $250 million. 
The agreements will result in the drilling of 55 new wells 
in the Western Desert, the Nile Delta, and off the 
Mediterranean coast and Gulf of Suez.  Foreign investors in 
the agreements include British Gas, Malaysian Petronas, 
International Egyptian Oil Company (an Italian subsidiary of 
AGIP) and Apache.  Announcement of the new exploration 
agreements was followed by three new oil discoveries in late 
June.  The largest was at Ras Gharib-Amr, a 50-year-old oil 
field in the Gulf of Suez, 2 km offshore.  The discovery was 
the first at Ras Gharib-Amr in the last 40 years.  The 
second discovery was at El Tamad, approximately 90 km 
northeast of Cairo.  This was the first on-shore oil 
discovery in the northern Nile Delta region.  The third 
discovery was at El Diyur in Egypt's Western Desert.  Total 
reserves from the new discovery were estimated at 70 million 
barrels of crude oil. 
 
¶12.  Egypt-Israel Gas Agreement:  On June 30, Fahmi signed 
an MOU with Israeli National Infrastructures Minister 
Binyamin Ben-Eliezer, clearing the way for a long-awaited 
$2.5 billion commercial gas deal between Eastern 
Mediterranean Gas (EMG) and the Israeli state-owned 
Electrical Company (IEC).  While the commercial details 
remain to be determined, EMG will export approximately 25 
billion cubic meters of gas over 15 years from the Egyptian 
port of El Arish to the port of Askalon in Israel.  EMG is 
an Egyptian-registered company 25% owned by Israel's Merhav 
Group.  Egyptian businessman Hussein Salem owns another 65% 
of EMG and the Egyptian Gas Holding Company owns the 
remaining 10%. 
 
¶13.  The MOU provides a "political umbrella" for the 
commercial agreement, and commits the GOE to providing gas 
to EMG and the GOI to providing tax exemptions for equipment 
and materials.  Completion of the project is expected to 
take two years.  Announcement of the MOU was coordinated 
with announcement of cooperation between the GOE and the 
Palestinian Authority on gas exports.  Headlines of some 
opposition papers tried to portray the MOU as an attempt to 
appease the USG and deflect pressure for further political 
and democratic reform. 
 
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Aviation 
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¶14.  In early May, Egyptian air traffic controllers went on 
a "go-slow" strike, their second in the span of two months, 
to protest the Ministry of Civil Aviation's penalization of 
8 air traffic controllers for delays at Sharm El Sheikh 
airport.  The Association of Egyptian Air Traffic 
Controllers threatened to bring air traffic to a total halt 
if the penalties were not lifted.  Controllers also demanded 
a doubling of salaries over three years, better health 
insurance and better promotion opportunities.  The strike 
ended after Minister of Civil Aviation Shafik promised to 
look into the strikers' demands for better pay and 
conditions.  Aviation officials indicated that the 
controllers conducted the go-slow in line with International 
Civil Aviation Organization standards, but failed to 
announce the go-slow to the airlines in advance.  Unofficial 
reports indicated that losses from the go-slow amounted to 
$31 million. 
 
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Suez Canal and Maritime Transport 
--------------------------------- 
 
¶15.  In early May, the Suez Canal Authority indicated that 
revenues from Suez Canal tolls during FY 2004/2005 would 
exceed $3.2 billion, compared to $2.82 billion during FY 
2003/2004.  During the first 9 months of FY 2004/2005 (July 
2004- March 2005), revenues increased by $369 million to 
$2.446 million, up 18% from the previous year.  A recent 
study by the Ministry of Transportation indicated that total 
revenue from port facilities, excluding customs, duties and 
taxes, increased in 2004 by 25% to L.E. 2.24 billion. 
 
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Economic Statistics 
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¶16. 
 
Exchange Rate: 
                              (05/31/05)        (06/30/05) 
Egyptian Pounds/$             Buying Selling Buying Selling 
Avg. Bank/Bureau Rate         578.79 581.22  578.24 580.84 
 
Capital Market: 
                               (05/31/05)       (06/30/05) 
Capital Markets Authority Index 1644             1789 
Hermes Financial Index          36344            41772 
EFG Index                       19599            22692 
 
Interest Rates: 
(percent, monthly comparison) 
 
Interbank Overnight              9.49            9.55 
T-bills (182 days)               9.88            8.39 
T-Bond (maturing 01/06)          4.15            4.15 
T-Bond (maturing 04/09)          5.50            5.50 
 
Foreign Reserves: 
(US $ billion, official gov't figures) 
 
 (04/2005)      (05/2005) 
  18.470    18.712