VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #5942/01 2641130
ZNR UUUUU ZZH
R 211130Z SEP 06
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 1529
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0204

UNCLAS CAIRO 005942 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA, EB/IDF/OMA 
USAID FOR ANE/MEA MCCLOUD AND DUNN 
USTR FOR SAUMS 
TREASURY FOR NUGENT AND HIRSON 
COMMERCE FOR 4520/ITA/ANESA/TALAAT 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN ETRD EINV EG
SUBJECT: EGYPT:  EIGHTH ANNUAL EUROMONEY CONFERENCE SEPT. 11-12 
 
 
Sensitive but Unclassified.  Not for Internet distribution. 
 
¶1.  (U) Summary:  Prime Minister Nazif kicked off Egypt's eighth 
Euromoney conference September 11-12, highlighting improvements in 
Egypt's economy and laying out his government's plans for the coming 
five years.  His upbeat assessment was echoed by the economic 
ministers in the Cabinet, who each recited a litany of their 
accomplishments over the past two years and promised even greater 
effort to bolster economic growth in the near future.  Panelists at 
the conference discussed challenges facing the economy, particularly 
the stock exchange, which has recently lost some of the gains it 
made over the past two years.  Private sector reps at the conference 
complained about insider trading, and the key obstacle to economic 
growth, lack of access to credit.  End summary. 
 
¶2.  (U) In his keynote speech, Nazif recited a familiar litany of 
accomplishments since taking office in mid-2004.  Tariff and tax 
cuts, banking reform, and reduction in red tape were highlighted as 
irreversible structural changes that would ensure growth in the 
coming years.  Nazif pointed out that growth had already risen 6.9 
percent in FY 2005/06, driven by increased domestic consumption, 
surging exports, and $5 billion in FDI.  While acknowledging that 
inflation had also risen to around 8 percent, Nazif stated that 
controlling inflation was less important than fostering growth.  In 
the next 5 years, the GOE would promote public-private partnerships, 
particularly at the local level, in health care, education, 
transportation, industry and agriculture, aiming to increase FDI to 
$8 billion by 2011.  Audience members inquired about plans to 
address unemployment, currently 10% per official figures.  Nazif 
replied that growth would eventually diminish high unemployment 
levels. 
 
¶3.  (U) Minister of Investment Mohieldin was harshly critical of the 
World Bank's recent "Doing Business" report, which ranked Egypt 165 
out of 175 on a range of criteria related to establishing and 
operating new businesses.  Mohieldin insisted that his ministry's 
"One-stop Shop" had removed bureaucratic obstacles for new 
businesses.  He dismissed the WB methodology, claiming that the 
sample survey of 16 businesses in Egypt was too small to give an 
accurate picture of the business operating environment.  Mohieldin 
went on to list reforms under his portfolio, including expedited 
privatization, restructuring of public companies, issuance of 
corporate governance guidelines and reforms designed to stimulate 
growth in the mortgage and insurance sectors.  Plans for the next 
few years include development of economic courts, and the opening of 
a small cap stock exchange and a commodities exchange for cotton, 
rice and possibly wheat. 
 
¶4.  (U) Minister of Finance Youssef Boutrous Ghali (YBG) touted 
Egypt's successful tax reforms, noting that despite a 50 percent 
reduction in tax rates, revenues were up 17 percent over the 
previous fiscal year.  The number of taxpayers filing returns 
increased from 1.7 million in 2005 to 2.4 million in the first half 
of 2006.  He credited the new "trust" between the Tax Authority and 
taxpayers with the improvement in collection and promised pension 
reform would also be based on trust between pensioners and the 
government.  Turning to the deficit, YBG reined in his previous 
estimates of 1.5-2 percent reductions per year over the next 5 
years.  He now projects reductions of 1-1.5 percent per year. 
Despite budget cuts, however, privatization proceeds will be used to 
expand social infrastructure, including education, health care and 
transportation, to protect the poorest members of society. 
 
¶5.  (U) The conference continued with panel discussions, including 
one on the Cairo and Alexandria Stock Exchange (CASE), the world's 
best performing emerging economy stock exchange for two years. 
Panelists included, inter alia, Maged Shawky, Chairman of the CASE, 
Hany Sarieldin, Director of the Capital Market Authority (CMA), and 
Mohamed Taymour, Board member of EFG Hermes, Egypt's largest 
investment bank.  Shawky pointed out that with the advent of 
e-trading, retail investors have flooded the exchange, accounting 
for 70 percent of total trading over the past year.  Many of these 
traders are amateurs, unable to assess market cycles, and have 
contributed to recent volatility on the exchange.  He blamed last 
February's correction, when the market fell nearly 20 percent, on 
retail traders who panicked when Gulf investors pulled funds out of 
Egypt to shore up positions in their home markets.  The slump 
highlighted the need to attract more institutional investment to 
stabilize the market, increase transparency of companies listed on 
the exchange, and educate investors. 
 
¶6.  (U) Sarieldin explained that CMA is drafting amendments to the 
capital markets law to authorize mutual funds, which should attract 
more institutional investment, and increase disclosure requirements 
for companies trading on the CASE.  Steps are also underway to 
facilitate entry of new companies onto the exchange. Sarieldin noted 
that the CASE is dominated by a few large companies that often make 
up 50 percent of the trading on a given day.  The CMA will begin a 
program to educate small and medium size enterprises (SME) about the 
possibilities of raising capital on the exchange, a potentially 
attractive alternative to the tight bank credit market. 
 
¶7.  (SBU) Comment:  While the CASE panel touched on many of the 
challenges facing the exchange, little mention was made of the fact 
that insider trading is still legal in Egypt.  An EFG-Hermes rep 
told econoff that insider trading has led many foreign investors, 
particularly large institutions, to avoid the exchange.  Despite the 
problems on the stock exchange, however, most business leaders at 
the conference were bullish on Egypt's economy, eager to take 
advantage of opportunities in tourism, mining, infrastructure, 
construction and IT, among others.  The real obstacle facing 
investors, according to business leaders, is lack of access to 
credit.  While some SMEs may choose to raise capital on the stock 
exchange, most still prefer bank loans.  The banking sector, 
however, remains conservative in credit assessments, making it 
difficult for SMEs to obtain the loans needed to establish or 
continue operations.  End comment. 
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