VZCZCXYZ0005
RR RUEHWEB

DE RUEHEG #6524/01 2961618
ZNR UUUUU ZZH
R 231618Z OCT 06
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 2189
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0213

UNCLAS CAIRO 006524 
 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA, AND EB/IDF 
USAID FOR ANE/MEA MCCLOUD 
USTR FOR SAUMS 
TREASURY FOR NUGENT/HIRSON 
COMMERCE FOR 4520/ITA/ANESA/TALAAT 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EINV ENRG EWWT EG
SUBJECT: EGYPT:  MONTHLY ECONOMIC REPORT 
 
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SUMMARY 
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¶1.  (U) IN THIS EDITION:  Ramadan begins, and consumer prices rise. 
Egypt's credit rating remains unchanged, but interest rates for 
farmers decrease.  The Ministry of Investment drafts changes to the 
investment law, as on-line trading and a new stock index are 
launched.  Egypt's Minister of Environment discusses the Clean 
Development Mechanism in Saudi Arabia an Pugwash chooses Egypt to 
host its next conference.  Orascom negotiates to take over 
Hutchinson Telecoms, while Vodafone and Etisalat announce intentions 
to bid for the international voice gateway license.  Mobinil 
disputes third generation technology with the National 
Telecommunications Regulatory Agency, Swedish and Chinese firms are 
selected to construct the third mobile phone network and ARINC is 
award the contract for IT systems at the new Terminal 3 at Cairo 
International Airport.  ExxonMobil announces investment in improved 
downstream services, while the GOE and Saudi Arabia discuss 
integrating electrical grids.  Suez Canal revenues reach record 
levels.  End summary. 
 
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MACROECONOMIC 
------------- 
 
¶2.  (U) INFLATION:  Consumer prices rose across the scale with the 
start of Ramadan on September 23.  Prices of fruits and vegetables 
and various Ramadan staples (lentils, dates, dried fruits and nuts 
and poultry) increased 20-30 percent since the start of the fasting 
month.  Despite the August decision to left the poultry import ban, 
widely seen as a GOE effort to avert Ramadan shortages, consumer 
poultry prices rose nearly 60 percent.  Further reporting on 
inflation will be sent septel. 
 
¶3.  (U) CREDIT RATING:  In early September, Moody's maintained 
Egypt's Baa3 local currency government bond rating with a negative 
outlook in local currency and Ba1 with a stable outlook in foreign 
currency.  The Baa3 local currency bond rating reflects Egypt's 
ample maneuverability in managing its domestic debt, as most debt is 
non-marketable and held by various public sector entities, according 
to Moody's.  While fiscal transparency improved, GOE finances 
continue to deteriorate, causing a negative outlook for local 
currency government bonds.  The stable outlook on Egypt's foreign 
currency Ba1 debt ratings reflects Egypt's low debt service burden 
(particularly on bond debt) and strong liquidity position.  These 
characteristics, coupled with external financial assistance, account 
for the stability of the bond ratings in spite of policy slippage 
and exogenous shocks. 
 
¶4.  (U) AGRICULTURE AND INTEREST RATES: In mid September, Minister 
of Agriculture Amin Abaza announced a reduction in the interest rate 
on farmers' loans from the Principal Bank for Development and 
Agricultural Credit.  Interest rates were lowered from 7.5 to 5.5 
percent, in order to increase farmers' access to credit and 
encourage borrowing for new equipment and modern irrigation methods, 
in hopes of improving agricultural productivity. 
 
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LEGISLATION 
----------- 
 
¶5.  (U) INVESTMENT LAW:  The Ministry of Investment (MOI) plans to 
amend Investment Law No. 8 of 1997 to allow discounting, whereby 
special purpose financial vehicles are used to purchase debts owed 
to companies at a discount and assume responsibility for collecting 
them.  Discounting, used in many countries, increases liquidity and 
the ability of investors to finance production needs.  A number of 
Egyptian banks already provide discounting services but MOI expects 
the practice to increase after the amendments are finalized.  MOI is 
also planning to reduce the minimum required capital for 
establishing sole proprietorships and corporations. 
 
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CAPITAL MARKETS 
--------------- 
¶6.  (U) ONLINE TRADING:  Al-Arabia Online and EFG-Hermes received 
licenses from the Cairo and Alexandria Stock Exchange (CASE) and the 
Misr Clearing and Settlement House to begin provide online trading 
services.  Egypt for Information Dissemination (EID) is developing 
the CASE's online trading infrastructure.  EID is a joint venture 
between the CASE and OMX, a Swedish trading technology corporation 
that owns and operates six bourses in northern Europe. 
¶7.  (U) NEW STOCK MARKET INDEX:  Dow Jones Indexes has teamed up 
with CASE to launch the Dow Jones CASE Egypt Titans 20 Index.  This 
blue-chip index measures the performance of the CASE by following 
the transparent and objective methodology of the Dow Jones Global 
Titans 50 Index.  It also includes 20 leading Egyptian stocks ranked 
by free-float market capitalization, sales/revenue and net income. 
The Dow Jones CASE Egypt Titans 20 Index is designed to underlie 
investment products such as mutual funds, exchange-traded funds and 
other financial products that enable investors to participate in the 
performance of the Egyptian stock market.  The top five companies in 
the index by free-float market capitalization are:  Orascom Telecom 
Holding, Orascom Construction Industries, EFG Hermes Holding, 
Egyptian Kuwaiti Holding and Commercial International Bank. 
 
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ENVIRONMENT 
----------- 
 
¶8.  (U) KYOTO PROTOCOL:  In late September 19-21, El-Sayed Mansour, 
Head of the Climate Change Unit at the Egyptian Environmental 
Affairs Agency (EEAA) gave a presentation on Egypt's experiences 
with the Kyoto Protocol's Clean Development Mechanism (CDM) at a 
conference in Saudi Arabia.  The conference provided participants 
with a conceptual understanding of the financial and economic 
development benefits of the CDM.  Mansour discussed EEAA's 
regulations, the CDM project evaluation process, projects underway 
in Egypt and EEAA's "green index" that allocates a percentage of 
income from Certified Emission Reductions CERs to an Environmental 
Protection Fund. 
 
¶9.  (U) PUGWASH:  In late September the international scientific 
organization Pugwash (http://www.pugwash.org/) announced that Egypt 
would be the first country in the Middle East to host its next 
conference on science and world affairs in November.  The Egyptian 
Council of Foreign Affairs will assist Pugwash in organizing the 
two-day event, scheduled at November 11 and 12.  Issues discussed at 
the conference will include nuclear non-proliferation, efforts to 
render the Middle East a nuclear weapon-free zone and the 
possibility of establishing a regional security system.  Attendees 
will also focus on the latest political developments in the 
Palestinian territories, Iraq and Lebanon, fighting terror, and 
promoting cultural dialogue. 
 
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TELECOMMUNICATIONS AND IT 
------------------------- 
 
¶10.  (U) In late September, the press reported that Orascom Telecom 
was discussing take over of the Hong Kong-based cooperation 
Hutchison Telecom.  Naguib Sawiris, Orascom CEO, told reporters that 
negotiations had reached an advanced stage, although no agreement 
was reached on price. In December 2005 Orascom paid $1.3 billion for 
a 19.3% stake in Hutchison Telecom Media, a member of the Hutchison 
Whampoa Group.  The press also reported that the deal will be 
structured to ensure that Orascom's indirect holdings in the Israeli 
cellular company Partner Communications do not exceed 10 percent. 
 
¶11.  (U) On September 19, Vodafone Egypt announced it would bid for 
one of two international gateway operators' licenses offered by the 
National Telecommunication Regulatory Authority (NTRA).  The 
announcement came days after Vodafone's acquisition of 51 percent of 
Raya Telecom for LE 104 million.  Embassy contacts believe 
Vodafone's acquisition of Raya puts the company in a better 
technical and legal position to pursue the license.  Mohammed Omran, 
Chairman of Etisalat, winner of the third mobile phone license, also 
announced his company's intention to apply for one of the two 
licenses.  Egypt has already passed the December 2005 deadline to 
fulfill its WTO obligation to end Telecom Egypt's (TE) monopoly on 
international calling operations.  TE collected LE 2.3 billion in 
international calling revenues in 2005, accounting for 27 percent of 
its total revenues of LE 8.5 billion.  In late September TE also 
announced it would increase its stake in Vodafone Egypt to 24.4 
percent.  Akeel Basher, TE Chairman, said that TE had obtained loans 
of LE 4 billion to finance the transaction, which will be concluded 
by the end of the current month. 
 
¶12.  (U) A dispute erupted in early September between NTRA and 
Mobinil, when the latter commercially introduced Enhanced Data for 
GSM Evolution (EDGE) technology without a license. EDGE allows users 
to transfer data at six times the speed of GPRS.  NTRA classifies 
the technology as third generation, which requires an NTRA license 
that costs LE 3.3 billion.  Mobinil argues that the technology is 
second generation, citing the GSM Association, an international 
support body.  Second generation technology does not require an 
additional license for Mobilnil.  Mobinil agreed to suspend EDGE 
services until the dispute is resolved. 
 
¶13. (U) In early September the Swedish firm Erickson and the Chinese 
Huawei Technologies won contracts from Etisalat to construct Egypt's 
third mobile network, for a total of 800 million UAE Derham (almost 
$218 million).  Erickson will build in Cairo and Alexandria while 
Huawei will build in more remote areas including Sharm el Sheikh and 
Hurgada.  The new mobile company is expected to start experimental 
operations by year-end and formal operations in February 2007.  The 
NTRA license requires coverage in the 4 cities mentioned above 
within six months. 
 
¶14.  (U) (U) AIRPORT IT:  In mid September ARINC Incorporated was 
selected to provide passenger check-in systems and related 
technologies for the new Cairo International Airport Terminal 3, a 
$400 million project partially financed by the World Bank (WB). 
ARINC was chosen through a competitive tender process under WB 
procurement rules.  The IT portion of the project is valued at $22 
million.  ARINC will provide the Cairo Airport Company with 
extensive design, project management, supply management, 
installation, and commissioning for 14 IT systems, from passenger 
check-ins and displays to biometric gates and ramp control. 
Terminal 3 is scheduled to open in early 2008. 
 
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ENERGY 
------ 
 
¶15.  (U) OIL:  During the last week of September, Tom Walters, the 
general Manager of ExxonMobil in Egypt announced a new investment 
plan for in Egypt worth $100 million.  Under the plan, 70 percent of 
the investment will be directed to the Greater Cairo Area and the 
remaining 30 percent in Alexandria and Upper Egypt.  ExxonMobil 
plans to improve downstream services at gas stations, increase the 
number of natural gas stations, and expand ExxonMobil;s successful 
"On the Run" shops at service stations in Egypt.  Also in late 
September, the British oil company, Aminex PLC signed a production 
sharing agreement with the GOE to oilfields in the West Esh El 
Mellahah area in Upper Egypt. 
 
¶16.  (U) ELECTRICITY:  On Sept. 27, Egypt and Saudi Arabia signed a 
contract to study the possibility of connecting their electrical 
grids.  Hassan Younis, Minister of Electricity and Energy said the 
study would cost $2.6 million, and that the contract demonstrated 
political will to link the grids.  Press reports indicate that 
between 1990 and 2003, electricity consumption in theregion 
increased from 214 to 471 kilowatt hours,a rise of 120 percent.  In 
comparison, Japan sawa 23 percent rise and the U.S. a 29 percent 
increse during the same period. 
 
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TRASPORTATION 
-------------- 
 
¶17.  (U) SUEZ CANAL  According to Ahmed Ali Fadel, Chairman of the 
uez Canal Authority, tolls will hit a record $3.65billion by 
 
SIPDIS 
year-end.  Fadel told econoff that tols for the third quarter of 
2006 would exceed theprevious quarter and reach $960 million. 
Fadel also noted that a Danish ship, the largest container ship in 
the world, crossed the Suez Canal on September 22, after 17-hour 
sailing in the waterway.  The ship is almost 400 meters long and 
56.5 meters wide, and can carry 15,000 containers.  The passing fee 
for ship was $653,421. 
 
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ECONOMIC INDICATORS 
------------------- 
 
¶18.  (U) 
 
Exchange Rate: 
                 (08/31/06)     (09/28/06) 
Egyptian Pounds/$      Buying Selling Buying Selling 
Avg. Bank/Bureau Rate         573.76 575.84  573.17  575.00 
 
Capital Market: 
                (08/31/06)    (09/28/06) 
CASE 30 Index                     5,674        6,427(09/27) 
Hermes Financial Index         50,025        57,059 
EFG Index        25,509        29,014 
 
Interest Rates: 
(percent, monthly comparison) 
 
Interbank Overnight              8.1            8.9(09/27) 
T-bills (182 days)               8.99(08/01)    9.55 
T-Bond (maturing 12/08)         9.25(07/25)    no trade 
T-Bond (maturing 10/11)          9.1            10.3(09/27) 
 
Foreign Reserves: 
(US $ billion, official gov't figures) 
 
         (08/2006)       (09/2006) 
         23,051.1       24,064.9 
 
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