VZCZCXRO6977
PP RUEHFL RUEHNP
DE RUEHRO #1158/01 1451443
ZNR UUUUU ZZH
P 251443Z MAY 07
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 8154
INFO RUEHEG/AMEMBASSY CAIRO PRIORITY 0372
RUEHFL/AMCONSUL FLORENCE PRIORITY 2399
RUEHMIL/AMCONSUL MILAN PRIORITY 8670
RUEHNP/AMCONSUL NAPLES PRIORITY 2563

UNCLAS SECTION 01 OF 02 ROME 001158 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EG IT
SUBJECT: EGYPT-ITALY TRADE AND INVESTMENT INCREASE AS EGYPT 
COURTS EU INVESTORS 
 
REF: CAIRO 1407 
 
¶1.  (U) Summary.  Italy and Egypt are significant trade 
partners, with trade between the two countries dominated by 
Italy's export of machinery to Egypt and Egypt's export of 
crude oil to Italy.  Italy is Egypt's largest EU trading 
partner, and is a leading source of foreign investment in 
Egypt.  As seen from here, trade and investment between Italy 
and Egypt are expected to continue growing, as Egyptian rules 
governing trade and investment liberalize under the 2004 
EU-Egypt Association Agreement.  In 2006, Italy had a trade 
deficit of 636 million euros, its first trade deficit with 
Egypt in over ten years.  End summary. 
 
Bilateral Trade Up Since 2000 
----------------------------- 
 
¶2.  (U) The volume of trade between Italy and Egypt has 
increased by 62 percent since 2002.  According to ISTAT, the 
Italian Statistical Agency, total trade between Italy and 
Egypt reached 3.78 billion euros in 2006, although Italy 
registered a trade deficit of 636 million euros that year. 
According to the Egypt Desk at the Italian Ministry of 
Foreign Affairs, Italy was the European Union's largest 
exporter to Egypt in 2006.  Italian exports in 2006 included 
machinery (696.6 million euros) and chemical products (268 
million euros). Italian imports from Egypt are dominated by 
crude oil and other refined fuels.  In 2006, Italy imported 
1.265 billion euros worth of oil and other fuels from Egypt, 
which accounted for roughly 60 percent of Italian imports 
from Egypt. 
 
Italy's Balance of Trade with Egypt 2004-2006 
--------------------------------------------- 
 
                  2004        2005        2006 
Exports           1.352       1.387       1.551 
Imports           1.280       1.279       2.187 
Trade Balance     0.072       0.108      -0.636 
 
(all figures in billions of euros) 
 
¶3.  (U) According to our MFA contacts, Egypt's efforts to 
liberalize and open its economy to foreign investors have 
helped increase trade with the EU and its members.  Following 
the signature of the EU-Egypt Association Agreement in 2004, 
Egypt has reportedly undertaken measures to "establish 
conditions for the progressive liberalization of trade in 
goods, services, and capital" and "contribute to the economic 
and social development of Egypt."  Since 2004, Egypt's trade 
deficit with the EU has decreased by 60 percent, illustrating 
the benefits of increased access to EU markets for Egyptian 
manufacturers. 
 
Italian Investment in Egypt 
--------------------------- 
 
¶4.  (U) Italian investment in Egypt has historically been 
concentrated in Egypt's petroleum and natural gas sectors. 
ENI, the Italian oil and gas parastatal, has operated in 
Egypt for close to 50 years, through the International Egypt 
Oil Company, an ENI subsidiary.  Italcementi is the largest 
single foreign investor in Egypt, and has become the world's 
fifth-largest cement producer by acquiring Egyptian cement 
companies. 
 
¶5.  (U) Egyptian businesses have also made major investments 
in Italy.  In 2005, Orascom Telecom acquired Wind Telecom, 
Italy's third-largest mobile service provider, for a reported 
$15 billion.  Since the takeover, Orascom's CEO, Naguib 
Sawiris, has put in place new management and taken measures 
to streamline Wind's operations to increase profitability. 
 
 
Banking 
------- 
 
¶6.  (U) Italian banks have established a strong presence in 
Egypt in response to calls by the Governor of the Central 
Bank of Egypt for an increased Italian banking presence in 
Egypt.  Banca Intesa, San Paolo IMI, and Monte dei Paschi di 
Siena all have branches in Egypt. 
 
Services 
-------- 
 
¶7.  (U) Italy is a major contributor to Egypt's tourism 
industry, especially in the Red Sea region near the 
attractions of Ras Mohammed National Park and Sharm 
 
ROME 00001158  002 OF 002 
 
 
el-Sheikh.  However, tourist numbers have steadily decreased 
over the last three years.  In 2004, one million Italian 
tourists visited Egypt; 2005, 823,000; 2006, 780,000.  This 
decrease is likely due in part to wariness in the wake of the 
bout of terror attacks in New York, London, the Sinai, Spain, 
and Dubai. 
 
Comment 
------- 
 
¶8.  (U) Italian firms have responded favorably to new 
Egyptian policies since 2004 to increase EU trade and 
investment with Egypt, without which trade and investment 
probably would have stagnated.  Italian involvement in the 
Egyptian economy, especially by parastatal firms such as ENI, 
also reflects the GOI's broader strategic interests in the 
Middle East and Italian determination to play a role as 
Europe's geographic gateway to the Mediterranean basin.  End 
comment. 
Spogli