Egypt-Economic-022009 by liwenting

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									         Global Research          Economic

Egypt

        Egypt Economic & Strategic Outlook
        Growth Challenges         February 2009
Global Investment House KSCC
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Omar M. El-Quqa, CFA
Executive Vice President
omar@global.com.kw
Phone No:(965) 22951110

Faisal Hasan, CFA
Head of Research
fhasan@global.com.kw
Phone No:(965) 22951270

Mahmoud Soheim
Manager-Egypt Research
msoheim@globalinv.com.eg
Phone No: (202) 37609526

Ahmed Abu Hussein, CFA
Financial Analyst
aabuhussein@globalinv.com.eg
Phone No: (202) 37609526

Cherine Fayez Farkouh, CFA
Financial Analyst
cfarkouh@globalinv.com.eg
Phone No: (202) 37609526

Radwa Weshahy
Financial Analyst
rweshahy@globalinv.com.eg
Phone No: (202) 37609526

Nehal Badawy
Financial Analyst
nehal.badawy@globalinv.com.eg
Phone No: (202) 37609526
                              Table of Contents
Summary                                                               1
Annual Indicators                                                     6
Economic News Flow (January 2008 to January 2009)                     7
Macroeconomic Profile                                                 16
Gross Domestic Product                                               18
Public Finance                                                       23
Public Debt                                                          26
External Trade                                                       28
Current Account                                                      31
Capital & Financial Account and Balance of Payment                   33
Foreign Direct Investment                                            34
Privatization                                                        36
Monetary Policy                                                      38
Net International Reserves                                           41
Exchange Rate                                                        42
Inflation                                                             43
Population and Labor Force                                           44

SECTOR PERFORMANCE                                                   46
 Oil                                                                 47
 Natural Gas                                                         52
 Agriculture                                                         57
 Fertilizers                                                         62
 Telecom                                                             68
 Real Estate                                                         74
 Cement                                                              79
 Steel                                                               82
 Banking                                                             87

STOCK MARKET PERFORMANCE                                             93
 CASE 30 Index                                                       94
 Sector Indices                                                      96
 Stock Market Indicators                                            101
 Investors’ Statistics                                              105
 Capital Increases and Public Offerings                             107
 Acquisition Transactions                                           108
 The Bond Market                                                    109
 Global Depository Receipts (GDRs)                                  110
 Egypt vs. Arab and other Emerging Markets                          111
 Corporate Earnings                                                 113
 CASE 30 Index Constituents Statistics (as of December 31st 2008)   114
 Selected Companies Statistics distributed by Sector                115
Global Research - Egypt                                                 Global Investment House



Summary
The Egyptian economy continued its robust growth for the third consecutive year, as reflected
in the real GDP growth of 7.2% in FY2007/08, reaching LE798.1bn, following a growth of
7.1% and 6.8% in FY2006/07 and FY2005/06, respectively. This came on the back of the
economic reforms adopted by the government since FY2003/04. The nominal GDP grew at
a CAGR of 16.5% between FY2002/03 and FY2007/08, reaching LE896.5bn by the end of
FY2007/08.

In FY2007/08, the government’s total revenues and grants surpassed the budget, where it
stood at LE221.4bn compared to a budgeted figure of LE187.2bn, reporting an increase of
22.9%, compared to the budget growth of 3.9% over FY2006/07. The increase came on the
back of the 20.0% growth witnessed in the tax revenues in FY2007/08.

The government expenditure grew by 27.1% in FY2007/08, while it was projected to rise by
only 9.9%, as a result of the hike of the subsidies, grants and social benefits, which soared by
58.1%, as opposed to a budgeted growth of 9.9%. The subsidies, grants and social benefits,
which constitutes 39.0% of the total expenditures, jumped from LE58.4bn to LE92.4bn in
FY2007/08. The wages and salaries actual growth surpassed the budget figure, where it
reached LE62.8bn, up by 4.1% than the projected figure and rising by 20.5% than the actual
figure of FY2006/07.

During the FY2007/08, the overall deficit grew by 11.7%, exceeding the projected 7.4%. As
a matter of fact, the actual cash deficit reached 7.6% of GDP in FY2007/08, up from 5.6% of
GDP in FY2006/07. The cash deficit and the overall fiscal deficit are expected to rise again
in FY2008/09, by 10.2% and 14.2%, respectively.

In June 2008, the gross domestic public debt reached LE536.6bn, where it increased by 8.7%
during the year and it reported a CAGR of 10.7% during the period from June 2003 to June
2008. Though the gross external debt grew at a CAGR of 2.9% during the period from June
2003 and June 2008, it increased significantly by 13.4% in June 2008, as opposed to the year
before, where it reached US$33.9bn.

The current account surplus reached US$888mn in 2007/08, representing a decline of 60.9%
over the previous year. This was mainly due to the 43.7% increase in the trade deficit, which
reached US$23.4bn, compared to US$16.3bn in 2006/07. The export proceeds rose by 33.3%,
from US$22.0bn to US$29.4bn, which was due to the 43.2% acceleration in the petroleum
exports, contributing to 49.3% of the total exports. Nevertheless, the soaring international
food and energy prices over the year pushed the import payments up by 37.8%, reaching
US$52.8bn, compared to US$38.3bn in 2006/07, and offsetting the increase realized in the
exports proceeds.

The balance of payment witnessed a slight incline of 2.6% in its overall balance, implying
a surplus of US$5.4bn in 2007/08, compared to US$5.3bn realized in 2006/07. This was
a result of the drop in the current account, which was compensated by the surge in the
financial account by 7 folds, from US$892mn in 2006/07 to US$7.1bn in 2007/08. The major
contributor to such surge was the 19.8% rise in net direct investment in Egypt.




February 2009                     Economic & Strategic Outlook                               1
Global Research - Egypt                                                  Global Investment House


The Egyptian government realized significant improvements in various business segments,
on the back of the reform program, initiated in 2004. Such improvements created a better
investment climate, attracting foreign investors to engage in various projects, looking for
lucrative margins realized from vast available investment opportunities. This was reflected
by the incline of inflows from Foreign Direct Investment (FDI), as they jumped from
US$4,134.5mn in 2004/05 to US$9,097.9mn in 2005/06, realizing a growth of 120.0%. FDI
continued rising until they reached US$17,802.2mn in 2007/08, a y-o-y increase of 36.1%
over the previous year.

The privatization of state owned enterprises was one of the actions taken by the government
within its reform program. In 2007/08, the government generated LE3,983mn, as proceeds
from 36 privatization deals. Over the period from July to September 2008, 7 privatization
transactions were executed, generating LE1,081mn.

The year 2008 witnessed skyrocketing rates of inflation. The accelerated money supply
in the market, resulting from the encouraging investment climate, led to an increase in
consumption, which was not met by sufficient production levels, resulting in higher local
prices. Inflation rate reached its peak in August 2008, as it reached 23.6%, compared to 6.9%
in December 2007. It is worth mentioning that the latest inflation figures reflect a decline that
began since September 2008, as inflation rate stood at 18.3% in December 2008. This came
as a result of the drops in international food and energy prices, due to the slowdown in the
world economy.

The Central Bank of Egypt (CBE) adopts a tight monetary policy since 2005, with the main
aim being targeting inflation. The CBE established the Monetary Policy Committee (MPC),
which is scheduled to meet each 6 weeks to set the corridor range. The MPC kept modifying
the corridor range along with the changes in inflation, which reached its peak level in August
2008 at 23.6%, setting overnight deposit and lending rates at 11.0% and 13.0%, respectively.
An additional 50bp were added to the corridor range in September 2008, where inflation rate
was 21.5%. In December 2008, the MPC preferred to keep rates at the CBE at their same
level. Although the inflation declined to 18.3%, it is still considered a high rate.

The net international reserve reached US$34.6bn in 2007/08, compared to US$28.6bn, a year
before, representing an incline of 21.1%. Afterwards, reserves declined by 1.3%, as they
reached US$34.1bn as of December 2008. This could be attributed to the effects of the global
financial crisis on capital inflows. Foreign currencies were the major contributor to gross
official reserves, as they represented a share of around 95%, while the rest of reserves came
from gold, Special Drawing Rights (SDRs) and loans to IMF.

In 2007, Egypt’s oil proven reserves rose by 9.4%, from the 2006 level, to reach 4.1bn
barrels. Despite the fact that the Egyptian proven reserves of oil are not considerably high,
compared to the oil rich region, it has positioned the country sixth over the African continent,
representing 3.5% of Africa’s oil proven reserves. Since 1996, the Egyptian oil production
has been in continuous decline, until 2006 when production stabilized and picked up again
in 2007, reaching 710 thousand barrels per day (tbpd), a 1.9% increase over 2006. The re-
increase in oil production is attributed to the new discoveries in the Gulf of Suez, the Nile
Delta, the Western Desert and the Mediterranean Sea in the 2007/08 fiscal year. On the other
hand, the oil consumption inclined by 6.8% between 2007 and 2006, to reach 651.3tbpd. The



2                                 Economic & Strategic Outlook                     February 2009
Global Research - Egypt                                                   Global Investment House


increase in oil consumption came on the back of the widening industrial base, which in turn
has consumed more energy.

Egypt has emerged as a natural gas rich country with natural gas reserve on the rise, positioning
Egypt in the third place over Africa and among the top 20 countries with the highest natural
gas reserves in the world. The extensive and active exploration efforts are resulting in more
gas reserves for the country. As of January 2008, the Egyptian natural gas proven reserves
amounted to 72.9 trillion cubic feet (tcf) with a slight increase over 2006 level, representing
0.8%. As per the Ministry of Petroleum, the Egyptian natural gas proven reserves reached
76.0tcf at the end of fiscal year 2007/08, an increase of 4.3% over January 2008.

In June 2008, the Egyptian natural gas production reached 4.6 billion cubic feet per day (bcfd)
compared to 4.5bcfd at the end of 2007, representing a 2.5% increase in a six month period.
It is worth mentioning that the natural gas production grew by 4.2% between 2006 and 2007,
and by 28.9% between 2005 and 2006. The local natural consumption is rising rapidly on
the back of the increasing investments in the Egyptian industrial sector. In June 2008, Egypt
consumed 3.2bcfd of natural gas, a 3.1% increase over the end of 2007 figure. Between 2006
and 2007, the local demand on natural gas grew by 9.9%, from 2.8bcfd to 3.1bcfd.

The agriculture sector is considered one of the major sectors in Egypt’s economy, where its
contribution to the country’s GDP is 13.6% in FY2007/08, amounting to LE103bn, up by
3.3% compared to the year before. In addition, the investments in the agriculture sector has
accounted for 4% of the country’s total investments in FY2007/08, where it increased by
1.2%, as opposed to the previous year, reaching LE7.9bn. Moreover, the agriculture sector
employs 32% of the labor force in Egypt. In fact, the importance of the agriculture sector
comes from its role in ensuring food security, as well as being the main feedstock for many
industries. Accordingly, the government planned to raise the cultivated areas by around
150,000 acres annually to Egypt’s arable land, as well as enhancing crop yields through
awareness campaigns to farmers concerning improved irrigation practices and optimal
utilization in fertilizers.

The Egyptian fertilizers sector has witnessed rapid growth during the last couple of years, on
the back of the surge encountered in both the local and international demand on fertilizers.
The local demand is driven by the government’s promising agriculture projects Toshka, Al
Salam Canal and East Owainat, in order to increase the country’s food production by raising
the cropped areas and yields, along with enhancing the fertilizers application rates. Currently,
there are two types of fertilizers produced in Egypt, these are nitrogen and phosphate, whereas
potassium fertilizer is not produced as its raw material is not found in the country.

During the FY2007/08, both nitrogen and phosphate fertilizers production grew by 6%, each.
As a result of the of the surge witnessed in the international fertilizers prices during 2007
and 2008, Egypt’s fertilizers exports proceeds soared significantly by 120.9% and 25.4% in
FY2006/07 and FY2007/08, respectively, reaching US$383.7mn in FY2007/08. During the
period from 2001/02 to 2007/08, fertilizers exports have reported a CAGR of 41.2%.

The Egyptian communication sector experienced a strong performance over the past two
years, on the back of good economic performance. The communication sector achieved a
growth rate of 14.1% and 14.2% in the FY2006/07 and FY2007/08, respectively. In addition,



February 2009                     Economic & Strategic Outlook                                 3
Global Research - Egypt                                                 Global Investment House


the sector contribution to the overall real economy kept improving, reaching 3.5% in FY2007/
08, compared to 3.2% in FY2006/07 and 3% in FY2005/06.

The mobile market in Egypt is currently composed of three players, namely Mobinil,
Vodafone and Etisalat. The duopoly of Mobinil and Vodafone ended by the entrance of
Etisalat after winning the third mobile license bid in July 2006, with a total consideration of
LE16.7bn.

Despite the government’s initiative to liberalize the telecom sector, the fixed line service
is still solely provided by Telecom Egypt (TE). The NTRA has delayed the bid on the
second fixed license more than once during 2008. The NTRA stated that the delay is due to
continuing negotiations with the country’s mobile operators on an interconnectivity agreement
governing calls fees between fixed and mobile lines, especially after TE has introduced the
tariff rebalancing program in July 2008. On September 2008, the NTRA decided to postpone
the auction for the second fixed license for a year, as a response to the unfavorable market
conditions, resulting from the global financial crisis.

On the internet front, the sector in Egypt has witnessed tremendous developments, where
the total number of internet users increased to reach 8.62mn in 2007 from 1mn in 2001,
achieving a CAGR of 43.2% over the period from 2001 to 2007. In addition, total internet
users continued its growth trend in Q1 2008, reaching 9.17mn users. Furthermore, internet
penetration rate in Q1 2008 increased to 12.3% from 11.7% and 8.3% in 2007 and 2006,
respectively.

The real estate sector has accounted for around 3.4% of total GDP during the FY2007/08.
The sector flourished during the past couple of years, reporting a growth rate of 4.3% and
3.7% during FY2006/07 and 2007/08, respectively. On the other hand, the construction
sector, which is highly correlated with the real estate sector, grew significantly during the
past couple of years recording a growth rate of 14.8% in FY2007/08, compared to 13.1%
in FY2006/07. The growth in the construction activity is considered a positive indicator for
future growth in the real estate sector.

The size of the mortgage market developed remarkably over the past 4 years, where the total
value of mortgage loans reached LE3.11mn in June 2008, compared to LE1.37mn in June
2007, achieving a growth rate of 92.5% over one year. In addition, total mortgage value
increased to reach 3.11mn in September 2008, recording a growth of 18% over 3-month
period. However, mortgage lending stood below 1% of GDP, compared to 65% in USA and
45% in Europe. Therefore, the Egyptian mortgage lending still has considerable room for
growth.

The Egyptian cement industry exerted strong performance during FY2007/08, where cement
consumption achieved a growth rate of 14.1%, compared to 8.1% in FY2006/07. The
flourishing construction sector was the main driver for this significant increase in cement
consumption. At the end of 2008, Egypt’s cement production capacity reached 45.3mn tons,
compared to 41.6mn tons in 2007, recording a growth rate of 8.9%. The increase in the
production capacity was attributable to the opening of South Valley cement and Arabian
cement new production lines. Total cement production in Egypt for the FY2007/08 reached
39.3mn, against 37.1mn tons in 2006/07, achieving a growth rate of 6%, while the consumption



4                                 Economic & Strategic Outlook                    February 2009
Global Research - Egypt                                                  Global Investment House


of cement significantly increased by 14.7% from 32.1mn tons in 2006/07 to 36.8mn tons in
2007/08. The surge in the cement consumption was attributable to the boom witnessed in the
construction activity.

The steel sector constituted of around 21 producers in 2007, with a capacity of 9.6mn tons of
finished products. El Ezz Steel Group captures the lion’s shares in the steel market in Egypt,
where it contributed to 70% of the aggregate consumption of long products in 2007. The boom
witnessed in the construction sector has positively affected the steel sector, which flourished
in the latest 3-year period to fulfill the needs of housing, infrastructure and tourism projects.
This can be illustrated by the higher demand over steel products, which grew at a CAGR of
14.1% over the same period, reaching 5.2mn tons in 2007, compared to 3.5mn tons in 2004.
In response to the growing demand for steel accompanying the booming construction and
real estate sector, aggregate steel production rose at a CAGR of 9.0% over the period from
2004 to 2007, where it increased from 4.8mn tons to 6.2mn tons, representing a y-o-y growth
of 3.0% over 2006. The total production remained stagnant at 6.2mn tons in 2008.

The Egyptian banking sector proved to be standing on solid ground amid the financial crisis
that hit international markets in late 2008. This came on the back of the reforms that occurred
in the sector since 2004. These reforms improved the asset quality and capital adequacy
of Egyptian banks and eliminated the weak and poor performing banks. One of the main
features characterizing the sector in Egypt is the abundant liquidity, which was a result of
the accelerated projects by various investors in booming business sectors, stimulated by
the sound economic growth witnessed in the country over the last three years. Over the 5-
year period from 2002/03 to 2007/08, domestic liquidity (M2) grew at a CAGR of 14.8%,
reaching LE766.7bn, representing a y-o-y increase of 15.7%. Narrow Money Supply (M1),
represented by currency in circulation and demand deposits in local currency, rose by 29.9%,
reaching LE170.6bn, while Quasi Money, which consisted of time and saving accounts in
local currency along with demand, time and saving deposits in foreign currency, moved up
by 12.2%, reaching LE596.1bn in the same year.

The Egyptian stock market, as represented by the CASE30 Index, dropped sharply during
2008, recording all time single year loss of 56.4%. The last year plunge swept the gains of the
CASE30 Index over the past two and half year, bringing it back to its early 2005 levels. This
unpleasant performance of the Egyptian market over the course of 2008 came on the back of
the world financial crisis, which strongly hit the world financial markets in September 2008,
resulting in a slowdown in the world economy.




February 2009                     Economic & Strategic Outlook                                 5
Global Research - Egypt                                                           Global Investment House



Annual Indicators
Economic Performance                           2002/03 2003/04 2004/05 2005/06 2006/07 2007/08*
Nominal GDP (LE bn)                              417.5   485.3   538.5   617.7   744.8    896.5
Nominal GDP (US$ bn)                              80.4    78.7    89.7   107.5   130.3    162.6
Nominal GDP Growth Rate (%)                     10.2%   16.2%   11.0%   14.7%   20.6%    20.4%
Real GDP (LE bn) ^                               390.7   407.0   425.2   454.3   744.8    798.1
Real GDP Growth Rate (%) ^                       3.1%    4.2%    4.5%    6.8%   63.9%     7.2%
Per capita GDP (US$)                             1,161   1,117   1,247   1,460   1,682    1,990
Consumer Price Index (Urban Areas) (%)           3.2%   10.3%   11.4%    4.2%   11.0%    11.7%
Population (mn)                                   69.2    70.5    71.9    73.6    77.5     81.7
Government Finance (LE mn)
Total Revenues and Grants                        89,146    101,881    110,865    151,266    180,215    221,404
  Tax Revenues                                   55,736      67,147     75,759     97,778   114,326    137,195
Total Expenditures                             127,320     145,987    161,610    207,811    222,029    282,290
  Wages and Salaries                             33,816      37,266     41,546     46,719     52,153     62,839
  Interest Payments                              25,851      30,704     32,780     36,815     47,700     50,528
  Subsidies, Grants and Social benefits           20,612      24,746     29,705     68,897     58,442     92,371
Cash Surplus/(Deficit)                          (38,174)    (44,107)   (50,747)   (56,545)   (41,815)   (60,886)
  Less: Net Acquisition of Financial assets       5,385       1,770        896    (6,159)     12,883        236
Overall Fiscal Surplus/(Deficit)                (43,559)    (45,877)   (51,643)   (50,386)   (54,698)   (61,122)
Government Debt
Gross Domestic Public Debt (LE mn)              323,197 388,377 469,039 470,264 493,879 536,627
Gross External Debt (US$ mn)                     29,396 29,872 28,949 29,593 29,898 33,893
Balance of Payment (US$ mn)
Trade Balance                                   (6,615) (7,834) (10,359) (11,986) (16,291) (23,416)
  Total Exports                                   8,205 10,453 13,833 18,455 22,018 29,356
  Total Imports                                (14,820) (18,286) (24,193) (30,441) (38,308) (52,771)
Services (net)                                    4,949    7,318    7,842    8,191 11,498 14,966
Transfers (Net)                                   3,609    3,934    5,428    5,547    7,061    9,338
Current Account                                   1,943    3,418    2,911    1,752    2,269      888
Current Account/Nominal GDP                       2.4%     4.3%     3.2%     1.6%     1.7%     0.5%
Capital & Financial Account                     (2,734) (5,016)     3,378    3,511      853    7,137
Overall balance                                     546    (158)    4,478    3,253    5,282    5,420
Money Supply (LE mn)
Money Supply - M1                                67,212 77,606 89,685 109,274 131,290 170,579
Quasi Money                                     317,050 357,305 404,199 451,082 531,398 596,085
Total Domestic Liquidity (M2)                   384,262 434,911 493,884 560,356 662,688 766,664
Interest Rates
CBE Discount Rate                                10.0%      10.0%      10.0%       9.0%       9.0%        10.0%
Lending Rate (less than one yr loans)            13.7%      13.4%      13.4%      12.7%      12.6%        12.2%
3-months Deposit Rate                             8.7%       8.0%       7.7%       6.5%       6.0%         6.1%
3-months T-bills                                  8.3%       8.4%      10.1%       8.8%       8.7%         7.0%
Bank Credit as % of GDP                          68.2%      61.0%      57.2%      52.5%      47.5%        44.8%
Capital Market Indicators **
CASE 30 Index (Points)                          1,155.5    2,568.0 6,324.7 6,973.4 10,549.7 4,596.5
Market Capitalization (LE bn)                     171.9      233.9   456.3   534.0    768.3    473.6
Price Earning (P/E) Ratio ***                        8.8      15.6    22.0    21.0     19.1     10.0
Price to Book (P/B) Ratio ***                        2.1        4.4     9.1     5.9     8.7      0.7
Total Volume of traded shares (mn)              1,422.3    2,434.7 5,310.4 9,080.5 15,091.3 25,556.0
Total Value of traded shares (LE mn)             27,764     42,374 160,635 286,740 363,047 529,624
^ Using 2001/02 prices for the period 2002/03 to 2005/06 and prices of 2006/07 for 2006/07 and 2007/08
* Provisional, ** Figures as of year end on December
*** P/E and P/B ratios are based on the most active companies only (Liquid Market)
Source: Central Bank of Egypt (CBE), US Census Bureau, Ministry of Finance, The Egyptian Exchange (EGX)
and Global Research


6                                     Economic & Strategic Outlook                            February 2009
Global Research - Egypt                                              Global Investment House



Economic News Flow (January 2008 to January 2009)
January 08

•   Egypt ranked first on the world as the best economic reformer. Furthermore, Egypt jumped
    from the 127th position to the 85th, according to the Heritage Foundation’s fourteenth
    annual report of the economic freedom indications for 157 countries. (Source: Al Ahram
    Newspaper)

•   The Egyptian government approved increasing the subsidies on petroleum products
    in 2007/08 budget by LE19.67bn, to reach a total of LE56bn. (Source: Al Ahram
    Newspaper)

•   The government of Egypt signed a loan agreement with Arab Fund for Economic and
    Social Development to obtain two loans with the amount of KD30mn each to finance
    the expansions of the Abu Kir power station. The loans will have an interest rate of 3%
    and will be paid over 26 years, of which 6 years are grace period. (Source: Al Ahram
    Newspaper)

February

•   The Minister of Economic Development announced that the Egyptian economy achieved
    a growth rate of 8.1% during the second quarter of the FY2007/08 (from July to December
    2007), compared to 6.6% during the second quarter of FY2006/07. (Source: Al Ahram
    Newspaper)

March

•   The Organization for Economic Co-Operation and Development (OECD) announced that
    Egypt joined the OECD Development Center to become the first Arab and North African
    country joining this center. (Source: EGX)

•   The Minister of Trade and Industry decided to ban Portland cement and Clinker
    exportation, starting March 29th, 2008 and till October 1st, 2008. (Source: Al Alam Al
    Youm Newspaper)

•   The Board of Directors of the Central Bank of Egypt (CBE) approved for 5 Arab and
    International banks to perform a due diligence on the Banque du Caire, in order to bid
    for the offered 51% stake in the Bank with a maximum of 67%. The banks which will
    perform the due diligence are the Standard Chartered (UK), Samba Bank (Saudi Arabia),
    the National Bank of Greece (Greece), Mashreq Bank (UAE), and an alliance between
    the Arab Bank and Arab National Bank (Jordan-Saudi). (Source: Al Alam Al Youm
    Newspaper)

•   The Ministry of Petroleum signed 4 agreements with foreign companies to mine for oil,
    gas, and gold in Egypt, with an investment cost of around US$478.5 million. (Source: Al
    Alam Al Youm Newspaper)




February 2009                    Economic & Strategic Outlook                             7
Global Research - Egypt                                                  Global Investment House


April

•   The government announced that it would raise the natural gas and electricity prices for
    energy-intensive industries in January 2009 instead of mid 2009, due to the recent hikes
    witnessed in international oil prices. (Source: Daily Star)

•   The President of Egypt issued the new custom tariffs, where 111 articles have been
    amended. It is worth mentioning that tariffs on strategic foods, cement, steel, and some
    glass products will be removed completely. On the other hand, tariffs on conditioning
    systems will decrease to reach 30%. (Source: Al Ahram Newspaper)

May

•   The Egyptian President has announced a 30% increase in wages for state workers, on the
    back of the hike witnessed in local prices. This has come as part of the President's speech
    in worker's eve, as of May 1st, 2008. (Source: Al Akhbar Newspaper)

•   The Egyptian government decided to raise the fuel prices through partial cut down of
    the fuel subsidies, as well as increasing energy costs for energy intensive industries. The
    increase in fuel prices is expected to generate LE5.9bn as revenue for the government,
    whereas the 58% increase in the natural gas price, for energy-intensive industries, will
    generate around LE1.6bn. Also, for the first time the government approved a progressive
    system of vehicles licensing fees depending on different engines capacities. Moreover,
    cigarette prices will be raised by an average of 10%, as well as enforcing extraction fees
    on clay. In addition, the government has cancelled the tax exemption on private schools
    and universities and treasury bills revenues. (Source: Al Ahram Newspaper)

June

•   The Central Bank of Egypt (CBE) has cancelled a LE3bn bonds auction, with a maturity
    date of June 24th, 2017. The CBE gave no reason for the cancellation decision. (Source:
    Reuters)

•   Moody’s Investor Service Rating agency downgraded its outlook on Egypt’s foreign and
    local currency bonds from stable to negative, on the back of surging inflation rate, as well
    as increasing subsidies bill and wide fiscal deficit. (Source: Reuters)

•   The auction of state owned Banque du Caire was cancelled, as the highest bid did not meet
    the reserve price set by the Egyptian government. It is worth mentioning that there were
    five banks in the bid, two of them were disqualified, as they did not present a bid, these are
    the Saudi Samba Bank and the British Standard Chartered Bank. The highest bid among
    the remaining three was presented by the National Bank of Greece at US$1.4bn, followed
    by Mashreq Bank at US$0.9bn and finally a consortium composed of the Jordanian Arab
    Bank group and the Saudi Arab National Bank, at a price of US$0.8bn. The Egyptian
    government announced that the intention to sell the Bank is still there, however no
    timeframe was set for the reopening of the bid. (Source: Al Mal Newspaper)




8                                 Economic & Strategic Outlook                     February 2009
Global Research - Egypt                                                 Global Investment House


•   In line with the government's efforts to widen the investors' base and enhance the Egyptian
    stock market, the People's assembly has approved the amendments of the capital market
    law No. 95/1992. The amendments include reducing the minimum share par value to ten
    piasters instead of LE1. Besides, violations to the capital market law will be punished by
    a fine up to LE20mn in some serious crimes. Moreover, in order to strengthen the role of
    the Egyptian stock exchange and facilitate dealing through it, both Cairo and Alexandria
    stock exchanges have incorporated into one entity called the Egyptian Exchange (EGX).
    Additionally, the Minister of Investment reaffirmed that the new amendments will not
    cancel tax exemptions on capital market transactions. (Source: EGX)

July

•   The Forum of the World Bank, co-sponsored by the International Finance Corporation,
    has selected Egypt among the seven best countries in the world that have taken effective
    measures for economic reform, developing investment climate and improving the business
    environment. (Source: Al Alam Al Youm Newspaper)

•   The National Telecom Regulatory Authority (NTRA) has postponed the bid deadline
    for the second fixed-line license from July 29th to September 18th 2008. The NTRA
    stated that the extension of deadline is decided to give more time to set the bases for the
    interconnection agreement between the second fixed provider and the mobile network
    operators in light of the latest discounts of the fixed tariffs. (Source: Mubasher)

August

•   The Chairman of the Egyptian Exchange (EGX) announced that the establishment of a
    new index, which will include 100 companies, was under study. (Source: Al Alam Al
    Youm Newspaper)

•   The government cancelled the tax exemption on treasury bonds before July 2008. (Source:
    Al Alam Al Youm Newspaper)

•   Fitch Ratings agency has revised the outlook on Egypt's long term foreign currency Issuer
    Default Rating (IDR) to stable from positive, while affirming the rating at 'BB+'. The
    agency has also downgraded the long term local currency IDR to 'BBB-' (BBB minus)
    from 'BBB'. The short term foreign currency IDR and country ceiling are affirmed at
    'B' and 'BB+', respectively. The agency cited the reasons for the rating downgrade to
    the soaring inflation rate, along with high deficit, which remained at 7.7% of GDP in
    FY2007/08. (Source: Reuters)

•   The latest report issued by the Ministry of Industry for the 11-month period (July 2007
    to May 2008) indicated that the total subsidy increased by 130% to reach LE76bn from
    LE33bn reported during the same period in the previous year. In addition, the report
    showed that the total tax revenue reached LE121bn; increasing by 31% compared to the
    previous year, while non-tax revenue increased by 46.6% to reach LE66bn. Accordingly,
    total revenue reached LE186.5bn, representing 21.4% of GDP. (Source: Al Ahram
    Newspaper)




February 2009                     Economic & Strategic Outlook                                9
Global Research - Egypt                                                   Global Investment House


•    The Minister of Investment announced that the public enterprises will execute new projects
     to produce sugar, paper, cement, caustic soda and copper with a total investment cost
     of LE5.3bn. In addition, the Holding Company for Metallurgical Industries is studying
     establishing a steel factory in Upper Egypt with a total investment cost of LE7bn. (Source:
     Al Ahram and Al Alam Al Youm Newspapers)

•    The Ministry of Finance announced that the Central Bank of Egypt (CBE) will increase
     its capital from LE1bn to LE4bn. (Source: Al Alam Al Youm Newspaper)

•    The Egyptian government cancelled the US$1.4bn fertilizer project, which Canadian
     company Agrium was planning to set up near a beach resort on the northeast coast of
     Egypt. A cabinet statement said that state-owned MOPCO (Misr Oil Processing Company)
     would acquire the shares of Agrium Egypt, Agrium's Egyptian subsidiary, and carry out
     Agrium's plans on another site further from the Ras El-Barr resort, located in Damietta
     governorate. This came after the people of Damietta protested against the fertilizer plant,
     claiming that the plant would damage the environment and that the site should be set aside
     for tourism. Agrium, which had received all the permits needed and had started preparing
     the site, had asked for large compensation if the government blocked the project. The
     cabinet statement did not mention compensation but it said MOPCO will complete the
     agreement negotiated with Agrium to acquire Agrium Egypt's shares and carry out the
     company's plans on the land allocated for it in the general industrial zone west of the
     navigation channel. Agrium, the world's third-largest nitrogen fertilizer producer, said
     in June it had invested US$165mn in the project with a total equity commitment of
     US$280mn. Agrium would have owned 60 percent of the project and the other investors
     would have been three Egyptian majority state-owned companies, Echem, Egas and
     Gasco, with 11 percent each, and Saudi-based Arab Petroleum Investments Corporation
     (Apicorp), with 7 percent. (Source: Daily Star)

September

•    According to the World Investment Report 2008 issued by UNCTAD, Egypt jumped
     to the 20th rank over 141 countries in attracting FDI up from 126 in 2003. The report
     highlighted that Egypt captured more than 50% of the total FDI inflows to North Africa
     and 22% of the total FDI inflows to African continent, which has positioned Egypt as
     the second largest recipient of FDI in Africa and the first in the North Africa. (Source:
     EGX)

•    The Egyptian Exchange (EGX) Chairman announced that listed companies must offer at
     least 10% of their shares to the public. Newly listed companies will have to offer at least
     10% of their shares within three months of their listing date, while companies already
     listed could have a grace period of as long as one year to launch their IPO if they have not
     done so yet. (Source: Daily Star)

•    In a contest arranged by New York Stock Exchange and Africa Investor Group, Egypt
     won the best stock exchange award among African exchanges. (Source: Al Ahram
     Newspaper)




10                                 Economic & Strategic Outlook                     February 2009
Global Research - Egypt                                                   Global Investment House


•   The global Foreign Direct Investments (FDI) index has showed an improvement in
    Egypt’s ranking in 2007 to reach 20, compared to 66 in 2006, in addition to be ranked
    first among North African countries. (Source: Mubasher)

•   International Finance Corporation, an affiliate of the World Bank, ranked Egypt amongst
    the top 10 reformers of business regulations in the world, and the top regional reformer.
    Egypt ranked first among African countries in reforms of foreign trade policy, and third
    among Mediterranean countries behind France and Israel. However, Egypt ranking is still
    low in the "Ease of Doing Business" list, as it ranked 114th out of 181 countries. (Source:
    Reuters)

•   Standard & Poor's Ratings Services affirmed its 'BB+' foreign currency and 'BBB-' local
    currency long-term sovereign credit ratings on Egypt. At the same time, the 'B' foreign
    currency and 'A-3' local currency short-term ratings were affirmed, with a stable outlook.
    (Source: EGX)

•   The National Telecom Regulatory Authority (NTRA) announced that it had decided to
    postpone the auction for the second fixed-line network, which was announced earlier this
    year, with a re-examination of offering it to take place next year. In addition, the Minister
    of Communications and Information Technology announced that no tariffs will be added
    on the fixed line calls. (Source: Reuters Website and Al Ahram Newspaper)

October

•   The World Bank latest report for the Trading Across Borders Index has put Egypt in an
    improved position at the 24th rank in 2008 among 181 countries, replacing its 86th rank
    in 2006. (Source: Mubasher)

•   The Minister of Investment announced that the Capital Market Authority (CMA) has
    amended the EGX listing rules by allowing the listed companies to trade on their treasury
    shares in order to maintain the stability of their stock prices in the market. (Source:
    EGX)

•   The Minister of Trade and Industry issued a ministerial decree, through which he cancelled
    the import tariffs imposed on cement and iron and steel products in order to protect the
    Egyptian economy from the consequences of the current international financial crisis.
    (Source: Mubasher)

•   As a protective act against the world financial crisis, the Egyptian Exchange (EGX)
    decided that the trading system will not accept placing orders exceeding 20% above or
    below the opening price for the stocks traded without price limits, effective October 12th,
    2008 trading session. (Source: EGX)

November

•   The Ministerial Cabinet announced that the Egyptian economic growth reached 5.8%
    in Q1 of FY2008/09, compared to 6.5% during the same period in the previous year.
    In addition, the communication and tourism sectors achieved a growth rate of 12% and


February 2009                      Economic & Strategic Outlook                               11
Global Research - Egypt                                                  Global Investment House


     14.2%, respectively, while the growth rate in oil and gas sector reached 9%, against 2%
     in Q1 of FY2007/08. Furthermore, the private consumption of basic goods increased by
     30%, compared to 17% during the comparable period. (Source: Al Ahram Newspaper)

•    Egypt’s ruling National Democratic Party (NDP), has proposed on Monday 10th of
     November 2008 that the government would distribute on the citizens free shares in public
     sector companies. The free shares will be offered to some 41 million Egyptians over the
     age of 21. Meanwhile, a stake of the public companies will be allocated in a fund for the
     coming generations. Additionally, the Minister of Investment announced that the plan
     will be applied on around 153 public companies, where the government will retain stakes
     between 30% and 67% of 86 companies from the 153 offered, and between 51% and
     67% stakes in 41 companies and less than 30% in the remaining companies. It is worth
     mentioning that 67 public companies will not be offered, of which 19 are profitable and
     48 are not profitable. (Source: Al Ahram Newspaper)

•    The Central Bank of Egypt decided to collect funds amounting to LE17.5bn, to finance
     the fiscal budget deficit, which will increase due to the LE15bn that will be supplied to
     the market to mitigate the effect of the global financial crisis on the Egyptian economy.
     These funds, LE17.5bn, will be collected through treasury bills bids and deposits by the
     banks at the CBE, planned to worth LE9.5bn and LE8bn, respectively. (Source: CBE and
     Mubasher)

•    The Minister of Finance announced that the government has took some procedures to
     support the economy, through injecting new investments amounting to LE30bn, where
     LE15bn will be invested in the Public Private Partnership (PPP) program and the
     remaining amount will be used to finance infrastructure projects. The Minister added
     that these funds will be financed by the expected savings in the subsidy, on the back of
     declining food and energy prices, and partially through increasing the budget deficit.
     (Source: Al Ahram Newspaper)

•    BNP Paribas Bank in cooperation with the Egyptian Exchange (EGX) has launched the
     first index fund on "Dow Jones CASE Titans 20" index, which comprises the most active
     20 stocks in EGX in terms of liquidity, revenues, and market capitalization. It is worth
     mentioning that indices funds worldwide are close to 1,137 with its certificates are traded
     in 42 stock exchanges with total assets amounting toUS$773.2bn. (Source: Al Ahram
     Newspaper)

•    The Minister of Finance announced that the Egyptian government will increase the
     spending in the current budget by LE15bn in order to face the expected impacts that could
     arise from the current international financial turmoil. (Source: Al Ahram Newspaper)

•    Moody's Investors Services has granted Egyptian banks a credit rating of "Stable" for the
     future outlook. Said rating came on the back of the government reforms on the banking
     system, which supported and enhanced the country's economic growth. (Source: Al Mal
     Newspaper)

•    The Central Bank of Egypt and the European Central Bank signed a Memorandum of
     Understanding to start the second phase of the European technical assistance program


12                                 Economic & Strategic Outlook                    February 2009
Global Research - Egypt                                                 Global Investment House


    to develop the Egyptian banking sector. The second phase should be completed over a
    3-year period, starting from January 2009 and is concerned with enforcing the Basel II
    standards. It is worth mentioning that the European Union will provide non-reimbursable
    funds of Euro3mn to finance the second stage of the reforms program, while the first
    phase funding amounted to Euro4.5mn. (Source: Al Ahram Newspaper)

•   The Industrial Development Authority (IDA) announced that it will reject proposals for
    any new projects in the energy intensive industries, namely the aluminum, ammonia and
    urea industries. This came on the back of the Government’s plan to rationalize the use of
    Egypt’s energy supply. (Source: Daily Star)

•   The Industrial Development authority (IDA) approved the construction of two new
    factories for the production and refining of sugar. The first factory will be established in
    El Nubaria area to produce and refine beet sugar, with a capacity of 130 thousand tons
    and an estimated cost of LE473mn. In addition, the second factory will be established in
    Al Ain Al Soukhna port to produce and refine raw sugar, with a capacity of 750 thousand
    tons and an estimated cost of LE800mn. (Source: Al Ahram Newspaper)

December

•   Standard & Poor's Ratings Services has affirmed its 'BB+/B' foreign currency and 'BBB-
    /A-3' local currency sovereign credit ratings on the Arab Republic of Egypt. The outlook
    on the ratings is stable. Moreover, Standard & Poor’s expects Egypt’s economic growth
    to fall to around 5.5% in FY2008/09 (ending June 30th, 2009) and 4.4% in FY2009/10,
    from an average of 7% in the past three years, as a result of the expected slowdown in
    tourist arrivals, static workers’ remittances, and weakening demand for manufacturing
    exports. (Source: Reuters)

•   The Egyptian government plans to cut import tariffs on some capital and intermediary
    goods to 0% from between 2% and 5% to boost investment. The changes will affect
    a number of industries, including automotive, spinning and weaving, dairy and food
    production, as well as spare parts for a number of household goods. Egypt will also review
    import duties charged at 10% on some goods. It is worth mentioning that the Egyptian
    government announced earlier that it plans tax exemptions and tariff reductions worth
    LE2.2bn as part of a package to stimulate the economy (amounting to LE15bn), with
    LE1bn exempting investors from sales tax on capital goods for a year starting in January
    2009. (Source: Reuters and Al Masry Al Youm Newspaper)

•   In an attempt to encourage the banks to finance the Small and Medium Enterprises
    (SMEs), the Central Bank of Egypt (CBE) announced the removal of the 14% deposit
    reserves on new loans granted to SMEs. The decision will be effected as of January 2009.
    (Source: Al Ahram Newspaper)

•   The Egyptian Government has set a lower GDP growth target of 5.5% for FY2008/09,
    after realizing a growth of 7.2% in FY2007/08, reflecting the negative impacts of the
    world financial crisis. Moreover, the Government is seeking to attract around US$10bn
    FDIs during the current FY. (Source: Al Ahram Newspaper)




February 2009                     Economic & Strategic Outlook                              13
Global Research - Egypt                                                  Global Investment House


•    To face the consequences of the global financial crisis, the Minister of Trade and Industry
     announced that the exports support fund will increase its financial support to all exporting
     sectors benefiting from the fund to 50%. On the other hand, the Minister announced
     establishing a holding company for industrial development in Sinai, with a capital
     amounting to LE100mn, to benefit from Sinai’s natural resources. (Source: Al Ahram
     Newspaper)

•    The Egyptian government announced that it will freeze electricity and natural gas prices
     for small and medium scale industries until the end of 2009, to help these industries to
     cope with the world financial crisis. (Source: Arab Finance)

•    The Minister of Finance announced a LE15bn stimulus plan for the Egyptian Economy
     to encounter the global financial crisis, including customs reduction on intermediary and
     capital goods amounting to LE1.2bn to encourage investments. In addition, exempting
     investors from sales tax on capital goods worth LE1bn for a year, as well as increasing
     government expenditure by LE12bn. The plan also includes supporting the Egyptian
     exports to increase its competitiveness in the international markets and allocating
     LE800mn to improve basic services in local governorates. The Minister also added that
     there is no intention to decrease custom duties on imported cars. (Source: Mubasher)

January 09

•    The Ministry of Finance reported an increase in the total general spending by 53% to
     reach LE124.4bn during the first five months of FY2008/09, compared to same period
     last year. This is mainly due to the increase in expenditure on government investments
     by 42.5% reaching LE11.3bn, as well as 154.0% increase in subsidies reaching LE34bn.
     On the other hand, total government revenue increased by 75.4% to reach LE93.7bn,
     which came on the back of 40% increase in tax revenue reaching LE50bn. (Source: Arab
     Finance)

•    The Government of Egypt will exempt hotel establishments from paying tourism
     promotion fees and will cut fees paid by charter flights, in an effort to help bolster the
     Country’s tourism industry. (Source: Reuters)

•    The Minister of Trade and Industry has issued a decree imposing temporary defensive
     duties on some grades of spinned and weaved cotton imports, as well as a LE500/ton on
     white and refined sugar. (Source: Al Ahram Newspaper)

•    The Shurah Council financial and economic committee has approved a US$500mn loan
     agreement between the World Bank and the Egyptian government, which is provided to
     help the government execute the second phase of the financial sector reform program.
     (Source: Al Masry Al Youm Newspaper)

•    In order to promote investments in the oil sector, the Egyptian Government decided to
     exclude oil refineries from the May 5th decisions, which included ending the tax exemption
     for the energy intensive industries working under the Free Zones law. (Source: Al Mal
     Newspaper)




14                                 Economic & Strategic Outlook                    February 2009
Global Research - Egypt                                                  Global Investment House


•   The People’s Assembly Financial and Economic Committee approved a draft law, which
    aims at enhancing the supervision of the non-banking financial sector and markets,
    through merging the supervisory institutions, including the Capital Market Authority,
    the Egyptian Insurance Supervisory Authority and the Mortgage Finance Authority, into
    one general authority for financial supervision, which represents an independent entity
    with a corporate character, a center for financial dispute settlements, as well as a financial
    services training institute. The draft law comes in the second stage of the financial sector
    development program, which is expected to be completed by 2012. (Source: Arab Finance
    and Al Ahram Newspaper)

•   The Ministry of Trade and Industry announced that the government has taken fresh
    measures to be carried out in a year, to ease the effects of the global financial crisis,
    complementing the latest decision of pumping 15bn into the market in 6 months.
    Instructions were given to all government agencies to refrain from importing any finished
    goods and commodities that have local peers. Also, the instructions include providing
    a financial support of LE150 for every quintal of Egyptian cotton and cancelling the
    development fees on export of cars of all brands. Moreover, the government intends to
    support exports of factories, which preserve labor rights. (Source: Arab Finance)




February 2009                     Economic & Strategic Outlook                               15
Global Research - Egypt                                                Global Investment House



Macroeconomic Profile
The world economic crisis has extended its shadows on the Egyptian economy in FY2008/
09, as after three consecutive years of strong GDP growth, of around 7%, the forecast by
the Egyptian government, as well as the International Monetary Fund (IMF), was set at an
average between 5% and 5.5% for the FY2008/09, compared to a world projected average
of 0.9%.

This economic growth slowdown comes on the back of the credit crunch at world level,
which is expected to negatively impact the country’s exports, foreign direct investment (FDI)
inflows, tourism receipts, Suez Canal proceeds, as well as the Egyptian abroad remittances.

As a counter action against the foreseen impact of the world economic slowdown on the
national economy, the Egyptian government has taken measures to limit these negative
effects and spur growth including:

     1. Increasing the infrastructure investment budget,

     2. Cancelling taxes on exports,

     3. Postponing plans to cancel subsidies on electricity and natural gas for energy-
        intensive industries, like cement, fertilizers and petrochemicals,

     4. And refraining imports of finished goods and commodities that have a local
        counterpart.

However, the real threat that could hinder growth is the high inflation rate, which peaked in
August 2008 to 23.6% and declined in December 2008 to 18.3%. The inflation has gotten
higher on the back of surging oil and food prices internationally and now that they have
plummeted, the inflation is expected to drop even further. But the limited flexibility of the
Egyptian pound against the weakening US dollar has raised non US dollar import prices,
which in turn is threatening the government efforts to calm down the high inflation rate more
rapidly.

The world financial turmoil has also urged the foreign investors to pull out of the equity and
government bond markets, forcing the Central Bank of Egypt to respond by lessening its
foreign currency reserves with commercial banks.

The trade deficit is not expected to worsen in 2009 as the imports decline, as a result of a
weaker domestic demand and plunging commodity prices, will offset the expected drop in
the country’s exports.

The subsidy bill, which surged by almost 50% in 2007/08, is expected to witness a considerable
decline as the oil prices dropped severely since June 2008 and the changes made by the
Egyptian government in the energy subsidy during 2008 are not expected to change. This in
turn will leave more room for the government to direct this saving in other areas that could
bolster the economic growth.




16                               Economic & Strategic Outlook                    February 2009
Global Research - Egypt                                                Global Investment House


The current account deficit may widen as a result of the declining tourism and Suez Canal
revenues as well as the remittances of the expatriate workers. The challenge is to offset the
drop in the aforementioned revenues through encouraging more FDI inflows. Though under
the current world circumstances the FDI inflows increase would seem not likely, Egypt could
benefit from its location and natural resources in attracting more inflows. The cheap labor,
the abundant natural gas reserves and the agricultural infrastructure could all be interesting
points to capitalize on. The world need for more oil refining facilities could be the catalyst
for attracting FDI inflows into Egypt, capitalizing on its strategic location among three
continents.

The public sector deficit, on the other hand, could deteriorate on the short term as the
government postponed new privatizations and subsidy cancellations, which were intended at
reducing the current government debt.

Despite the challenges that currently face the Egyptian government to sustain the economic
growth above 5%, the financial intermediation will not be hampered by the international
credit crunch, supported by a strong banking sector with healthy balance sheets and low
level of financial integration, thanks to the government reforms. The Egyptian banking
sector reforms were mainly attributed to strong supervision and regulation, elimination of
nonperforming loans and unadventurous financing and investment practices.

In general, Egypt’s medium term outlook remains sound. We believe that the Egyptian
economy is capable of surpassing the current storm that hit the world economy, thanks to
the reforms implemented since 2004. Most likely, the government will work on curbing
inflation, maintaining economic growth and balance of payments stability, throughout 2009.




February 2009                    Economic & Strategic Outlook                               17
Global Research - Egypt                                                               Global Investment House



Gross Domestic Product
The Egyptian economy continued its robust growth for the third consecutive year, as reflected
in the real GDP growth of 7.2% in FY2007/08, reaching LE798.1bn, following a growth of
7.1% and 6.8% in FY2006/07 and FY2005/06, respectively. This came on the back of the
economic reforms adopted by the government since FY2003/04. The nominal GDP grew at
a CAGR of 16.5% between FY2002/03 and FY2007/08, reaching LE896.5bn by the end of
FY2007/08.

The country’s economic development has made Egypt, for the third time in 4 years, among the
top 10 global reformers and the top regional reformer this year in the “Doing Business 2009”
report, which is compiled annually by the World Bank comparing the business environments
in 181 economies worldwide. There have been improvements particularly in the areas of
starting a business, dealing with construction permits, registering property, getting credit,
protecting investors and trading across borders.

Egypt’s healthy economic growth, along with the implemented reforms, is believed to protect
the country’s economic performance throughout the concurrent global crisis. Though the
world’s financial crisis hit most of the world’s economies, the Egyptian economy has preserved
its real GDP growth, which stood at 5.8% during the first quarter of FY2008/09 (from July to
September 2008), compared to 6.5% achieved in the first quarter of FY2007/08.

However, the Egyptian government has set a lower GDP growth target of 5.5% for FY2008/
09, after realizing a growth of 7.2% in FY2007/08, reflecting the negative impacts of the
world financial crisis. Moreover, the World Bank has forecasted a growth of 4.5% and 6.0%
for Egypt’s GDP in FY2008/09 and FY2009/10, respectively.

Table 01: Gross Domestic Product
                                                                                         July/Sept July/Sept
                                                 2003/04 2004/05 2005/06 2006/07 2007/08 2007/08 2008/09
Nominal GDP (LE bn)                                485.3   538.5   617.7   744.8   896.5     218.3     274.6
Nominal GDP (US$ bn)                                78.7    89.7   107.5   130.3   162.6      38.6      51.3
Nominal GDP Growth Rate (%)                       16.2% 11.0% 14.7% 20.6% 20.4%             17.4%     25.8%
Real GDP (LE bn) ^                                 407.0   425.2   454.3   744.8   798.1     198.0     209.5
Real GDP Growth Rate (%) ^                         4.2%    4.5%    6.8% 63.9%#     7.2%      6.5%      5.8%
Per capita GDP (US$)                               1,117   1,247   1,460   1,682   1,990       498       628
Consumer Price Index (Urban Areas) (%)            10.3% 11.4%      4.2% 11.0% 11.7%          8.4%     22.4%
^ Using 2001/02 prices for the period 2002/03 to 2005/06 and prices of 2006/07 for 2006/07 and 2007/08
#N.B. This significant growth is due to the change in the base year from 2001/02 to 2006/07, starting 2006/07,
meanwhile the real growth was 7.1% in 2006/07.
Source: Central Bank of Egypt (CBE), US Census Bureau, Ministry of Finance and Global Research


The per capita GDP grew by 18.3% in FY2007/08, reaching US$1,990, up from US$1,682
in FY2006/07. During the period from FY2002/03 and FY2007/08, the per capita GDP
has grown at a CAGR of 11.4%. It is worth mentioning that starting from FY2007/08, the
base year for the real GDP calculation was revised to be FY2006/07, instead of FY2001/02
prices, which was used in the previous years. Consequently, the real GDP value jumped by a
fictitious 63.9% from LE454.3bn in FY2005/06 to LE744.8bn in FY2006/07 while the actual
growth is 7.1%.



18                                      Economic & Strategic Outlook                              February 2009
Global Research - Egypt                                                           Global Investment House


The extractions sector (petroleum and natural gas), the manufacturing, the agriculture and
the wholesale and trade sectors are considered the main contributors to the country’s GDP,
representing together 57.1% of the total GDP in FY2007/08. Meanwhile, the sectors that
showed the highest growth in FY2007/08 are the extractions, tourism, wholesale and retail
trade, manufacturing and Suez Canal proceeds.

Chart 01: GDP Growth
        900                                                            7.1%             7.2%      8.0%
                                                    6.8%
        800                                                                                       7.0%
        700                                                                                       6.0%
        600                      4.5%
                 4.1%                                                                             5.0%
LE bn




        500
                                                                                                  4.0%
        400
                                                                                                  3.0%
        300
        200                                                                                       2.0%
        100                                                                                       1.0%
          0                                                                                       0.0%
                2003/04         2004/05            2005/06          2006/07 *         2007/08 *

                                      Real GDP             Real GDP Growth Rate (%)
*Based on 2006/07 prices
Source: Central Bank of Egypt (CBE)


The contribution of the extractions sector has went up from 14.6% in FY2006/07 to 16.4%
in FY2007/08. This came on the back of the 35.6% surge witnessed in the extractions sector,
reaching LE140.6bn in FY2007/08, up from LE103.7bn the year before. Between FY2002/
03 and 2007/08, the extractions sector grew at a CAGR of 27.1%.

The manufacturing sector came in second, accounting for 16.3% of the total GDP in
FY2007/08, reaching LE139.6bn, up by 22.0% from the year before. The agriculture sector
followed with a share of 13.2% of GDP in FY2007/08, down from 14.1% in FY2006/07.
The agriculture sector reported a growth of 13.2% in FY2007/08, reaching LE113.3bn, as
opposed to LE100.0bn in FY2006/07.

Though the wholesale and retail trade sector expanded by 23.1% in FY2007/08, reaching LE95.9bn,
its share in the GDP showed a mere rise from 11.0% in FY2006/07 to 11.2% in FY2007/08.
During the period from FY2002/03 to FY2007/08, the sector grew at a CAGR of 16.8%.

The tourism sector has recorded a healthy gain during the period from FY2002/03 to FY2007/
08, as reflected in a CAGR of 32.8%. In FY2007/08, the tourism sector rose by 29.5%,
to reach LE31.8bn, compared to LE24.6bn in FY2006/07. The contribution of the tourism
sector in the GDP increased slightly from 3.5% to 3.7% in FY2007/08.

The contribution of Suez Canal, though stagnant at 3.4% of total GDP, recorded a growth
of 22.0% during 2007/08 to reach LE29.4bn. During the year, the construction and building
sector has recorded a growth of 21.9%, and its contribution to GDP increased from 4.2% in
FY2006/07 to 4.3% in FY2007/08.

During the first quarter of FY2008/09, period from July to September 2008, the GDP
remained dominated by the agriculture, the extractions sector (petroleum and natural gas),



February 2009                           Economic & Strategic Outlook                                     19
Global Research - Egypt                                                 Global Investment House


the manufacturing and the wholesale and trade sectors, where they together constituted to
60.2% of GDP. The extractions, transport and warehousing, agriculture, wholesale and retail
trade, as well as the manufacturing sectors have witnessed maximum growth in the first
quarter of FY2008/09.

Table 02: GDP Composition by Economic Activity (at Current Prices)
                                                                             July/Sept July/Sept
                                      2003/04 2004/05 2005/06 2006/07 2007/08 2007/08 2008/09
Agriculture, Forestry & Fishing        15.2% 14.9% 14.1% 14.1% 13.2%            16.2%     16.8%
Extractions:                           12.6% 12.6% 15.5% 14.6% 16.4% 14.6% 15.6%
Petroleum                               7.4%    7.0%    7.0%    6.2%    6.9%     6.2%      6.7%
Natural Gas                             5.0%    5.4%    8.3%    8.0%    9.1%     8.0%      8.6%
Other                                   0.2%    0.2%    0.2%    0.4%    0.4%     0.4%      0.4%
Manufacturing:                         18.3% 17.8% 17.0% 16.1% 16.3% 15.4% 15.5%
Petroleum Refinement                     0.9%    1.0%    1.0%    0.9%    1.0%     0.9%      1.0%
Other                                  17.4% 16.8% 16.0% 15.3% 15.3%            14.5%     14.5%
Electricity                             1.5%    1.5%    1.5%    1.4%    1.3%     1.3%      1.2%
Water                                   0.4%    0.4%    0.4%    0.3%    0.3%     0.3%      0.3%
Construction and Building               4.1%    4.0%    4.1%    4.2%    4.3%     4.1%      4.1%
Transport and Warehousing               4.3%    4.3%    4.2%    4.2%    4.1%     4.0%      4.2%
Communications                          1.9%    2.0%    2.1%    3.2%    3.2%     2.9%      2.6%
Suez Canal                              3.5%    4.0%    4.0%    3.4%    3.4%     3.3%      3.2%
Wholesale and Retail Trade             11.1% 11.1% 10.9% 11.0% 11.2%            12.1%     12.2%
Financial Intermediation                5.3%    5.2%    5.0%    3.9%    3.7%     3.9%      3.6%
Insurance and Social Insurance          2.3%    2.3%    2.2%    3.7%    3.6%     3.6%      3.3%
Tourism (Hotels and Restaurants)        2.8%    3.3%    3.2%    3.5%    3.7%     2.8%      2.8%
Real Estate                             3.5%    3.5%    3.3%    2.9%    2.7%     2.6%      2.4%
General Government                     10.1% 10.2%      9.8%    9.0%    8.4%     8.7%      8.0%
Education                               0.7%    0.6%    0.6%    1.2%    1.1%     1.1%      1.1%
Health                                  1.2%    1.2%    1.1%    1.4%    1.3%     1.3%      1.3%
Personal Services                       1.2%    1.2%    1.1%    1.9%    1.7%     1.8%      1.8%
Total                                 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: Central Bank of Egypt (CBE)


The agriculture sector contribution grew from 16.2% to 16.8% in the first quarter of FY2008/
09, reaching LE44.3bn, as opposed to LE33.9bn reported during the same period of FY2007/
08, up by 30.8%. The extractions sector, which climbed by 35.0% in the first of FY2008/09,
has constituted 15.6% of the GDP, reaching LE41.2bn.

Although the manufacturing sector’s share showed a minimal growth from 15.4% to 15.5%
by the end of the first quarter of FY2008/09, it increased by 26.9% to reach LE40.8bn up
from LE32.2bn in the same period the previous year. Also, the wholesale and retail trade
sector’s contribution to the GDP slightly improved from 12.1% to 12.2%, whereas it reported
a growth of 26.9% between the comparable periods. The transport and warehousing sector
grew by 33.2%, reaching LE11.2bn in the first quarter of FY2008/09, and it accounted for
4.2% in the GDP. It is worth mentioning that the construction and building sector reached
LE10.7bn in the first quarter of 2008/09, up by 26.0% from the year before, with almost the
same contribution to the GDP, at 4.1%.




20                                    Economic & Strategic Outlook                February 2009
Global Research - Egypt                                                   Global Investment House


Table 03: GDP Composition by Expenditure Activity
                                                                                   July/Sept July/Sept
In LE bn                                2003/04 2004/05 2005/06 2006/07* 2007/08* 2007/08 2008/09
Final Consumption                         409.7   453.9   512.0    623.6    751.0      195.4     248.1
Household Consumption                     347.8   385.3   436.1    539.2    653.5      169.8     218.4
Public Consumption                         61.9     68.6    75.9     84.4     97.5       25.6      29.7
Investment                                 82.2     96.8  115.7    155.3    199.5        33.5      43.5
Fixed Capital Formation                    79.6     96.5  115.7    155.3    199.5        33.5      43.5
Change in Inventory                          2.6     0.3     0.0      0.0      0.0        0.0       0.0
Net Exports                                (6.6)  (12.2)  (10.0)   (34.1)   (54.0)     (10.6)    (17.0)
Exports of Goods and Services             137.0   163.4   185.0    225.3    293.9        64.8      79.7
Imports of Goods and Services             143.6   175.6   195.0    259.4    347.9        75.4      96.7
GDP                                       485.3   538.5   617.7    744.8    896.5      218.3     274.6
*Based on 2006/07 prices
Source: Central Bank of Egypt (CBE)


On the other hand, the GDP composition by expenditure has revealed that the total
consumption has continued its steady growth at a CAGR of 16.0% during the period from
FY2002/03 to FY2007/08. This came on the back of the improved economic conditions.
The final consumption went up by 20.4%, reaching LE751.0bn, as opposed to LE623.6bn
reported the year before. Household consumption grew from LE539.2bn in FY2006/07 to
LE653.5bn, thereby posting a growth of 21.2% during the year. The public consumption has
also achieved a growth of 15.5% in FY2007/08, to reach LE97.5bn.

As a matter of fact, the robust growth witnessed in the consumption has boosted investments,
which increased by 28.5% during FY2007/08, to reach LE199.5bn. In turn, the strong growth
in investment has resulted in the increase of capital goods imports. The imported goods and
services was up by 34.1% in FY2007/08, whereas the exports increased by 30.4%. Based on
the fact that the imports grew at a higher pace than the increase in exports, the net exports has
negatively impacted the GDP growth in FY2007/08.

Consumption remained firm during the first quarter of FY2008/09, reporting a growth of
27.0% compared to the year before. The household consumption rose by 28.6%, whereas the
public consumption increased by 16.0% in the first quarter of FY2008/09. Additionally, the
investments reached LE43.5bn in the first quarter of FY2008/09, up by 29.9%, compared to
the same period the previous year.

On November 2008, the Minister of Finance announced that the government has taken some
procedures to support the Egyptian economy to lessen the impact of financial crisis and the
expected contraction in investments. The government will inject new investments amounting
to LE30bn, where LE15bn will be invested in the Public Private Partnership (PPP) program
and the remaining amount will be used to finance infrastructure projects. The Minister added
that these funds will be financed through the expected savings in the subsidy, on the back
of declining food and energy prices, and partially through increasing the budget deficit. The
plan also includes supporting the Egyptian exports to increase its competitiveness in the
international markets.

Consequently, we believe that the government’s stimulus plan, coupled with cutting customs
on intermediary and capital goods, in order to encounter the global financial crisis, is expected


February 2009                         Economic & Strategic Outlook                            21
Global Research - Egypt                                                                 Global Investment House


to induce consumption, which will in turn spur investments and support the country’s
economic growth.

Chart 02: Egypt’s Real GDP Growth Vs. World’s and Emerging and Developing
Economies’ Real GDP Growth
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
        2006        2007             2008         2009 F       2010 F       2011 F          2012 F         2013 F

           Egypt's Real GDP Growth            Emerging and Developing Economies' Real GDP            World's Real GDP
Source: International Monetary Fund (IMF), World Economic Outlook Database, October 2008


Moreover, the International Monetary Fund (IMF) forecasted that Egypt will maintain a
strong real GDP growth in 2009 and 2010, at an annual average of 6%, compared to the
world’s average real GDP growth of 1.9% in 2009 and 3.2% in 2010. Prior to the international
crisis, the IMF has predicted that the Egyptian economy was set to record another strong
performance in FY2008/09, with growth likely to have been close to 7%, the annual average
of the previous three years. However, a slight slowdown in economic activity would appear
to be inevitable given the increased global integration of Egypt’s real economy.

It is worth mentioning that the IMF has issued a note in mid January 2009 revising Egypt’s
projected GDP growth for the FY2008/09 and setting it at an average of 5% to 5.5%. The note
also praised the government of Egypt’s efforts of reform, which resulted in the sustainability
of the Egyptian economy against global economic shocks.




22                                          Economic & Strategic Outlook                                February 2009
Global Research - Egypt                                                           Global Investment House



Public Finance
In FY2007/08, the government’s total revenues and grants surpassed the budget, where it
stood at LE221.4bn compared to a budgeted figure of LE187.2bn, reporting an increase of
22.9%, compared to the budget growth of 3.9% over FY2006/07. The increase came on the
back of the 20.0% growth witnessed in the tax revenues in FY2007/08. As for FY2008/09,
the total revenues and grants budget figure is LE276.8bn, up by 25.0% than the actual figure
of FY2007/08, driven by the projected 21.4% increase in the tax revenues.

Table 04: Government Finances (Budget Sector)
In LE mn                                  2003/04         2004/05    2005/06    2006/07    2007/08    2007/08    2008/09
                                            Actual          Actual     Actual     Actual    Budget      Actual    Budget
Total Revenues and Grants                 101,881         110,865    151,266    180,215    187,239    221,404    276,795
Tax Revenues                                67,147          75,760     97,779   114,326    120,824    137,195    166,569
Grants                                       5,051           2,853      2,379      3,886      3,166      1,463      5,557
Other Revenues                              29,683          32,252     51,108     62,003     63,249     82,746    104669
Total Expenditures                        145,987         161,610    207,811    222,030    244,061    282,291    343,913
Wages and Salaries                          37,266          41,546     46,719     52,153     60,344     62,839     79,039
Purchases of Goods and Services              9,340          12,612     14,428     17,028     16,944     18,470     23,833
Interest Payments                           30,704          32,780     36,815     47,700     51,979     50,528     52,930
Subsidies, Grants & Social Benefits          24,746          29,705     68,897     58,442     64,280     92,371   134,062
Other Expenditures                          21,080          21,692     19,740     21,209     22,864     23,892     25,788
Purchases of Non-Financial assets           22,851          23,275     21,212     25,498     27,650     34,191     28,261
Cash Surplus/(Deficit)                     (44,106)        (50,745)   (56,545)   (41,815)   (56,822)   (60,887)   (67,118)
Less: Net Acquisition of Financial Assets    1,770             897    (6,159)     12,883      1,947        236      2,674
Overall Fiscal Surplus/(Deficit)           (45,876)        (51,642)   (50,386)   (54,698)   (58,769)   (61,123)   (69,792)
Source: Central Bank of Egypt (CBE) and Ministry of Finance


The government expenditure grew by 27.1% in FY2007/08, while it was projected to rise by
only 9.9%, as a result of the hike of the subsidies, grants and social benefits, which soared by
58.1%, as opposed to a budgeted growth of 9.9%. The subsidies, grants and social benefits,
which constitutes 39.0% of the total expenditures, jumped from LE58.4bn to LE92.4bn in
FY2007/08 and it is estimated to mount further by 45.1%, to reach LE134.1bn in FY2008/
09. The wages and salaries actual growth surpassed the budget figure, where it reached
LE62.8bn, up by 4.1% than the projected figure and rising by 20.5% than the actual figure
of FY2006/07.

During the FY2007/08, the overall deficit grew by 11.7%, exceeding the projected 7.4%. As
a matter of fact, the actual cash deficit reached 7.6% of GDP in FY2007/08, up from 5.6% of
GDP in FY2006/07. The cash deficit and the overall fiscal deficit are expected to rise again
in FY2008/09, by 10.2% and 14.2%, respectively.

The preliminary indicators for the 5-month period of FY2008/09 (from July to November
2008) has shown a mount in the total revenues and grants by 75.4%, compared to the same
period the year before, to reach LE93.7bn. The total expenditure grew by 53.0% during the
same period, reaching LE124.4bn, while the overall cash deficit increased by 10.5%, during
the 5-month period of FY2008/09, to attain LE30.8bn.




February 2009                          Economic & Strategic Outlook                                      23
Global Research - Egypt                                                  Global Investment House


When breaking down the sources of revenues, the tax revenues appeared to be the major
component, accounting for 62.0% of the total revenues and grants in FY2007/08, rising by
20.0% to reach LE137.2bn and it is projected to rise by 21.4% in FY2008/09. This increase is
attributed to the income tax, which constitutes 48.9% of the total tax revenues and 30.1% of
total revenues, as it increased by 14.6% in FY2007/08, to reach LE67.1bn up from LE58.5bn
in FY2006/07. The income tax is expected to reach LE83.3bn in FY2008/09, up by 24.3%
than the year before. In addition, the taxes on goods and services grew by 26.1%, to reach
LE49.7bn in FY2007/08, and it is expected to reach LE61.3bn in FY2008/09, implying a
Y-o-Y growth of 23.3%.

Table 05: Breakdown of Government Revenues
In LE mn                                         2003/04 2004/05 2005/06 2006/07 2007/08 2008/09
                                                  Actual Actual Actual Actual Actual Budget
Tax Revenues                                      67,147 75,760 97,779 114,327 137,194 166,569
Income Tax                                        27,280 31,572 48,268 58,535 67,058 83,322
On Individual Income                               8,160   9,315   9,381   9,720 11,495 16,793
On Corporate                                      19,120 22,257 38,887 48,815 55,563 66,529
Property Taxes                                       785   1,034   1,214   1,788   2,052   3,517
Taxes on Goods and Services                       26,551 31,431 34,699 39,436 49,747 61,348
Sales Tax                                         15,778 18,725 20,970 24,093 32,506 35,464
Taxes on Production                                5,224   6,002   6,487   6,479   7,191 14,264
Taxes on Special Services                          3,485   4,131   4,680   4,363   6,027   7,619
Taxes on Licensing                                 2,064   2,573   2,562   4,228   4,023   4,001
Taxes on International Trade                       9,234   7,744   9,654 10,370 14,020 15,150
Other Taxes                                        3,297   3,979   3,944   4,198   4,317   3,232
Grants                                             5,051   2,854   2,379   3,887   1,462   5,557
From Foreign Governments                           4,382   2,114   1,754   3,398   1,155   5,340
From International Organizations                       -       -     362     289     109      25
Other                                                669     740     263     200     198     192
Other Revenues                                    29,683 32,251 51,108 62,001 82,748 104,669
Returns on Financial Assets                       14,823 17,758 36,373 45,110 52,455 60,782
Proceeds from Sales of Goods & Services            7,755   7,197   7,891   9,774 12,038 10,326
Other                                              7,105   7,296   6,844   7,117 18,255 33,561
Total Revenues and Grants                        101,881 110,865 151,266 180,215 221,404 276,795
Source: Central Bank of Egypt (CBE) and Ministry of Finance


Moreover, the other revenues, which represent 37.4% of total revenues, rose by 33.5% in
FY2007/08 to reach LE82.7bn, as opposed to LE62.0bn in FY2006/07 and it is estimated to
rise by 26.5% in FY2008/09. As for the grants, which has a minor contribution in the total
revenues of 0.7% in FY2007/08, has dropped significantly during the year by 62.4% to reach
LE1.5bn, down from LE3.9bn. Yet, it is estimated to bounce back in FY2008/09 to reach
LE5.6bn, a rise of almost 3 folds, compared to the year before.




24                                     Economic & Strategic Outlook                February 2009
Global Research - Egypt                                                   Global Investment House


Table 06: Breakdown of Government Expenditures
In LE mn                                       2003/04 2004/05 2005/06 2006/07 2007/08 2008/09
                                                Actual Actual Actual Actual Actual Budget
Wages and Salaries                              37,266 41,546 46,719 52,153 62,839 79,038
Wages                                           29,584 32,673 37,676 42,399 51,172 54,616
Social Insurance contributions by Govt.          4,141   4,560   5,094   5,518   6,165   7,271
Other                                            3,541   4,313   3,949   4,236   5,502 17,151
Purchases of Goods and Services                  9,340 12,612 14,429 17,027 18,471 23,834
Goods                                            4,620   7,416   5,773   6,538   7,272 12,325
Services                                         4,330   4,874   6,030   6,984   7,625   8,255
Other                                              390     322   2,626   3,505   3,574   3,254
Interest Payments                               30,704 32,780 36,815 47,699 50,529 52,930
Foreign                                          2,961   3,002   2,823   3,033   3,737   4,452
Domestic (to Non-Govt. Individuals)             17,201 19,782 24,577 27,975 30,691 31,047
Domestic (to Government units)                  10,542 10,001    9,244 16,526 15,892 17,204
Other                                                -      (5)    171     165     209     227
Subsidies, Grants and Social Benefits            24,746 29,705 68,897 58,442 92,371 134,061
Subsidies                                       10,347 13,765 54,245 53,959 84,205 95,930
Grants                                           1,527   1,846   2,174   2,599   3,890   3,494
Social Benefits                                  12,867 14,092 12,336     1,612   4,050 31,892
Other                                                5        2    142     272     226   2,745
Other Expenditures                              21,080 21,692 19,739 21,208 23,892 25,788
Purchases of Non-Financial Assets               22,851 23,275 21,212 25,498 34,191 28,261
Fixed Assets                                    20,368 19,930 17,608 20,928 28,186 24,612
Natural Assets                                     308     210     189     155     270     403
Other                                            2,175   3,135   3,415   4,415   5,735   3,246
Total Expenditure                              145,987 161,610 207,811 222,027 282,293 343,912
Source: Central Bank of Egypt (CBE) and Ministry of Finance


The government’s expenditure, after growing by 27.1% in FY2007/08, is budgeted to rise
by 21.8% in FY2008/09, where the spending on wages and salaries are projected to grow
by 25.8% in FY2008/09, following the 20.5% increase witnessed in FY2007/08. This is
attributed to the 30% salaries increase approved by the government in May 2008, thus the
share of the wages and salaries in the total expenditure is expected to rise from 22.3% to
23.0% in FY2008/09.

In light of the escalation of the international oil prices during the FY2007/08, the actual
expenditure on the subsidies, which accounts for 29.8% of total spending, has climbed by
56.1%, to reach LE84.2bn from LE53.9bn in FY2006/07. This surge resulted from the jump of
the petroleum subsidies from LE40.1bn to LE60.2bn in FY2007/08, up by 50.1%. Moreover,
the food subsidy has soared by 74.8% in FY2007/08, reaching LE16.4bn, as opposed to
LE9.4bn in FY2006/07. Meanwhile, the subsidies spending for FY2008/09 is expected to
reach LE95.9bn, reporting a lower growth of 13.9%, on the back of the decline witnessed in
the international commodity prices after the financial crisis.

The government total revenues are expected to continue its solid growth in FY2008/09,
supported by the expected increase in the tax receipts. On the other hand, the total expenditure
is believed to show a declining growth on the back of the drop in the international oil and crops
prices. Thus, we expect the overall cash deficit as a percentage of GDP to show a decline.



February 2009                          Economic & Strategic Outlook                           25
Global Research - Egypt                                                              Global Investment House



Public Debt
In June 2008, the gross domestic public debt reached LE536.6bn, where it increased by
8.7% during the year and it reported a CAGR of 10.7% during the period from June 2003 to
June 2008. This increase came as a result of the 12.7% growth in the economic authorities’
domestic debt, which stood at LE90.8bn, along with the 5.3% rise in the gross general
government domestic debt.

The gross general government domestic debt consists of the budget sector debt and the
National Investment Bank (NIB). The latter represents 72.5% of the gross general government
domestic debt and it rose slightly by 1.7% between June 2007 and June 2008, to reach
LE371.3bn, while the former debt, which share is 27.5%, was LE140.8bn, up by 16.2%
during the same period.

Table 07: Public Debt (End of Period)
                                                       June    June    June    June    June    June
                                                        2003    2004    2005    2006   2007     2008
Gross Domestic Public Debt (LE mn)                   323,197 388,377 469,039 470,264 493,879 536,627
Gross External Debt (US$ mn)                          29,396 29,872 28,949 29,593 29,898 33,893
Source: Ministry of Finance


Though the gross external debt grew at a CAGR of 2.9% during the period from June 2003
and June 2008, it increased significantly by 13.4% in June 2008, as opposed to the year
before, where it reached US$33.9bn. Both the government and non government external debt
increased during the last year by 11.0% and 17.7%, respectively. The government debt has
accounted for 63.9% of the total external debt, while the share of the non government debt
was 36.1% in June 2008.

Chart 03: Public Debt as % of Nominal GDP
100%
                                               87%
                                80%                           76%
 80%        77%
                                                                               66%               60%
 60%
                                    38%
 40%              37%                                  32%
                                                                     28%
                                                                                          23%          21%
 20%

     0%
             Jun 03            Jun 04            Jun 05         Jun 06           Jun 07           Jun 08
                        Gross Domestic Public Debt / GDP      Gross External Debt / GDP
Source: Central Bank of Egypt (CBE) and Ministry of Finance


Despite the fact that the gross domestic public debt and gross external debt are rising in
absolute values, they showed a declining trend when measured as a percentage of the GDP
since 2005. The domestic public debt as a percentage of the GDP went down from 87%
in June 2005 to 60% in June 2008. Similarly, the external debt as a percentage of GDP
decreased from 32% to 21% during the same period.




26                                       Economic & Strategic Outlook                           February 2009
Global Research - Egypt                                                                    Global Investment House


Chart 04: Net Interest Payment and Debt Service Ratio
        60,000                                                                                                  6.4%
                                                                             6.2%

        50,000                                                                                                  6.2%
                  6.0%
                                                                                                                6.0%
        40,000
                                     5.8%                  5.7%
                                                                                                                5.8%
LE mn




        30,000
                                                                                                                5.6%
        20,000                                                                                           5.5%
                                                                                                                5.4%

        10,000                                                                                                  5.2%

           -                                                                                                    5.0%
                 2003/04            2004/05               2005/06         2006/07              2007/08
                                  Net Interest Payement             Debt Service Ratio *
*Debt Service Ratio is the net interest payment as a percentage of the GDP
Source: Ministry of Finance


In 2007/08, the debt service ratio (net interest payment as a percentage of the GDP) declined
from 6.2% in FY2006/07 to 5.5% in FY2007/08. The net interest payment, after rising by
30.6% in FY2006/07, it increased by barely 6.1%, to reach LE49.2bn, compared to LE46.4bn
a year before. In fact, the government should try to bring down the absolute level of domestic
debt, as well as speeding the pace of the debt payments, in order to improve the country’s
debt service ratios.




February 2009                            Economic & Strategic Outlook                                              27
Global Research - Egypt                                                                            Global Investment House



External Trade
Exports

The Egyptian exports recorded a 33.3% growth in FY2007/08, to report US$29.3bn, up from
US$22.0bn of FY2006/07. This growth is mainly driven by the 43.7% increase in the fuel
and mineral oil export, which formed 50.3% of total exports. In fact, the hike witnessed
in the international energy prices has supported the fuel and mineral oil exports, to reach
US$14.7bn in FY2007/08, compared to US$10.3bn in FY2006/07.

Chart 05: Composition of Merchandise Exports for 2007/08*
                                                           Others
                                                           2.5%



                                                                                 Fuels, Mineral
                                Finished goods                                   Oil & Products
                                    37.2%                                            50.3%




                                 Semi-finished Goods
                                        6.2%
                                                Raw Materials     Cotton
                                                    3.1%          0.7%
* Provisional
Source: Central Bank of Egypt (CBE)


Moreover, the surge witnessed in most of the international commodities’ prices has bolstered
the Egyptian exports. The finished goods, which constituted 37% of total exports, has followed
the suit and surged by 45.4% between FY2006/07 and FY2007/08, to stand at US$10.9bn. It
is worth mentioning that the finished goods exports include rice, pharmaceuticals, fertilizers,
carpets, articles of iron and steel, aluminium articles, readymade clothes and cotton textiles.

More than one third of the exports are directed to the European Union (EU) markets, where
exports to EU reached US$9.8bn in FY2007/08, as opposed to US$7.4bn in FY2006/07. The
USA market came in second forming 31.6% of total exports, as it increased by 35.5% in
FY2007/08. Exports to Asia and Arab countries were up by 47.0% and 15.6%, in the same
order, during the year, with respective shares of 14.9% and 10.8% of total exports in FY2007/
08.Though exports to Africa (excluding Arab countries) constitutes 2.7% of total exports, it
witnessed a considerable growth of 139.6% in FY2007/08, reaching US$786.2mn.

Chart 06: Exports by Region 2007/08*
                                                          Australia Others
                                        Africa (excl. Arab 0.1% 1.5%
                                            countries)
                                              2.7%
                                                                                EU
                                    Asia (excl. Arab                           33.4%
                                       countries)
                                         14.9%


                                Arab countries
                                   10.8%



                                                                               Europe (excl. EU)
                                                                                      4.6%
                                                                             Russia and CIS
                                                                                 0.5%
                                                          USA
* Provisional                                            31.6%
Source: Central Bank of Egypt


28                                           Economic & Strategic Outlook                                    February 2009
Global Research - Egypt                                                                                             Global Investment House


During the first quarter of FY2008/09, the total exports continued its growth, where it
expanded by 36.3%, to reach US$8.2bn compared to US$5.9bn reported in the first quarter
of FY2007/08. The fuels, mineral oil and products and semi finished goods segments were up
by 64.6% and 54.0%, respectively during the first quarter of FY2008/09.

Despite the fact that the world financial crisis has mostly hit USA and EU markets, Egypt’s
exports to both markets have witnessed healthy growth of 31.7% and 41.7%, respectively, in the
first quarter of FY2008/09. Also, the Asian exports were up by 61.0% during the same period.

 Chart 07: Composition of Merchandise Exports                                            Chart 08: Exports by Region
                Q1 2008/09*                                                                     Q1 2008/09*
                                  Others                                                                 Australia Others
                                  2.0%                                                                    0.1%     3.4%
                                                                                         Africa excl.
                                                                                        Arab countries
                                                                                            3.4%
                                                                                                                                  EU
                                                       Fuels, Mineral                                                            34.0%
                                                                                  Asia excl.
Finished goods                                         Oil & Products           Arab countries
    36.1%                                                  52.0%                   15.1%




                                                                               Arab countries
                                                                                  12.2%
                                                                                                                                Europe excl. EU
                                                                                                                                     3.0%
        Semi-finished Goods
               7.2%                                                                                                            Russia and CIS
                      Raw Materials Cotton                                                                                         0.5%
                          2.3%                                                                               USA
                                    0.4%                                                                    28.3%

* Provisional
Source: Central Bank of Egypt (CBE)


Imports

The economic growth witnessed during the previous year has stimulated the country’s
manufacturing sector, causing the increase in the intermediate and investment goods. In
addition, the rise in the local consumption has fueled the importation of the consumer durable
goods. Also, the surge of most of the world’s commodities prices has exerted an upward
pressure on their imports values.

Chart 09: Composition of Merchandise Imports
        18,000
        16,000
        14,000
        12,000
US$mn




        10,000
         8,000
         6,000
         4,000
         2,000
           -
                        2002/03              2003/04                2004/05         2005/06                   2006/07          2007/08*

                        Fuels, Mineral Oil & Products      Raw Materials                  Intermediate Goods
                        Investment Goods                   Consumer Durable Goods         Consumer Non-Durable Goods           Others

* Provisional
Source: Central Bank of Egypt (CBE)


In turn, imports increased by 37.8% in FY2007/08 compared to the year before. The growth
in imports was basically driven by the consumer durable goods, fuel and mineral oil products
and raw materials, rising by 79.1%, 76.4% and 71.5%, respectively. The main imports are

February 2009                                           Economic & Strategic Outlook                                                         29
Global Research - Egypt                                                                                                Global Investment House


intermediate goods, investment goods and raw materials, where they together constitute
around 70% of total imports in FY2007/08.

Chart 10: Composition of Merchandise Imports
                   2006/07                                                                               2007/08*
                              Others           Fuels, Mineral
                              11.0%            Oil & Products                                              Others          Fuels, Mineral
                                                    7.2%                                                   4.6%            Oil & Products
                                                                                     Consumer                                   9.3%
                                                                                 Non-Durable Goods
         Consumer                                                                     11.6%
                                                             Raw Materials
     Non-Durable Goods                                          14.7%
          10.3%                                                                                                                      Raw Materials
                                                                                 Consumer                                               18.3%
                                                                               Durable Goods
                                                                                   4.5%
        Consumer
      Durable Goods
          3.5%



                                                                             Investment Goods
                                                                                   22.5%
         Investment Goods
               25.7%
                                                       Intermediate Goods
                                                             27.5%                                                      Intermediate Goods
                                                                                                                              29.2%

* Provisional
Source: Central Bank of Egypt (CBE)


During the first quarter of FY2008/09, the total value of imported goods was up by 35.5%,
reaching US$15.2bn up from US$11.2bn reported during the first quarter of FY2007/08. The
highest growth in imports was apparent in the intermediate and investment goods, increasing
by 56.4% and 46.9%, respectively, during the first quarter of FY2008/09.

Due to its proximity for the Egyptian borders, the EU remained the primary source of imports
representing 34.1% of the country’s imports in FY2007/08. The Asian countries and the USA
follow, with shares of 18.7% and 18.6%, respectively. During the first quarter of FY2008/09,
EU imports constituted 36.1% of total imports, while Asia was 19.9% and USA 14.8%.

Chart 11: Imports by Region
                   2007/08*                                                                              Q1 2008/09*
                        Australia Others                                                                         Australia Others
           Africa excl. 0.3%      6.0%                                                                            0.4% 4.1%
         arabic countries                                                                 Africa (excl. arabic
              0.8%                                                                             countries
                                                      EU                                         0.7%                                            EU
                                                     34.1%                                                                                      36.1%
  Asia excl.                                                                          Asia (excl. arab
arab Countries                                                                          Countries)
    18.7%                                                                                 19.9%




Arab Countries                                                                        Arab Countries
    10.4%                                                                                 10.9%

                                                   Europe excl. EU
                                                        7.8%                                                                                Europe (excl. EU)
                                           Russia and CIS                                                   USA                                  9.8%
                       USA                     3.3%                                                        14.8%        Russia and CIS
                      18.6%                                                                                                 3.2%

* Provisional
Source: Central Bank of Egypt


To face the consequences of the global financial crisis, the Egyptian government announced
it would implement some procedures to support the country’s exports. The Minister of Trade
and Industry announced that the exports support fund will increase its financial support to all
exporting sectors benefiting from the fund to 50%. Additionally, the Egyptian government
plans to cut import tariffs on some capital and intermediary goods to 0% from a previous
range of 2% to 5% to boost investments in the manufacturing sector. The changes will
affect a number of industries, including automotive, spinning and weaving, dairy and food
production, as well as spare parts for a number of household goods.


30                                                     Economic & Strategic Outlook                                                      February 2009
Global Research - Egypt                                                       Global Investment House



Current Account
The current account surplus reached US$888mn in 2007/08, representing a decline of 60.9%
over the previous year. This was mainly due to the 43.7% increase in the trade deficit, which
reached US$23.4bn, compared to US$16.3bn in 2006/07. The export proceeds rose by 33.3%,
from US$22.0bn to US$29.4bn, which was due to the 43.2% acceleration in the petroleum
exports, contributing to 49.3% of the total exports. Nevertheless, the soaring international
food and energy prices over the year pushed the import payments up by 37.8%, reaching
US$52.8bn, compared to US$38.3bn in 2006/07, and offsetting the increase realized in the
exports proceeds.

On the other hand, the net services and transfers inclined by 30.2% and 32.2%, respectively,
which compensated for the deficit in the trade balance and resulted in the surplus in the
current account balance.

The net services balance amounted to US$15.0bn in 2007/08, up from US$11.5bn, a year
before. This was a result of the 33.0% incline in the receipts from US$20.5bn in 2006/07 to
US$27.2bn in 2007/08.

The tourism sector, contributing to 39.8% of total receipts in 2007/08, rose by 32.3%,
reaching US$10.8bn, compared to US$8.2bn, the previous year, reflecting the successful
developments of the sector over the year.

Table 08: Current Account
In US$ mn                         2003/04    2004/05    2005/06    2006/07    2007/08* Q1 2007/08 Q1 2008/09*
1. Trade Balance                   (7,834)   (10,359)   (11,986)   (16,291)    (23,415)    (5,201)     (7,000)
  Export Proceeds                   10,453     13,833     18,455     22,018      29,356      5,990       8,163
    Petroleum                        3,910      5,299     10,222     10,108      14,473      2,523       4,109
    Non Oil Exports                  6,542      8,534      8,233     11,910      14,883      3,467       4,054
  Import Payments                 (18,286)   (24,193)   (30,441)   (38,308)    (52,771)  (11,191)     (15,163)
    Petroleum                      (2,550)    (3,975)    (5,359)    (4,128)     (9,561)    (1,809)     (2,268)
    Non Oil Imports               (15,737)   (20,218)   (25,082)   (34,180)    (43,210)    (9,382)    (12,895)
2. Services (net)                    7,318      7,842      8,191     11,498      14,966      3,021       4,060
  Receipts                          12,981     15,030     17,438     20,456      27,211      6,043       7,410
    Transportation                   3,755      4,260      4,947      6,371       7,560      1,716       2,230
       Of which : Suez Canal         2,848      3,307      3,559      4,170       5,155      1,213       1,456
    Travel                           5,475      6,430      7,235      8,183      10,827      2,848       3,281
    Investment Income                  485        911      2,002      3,045       3,289        807         734
    Government Services                179        157        358        254         188         41          56
    Other Receipts                   3,086      3,272      2,896      2,603       5,347        631       1,110
  Payments                           5,663      7,187      9,247      8,957      12,245      3,023       3,350
    Transportation                     668        902      1,215      1,273       1,620        444         562
    Travel                           1,315      1,438      1,620      1,918       2,895        610         791
    Investment Income                  692      1,164      1,471      1,868       1,930        540         501
       of which : Interest Paid        586        584        587        608         675        230         220
    Government Expenditures            489        657      1,320      1,196       1,314        317         367
    Other Payments                   2,499      3,026      3,621      2,703       4,486      1,112       1,129
A. Goods & Services (Net) (1+2)      (516)    (2,517)    (3,795)    (4,792)     (8,449)    (2,180)     (2,940)
B. Transfers (Net)                   3,934      5,428      5,547      7,061       9,338      2,049       1,974
  Official (net)                        888      1,056        572        800         961        113          78
  Private (net)                      3,046      4,372      4,975      6,261       8,377      1,936       1,897
Current Account (A+B)                3,418      2,911      1,752      2,269         888      (131)       (966)
*Provisional
Source: CBE


February 2009                     Economic & Strategic Outlook                                    31
Global Research - Egypt                                                                       Global Investment House


Also, receipts from transportation, having a share of 27.8% of total receipts, witnessed a
growth of 18.7%, and moved up from US$6.4bn in 2006/07 to US$7.6bn in 2007/08. The
main driver was the income generated from the Suez Canal, which grew by 23.6% Y-o-Y,
reaching US$5.2bn in 2007/08. It is worth mentioning that the receipts from the Suez Canal
reached US$1.5bn in Q1 2008/09, implying a Y-o-Y growth of 20.0% over the same period
in the previous year.

Chart 12: Suez Canal Traffic
1,000                                                                                                                   6
                                                                        5.2
 800                                                                                                                    5
                                                              4.2
                                            3.6                                                                         4
 600                      3.3
          2.8
                                                                                                                        3
 400
                                                                                                         1.5            2
                                                                                            1.2
 200
                                                                                                                        1

 -                                                                                                                  -
         2003/04      2004/05             2005/06            2006/07   2007/08*         Q1 2007/08    Q1 2008/09*
                                Net Tonnage (million tons)                    Receipts (US$ bn)

*Provisional
Source: CBE


As for Q1 in 2008/09, the current account balance witnessed a deficit of US$966mn, compared
to a deficit of US$131mn in the same period of the previous year, implying an increase of
635.2%. This was attributed to the 34.6% increase in the trade deficit, in addition to the 3.7%
decline in transfers. It is worth mentioning that net services inclined by 34.4%.




32                                          Economic & Strategic Outlook                                February 2009
Global Research - Egypt                                              Global Investment House



Capital & Financial Account and Balance of Payment
The balance of payment witnessed a slight incline of 2.6% in its overall balance, implying
a surplus of US$5.4bn in 2007/08, compared to US$5.3bn realized in 2006/07. This was
a result of the drop in the current account, which was compensated by the surge in the
financial account by 7 folds, from US$892mn in 2006/07 to US$7.1bn in 2007/08. The major
contributor to such surge was the 19.8% rise in net direct investment in Egypt.

The slump of the current account in the 1st quarter of 2008/09 resulted in a decline in the
surplus of the balance of payment by around 60%, as it reached US$459mn, compared to
US$1.2bn, realized over the same period in the previous year. It is worthy to mention that
the capital and financial account grew by 32.0%, reaching US$2.2bn, compared to US$1.7bn
over Q1 2007/08.

Table 09: Balance of Payment
In US$ mn                                2003/04 2004/05 2005/06 2006/072007/08* Q1 2007/08Q1 2008/09*
 Current Account                            3,418   2,911   1,752  2,269     888       (131)      (966)
 Capital & Financial Account              (5,016)   3,378   3,511    853   7,137       1,656      2,186
  Capital Account                               -       -    (38)   (39)       2           1          1
  Financial Account                       (5,016)   3,378   3,549    892   7,134       1,655      2,186
    Direct Investment Abroad                (156)    (39)   (145)  (536) (1,113)         131      (700)
    Direct Investment in Egypt (net)          407   3,902   6,111 11,053 13,237        2,969      1,655
    Portfolio Investments Abroad              113     541   (729)  (558)   (960)       (360)      (132)
    Portfolio Investments In Egypt (net)    (226)     831   2,764  (937) (1,374)     (1,430)    (3,485)
       of which: Bonds                      (148)      26   2,690  (551)     775         997       (92)
 Net errors & omissions                     1,440 (1,811) (2,010)  2,160 (2,605)       (374)      (761)
 Overall Balance                            (158)   4,478   3,253  5,282   5,420       1,150        459
*Provisional
Source: CBE




February 2009                   Economic & Strategic Outlook                             33
Global Research - Egypt                                                                     Global Investment House



Foreign Direct Investment
The Egyptian government realized significant improvements in various business segments,
on the back of the reform program, initiated in 2004. Such improvements created a better
investment climate, attracting foreign investors to engage in various projects, looking for
lucrative margins realized from vast available investment opportunities. This was reflected
by the incline of inflows from Foreign Direct Investment (FDI), as they jumped from
US$4,134.5mn in 2004/05 to US$9,097.9mn in 2005/06, realizing a growth of 120.0%, then
they continued rising until they reached US$17,802.2mn in 2007/08, a Y-o-Y increase of
36.1% over the previous year. It is worth mentioning that inflows from FDI amounted to
US$2,943.1mn in the 1st quarter of 2008/09, declining by 19.6% from the same period in
the last year, where they stood at US$3,659.8mn. Inflows from the USA, which constituted
43.4% of total inflows in Q1 2008/09, declined by 21.9%, whereas EU inflows, which share
was 33.8%, decreased by 10.8%. On the other hand, Arab investments inflows, representing
a contribution of 9.4%, rose by 121.4% over the year.

Chart 13: Foreign Direct Investment Inflows
        20,000
        18,000
        16,000
        14,000
        12,000
US$mn




        10,000
        8,000
        6,000
        4,000
        2,000
          -
                 2003/04         2004/05    2005/06      2006/07               2007/08*         Sep-07      Sep-08*
                           USA               EU               Arab Countries                Others
*Provisional
Source: CBE


Over the year 2007/08, the majority of inflows came from USA, with a share of 36.1%, up from
35.8% the previous year. They amounted to US$6,434.9mn, realizing a Y-o-Y increase of 37.5%.
European inflows came second, with a contribution of 28.7%, down from 31.0% in 2006/07, and
realized a growth of 25.9%, as they represented US$5,114.1mn. As for the Arab countries, their
contribution went down from 25.6% in 2006/07 to 17.2% in 2007/08, and declined by 8.7%,
decreasing from US$3,351.4mn in 2006/07 to US$3,059.0mn in 2007/08. Foreign investors are
mainly interested in the petroleum sector, which realized proceeds of US$4,100.0mn in 2007/08,
representing a Y-o-Y growth of 36.0%, and a contribution of 31.1% of total proceeds.

Table 10: Sectoral Distribution of Net FDI Inflows
 In US$mn                                                          2004/05           2005/06       2006/07 2007/08*
 New Establishments and Expansions                                    925.6           3,347.8       5,227.2  6,400.0
 Sale of Assets to Non-Residents                                      390.8             905.7       2,772.2  2,300.0
 Real Estate                                                           16.5              25.7          39.0    400.0
 Net Inflows in the Petroleum Sector                                 2,540.2           1,832.2       3,014.8  4,100.0
 Net FDI inflows                                                     3,873.1           6,111.4      11,053.2 13,200.0
* Provisional
Source: Ministry of Investment



34                                         Economic & Strategic Outlook                                  February 2009
Global Research - Egypt                                                                            Global Investment House


According to a report released by the World Bank “MENA Economic Prospects and
Developments 2008”, Egypt is among the 3 largest countries in the MENA region, receiving
FDI, along with Saudi Arabia and UAE. The report illustrated the role of the achieved
developments in the tourism sector in attracting foreign investments. Another report, also
published by the World Bank “Doing Business 2009- Country profile for Egypt”, indicated
that the country ranked 114 among 181 countries, in terms of ease of doing business. The
Country’s position was ameliorated, as it ranked 125 among 178 countries, a year before.

Chart 14: Net FDI Inflows distributed by Sector
100%
 90%
 80%
 70%
 60%
 50%
 40%
 30%
 20%
 10%
  0%
                2004/05                          2005/06                  2006/07                         2007/08*
                    New Establishments and Expansions            Sale of Assets to Non-Residents
                    Real Estate                                  Net Inflows in the Petroleum Sector
* Provisional
Source: Ministry of Investment


Though Egypt has ameliorated its position over the last years, in terms of being an attractive
investment destination, we believe inflows from FDI will decline in 2009, affected by the
global financial turmoil. Nevertheless, as the government still aims at increasing foreign
appetite in the Egyptian market, it will exert further efforts in developing the various sectors’
performance, so as to regain high proceeds from FDI, once the world financial disorder settles
down.




February 2009                                 Economic & Strategic Outlook                                             35
Global Research - Egypt                                                                                        Global Investment House



Privatization
The privatization of state owned enterprises was one of the actions taken by the government
within its reform program. In 2007/08, the government generated LE3,983mn, as proceeds
from 36 privatization deals. Over the period from July to September 2008, 7 privatization
transactions were executed, generating LE1,081mn.

Chart 15: Privatization
      20,000                                                                                                                             75
                                                                                      65

                                                                                                     53                                  60
      15,000                                                                         14,612


                                                                                                  13,607                                 45
                                                                                                                   36
(LE mn)




      10,000
                                                                   28
                                                                                                                                         30
                    19                                                  5,643
          5,000                                          13                                                       3,983
                              10                                                                                                   7     15
                                              7
                   381       952                        543                                                                1,081
                                             113
            -                                                                                                                            0
                  2000/01   2001/02       2002/03      2003/04   2004/05           2005/06        2006/07        2007/08      Jul- Sep
                                                                                                                               2008*
                                      Total Value                               Total Number of Transactions

*Provisional
Source: Ministry of Investment


Of the 36 privatization deals that occurred in 2007/08, 16 transactions belonged to the
privatization of public stakes in banks and joint ventures, at a value of LE3,238.0mn, whereas
14 unutilized land plots and assets were privatized, with a value of LE480.8mn. It is worthy
to note that the proceeds generated from the privatization deals over the 4-year period from
2003/04 to 2007/08 were used in restructuring public business sector companies, in addition
to financing infrastructure projects.

One of the main events of 2008 was the privatization of Banque du Caire, the third largest
public bank, which was about to be privatized, according to the government plan. The deal
was cancelled and the government announced that it will postpone the privatization of Banque
du Caire, as the presented bids did not meet the price set by the government.

As for Q1 of 2008/09, the government was able to privatize 2 public business sector
companies, 4 unutilized land plots and assets, a public stake in a company, which proceeds
amounted to LE793.9mn, LE224.3nm and LE63.0mn, respectively.




36                                                  Economic & Strategic Outlook                                           February 2009
Global Research - Egypt                                                  Global Investment House


Table 11: Privatization Transactions by Type
                                    Public                                           Public Stake
                                                Companies Unutilized      Public
                                   Business                                           in Banks
                                               & Production Land Plots    Sector                    Total
                                    Sector                                             & Joint
                                                  Lines      and Assets Companies
                                  Companies                                           Ventures
             # of Transactions             4.0           5.0         7.0           -          12.0     28.0
2004/05
             Value (LEmn)               389.8           66.8       367.0           -       4,819.0 5,642.6
             # of Transactions               -           7.0        40.0         1.0          17.0     65.0
2005/06
             Value (LEmn)                    -       1,007.0       836.4    5,122.0        7,647.0 14,612.4
             # of Transactions             3.0           5.0        37.0         1.0           7.0     53.0
2006/07
             Value (LEmn)               748.5        1,170.7       854.7    9,274.0        1,558.8 13,606.7
             # of Transactions             1.0           5.0        14.0           -          16.0     36.0
2007/08
             Value (LEmn)                74.0          190.3       480.8           -       3,238.0 3,983.1
             # of Transactions             1.0           1.0         3.0           -              -     5.0
Jul-Sep 2007
             Value (LEmn)                75.5           15.0       245.4           -              -   335.9
             # of Transactions             2.0             -         4.0           -           1.0      7.0
Jul-Sep 2008
             Value (LEmn)               793.9              -       224.3           -          63.0 1,081.2
Source: Ministry of Investment


The privatization process slowed down in the latest years, as deals declined from 65 deals in
2005/06 to 53 deals in 2006/07 and furthermore to a sum of 36 transactions in 2007/08. We
believe the privatization activity will witness a further decline in 2009, affected by the world
liquidity crunch.




February 2009                     Economic & Strategic Outlook                               37
Global Research - Egypt                                                               Global Investment House



Monetary Policy
The high inflation rates witnessed in 2008 were pushed by the vast money supply, which
in turn increased by 15.7% in June 2008, as domestic liquidity (M2) reached LE766.7bn,
compared to LE662.7bn in June 2007. This was a result of the 12.2% Y-o-Y rise in Quasi
Money, contributing to 77.8% of M2, as it rose from LE531.4bn in June 2007 to LE596.1bn
in June 2008, mainly caused by the15.6% jump in local currency time and savings deposits,
from LE377.4bn to LE436.3bn. In addition, Money Supply-M1, with a share of 22.2% of
M2, grew by 29.9%, up from LE131.3bn in June 2007 to LE170.6bn in June 2008, where
currency in circulation inclined by 20.5% and demand deposits in local currency moved up by
48.4%. As of November 2008, M2 reached LE784.8bn, where M1 amounted to LE176.3bn
and Quasi Money reached LE608.6bn.

Alternatively, net domestic assets grew by 4.3% in June 2008, amounting to LE463.0bn,
compared to LE444.1bn, the previous year, whereas net foreign assets reached LE303.7bn, a
38.9% Y-o-Y incline. It is worth mentioning that net domestic and foreign assets reached in
November 2008 LE537.8bn and LE247.0bn, respectively.

Table 12: Money Supply (End of Period Stocks)
In LE mn                                                 Jun-04      Jun-05     Jun-06     Jun-07 Jun-08 Nov-08*
Total Domestic Liquidity (M2)                           434,911     493,884    560,356    662,688 766,665 784,800
 Money Supply - M1                                        77,606      89,685   109,274    131,290 170,579 176,249
    Currency in Circulation                               55,933      63,029     74,239     86,860 104,656 113,757
    Demand Deposits in Local Currency                     21,673      26,656     35,035     44,430 65,923 62,492
 Quasi Money                                            357,305     404,199    451,082    531,398 596,086 608,551
    Local Currency Time and Savings Deposit             233,610     283,020    314,188    377,424 436,268 441,432
    Foreign Currency Demand Deposits                      16,280      18,140     18,534     26,917 26,581 26,999
    Foreign Currency Time and Savings Deposit           107,415     103,039    118,360    127,057 133,237 140,120
Counterpart Assets**                                    434,911     493,884    560,356    662,688 766,665 784,800
 Net Domestic Assets                                    389,670     412,971    426,971    444,059 462,985 537,758
    Net Claims on Government and GASC                   126,343     159,889    184,131    178,324 174,005 229,404
    Claims on Public Business Sector                      35,588      37,421     32,888     24,446 26,897 28,920
    Claims on Private Sector                            260,109     269,461    292,513    328,544 370,052 389,327
    Others, Net                                         (32,370)    (53,800)   (82,561)   (87,255) (107,969) (109,893)
 Net Foreign Assets                                       45,241      80,913   133,385    218,629 303,680 247,042
    Central Bank                                           9,858      37,294     61,301     95,372 180,333 182,162
    Banks                                                 35,383      43,619     72,084   123,257 123,347 64,880
*Provisional
**The settlement of the rescheduled debts in 2008-Under Paris Club agreements-resulted in the decline of the
CBE foreign liabilities, claims on the government (securities) and the unclassified assets (net)
Source: Central Bank of Egypt


The Central Bank of Egypt (CBE) adopts a tight monetary policy since 2005, with the main
aim being targeting inflation. The CBE decided that the main tool to be used was the corridor
range, which refers to the overnight lending and deposit rates at the CBE. Therefore, the CBE
established the Monetary Policy Committee (MPC), which is scheduled to meet each 6 weeks
to set the corridor range. In 2005, the CBE set the overnight deposit and lending rates at
9.5% and 12.5%, respectively. Rates were reset in June 2006 to 8% and 10%. The MPC kept
modifying the corridor range along with the changes in inflation, which reached its peak level



38                                      Economic & Strategic Outlook                              February 2009
Global Research - Egypt                                                                                                                  Global Investment House


in August 2008 at 23.6%, setting overnight deposit and lending rates at 11.0% and 13.0%,
respectively. An additional 50bp were added to the corridor range in September 2008, where
inflation rate was 21.5%. In December 2008, the MPC preferred to keep rates at the CBE at
their same level. Although the inflation declined to 18.3%, still it is considered a high rate.

Chart 16: Development of the Inflation and Corridor Range
25%                                                                                                                          23.6%
                                                                                                                    22.0%
                                                                                                                                          21.5%
                                                                                                       20.2%                                         20.2%    20.3%
                                                                                            19.7%
20%                                                                                                                                                                    18.3%

                                                                                16.4%

                                                                       14.4%
15%
                                                              12.1%
                                                 10.5%

10%                        8.6%
                 7.2%                 6.9%

      4.7%
 5%



 0%
      Jun-05     Jun-06    Jun-07    Dec-07     Jan-08        Feb-08   Mar-08   Apr-08     May-08      Jun-08      Jul-08   Aug-08       Sep-08      Oct-08   Nov-08   Dec-08

                                    Deposit Rate at the CBE                        Lending Rate at the CBE                           Inflation Rate

Source: CBE


The effect of the movement in the corridor range was reflected on deposit rates more than
lending rates. Banks responded to the successive increases on the overnight rates in 2008,
by raising interest rates on deposits. Those with maturities less than one year reached 7.1%
in June 2008, compared to 6.9% in June 2007, and they inclined furthermore to 7.9% in
November 2008.

The case was different with lending rates, due to their lower flexibility. Interest on less than
one year loans reached 12.0% in June 2007, down from 12.6%, a year before. They reached
12.5% as of November 2008.

Chart 17: Interest Rate Development on less than one year Deposits and Loans
16%

14%

12%

10%

 8%

 6%

 4%

 2%

 0%
               June 2004                June 2005                      June 2006                    June 2007                 June 2008                  November 2008

                                       Less than one year deposits                                             Less than one year loans
Source: CBE


Rates on 3-months deposits averaged 6.1% in 2007/08, down from 8.0% in 2003/04. Also,
average interest rates on 3-months treasury bills reached 7.0% in 2007/08, compared to 8.4%
in 2003/04.




February 2009                                                  Economic & Strategic Outlook                                                                                    39
Global Research - Egypt                                                                          Global Investment House


Chart 18: Movement in Interest Rates
11%

10%

 9%

 8%

 7%

 6%

 5%
            2003/04                 2004/05                 2005/06               2006/07                      2007/08
                          CBE Discount Rate*              3-months Deposit Rate             3-months T-bills

* End of period rates, while others are weighted average rates
Source: Ministry of Finance


A slowdown in the economies of almost all markets is expected to prevail in 2009. This
will lessen the prices of food and energy worldwide, bringing down the inflation rate in the
local market. In addition, the Egyptian economy is expected to realize a lower growth than
that realized in 2007/08, which will also help reducing inflation. Therefore, we expect the
CBE will lessen the corridor range in 2009, in response to the lower expected inflationary
pressures.




40                                             Economic & Strategic Outlook                                    February 2009
Global Research - Egypt                                                         Global Investment House



Net International Reserves
Net international reserves have steadily risen over the past several years, on the back of
capital inflows, originated from various sources, with the most important being the proceeds
from tourism and the Suez Canal, in addition to transfers from expatriates.

Net international reserve amounted to US$34.6bn in 2007/08, compared to US$28.6bn, a
year before, representing an incline of 21.1%. Afterwards, reserves declined by 1.3%, as they
reached US$34.1bn as of December 2008. This could be attributed to the effects of the global
financial crisis on capital inflows. Foreign currencies were the major contributor to gross
official reserves, as they represented a share of around 95%, while the rest of reserves came
from gold, Special Drawing Rights (SDRs) and loans to IMF.

Chart 19: Net International Reserve of CBE
        40,000
                                                                                   34,572     34,112
        35,000

        30,000                                                        28,559
US$mn




        25,000                                              22,931
                                                19,302
        20,000
                 14,147    14,809    14,781
        15,000

        10,000

        5,000

            0
                 2001/02   2002/03   2003/04    2004/05    2005/06    2006/07      2007/08    Dec-08

Source: CBE


The international reserves at the CBE might shrink furthermore in 2009, as the tourism sector may
face a slowdown in tourist arrivals, due to the financial disorder prevailing in the international
markets. In addition, we believe income from the Suez Canal will witness a deceleration, as the
international trade is expected to witness to slowdown over the coming year.




February 2009                          Economic & Strategic Outlook                                    41
Global Research - Egypt                                                Global Investment House



Exchange Rate
The Egyptian pound started to strengthen against the US dollar starting from 2005, as a result
of the achievements realized through the reform program adopted since 2004, along with
the floatation of the Egyptian pound since 2003. The exchange rate averaged LE5.64:US$1
in 2007, compared to an average of LE5.74:US$1 in 2005. The Egyptian pound continued
appreciating over 2008, supported by high oil revenues, as the average monthly exchange
rate in July 2008 stood at LE5.32:US$1. However, with the start of the financial crisis,
foreign investors began selling their stakes in the Egyptian stock market, to compensate for
the losses incurred in their local markets. The increased demand on the US dollar resulted
in its appreciation against the Egyptian pound, where the exchange rate averaged LE5.52:
US$1in November 2008. It is expected that the domestic currency would appreciate once the
demand on the US dollar by foreign investors lessens.

Chart 20: Average Exchange Rates (LE/Currency Units)
12


10


 8


 6


 4


 2
           2003               2004         2005             2006     2007          Nov-08
                          US Dollar                Pound Sterling       Euro

Source: Ministry of Finance




42                                    Economic & Strategic Outlook               February 2009
Global Research - Egypt                                                                 Global Investment House



Inflation
The year 2008 witnessed skyrocketing rates of inflation. The accelerated money supply in the
market, resulting from the encouraging investment climate, led to an increase in consumption,
which was not met by sufficient production levels, resulting in higher local prices. Increased
inflation was also a result of the higher prices of many raw materials in several industries
that witnessed growth, on the back of the economic reforms. On the other hand, prices of
imported commodities jumped at higher levels, due to soaring international food and energy
prices. In addition, the booming sectors and the increased outstanding projects resulted in a
higher demand for labor, pushing the employees’ wages up.

Moreover, higher inflation rates were affected by the government decisions released in May
2008, concerning the removal of tax exemption on treasury bills, later followed by taxing
treasury bonds too. The decisions also included removing tax exemption on energy intensive
industries, operating under the free-zones system, and on private schools and universities.
Additional fees were added on car licensing, and energy subsidies for energy consuming
industries were reduced.

On the back of the previously mentioned factors, inflation reached its peak in August 2008, as
it reached 23.6%, compared to 6.9% in December 2007. It is worth mentioning that the latest
inflation figures reflect a decline that began since September 2008, as inflation rate stood at
18.3% in December 2008. This came as a result of the drops in international food and energy
prices, due to the slowdown in the world economy.

Chart 21: Inflation Rate (Consumer Price Index - Urban)
25%




20%




15%




10%




5%




0%
      Jan-07   Mar-07   May-07   Jul-07   Sep-07   Nov-07   Jan-08   Mar-08   May-08   Jul-08   Sep-08   Nov-08

Source: CBE


As the MPC aims at targeting inflation, it kept amending the corridor range with the movements
of inflation. That is why it raised the overnight deposit and lending rates in September 2008
by 50 bp to reach 11.5% and 13.5%, respectively. Since then, it kept the rates stagnant, as
inflation is still perceived to be high. We believe inflation will decline in 2009, on the back
of the falling food and energy international prices.




February 2009                             Economic & Strategic Outlook                                            43
Global Research - Egypt                                                               Global Investment House



Population and Labor Force
Egypt is one of the highly populated countries in the world and the most populated among
the Arab countries. High population supports the country’s economic growth, as many
foreign investors are interested in establishing projects in the country, spurred by growing
demographics. Population was estimated at 81.7mn in 2007/08, implying a y-o-y growth
of 5.4% over 2006/07, and a CAGR of 3.4% over the 5-year period from 2002/03. The
government’s efforts towards decreasing population rates resulted in a decline in birth rates,
as it was estimated at 22.1 per 1,000 in 2008, down from 26.6 per 1,000, a year before. Also,
healthcare improvements served in declining the death rate, which reached an estimated
figure of 5.1 per 1,000 in 2008, down from 6.1 per 1,000 in 2007.

Chart 22: Population in Egypt
In mn
 90
                                                                                                         81.7
 80                                                                                    77.5
                                                        71.9              73.6
                          69.2          70.5
 70       67.9

 60
 50
 40
 30
 20
 10
     0
         2001/02        2002/03       2003/04          2004/05        2005/06         2006/07       2007/08*
*Estimated in July 2008, as per the US Census Bureau
Source: CBE and US Census Bureau


It is estimated that around 32% of the total population is below the age of 14 years, and
around 5% is above 65 years old. This implies that 64% of the population is in the working
age. As of 2008, the total labor force was estimated at 24.6%.

Table 13: Population Indicators
                                                      2003        2004       2005     2006       2007           2008
Labor Force/Population %                             29.4%       30.6%      30.8%    31.8%      32.5%            N/A
Unemployment Rate %*                                 11.0%       10.3%      11.2%    10.6%       8.9%           8.4%
Rate of Births (per thousand)**                        26.2        25.7       25.5     25.8       26.6           22.1
Rate of Deaths (per thousand)**                         6.5         6.4        6.4      6.3        6.1            5.1
Literacy (%)                                         72.6%       72.1%      73.7%    70.7%        N/A            N/A
*Estimated in June 2008,
**Estimated in 2008, as per the CIA World factbook
Source: CBE


The government efforts toward decreasing unemployment resulted in an estimated rate of
8.4% in June 2008, down from 8.9% in 2007 and from 11.0% in 2003. According to the
Ministry of Investment, the new job opportunities amounted to 151.7 thousand over the
period from January 2008 to November 2008. This represents a decline of 5.8% from the
same period in the previous year. It is worth mentioning that new jobs in the same period in
2004 were 57.9 thousand jobs.




44                                     Economic & Strategic Outlook                               February 2009
Global Research - Egypt                                                                                  Global Investment House


Chart 23: New Employment Opportunities Featured in Al-Ahram Newspaper Advertisements
           180
                                                                                                161.1
           160                                                        147.2                                         151.7
           140
           120                                 115.0
Thousand




           100
           80
                    57.9
           60
           40
           20
            0
                 Jan-Nov 2004             Jan-Nov 2005             Jan-Nov 2006              Jan-Nov 2007         Jan-Nov 2008
Source: Ministry of Investment


Of the new job opportunities over the period from Jan-Nov 2008, the health and religious
services sector had the highest share, represented by 28.4%, whereas the trade sector
followed, with a share of 20.5%. The manufacturing, petroleum and mining sector came
third, with a contribution of 19.3%. Unemployment will be the major challenge for the
Egyptian government in 2009, especially with the possible influence of the world financial
crisis on Egypt’s economy.

Chart 24: Sectoral Distribution of New Employment Opportunities (Jan-Nov 2008)
                                                  Other Sectors
                                                     15.0%

                                                                                              Health and
                                                                                          Religious Services
                                      Tourism                                                   28.4%
                                       6.2%



                                Housing and
                                Construction
                                  10.6%



                                Manufacturing, Petroleum                          Trade
                                      and Mining                                  20.5%
                                        19.3%
Source: Ministry of Investment




February 2009                                          Economic & Strategic Outlook                                              45
Global Research - Egypt                                     Global Investment House




                          SECTOR PERFORMANCE




46                           Economic & Strategic Outlook             February 2009
Global Research - Egypt                                                  Global Investment House



Oil
Though Egypt is an oil producing country, surrounded by oil rich countries, the increasing
local oil consumption on the back of a considerable industrial base, which is way larger than
the surrounding countries, has left the country without sizeable excess of oil for exports.
The increasing exploration activities, which further boost the country’s proven oil reserves,
ensure at least the coverage of annual increase in oil consumption.

                          Structure of the Petroleum Industry in Egypt

The petroleum industry in Egypt is ruled by the Ministry of Petroleum, which controls all the
sector segments through its affiliates, which concentrate on different segments in the sector.


                                    Ministry of Petroleum




  Egyptian General               Egyptian            Egyptian Natural        Ganoub El Wadi
     Petroleum                Petrochemicals           Gas Holding          Petroleum Holding
    Corporation              Holding Company            Company                  Company
      (EGPC)                    (ECHEM)                  (EGAS)                 (GANOPE)

Source: Egypt Oil & Gas


The Egyptian General Petroleum Corporation (EGPC), established in 1962, is considered the
first economic corporation established in the petroleum industry in Egypt. It is active in the
upstream, downstream and petrochemical sectors, has full responsibility for all sectors of the
Egyptian petroleum industry and holds the sole right to import and export crude oil and other
petroleum products.

Since EGPC acts as a controller for the industry, any foreign investments in Egypt are
maintained through a joint venture with it and are supervised by the government. Among
the major activities of the EGPC are petroleum agreements, exploration, production,
transportation and refining.

In august 2001, the Egyptian government created the Egyptian Natural Gas Holding Company
(EGAS) to manage foreign investment in exploration and the use of LNG (Liquefied Natural
Gas) tankers, production and infrastructure. In addition, EGAS is to handle all the actions of
natural gas industry in Egypt.

The Egyptian Petrochemicals Holding Company (ECHEM) is a holding company assigned
to manage and market Egypt’s emerging petrochemical industry. It is a major corporation
in Egypt established in 2002, with a mission of developing a competitive petrochemicals
industry based on the use advanced technology. ECHEM promotes investment, facilitates the
development of new projects owns and is continuing to establish production plants.

Ganoub El Wadi Petroleum Holding Company (GANOPE), previously known as the South
Valley Development Company (SVDC), was established in January 2003 to promote


February 2009                      Economic & Strategic Outlook                              47
Global Research - Egypt                                                                       Global Investment House


development activities specifically in Upper Egypt (Sohag, Aswan, Assyout, Qena, AL Wadi
El-Gedied), which represent over half of Egypt’s total area.

In addition to the aforementioned government entities, there over 50 international companies
and several Egyptian private sector companies operating in the exploration, excavation
and production of oil and gas in Egypt. These companies are granted concession areas for
exploration purposes in accordance with the periodic bidding rounds administered by the
relevant holding company.

In 2007, Egypt’s oil proven reserves rose by 9.4%, from the 2006 level, to reach 4.1bn
barrels. Despite the fact that the Egyptian proven reserves of oil are not considerably high,
compared to the oil rich region, it has positioned the country sixth over the African continent,
representing 3.5% of Africa’s oil proven reserves.

Chart 25: Top 10 African countries in terms of oil proven reserves (January 2008)
             45.0   41.5
             40.0           36.2
             35.0
             30.0
bn barrels




             25.0
             20.0
             15.0                     12.3
                                                  9.0
             10.0                                           6.6
                                                                     4.1
              5.0                                                              2.0         1.9           1.8         0.9
              -
                                                                                       (Brazzaville)


                                                                                                       Equatorial
                                                                                           Rep. of
                            Nigeria



                                      Algeria



                                                  Angola




                                                                                            Congo




                                                                                                         Guinea
                                                                               Gabon
                                                           Sudan
                    Libya




                                                                    Egypt




                                                                                                                     Chad
Source: BP Statistical Review of World Energy 2008 (June 2008) and Global Research


The continuous exploration activities have resulted in two new major discoveries in 2008.
The American Apache Corp. has announced in late 2008, a discovery in the Egyptian western
desert, which flowed 4,746 barrels per day (bpd) of oil and 4.4 million cubic feet of gas
per day (mcfd) of gas. Also, in the Gulf of Suez block, where almost half the country’s
oil production comes from, another discovery was announced in the North Ramadan-2
exploratory well, which flowed 800bpd of oil and 500mcfd of gas. It is worth mentioning
that as per the Egyptian Ministry of Petroleum, the country’s proven oil reserves reached
4.2billion barrels at the end June 2008.

In December 2008, IPR, a U.S. based oil exploration company has revealed the exploration
of a 7,000 oil bpd in a deep well located in Egypt’s Western Desert. Out of the 7,000 barrels
discovered, 5,300 barrels were of high quality crude oil, as well as 14mcfd of natural gas.
It is worth mentioning that the find is described as being one of the best discoveries in the
Western Desert.

Since 1996, the Egyptian oil production has been in continuous decline, until 2006 when
production stabilized and picked up again in 2007, reaching 710 thousand barrels per day
(tbpd), a 1.9% increase over 2006. The re-increase in oil production is attributed to the new
discoveries in the Gulf of Suez, the Nile Delta, the Western Desert and the Mediterranean
Sea in the 2007/08 fiscal year.



48                                              Economic & Strategic Outlook                                   February 2009
Global Research - Egypt                                                                                                                                                                             Global Investment House


Chart 26: Egypt’s Oil Production, Consumption and Proven Reserves Development
                1,000.0                                                                                                                                                                                                                       5.0
                         900.0                                                                                                                                                                                                                4.5
                         800.0                                                                                                                                                                                                                4.0
Thousand Barrels daily




                         700.0                                                                                                                                                                                                                3.5




                                                                                                                                                                                                                                                     Billion Barrels
                         600.0                                                                                                                                                                                                                3.0
                         500.0                                                                                                                                                                                                                2.5
                         400.0                                                                                                                                                                                                                2.0
                         300.0                                                                                                                                                                                                                1.5
                         200.0                                                                                                                                                                                                                1.0
                         100.0                                                                                                                                                                                                                0.5
                           -                                                                                                                                                                                                                  -
                                   1980
                                          1981
                                                  1982
                                                         1983
                                                                1984
                                                                       1985
                                                                              1986
                                                                                     1987
                                                                                            1988
                                                                                                   1989
                                                                                                          1990
                                                                                                                  1991
                                                                                                                         1992
                                                                                                                                 1993
                                                                                                                                        1994
                                                                                                                                                 1995
                                                                                                                                                         1996
                                                                                                                                                                1997
                                                                                                                                                                       1998
                                                                                                                                                                               1999
                                                                                                                                                                                      2000
                                                                                                                                                                                             2001
                                                                                                                                                                                                    2002
                                                                                                                                                                                                           2003
                                                                                                                                                                                                                  2004
                                                                                                                                                                                                                         2005
                                                                                                                                                                                                                                2006
                                                                                                                                                                                                                                       2007
                                                                              Production                         Consumption                             Proven Reserves (right scale)

Source: BP Statistical Review of World Energy 2008 (June 2008) and Global Research


On the other hand, the oil consumption inclined by 6.8% between 2007 and 2006, to reach
651.3tbpd. The increase in oil consumption came on the back of the widening industrial base,
which in turn has consumed more energy. The local consumption began to rise noticeably
since 2004, synchronized with the government’s economic reform program.

As the local oil consumption grows at a higher pace than the production, at 6.8% for demand
against 1.9% for supply, the oil exports volume decreases yearly. In 2007/08, Egypt exported
approximately 58.7tbpd with a decrease of 32.8% from 2006/07 exported amount. However,
the surge of oil prices in 2007/08, to an average of US$101 per barrel, has consequently
increased the proceeds of the crude oil exports to reach US$5.1bn in 2007/08, 57.0% higher
than the previous year. But at the same time, the crude oil imports bill surged by 226% during
the same period, to reach an unprecedented US$5.1bn compared to US$1.6bn in 2006/07.
We believe with the current drop in international crude oil prices to below the US$45 per
barrel, both the imports and the exports bills are to decrease substantially.

Chart 27: Crude Oil Exports vs. Imports
                         6,000                                                                                                                                                                                                                20.0%
                                                                                                                                 17.4%
                                                                                                                                                                                                                    16.7%                     18.0%
                         5,000
                                                                                                                                                                              14.2%                                                           16.0%
                                                 13.5%                                 14.0%
                                                                                                                                                                                                                                              14.0%
                         4,000
                                                                                                                                                                                                                                              12.0%
US$ mn




                                                                                                                                  9.3%                                                                               9.6%
                         3,000                                                                                                                                                                                                                10.0%
                                                                                        6.8%                                                                                                                                                  8.0%
                                                 6.1%
                         2,000
                                                                                                                                                                                                                                              6.0%
                                                                                                                                                                              4.1%
                                                                                                                                                                                                                                              4.0%
                         1,000
                                                                                                                                                                                                                                              2.0%
                                                          1,413.7                                  1,937.7                                     3,213.8                                 3,128.3                                  4,910.5
                               -                                                                                                                                                                                                              0.0%
                                            2003/2004                                2004/2005                                  2005/2006                                2006/2007                                2007/2008*

                                                                                 Crude Oil Imports                                                         Crude Oil Exports
                                                                                 % of total imports (right scale)                                          % of total exports (right scale)

*Preliminary
Source: Central Bank of Egypt Monthly Statistical Bulletin (December 2008)


The need for more downstream projects became inevitable, despite the current world
economic slowdown. The global shortage of refinery capacity drove the world to seek out
opportunities to increase investments in oil refineries. Egypt is eyed by international investors
as a strategic location for new refining facilities. Currently, Egypt’s oil distillation capacity



February 2009                                                                                      Economic & Strategic Outlook                                                                                                                     49
Global Research - Egypt                                                                                                                                                                  Global Investment House


amounts to 35.7 million metric tons (mmt) per annum, while only 32.3 mmt were produced in
2007/08. The Egyptian government encourages the private sector to emerge into partnerships
with the Egyptian General Petroleum Corporation (EGPC) in the oil refining investments.
There are four refineries currently under establishment in Egypt. The Egyptian Refinery
Company (ERC), which is primarily owned by Citadel Capital, an Egyptian private equity
firm, and partly by EGPC, with an annual capacity of 4.2mmt or 140,000 bpd. The Sokhna
for Refining and Petrochemicals is another refinery under establishment with a distillation
capacity 6.2mmt per annum. In addition, the Minister of Petroleum announced that there
are two other refineries in the pipeline, a partnership with the Libyan government, with an
investment cost of US$10bn and another one with a foreign undisclosed partner with a total
investment cost of US$9.0bn. It is worth mentioning that the local and foreign investments
in the Egyptian oil sector as of end of June 2008, the end of the government fiscal year, has
reached an unprecedented US$6.6bn, with an 86.6% increase over 2006/07 level.

Chart 28: Investments in Petroleum Sector
        7,000

        6,000

        5,000

        4,000
US$mn




        3,000

        2,000

        1,000

           0
                30/06/1992


                             30/06/1993


                                          30/06/1994


                                                       30/06/1995


                                                                    30/06/1996


                                                                                 30/06/1997


                                                                                              30/06/1998


                                                                                                           30/06/1999


                                                                                                                        30/06/2000


                                                                                                                                     30/06/2001


                                                                                                                                                  30/06/2002


                                                                                                                                                               30/06/2003


                                                                                                                                                                            30/06/2004


                                                                                                                                                                                            30/06/2005


                                                                                                                                                                                                         30/06/2006


                                                                                                                                                                                                                      30/06/2007


                                                                                                                                                                                                                                   30/06/2008
Source: Egyptian Ministry of Petroleum


The government of Egypt encourages the investment in new oilfields’ exploration and
development projects via its arm EGPC. Additionally, the application of the new Enhanced
Oil Recovery (EOR) technology, which allows ageing wells to continue production for a
longer period than originally estimated, will raise Egypt oil production. Eni has announced
that it will apply the EOR technology in its oilfields in the Gulf of Suez. Furthermore, the
recently discovered oil fields are expected to boost the Country’s oil production to reach
800,000 bpd by 2010, as per the Egyptian Ministry of Petroleum.

Oil Transport

The strategic geographical location of Egypt has given it a competitive edge for world
trade. Suez Canal and the Su-Med Pipeline are two primary routes for the GCC countries oil
exports. The Egyptian government is in continuous development of the Suez Canal to allow
it to receive the world’s largest bulk carriers, and it is planning to further deepen the Canal to
accommodate the very large crude carriers (VLCCs).

The Su-Med pipeline is a 200 mile tube, which begins in Al Ain Al Sokhna on the Gulf of
Suez and ends at Sidi Kerir on the Mediterranean, with a current oil pumping capacity of



50                                                                               Economic & Strategic Outlook                                                                                                     February 2009
Global Research - Egypt                                                  Global Investment House


3.1mn bpd. The pipeline is owned by the Arab Petroleum Pipeline Company (APP), a joint
venture between Egypt (50%), Saudi Arabia (15%), Kuwait (15%), the U.A.E. (15%), and
Qatar (5%).

Outlook

With the current government plans to increase oil explorations and discoveries as well as
encouraging the private sector to further emerge in the hydrocarbon sector investments,
we believe that Egypt will be able to satisfy its growing oil consumption by increasing oil
production, to avoid a net importing situation. Also, the current orientation towards boosting
the local oil distillation capacities will considerably lessen Egypt’s oil imports in the coming
years, thus making significant savings in the country’s trade balance. In January 2009, in
order to promote investments in the sector, the Egyptian government decided to exclude
oil refineries from the May 5th decisions, which included ending the tax exemption for the
energy intensive industries working under the Free Zones law. It is worth mentioning that
imposing taxes on the Free Zones energy intensive industries, which came on the back of the
surging energy prices, has negatively affected the entrance of new investments.




February 2009                     Economic & Strategic Outlook                               51
Global Research - Egypt                                                              Global Investment House



Natural Gas
Egypt has emerged as a natural gas rich country with natural gas reserve on the rise, positioning
Egypt in the third place over Africa and among the top 20 countries with the highest natural
gas reserves in the world. The extensive and active exploration efforts are resulting in more
gas reserves for the country. As of January 2008, the Egyptian natural gas proven reserves
amounted to 72.9 trillion cubic feet (tcf) with a slight increase over 2006 level, representing
0.8%. As per the Ministry of Petroleum, the Egyptian natural gas proven reserves reached
76.0tcf at the end of fiscal year 2007/08, an increase of 4.3% over January 2008.

As the Egyptian natural gas production exceeds the local consumption, Egypt became known
as a net exporter. In 2007, Egypt ranked 8th on the world in terms of Liquefied Natural
Gas (LNG) exporters, behind Qatar, Malaysia, Indonesia, Algeria, Nigeria, Australia and
Trinidad & Tobago.

Chart 29: Top African countries in terms of proven natural gas reserves (January 2008)
                      200.0   187.0
                      180.0
                                        159.4
                      160.0
Trillion cubic feet




                      140.0
                      120.0
                      100.0
                      80.0                                 72.9
                      60.0                                                  52.8
                                                                                                 42.8
                      40.0
                      20.0
                       -
                              Nigeria   Algeria           Egypt            Libya              Other Africa
Source: BP Statistical Review of World Energy 2008 (June 2008) and Global Research


In June 2008, the Egyptian natural gas production reached 4.6 billion cubic feet per day (bcfd)
compared to 4.5bcfd at the end of 2007, representing a 2.5% increase in a six month period.
It is worth mentioning that the natural gas production grew by 4.2% between 2006 and 2007,
and by 28.9% between 2005 and 2006. The rise in the natural gas supply is welcomed by the
Egyptian government in order to create a considerable surplus for exportation, which will
counter balance the oil trade deficit.

Like the oil, the local natural consumption is rising rapidly on the back of the increasing
investments in the Egyptian industrial sector. In June 2008, Egypt consumed 3.2bcfd of
natural gas, a 3.1% increase over the end of 2007 figure. Between 2006 and 2007, the local
demand on natural gas grew by 9.9%, from 2.8bcfd to 3.1bcfd.

As per the Egyptian Minister of Petroleum, the electricity sector consumes the largest share
of the natural gas amounting to 58%. The industrial sector follows consuming 26% of the
country’s light feedstock.




52                                         Economic & Strategic Outlook                        February 2009
Global Research - Egypt                                                                                                                                                                                                                      Global Investment House


Chart 30: Egypt’s Natural Gas Production, Consumption & Proven Reserves Development
                             5.0                                                                                                                                                                                                                                                                 80.0
                             4.5                                                                                                                                                                                                                                                                 70.0
                             4.0
Billion cubic feet per day




                                                                                                                                                                                                                                                                                                 60.0
                             3.5




                                                                                                                                                                                                                                                                                                          Trillion cubic feet
                             3.0                                                                                                                                                                                                                                                                 50.0

                             2.5                                                                                                                                                                                                                                                                 40.0
                             2.0                                                                                                                                                                                                                                                                 30.0
                             1.5
                                                                                                                                                                                                                                                                                                 20.0
                             1.0
                             0.5                                                                                                                                                                                                                                                                 10.0

                              -                                                                                                                                                                                                                                                                  -
                                       1980

                                              1981

                                                      1982

                                                              1983

                                                                        1984

                                                                                1985

                                                                                           1986

                                                                                                   1987

                                                                                                            1988

                                                                                                                    1989

                                                                                                                             1990

                                                                                                                                      1991

                                                                                                                                                1992

                                                                                                                                                             1993

                                                                                                                                                                           1994

                                                                                                                                                                                    1995

                                                                                                                                                                                           1996

                                                                                                                                                                                                   1997

                                                                                                                                                                                                          1998

                                                                                                                                                                                                                    1999

                                                                                                                                                                                                                           2000

                                                                                                                                                                                                                                   2001

                                                                                                                                                                                                                                          2002

                                                                                                                                                                                                                                                          2003

                                                                                                                                                                                                                                                                    2004

                                                                                                                                                                                                                                                                            2005

                                                                                                                                                                                                                                                                                   2006

                                                                                                                                                                                                                                                                                          2007
                                                                                                  Production                                    Consumption                                        Proven Reserves (right scale)

Source: BP Statistical Review of World Energy 2008 (June 2008) and Global Research


Though the natural gas demand is growing at higher pace than the supply, the gap between supply
and demand is still large, leaving a considerable amount of natural gas for exportation. The
natural gas exports proceeds amounted to US$3.3bn in 2007/08, growing by 20.6% over 2006/07,
representing 22.6% of the total petroleum products exports and 11.1% of Egypt’s total exports.

The Ministry of Petroleum holds stakes, through EGAS, in around 20 natural gas production
companies in Egypt, which range from upstream exploration and production to the exportation
of the LNG. The government’s major joint venture partners are BG, which currently produce
about 40% of Egypt’s daily gas supply, as well as, Eni, BP and Shell.

In 2007, Egypt ranked 8th on the world in terms of LNG exports, with a total exported
amount of 480.4bcf. It is worth mentioning that also in 2007 Egypt exported natural gas to
Jordan, amounting to 83.0bcf through the Arab Gas pipeline, which connects Egypt to Jordan
and Syria. This pipeline is planned to connect to Turkey as a step toward a bigger extension
toward Austria, Romania and Hungary, and maybe to Lebanon and Cyprus as well.

Chart 31: World Top 15 LNG Exporters in 2007
                             1,400
                             1,200
Billion cubic feet




                             1,000
                              800
                              600
                              400
                              200
                                   -
                                                             Malaysia


                                                                               Indonesia


                                                                                                  Algeria


                                                                                                                   Nigeria


                                                                                                                                    Australia


                                                                                                                                                       Trinidad & Tobago




                                                                                                                                                                                                  Oman


                                                                                                                                                                                                                 Brunei


                                                                                                                                                                                                                                  UAE


                                                                                                                                                                                                                                                 Equatoral Guinea


                                                                                                                                                                                                                                                                           US


                                                                                                                                                                                                                                                                                      Libya


                                                                                                                                                                                                                                                                                                 Norway
                                                                                                                                                                                  Egypt
                                              Qatar




Source: BP Statistical Review of World Energy 2008 (June 2008) and Global Research


Spain followed by the US are the main importers of the Egyptian LNG, representing more
than 50% of the total exported quantities, with 29.7% and 23.8% respective shares. The
geographical location of Egypt in the center of three continents has eased the LNG exports to
many countries across the globe.


February 2009                                                                                                           Economic & Strategic Outlook                                                                                                                                                      53
Global Research - Egypt                                                              Global Investment House


Chart 32: Egypt LNG exports by destination in 2007
                             France
             South Korea      8.9%
               10.9%
                                      Mexico
                                       7.3%                                          Taiwan 3.0%
     Japan
     11.9%                                    Other
                                              7.6%

                                                                                     Greece 2.3%



      US                                                                             United Kingdom 1.2%
     23.8%
                                                                                     Turkey 0.6%
                                      Spain                                          India 0.5%
                                      29.7%
Source: BP Statistical Review of World Energy 2008 (June 2008) and Global Research


The continuous exploration activities have resulted in various new discoveries, both onshore
and offshore wells, which add up to the current proven gas reserves, positioning Egypt as one
of the leading natural gas suppliers in the Mediterranean region.

The Nile Delta region and the Western Desert are the current sources of most of the
explorations. The Nile Delta currently produces almost half the country’s natural gas output.
The Western Desert, mainly Obeiyed and Khalda fields, is a favorable destination for
exploring companies, as the area is equipped with a network of pipelines and processing
plants that allow quick transportation to Alexandria.

In January 2009, Apache Corporation reported three new field discoveries in Egypt’s Western
Desert that tested a total of 80 million cubic feet (mcf) of natural gas, in addition to oil 5,909
barrels of oil and condensate per day. In addition, Circle Oil plc, the international oil and gas
exploration and development company, announced that the Al Amir SE-2X appraisal well
has been drilled in the onshore North West Gemsa Concession in Egypt and tested 5,785bpd
of oil and 7.8mcfd of gas.

Outlook

Due to the continuous efforts of the government to promote more natural gas discoveries, we
foresee that the natural gas is to be the engine for economic growth in the coming years especially
that the government is orienting more investments towards natural gas down streaming industries
like petrochemicals and fertilizers. The steps taken by Egypt currently toward promoting
investment in natural gas based industries, not only will cover the local consumption but will be
directed to exportation, thus raising the country’s foreign currency income.




54                                     Economic & Strategic Outlook                            February 2009
Global Research - Egypt                                                  Global Investment House


Energy Subsidy

For many years the subsidy bill has been burdening the Egyptian government’s budget. And
as the current cabinet concentrate on flourishing the economy and boosting its growth, the
need to rationalize the expenditures became a must. One of the major steps taken by the
government was to reduce the energy subsidy, especially for industrial purposes.

The increase in oil prices, especially after hitting the US$148 per barrel in 2008, has burdened
the government’s budget, leading to its firm decision to cut the energy subsidy. During the
FY2007/08, the petroleum subsidy reached LE60.2bn, accounting for 21.3% of the total
government expenditures, compared to LE40.1bn the year before. The 50.1% rise in the
petroleum subsidy bill in 2007/08 is attributed to the unprecedented surge in the international
crude oil prices.

The subsidy reduction started in 2006, when the Egyptian government raised the price of
90-octane gasoline by 30%, diesel fuel by 25% and natural gas by 25%. Further actions
were taken in 2007, as the government announced its plan to liberalize the natural gas and
electricity prices for industrial usage over the next three years.

The obvious reason behind this increase is to reduce the energy subsidy, which rose
significantly in the previous years, growing to a huge figure in the government’s budget.
The government defended this cut by the fact that the wealthiest 10% of Egypt’s population
receive LE700 per capita in fuel subsidies annually, while the majority of the low-to middle-
income people receive only LE300 per capita. Furthermore, the Minister of Trade and
Industry has affirmed that the new energy tariff will save LE15bn (US$2.67bn) to the budget
over the coming three years.

The new energy pricing scheme is thought to be an initial move to liberalize the sector and to
attract more foreign investments. Most of the current oil and gas producers are positive with
the government’s new direction and they believe that new investors will continue to enter
the market. However, the inflation rate is expected to wheel upward significantly after the
full implementation of the subsidy cut, even with the government promises to identify and
deliver the subsidy to the intended segment of the population. The government announced
that it will enforce a sophisticated subsidization system, which will offset price increases to
the poorest segment.

Gas Price

The Egyptian government decided to reduce the energy subsidy and consequently increasing
the natural gas end price. Local natural gas price was fixed for many years regardless of any
increase in the production cost. As a matter of fact the local price is far below the world
natural gas price (about US$1.25 per Million British Thermal Unit (MBTU) compared to
US$6-13 per MBTU in the international markets in 2008).

The natural gas subsidy reduction started in 2006, where the natural gas price rose by 25%. In
2007, the Minister of Trade and Industry declared the new pricing scheme to be implemented
over the following three years, where the natural gas price will increase gradually from
US$1.25 to US$2.65 per MBTU, which represents the cost that the government pays.
However, the price per MBTU was set at US$3 as of October 2008, mainly for nitrogenous
fertilizers producers.


February 2009                     Economic & Strategic Outlook                                55
                     Global Research - Egypt                                                       Global Investment House


                     Table 14: Energy cost and selling prices (July 2007/March 2008)

                                                                     Current Subsidy                        Subsidy After New Pricing
                                Before New                                                     After New
                                  Pricing –                                                     Pricing -
Petroleum                       Local Selling                                                 Local Selling
Product               Unit       Prices (LE)    Cost          Value (LE)        Subsidy/Cost   Prices (LE) Value (LE) Subsidy/Cost
LPG                   tank                  2.5    45.9                43.4              94.6% No Change                -             -
Mazout                Ton               1,000.0 1,537.0               537.0              34.9% No Change                -             -
Natural Gas:
Home                      m3    From 0.1 to 0.3      0.47 From 0.17 to 0.37 From 36% to 79%        No Change                 -        -
Electricity               m3              0.25       0.47              0.22           46.8%        No Change                 -        -
Non-energy                m3              0.25       0.47              0.22           46.8%        No Change                 -        -
intensive Industry
Energy intensive          m3                0.36     0.47                0.11              23.4%         0.57          (0.10)    -21.3%
Industry
Benzene:
Octane 80             Liter                 0.90     2.24                1.34              59.8%   No Change               -          -
Octane 90             Liter                 1.30     2.86                1.56              54.5%        1.75            1.11     38.8%
Octane 92             Liter                 1.40     3.79                2.39              63.1%        1.85            1.94     51.2%
Octane 95             Liter                 1.75     4.09                2.34              57.2%        2.75            1.34     32.8%
Diesel                Liter                 0.75     2.99                2.24              74.9%        1.10            1.89     63.2%
Kerosene              Liter                 0.75     2.43                1.68              69.1%        1.10            1.33     54.7%

                     Source: Ministry of Petroleum




                     56                                     Economic & Strategic Outlook                     February 2009
Global Research - Egypt                                                               Global Investment House



Agriculture
The agriculture sector is considered one of the major sectors in Egypt’s economy, where its
contribution to the country’s GDP is 13.6% in FY2007/08, amounting to LE103bn, up by
3.3% compared to the year before. In addition, the investments in the agriculture sector has
accounted for 4% of the country’s total investments in FY2007/08, where it increased by
1.2%, as opposed to the previous year, reaching LE7.9bn. Moreover, the agriculture sector
employs 32% of the labor force in Egypt.

During the first quarter of FY2008/09, the agriculture sector reported a 3.5% growth compared
to the same period the previous year, reaching LE32.4bn and its contribution to the GDP
declined slightly from 16.5% to 16.2% by the end of Q1 FY2008/09.

Chart 33: Agriculture Sector
18%        16.8%           16.4%                16.1%         15.5%
16%                                                                                 14.1%         13.6%
14%
12%
10%
 8%
 6%        4.9%
                                                               3.2%                 3.7%          3.3%
 4%                                              2.7%
                           1.9%
 2%
 0%
          2002/03         2003/04              2004/05       2005/06            2006/07          2007/08

                                  Agriculture as % of GDP      Agriculture Growth

Source: CBE and Global Research


In fact, the contribution of the agriculture sector in the Egyptian economy has been declining
during the period from FY2002/03 to FY2007/08. This can be attributed partly to the expansion
witnessed in the country’s industrial and service sectors. Additionally, the migration from
rural to urban areas has raised demand on housing, causing the illegal building on agricultural
lands. It is estimated that Egyptian agriculture has lost about one million feddans of fertile
land during the period 1981- 2007.

Nearly all of Egypt’s agricultural production takes place in around 8.4mn feddans (3.5mn
hectares), while vertical development projects in the agricultural sector have led to an
increase in farmed area to about 15.2mn feddans (about 6.4mn hectares) in 2008. The vertical
cultivation methodology can significantly raise the cropped area productivity, where the
cropping intensities can be very high (200%), which is reflected in the total farmed area.

Egypt’s cultivated area is narrow, as 90 % of the agricultural land is concentrated in the
Delta, and the Nile River banks between Aswan and Cairo. Some desert lands are being
developed for agriculture, including the ambitious Toshka project in Upper Egypt, but some
other fertile lands in the Nile Valley and Delta are being lost due to urbanization and erosion,
as well as desertification. Other mega agricultural projects are currently being developed
such as Toshka, Al Salam Canal and East Owainat, adding together around 1.4mn feddans to
Egypt’s cultivated land.




February 2009                            Economic & Strategic Outlook                                      57
Global Research - Egypt                                                   Global Investment House


Basically, the importance of the agriculture sector comes from its role in ensuring food
security, as well as being the main feedstock for many industries (such as cotton and textiles
production, milling activities, rubber products, refined sugar, tobacco, canned food and
cottonseed oil). Accordingly, the government planned to raise the cultivated areas by around
150,000 acres annually to Egypt’s arable land, as well as enhancing crop yields through
awareness campaigns to farmers concerning improved irrigation practices and optimal
utilization in fertilizers.

The government’s efforts are currently focused on upgrading the irrigation systems and
introducing new cultivating techniques. Moreover, the expansion in the organic crops
cultivation is considered as one of the country’s plans. The Ministry of Agriculture has set a
goal of converting 1.3mn hectares of desert land into farmland by 2020, in order to increase
the country’s capacity to grow 254mn tons of fruits and vegetables.

Additionally, the World Bank has provided a US$145mn loan to the Egyptian Ministry of Irrigation
and Water Resources to support an irrigation project in the western Delta areas. The loan will be
repaid over 20 years, with a grace period of eight years. The project aims at reclaiming 170,000
feddans, including 70,000 in Sadat City and 100,000 along the Natroun-Alamein road.

Egypt enjoys a highly fertile soil, as well as many sources of irrigation waters, such as Nile
River, streams, rain waters and underground waters. The weather is favorable for the natural
growth of various plants and different kinds of agricultural products. Several crops are raised
during the three cropping seasons, Winter (November to May), Summer (April/May to
October), and Nili (July/August to October). In addition, several durable and seasonal crops
are cultivated for a whole year or several years, including sugar cane, fruits and trees for
timber. Egypt’s main planted crops are wheat, rice, cotton, corn, beans and clover, which
account together for around 80% of the total cultivated area.

Table 15: Output of Main Agricultural Crops
(Thousand tons)                             2003/04    2004/05    2005/06 2006/07* 2007/08*
Wheat                                         7,178      8,141      8,274    7,279    8,015
Maize                                         6,235      6,236      7,085    6,374    6,355
Rice                                          6,174      6,351      6,124    6,744    6,902
Cotton (seeds)                                  600        785        644      600      628
Sugarcane                                    16,245     16,230     16,317   16,611   16,860
Sugarbeet                                     2,914      2,860      3,905    5,459    4,621
Vegetables                                   18,242     19,189     20,374   20,349   20,580
Fruits                                        6,754      8,428      7,818    8,503    9,100
*Provisional
Source: CBE and Global Research


Even though only 3% of the total land is arable, it is extremely productive and can be cropped
two or even three times per year. During the FY2007/08, most of the cultivated crops reported
an increase from 2% to 10%. The wheat production expanded by around 10%, reaching 8mn
tons in FY2007/08. This came on the back of the government’s incentives provided to the
local farmers, where in early 2008 the government announced that it would buy the wheat
from the local farmers with remunerative prices, at around LE390 per ardab (about US$472
per metric ton), compared to LE180 per ardab previously.



58                                Economic & Strategic Outlook                      February 2009
Global Research - Egypt                                                                                                Global Investment House


Chart 34: Wheat Production, Consumption and Imports in Egypt
                      18,000
                      16,000
Thousand Metric Ton



                      14,000
                      12,000
                      10,000
                        8,000
                        6,000
                        4,000
                        2,000
                            -
                                    2004/05                     2005/06                 2006/07               2007/08           2008/09 F

                                                      Production                      Consumption                Imports

Source: United States Department of Agriculture (USDA)/Foreign Agricultural Service (January 2009)


The Government objective is to cut the spending on the imported wheat by motivating the local
farmers to plant more wheat. Egypt’s imported wheat was more than 50% of the total agriculture
imports in FY2007/08, reaching US$1.6bn. However, the government didn’t disclose any
statement if it would buy the wheat from the farmers in FY2008/09 at a certain price, due to the
decline witnessed in the international wheat price, dropping from a peak of over US$450/ton in
March 2008 to below US$250/ ton in November 2008, as result of the world financial crisis.

It is worth mentioning that in early 2008, there was a severe shortage in the local subsidized
bread, which is sold for five piaster per loaf. The international wheat price was up by more
than 83% during the previous year, which in turn widened the gap between the price of
the subsidized and unsubsidized bread. Some local bakers exploited this gap and used the
subsidized flour to produce bread that was sold illegally at market prices. Additionally, the
shortage has coincided with the rising food prices during the first half of 2008, causing low-
income people more dependent on the subsidized bread. In order to ensure that the subsidized
flour is sold at the legal markets with the subsidized price, Egypt’s President has ordered
the army in cooperation with the Ministry of Social Solidarity, to assist in the bread baking,
production and distribution all over the country’s governorates.

Chart 35: Major Agricultural Imports
                      4,500
                      4,000
                      3,500
                      3,000
US$mn




                      2,500
                      2,000
                      1,500
                      1,000
                       500
                        -
                                2002/03               2003/04               2004/05               2005/06          2006/07        2007/08*
                                          Wheat                           Maize                         Refined Sugar
                                          Vegetable and animal oils       Dairy products & eggs
*Provisional
Source: CBE and Global Research


Despite the fact that the rice production exceeds the consumption, rice local prices soared
significantly during the previous year by more than 30%. This came on the back of the


February 2009                                                    Economic & Strategic Outlook                                                59
Global Research - Egypt                                                                               Global Investment House


shortage of rice supply in the local market, as the local traders favored exportation due to its
lucrative pricing compared to the local price.

In order to bring down rice local prices and to ensure its availability in the domestic market,
the Ministry of Trade and Industry raised the LE200/ton rice export duty, which was imposed
in September 2007, to LE300/ton effective March 2008.

Additionally, the Ministry has imposed a temporary ban on rice exports for a 6-month period
(April to September 2008). On June 2008, the export ban was extended to April 2009. This
decision was targeting reducing the inflation rate, which reached almost 20% in May 2008,
as the food and beverage weight in the CPI basket is around 44%.

Chart 36: Rice Production, Consumption and Exports in Egypt
                      5,000
                      4,500
                      4,000
Thousand Metric Ton




                      3,500
                      3,000
                      2,500
                      2,000
                      1,500
                      1,000
                        500
                        -
                                    2004/05                   2005/06                   2006/07               2007/08
                                              Production                Consumption               Exports
Source: United States Department of Agriculture (USDA)/Foreign Agricultural Service (January 2009)


Though the Egyptian cotton is considered the world’s finest cotton, due to its long-staple and
extra-long staple cotton, its unique strength, elasticity, softness and ability to absorb colors, the
country’s cotton cultivated area has been declining by almost 50% during the previous decade,
where it dropped from 1mn feddan in 1990 to 536 thousand feddan in FY2006/07. This can be
attributed partly to the decline in the cotton selling prices and conversely the surge in the prices
of grains, fruits and vegetables, causing the farmers to shift toward the more profitable crops.

Also, the absence of a clear pricing policy has raised farmers concerns that the cotton harvest
will be rewarding, as most of farmers reported that they have faced difficulties in selling most of
the cotton production in the previous year due to pricing disputes with the ginning companies.

Chart 37: Egypt Cotton Production and Cultivated Area
900
                              785
800                                 715
700                                                   644       657                                         628
                                                                                  600                                575
600                                                                                       536
500
400
300
200
100
                  0
                               2004/05                     2005/06                 2006/07                  2007/08*
                                Cotton Production (Thousand Ton)        Cotton Cultivated Area (Thousand Feddan)
*Provisional
Source: CBE and Global Research


60                                                     Economic & Strategic Outlook                                February 2009
Global Research - Egypt                                                 Global Investment House


Consequently, the government has implemented some procedures in order to raise the
cotton’s cultivated area, yield and production During the FY2007/08. The government
provided farmers with subsidized fertilizers, technical support in the irrigation, pesticides
and promoted the usage of higher yielding seeds. In turn, the cotton area and production
grew by 7.3% and 4.7%, respectively in FY2007/08. Also, the exported cotton has mounted
by 76.3%, reaching US$194mn in FY2007/08.

In early 2009, the Minister of Agriculture announced the implementation of the agriculture
development strategy to raise the country’s crop production. It aims at reclaiming 304mn
feddan by 2030 and to achieve self sufficiency of wheat by 81%, corn 90% and sugar 92%.

Table 16: Major Agricultural Exports
US$mn                                      2003/04     2004/05   2005/06    2006/07 2007/08*
Cotton                                         202         138       146        110      194
Potatoes                                         5           1         2         17       33
Citruc Fruits                                   13          24        38         32       32
Rice                                            58         141       136        146      162
Preserved & Dried Vegetables                     4           6         4         17       17
Dried Onion                                      2           6         4          7        8
*Provisional
Source: CBE and Global Research


To face the consequences of the global financial crisis, the Minister of Trade and Industry
announced that the government would subsidize textiles producers with LE150/quintal for
the Egyptian cotton, in order to support these companies after being significantly hit from
the world’s financial crisis. This decision will in turn promote cotton production in Egypt.
Additionally, the Minister announced it would impose a 25% on the value of imported spins
and cotton textiles, in addition to LE500/ton on imported refined white sugar as temporary
protective actions for the local producers.

The world’s food shortage witnessed in the last couple of years, causing a surge in the
international food prices, has created interest towards securing the food supply globally. The
food supply cannot match the demand stemming from growing populations. Also, the bad
weather witnessed in Europe and Australia in 2006 and 2007, has resulted in poor harvests.
The world cereal production decreased from 2.05bn tons in 2005/06 to 2.01bn tons in 2006/
07, partly because of the drought that limited Australia’s wheat crop. Moreover, the world’s
cereal inventory has dropped to its lowest level in the past 20 years, from 471mn tons in 2005/
06 to 428mn tons in 2006/07, according to the Food and Agriculture Organization (FAO).

The Egyptian government became more concerned with the agriculture sector, which was
apparent in the different procedures implemented to boost the country’s cultivated area, as
well as improving crop yields and production. Moreover, the abundance of fertile agricultural
lands and plenty of irrigation waters, along with the favorable weather, are positioning Egypt
to attract more investments in the agriculture sector, especially with the repeated warnings of
the United Nation’s Food & Agricultural Organization with regard to the expected drops in
the global food stock in 2009.

We believe more investments are to be oriented toward the agriculture sector in the coming
years, both from the government, as well as regional investors. The current drops in crops
prices are to rebound faster than expected, may be not to the 2008 levels, so investments in
the Egyptian agriculture sector is believed to witness a hike.

February 2009                     Economic & Strategic Outlook                              61
Global Research - Egypt                                                          Global Investment House



Fertilizers
Two types of fertilizers are only produced in Egypt, these are nitrogen and phosphate,
whereas potassium fertilizer is not produced as its raw material is not found in the country.
On the other hand, the natural gas, which is the basic feedstock for nitrogen fertilizers, is
widely available in Egypt. In 2007, natural gas production was 4.5 cubic feet per day, and
the proven reserve is estimated to be 72.9 trillion cubic feet. Also, the phosphate rock, the
main raw material for phosphate production, is abundant in Egypt, with an annual capacity
of 2.3mn tons in 2007.

In the 1930s, the fertilizers production started in Egypt, where the phosphate production
started in 1936, and the nitrogen followed in 1951. Both fertilizers production are dominated
by two major companies. The nitrogen fertilizers production is nearly controlled by Abou
Qir Fertilizers Company, which holds a local market share of 62% in 2008. The Egyptian
Financial and Industrial Company (EFIC) dominates the phosphate fertilizers production,
with an estimated local market share of 70% in 2008.

Table 17: Major Local Fertilizers Producers
Nitrogen                                                        Unit          Ammonia            Urea
Abou Qir Fertilizers                                            Ton/Day           2,400         3,650
Alexandria Fertilizers Company                                  Ton/Day           1,200         2,000
El Delta Fertilizer & Chemical Industries Co.                   Ton/Year        300,000      570,000
Egyptian Fertilizers Company (EFC)*                             Ton/Year              -   1,300,000^
El Nasr Fertilizers & Chemical Industries Co. (SEMADCO)         Ton/Year        198,000             -
Helwan Fertilizers Co.                                          Ton/Day           1,200         2,000
Phosphate                                                       Unit          Phosphate Sulfuric Acid
Egyptian Financial & Industrial (EFIC)                          Ton/Year        900,000      380,000
Suez Company for Fertilizer Production (SCFP)+                  Ton/Year        300,000      425,000
Abou Zaabal Fertilizers                                         Ton/Year        800,000      350,000
*EFC is 100% owned by Orascom Construction Industries (OCI)
^ To reach 1.45mn tons by 2010 following the implementation of a debottlenecking project
 +SCFP is 99.88% owned by EFIC
Source: Arab Fertilizers Association (AFA), Companies’ announcements and Global Research


The Egyptian fertilizers sector has witnessed rapid growth during the last couple of years, on
the back of the surge encountered in both the local and international demand on fertilizers.
The local demand is driven by the government’s promising agriculture projects Toshka, Al
Salam Canal and East Owainat, in order to increase the country’s food production by raising
the cropped areas and yields, along with enhancing the fertilizers application rates.

Moreover, the world fertilizers demand has also soared tremendously on the back of the
prompt economic development experienced by the Asian countries, which raised their
average income, causing changes in their dietary habits. Diets have shifted from the cereals
and other cheap crops toward more livestock products that require additional grain to feed
more animals, as well as vegetables and fruits. Additionally, the decline in the world’s
agriculture land areas, because of the soil erosion, climate changes, water unavailability and
desertification has raised interest towards using the optimal fertilization rates to achieve the
maximum yields.




62                                    Economic & Strategic Outlook                         February 2009
Global Research - Egypt                                                                         Global Investment House


Subsequently, new investments were injected in the Egyptian fertilizers sector during the last
couple of years, in order to meet the expected growth in demand. During the FY2007/08,
both nitrogen and phosphate fertilizers production grew by 6%, each.

Chart 38: Nitrogen and Phosphate Fertilizers Production
                14,000

                12,000

                10,000
Thousand Tons




                 8,000

                 6,000

                 4,000

                 2,000

                   -
                         2001/02   2002/03         2003/04    2004/05        2005/06            2006/07*    2007/08*
                                       Nitrogen Fertilizers             Phosphate Fertilizers

*Provisional
Source: CBE and Global Research

In fact, the Egyptian farmers tend to use more nitrogen fertilizers than phosphate. The farmers
believe that applying nitrogen fertilizer accelerates plant growth and enhances the quality and
the size of the crops, ignoring the importance of using a balanced fertilization ratio. The
government is currently implementing awareness programs for the farmers to use the three
types of fertilizers in a rational manner. Also, local producers are promoting for the usage of
the compound fertilizers.

The Egyptian government is controlling the nitrogen fertilizers distribution, where more than
80% of the public companies production, representing 47.4% of the country’s total production,
is sold through the Principal Bank for Development and Agricultural Credit (PBDAC) and
the agricultural cooperatives, both are government entities. It is worth mentioning that the
PBDAC is the only distributor of subsidized fertilizer in Egypt. The remaining production of
the public companies is sold through the private distributors. On the other hand, the free zone
private fertilizers producers, who account for 52.6% of the total production, can freely sell
their entire production in the local market or to be exported.

Since the public sector fertilizers companies production do not cover the local demand,
the government buys the remaining amounts from the free zone companies at international
prices. The nitrogen fertilizers (15.5% nitrogen content) total production (both public and
private companies) reached 15.2mn tons in FY2007/08, meanwhile the nitrogen consumption
was only 9.2mn tons, where 7.2mn tons were provided from the public companies and the
remaining balance, of about 2mn tons, was bought from the free zone private producers at
international prices.

For the FY2008/09, nitrogen fertilizers (15.5% nitrogen content) production is forecasted
to reach 16mn tons, while local consumption is expected to reach 9.3mn tons, as per the
Minister of Agriculture. It is estimated that 8mn tons of the 9.3mn forecasted demand of
nitrogen fertilizers in FY2008/09, will be supplied by the public companies and the private
will offer only 1.3mn tons.



February 2009                                 Economic & Strategic Outlook                                             63
Global Research - Egypt                                                                                                                                    Global Investment House


Chart 39: Fertilizers Production and Consumption
          Nitrogen Fertilizers                                                                                                            Phosphate Fertilizers
                              2.5                                                                                            350

                                                                                                                             300
                              2.0




                                                                                              Thousand tonnes of nutrients
Million tonnes of nutrients




                                                                                                                             250
                              1.5
                                                                                                                             200


                              1.0                                                                                            150

                                                                                                                             100
                              0.5
                                                                                                                              50

                              0.0                                                                                              0
                                      2002       2003         2004         2005        2006                                        2002       2003         2004         2005        2006
                                                 Production          Consumption                                                              Production          Consumption

Source: FAO and Global Research


On the other hand, the phosphate production is dominated by the public companies, which
prioritize local demand over exportation. It is estimated that around 70% of the phosphate
fertilizers production are sold in the local market and 30% are exported.

As a result of the of the surge witnessed in the international fertilizers prices during 2007
and 2008, Egypt’s fertilizers exports proceeds soared significantly by 120.9% and 25.4% in
FY2006/07 and FY2007/08, respectively, reaching US$383.7mn in FY2007/08. During the
period from 2001/02 to 2007/08, fertilizers exports have reported a CAGR of 41.2%.

Chart 40: Fertilizers Exports Proceeds
                                450
                                400
                                350
                                300                                                CAGR 41.2%
 US$mn




                                250
                                200
                                150
                                100
                                 50
                                  0
                                             2001/02          2002/03              2003/04    2004/05                                     2005/06          2006/07              2007/08*
*Provisional
Source: CBE and Global Research


As a matter of fact, the government is supporting the agriculture sector by providing
fertilizers at subsidized prices to the farmers, where local fertilizers officially announced
prices were almost stable until 2007. Additionally, the government subsidizes the nitrogen
fertilizers producers, where the natural gas required for production is provided at subsidized
prices. However, farmers were complaining from the shortage of nitrogen fertilizers supply
in the PBDAC and the only available source was the private distributers, who charge them
tremendously higher prices.

Accordingly, the government decided to start gradually liberalizing the fertilizers sector, thus
not to interfere in the fertilizers pricing and to leave it to the supply and demand dynamics.



64                                                                            Economic & Strategic Outlook                                                                February 2009
Global Research - Egypt                                                    Global Investment House


Moreover, it decided to remove the natural gas subsidies given to the nitrogen fertilizers
producers. The natural gas price, basic feedstock, was raised from US$1.25/MBTU to
US$2.65/MBTU over 3 years starting in mid 2007.

On May 2008, the government decided to raise the fuel prices through partial cuts of the fuel
subsidies, as well as increasing energy costs for energy intensive industries. Accordingly,
the natural gas price for energy intensive industries, including fertilizers, was increased to
US$3/MBTU.

On July 2008, the cabinet announced that for energy-intensive users who do not have long-
term supply contracts with the government, the price of natural gas will rise to US$3/MBTU
when the gas is used as fuel. However, when it is used as a feedstock (mainly for fertilizer
makers), the price is linked to the final product. Companies that have long-term contracts will
have their contracts honored and will not be subject to changes.

Also, the government announced that it would review the subsidies given to the local farmers and
to consider replacing it by providing premium prices for strategic crops production, such as wheat,
corn, cotton and sugarcane. Besides, the state-owned PBDAC will gradually stop distributing
fertilizers over the next two years, as quoted by its chairman in mid September 2008.

In early 2008, the Prime Minister approved a 100% increase in the nitrogen fertilizers prices,
as an initial step towards eliminating subsidies, effective March 2008. The nitrogen fertilizers
prices were raised from a range of LE700-800/ton to LE1,500-1,650/ton. Most of the local
producers welcomed this decision, which would partially offset the government’s previous
decision to reduce natural gas subsidy.

Table 18: Local Nitrogen Fertilizers Prices (March 2008)
Type of Fertilizer                                                                        LE/Ton
Ammonium Nitrate                                                                            1,500
Prilled Urea                                                                                1,500
Granulated Urea                                                                             1,526
Source: Al Masry Al Youm Newspaper and Global Research


On November 2008, the Minister of Agriculture announced a 20% reduction in the ammonium
nitrate, a nitrogen-based fertilizer, from LE1,500/ton to LE1,200/ton. He added that the
Ministry would continue reducing fertilizers prices to cope with prices in the international
markets.

Conversely, the government doesn’t interfere in the phosphate fertilizers pricing, which
is left to the market dynamics. This can be explained by the fact that the phosphate local
production is far beyond the country’s consumption. As a result, local phosphate price was
relatively stable until 2006, especially that the phosphate rock was mostly provided by public
companies at almost stable prices.

In 2007, the government lifted the phosphate rock price by 45.6%, from an average of LE158/
ton to LE230/ton. Furthermore, rock price was more than doubled in 2008, reaching LE700/
ton in the last quarter of 2008. Subsequently, phosphate fertilizers prices started to escalate
during the last couple of years, so as to maintain producers’ profit margins.



February 2009                        Economic & Strategic Outlook                               65
Global Research - Egypt                                                   Global Investment House


Table 19: Local Phosphate Fertilizers Average Prices
                                                                          2006    2007     2008
Powdered Single Super Phosphate (PSSP)                                     475     593      875
Growth %                                                                         24.8%    47.6%
Granular Single Super Phosphate (GSSP)                                     535     695     1080
Growth %                                                                         29.9%    55.4%
Source: EFIC and Global Research


Catering to the expected growth in the local fertilizers demand, coupled with the relatively
cheap production cost of the fertilizers in Egypt, more than one new plant are being established.
Egypt Basic Industries Corporation (EBIC), a Greenfield nitrogen fertilizers plant, with an
annual capacity of 0.7mn tons of ammonia, is currently under construction and it is expected
to start production in 2009. It is worth mentioning that Orascom Construction Industries
(OCI) is the largest single shareholder, holding a 30% stake in EBIC. Other shareholders in
EBIC include PSK Holdings, Amiral Group, and the Egyptian General Petroleum Company,
the state-owned oil and gas company, and private investors.

Furthermore, a new phosphate fertilizers complex is planned, as announced by the major
local producers on August 2008. The new phosphate project will produce monoammonium
phosphate (MAP) diammonium phosphate (DAP) and triple superphosphate (TSP) fertilizers
for the first time in Egypt, in addition to the production of compound fertilizers. The project
will also include two sulphuric acid plants, with an annual total production capacity of
1.65mn, which will be used in the phosphate fertilizers production. The phosphate complex
will have annual production capacities of 950,000 tons of DAP, 330,000 tons of TSP and
650,000 tons of compound fertilizers. Most of the project production is planned to be sold in
the local market and to export the surplus.

The complex will be a partnership between local fertilizers producers and foreign companies.
The Egyptian Financial and Industrial Company (EFIC) will hold a stake of 18%, Abou Qir
Fertilizers 25%, Agrifos (USA) 5% and Indagro (Greece) 5%, while the remaining 47%
stake will be distributed between the following companies, Polyserve for Fertilizers, Helwan
Fertilizers, and El Nasr Mining. The phosphate complex will be established on two phases,
with a total investment cost of US$1.6bn. The construction of the first phase is expected to
be finalized in FY2011/12 and the second phase in FY2012/13.

On November 2008, the Industrial Development Authority (IDA) announced that it will reject
proposals for any new projects in the energy intensive industries, namely the aluminum,
ammonia and urea industries, for five years. This came on the back of the government’s
plan to rationalize the use of Egypt’s energy supply. On the other hand, the license for the
phosphate fertilizers complex, announced in August 2008, will remain suspended until the
IDA’s approval.

It is worth mentioning that the IDA approved the establishment of the first potassium
fertilizers plant, with an investment cost LE275mn, in order to meet the local demand, which
is covered through importation.




66                                 Economic & Strategic Outlook                     February 2009
Global Research - Egypt                                                                                                                                                                                        Global Investment House


Outlook

Though the world’s financial crisis has significantly forced fertilizers prices downward,
squeezing producers’ margins, the low cash cost of the fertilizers producers in Egypt, ensures
strong and sustainable profit margins. The relatively lower production cost, along with the
availability of considerable raw materials reserves, are positioning the Egyptian fertilizers
sector as one of the defensive sectors to invest in, during the current economic downturn.

Chart 41: Ammonia and Urea Cash Cost per ton
              Ammonia                                                                                                                                                                             Urea
         600                                                                                                                                      600

         500                                                                                                                                      500

         400                                                                                                                                      400
US$/mt




                                                                                                                                         US$/mt
         300                                                                                                                                      300

         200                                                                                                                                      200

         100                                                                                                                                      100

           0                                                                                                                                        0
                        USA
                 West




                                                 China




                                                                                                                                                                 USA




                                                                                                                                                                                                                                                            East
                                                                                                                                North
                                                                                                                                Africa




                                                                                                                                                          West
                                                                         Russia




                                                                                              Egypt




                                                                                                                                                                                          China




                                                                                                                                                                                                                                                                   North
                                                                                                                                                                                                                                                                   Africa
                                                                                                                                                                                                                                      Egypt
                                                                                                                                                                                                                 Russia
                              Canada
               Europe




                                                                                                                                                                       Canada
                                                                                                                                                        Europe




                                                                                                                                                                                                                                                          Middle
                                       Ukraine




                                                                                  Indonesia




                                                                                                                                                                                Ukraine
                                                                                                      Venezuela
                                                             Argentina




                                                                                                                                                                                                                          Indonesia




                                                                                                                                                                                                                                              Venezuela
                                                                                                                                                                                                   Argentina
                                                                                                                  Middle East




                                                         Ammonia Cash Cost                                                                                                                        Urea Cash Cost
                                                         Average Ammonia Cash Cost                                                                                                                Average Urea Cash Cost
                                                         Ammonia Average Price in 2008                                                                                                            Urea Average Price in 2008


Source: PotashCorp, Yara Fertilizers and Global Research


The strong fundamentals of the fertilizers and the continuous need to maintain high crop
yields and growth in food supply are supporting the sector’s performance and providing
strong foundation for growth. Also, the food crisis that hit the world didn’t disappear and the
cereals inventory levels is still down, thus the need for more crops will re-drive the fertilizers
demand up.

We believe the demand for nitrogen fertilizers will pick up sooner than the phosphate
fertilizers, since the need for nitrogen for the plant is inevitable. With the current prices
drops only the low cash cost producers will survive and the Egyptian fertilizers producers are
fortunately on the low cash cost of production side.




February 2009                                                                                   Economic & Strategic Outlook                                                                                                                                          67
Global Research - Egypt                                                              Global Investment House



Telecom
The Egyptian communication sector experienced a strong performance over the past two
years, on the back of good economic performance. The communication sector achieved a
growth rate of 14.1% and 14.2% in the FY2006/07 and FY2007/08, respectively. In addition,
the sector contribution to the overall real economy kept improving, reaching 3.5% in FY2007/
08, compared to 3.2% in FY2006/07 and 3% in FY2005/06.

Chart 42: Communication sector real growth and contribution
        30,000                                                                                14.2%      16.0%
                                                                            14.1%
                                                                                                         14.0%
        25,000
                                11.1%
                 10.1%                                       10.3%                                       12.0%
        20,000                                 9.4%
LE mn




                                                                                                         10.0%
        15,000                                                                                           8.0%
                                                                                                         6.0%
        10,000
                                                              3.0%          3.2%               3.5%
                  2.6%          2.8%           3.0%                                                      4.0%
         5,000
                                                                                                         2.0%
           -                                                                                             0.0%
                 2002/03       2003/04        2004/05       2005/06        2006/07            2007/08

                      Communication         Communication Growth        Contribution to GDP

Source: CBE & Global Research


Mobile

The mobile market in Egypt is currently composed of three players, namely Mobinil, Vodafone
and Etisalat. The duopoly of Mobinil and Vodafone ended by the entrance of Etisalat after winning
the third mobile license bid in July 2006, with a total consideration of LE16.7bn. It is worth
mentioning that Mobinil, the first mobile operator in Egypt, commenced operation in May 1998,
followed by Vodafone, which started rendering mobile services at the end of the same year.

The entrance of Etisalat in the Egyptian telecom sector changed the market structure and
intensified the competition among the existing market players. In response, mobile operators
reduced their tariffs on the different price plans and were motivated to introduce multiple
packages, as well as improving their service quality, including network coverage and voice
quality, in order to keep their market shares and maintain their growth trends.

Etisalat introduced the 3G technology in Egypt, where it was the first mobile operator
employing a 3G based network. Vodafone and Mobinil, who were operating under 2G
network, followed Etisalat in acquiring the 3G license at a value of LE3.34bn each, as well
as paying 2.4% of total annual revenue to National Telecom Regulatory Authority (NTRA).
The 3G technology expands operator’s network spectrum to absorb more subscribers, in
addition to offering high speed data transfer and better voice quality. Vodafone acquired
the 3G license earlier than Mobinil and started offering 3G services to its customers in May
2007, whereas Mobinil 3G network commenced operation in September 2008.

The mobile market in Egypt is considered a prepaid one, where around 96% of the total mobile
subscribers prefer prepayment schemes. At the end of September 2008, Mobinil was the largest


68                                       Economic & Strategic Outlook                              February 2009
Global Research - Egypt                                                                     Global Investment House


market player with 49.6% market share. Vodafone comes in the second place with 43% market
share, followed by Etisalat, which accounted for 7.5% of the total number of subscribers.

Chart 43: Mobile Operators Market Share (September 2008)
                                             Etisalat
                                              (7%)




                                                                          Vodafone
                                                                           (43%)




                             Mobinil
                             (50%)




Source: NTRA


The total number of mobile subscribers in Egypt increased significantly, soaring at a CAGR
of 46.6% over the period from 2002 to 2007. In Q3 2008, total mobile subscribers reached
38.06mn compared to 26.40mn subscribers in Q3 2007, achieving a YOY growth rate of
around 44%. Moreover, mobile penetration rate increased remarkably by a healthy 15.9%
between 2006 and 2007. The penetration rate stood at 50.7% at the end of September 2008.

Chart 44: Mobile Operators Total Subscribers And Penetration Rate
                 40                                                                                          60.0%
                                                                                                       2.8
                 35
                                                                                                             50.0%
                                                                                2.1            50.7%
                 30
                                                                                                   16.4      40.0%
Subscribers mn




                 25
                                                                        40.7%
                                                                                13.3
                 20                                       24.8%                                              30.0%
                                             19.1%
                 15
                                                           8.7                                               20.0%
                 10           10.8%           6.1
                      8.3%                                                                         18.9
                                                                                15.1
                                3.6                                                                          10.0%
                  5   2.7
                                              7.5          9.3
                      3.1       4.1
                  -                                                                                          0.0%
                      2003     2004          2005         2006              2007                 Q3 2008


                              Mobinil        Vodafone        Etisalat                 Penetration rate

Source: MCIT, NTRA & Global Research


The mobile market has been gradually deregulated, but NTRA continues to have a major
role in controlling competition. In late 2007, Etisalat was granted the first international voice
gateway license to become the only mobile operator that has an international voice gateway
for its subscribers.

The value of the license will be based on the number of subscribers, where LE100 will be
paid for each existing subscriber, with a preset minimum value of LE100mn to be paid once.
In addition, the mobile operator will be required to pay LE20 for each new subscriber at the
beginning of each year. Moreover, Mobinil and Vodafone announced that the decision to obtain
the international gateway license will depend on the results of their undergoing negotiations
with Telecom Egypt over reviewing the interconnection agreement between them.



February 2009                           Economic & Strategic Outlook                                                69
Global Research - Egypt                                                                                Global Investment House


The Egyptian mobile market compares favorably to other markets in the region, where
Egypt’s mobile penetration rate was around 40%, relative to very high penetration rates in
neighboring countries, especially GCC countries with penetration rates surpassing 100%.
Therefore, the Egyptian mobile market still has good growth potential.

Chart 45: Mobile Subscribers Per 100 Inhabitants In Other Countries In The Region
(Dec. 2007)
              Yemen        13.8
              Sudan               21.3
            Lebanon                      30.7
               Syria                     31.3
               Egypt                            39.8
            Morocco                                            64.2
               Libya                                                  73.1
             Tunisia                                                   75.9
              Jordan                                                       80.5
             Algeria                                                       81.4
               Oman                                                               96.3
             Kuwait                                                               97.3
        Saudi Arabia                                                                     114.7
             Bahrain                                                                                   148.3
               Qatar                                                                                    150.4
United Arab Emirates                                                                                              176.5

                       0    20              40            60            80        100    120     140      160    180      200
Source: ITU


In order to strengthen free competition and enhance the quality of service in the Egyptian
mobile market, NTRA issued the regulations and conditions of number portability service,
which entails allowing mobile subscribers to move from one mobile operator to the other
using the same number for LE75. In addition, the applicant has to be a subscriber for at least
1 year with the mobile operator he wants to leave and he has to keep his subscription with the
new operator for a minimum of 1 year.

Fixed Line

Despite the government’s initiative to liberalize the telecom sector, the fixed line service is
still solely provided by Telecom Egypt (TE). The NTRA has delayed the bid on the second
fixed license more than once during 2008. The second fixed license has been expected since
2005, as part of Egypt’s commitments to the World Trade Organization to liberalize the
telecom sector.

The second fixed license bid deadline was postponed from June 19th to July 29th, and then
to September 18th, 2008. The NTRA stated that the delay is due to continuing negotiations
with the country’s mobile operators on an interconnectivity agreement governing calls fees
between fixed and mobile lines, especially after TE has introduced the tariff rebalancing
program in July 2008.

The most important adjustments in the tariffs was reducing the fixed to mobile (and vice
versa) tariff from LE0.45/min (peak) and LE0.35/min (off-peak) to LE0.30/min for all
daytime, as well as the 50% reduction in the fixed line installation fees. It is worthy to note
that twelve local and international companies bought the second fixed license conditions and
specifications handbook.



70                                                     Economic & Strategic Outlook                              February 2009
Global Research - Egypt                                                                            Global Investment House


On September 2008, the NTRA decided to postpone the auction for the second fixed license
for a year, as a response to the changes taking place in the international markets. The NTRA
cited global market turbulence and interconnection uncertainty as reasons for the delay. The
world’s credit crunch, resulting from the financial crisis, is expected to trim down investments
in the communication sector. Therefore, the NTRA advocated such decision so as to ensure the
participation of more companies and hence ensure the biggest revenue for the state’s treasury.

In 2007, the number of fixed line subscribers increased by 4.0% to reach 11.2mn, compared to
the year before. As of September 2008, the number of subscribers reached 11.3mn, showing a
penetration rate of 15.2%. It is worth mentioning that the number of available telephone lines
rose from 13.2mn line in 2006 to 13.8mn line in 2007, up by 4.2% and it reached 13.9mn line
in September 2008.

Chart 46: Fixed Line Subscribers and Penetration Rate
       14                                                                                                              18%

       12                                                                    15.0%          15.2%          15.2%       16%
                                                           14.6%
       10                                  13.6%
                              12.7%                                                                                    14%
           8
mn




                      11.5%                                                                                            12%
           6
                                                                                                                       10%
           4

           2                                                                                                           8%

           -                                                                                                           6%
                   2002       2003         2004            2005              2006           2007           Sep-08
                                  Fixed Line Subscribers                 Fixed Line Penetration %
Source: NTRA and Telecom Egypt


In order to attract more subscribers, TE has facilitated all the procedures required for the
installation of new fixed lines, along with enhancing the after sale services. In addition, the
Company has introduced tariff rebalancing program and 50% reduction in the installation
fees in July 2008, followed by a two-month period offer for new fixed line subscriptions,
where it cancelled the fixed line installation fees completely during November and December
2008. This offer will be extended throughout 2009, as per the TE’s chairman.

Chart 47: Waiting List for Fixed Telephone Line Subscribers
           250
                    206.0
           200
Thousand




           150
                                 99.5
           100
                                               66.1               64.8
                                                                                     48.4
            50
                                                                                                    23.5
                                                                                                                    11.3
               0
                    2002        2003           2004            2005                  2006           2007        May 2008
Source: Telecom Egypt and Ministry of Communications and Information Technology (MCIT)




February 2009                               Economic & Strategic Outlook                                                     71
Global Research - Egypt                                                                          Global Investment House


Also, the waiting list for fixed telephone line subscription has dropped significantly by more
than 50%, to reach 23,500 in 2007, down from 48,400 in 2006. The list has declined further
to 11,300 as of May 2008.

Chart 48: Fixed Line Revenue and ARPU
       12                                                   58.9                                                     60

       10                                                                                                            58
                                               55.3                                       55.4
                                                                                                                     56
            8       53.5
                                                                                                                     54
                                     52.7                                          54.2
LEbn




                                                                                                                         LE
            6
                                                                                                          51.1       52
            4
                                                                                                                     50

            2                                                                                                        48

            0                                                                                                        46

                     2003     2004             2005             2006          2007         Sep-07        Sep-08
                                 Revenue (LE bn)                   Teleocm Egypt ARPU (right axis)
Source: Telecom Egypt and Global Research

The fixed line revenue grew at a CAGR of 10.0% during the period from 2003 to 2007,
reaching LE10.0bn by the end of 2007. During the 9-month period of 2008, the fixed line
revenue has showed a mere growth of 0.2%, reaching LE7.5bn. This can be attributed partly
to the tariff rebalancing, which was effected in July 2008. In addition the fixed line ARPU
has declined from LE55.4 in September 2007 to LE51.1 in September 2008.

The growth in the fixed line business is expected to slightly slow down, on the back of the
fixed to mobile substitution trend. Moreover, the entrance of the second fixed line operator
is expected to heat competition and to further push down revenues and ARPU, in the favor
of the fixed line users.

Internet

On the internet front, the sector in Egypt has witnessed tremendous developments, where the
total number of internet users increased to reach 8.62mn in 2007 from 1mn in 2001, achieving
a CAGR of 43.2% over the period from 2001 to 2007. In addition, total internet users continued
its growth trend in Q1 2008, reaching 9.17mn users. Furthermore, internet penetration rate in
Q1 2008 increased to 12.3% from 11.7% and 8.3% in 2007 and 2006, respectively.

Chart 49: Total Internet Users And Penetration Rate (March 2008)
            10                                                                                                    14.0%
                                                                                                       12.3%
                9                                                                           11.7%
                                                                                                                  12.0%
                8
                7                                                                                                 10.0%
                                                                                 8.3%
Users mn.




                6                                                  7.2%                                           8.0%
                5                                       5.6%
                                                                                             8.62       9.17
                4                                                                                                 6.0%
                                            4.4%
                3                                                                6.00                             4.0%
                              2.5%                                     5.10
                2      1.5%                              3.90
                                            3.00                                                                  2.0%
                1             1.70
                       1.00
                -                                                                                                 0.0%
                       2001   2002          2003         2004          2005      2006       2007      Q1 2008

                                             Internet users (mn)              Penetration rate (%)
Source: MCIT



72                                                 Economic & Strategic Outlook                            February 2009
Global Research - Egypt                                                                                                Global Investment House


The introduction of broadband internet connectivity in Egypt since 2004, along with cutting
the broadband monthly subscription fees in early 2007, fueled the growth in the internet
usage, as it became more relatively spread in the Egyptian society. In Q1 2008, households
connected to the internet represented approximately 15% of total households in Egypt, as
well as around 53% of the total number of the Egyptian private enterprises use the internet.

Chart 50: Egypt Total Internet Subscribers By Mode Of Access (March 2008)
                                                                     ISDN
                                                                     1.2%


                                  Leased lines
                                    21.8%




                                                                                                             ADSL
                                                                                                             52.6%



                                         Dial-up
                                         24.4%


Source: MCIT


Moreover, broadband is feeding internet diffusion in Egypt, where 60.6%, 72% and 50.6% of
households, enterprises and government entities are connected to the internet through ADSL
connection, respectively. Collectively, 52.6% of total internet users in Egypt accessed the
internet using ADSL connection.

The government of Egypt has adopted a plan to modernize the government sector. This
initiative involves computerizing the official records of the governmental entities, in addition
to providing different services to the public through the government websites.

Actually, the internet cost in Egypt is very competitive, compared to other countries and
regions worldwide. It is considered one of the lowest costs in the world, standing at US$5/
month relative to the world average of US$21.8/month.

Chart 51: Internet Price Basket 2006
                    Egypt          5.0
                     India               6.6
                   Algeria                      9.3
                    China                         10.0
Middle East & North Africa                          11.1
                   Tunisia                             12.0
      United Arab Emirates                               13.1
                    Oman                                    14.5
                     USA                                      15.0
                 Euro area                                                    20.7
              Saudi Arabia                                                     21.3
                    World                                                       21.8
                   Kuwait                                                         22.3
Latin America & Caribbean                                                                   25.7
                  Morocco                                                                      26.9
       Sub-Saharan Africa                                                                                                          44.6

                             -   5.0           10.0       15.0         20.0          25.0             30.0      35.0      40.0   45.0        50.0
                                                                                                                                        US$/month

Source: World Bank




February 2009                                         Economic & Strategic Outlook                                                              73
Global Research - Egypt                                                             Global Investment House



Real Estate
The real estate sector in Egypt witnessed strong performance during the past couple of
years, on the back of Egypt’s economic growth, favorable demographics, new regulations
encouraging registration of home ownership, entrance of a number of major Middle Eastern
property developers, availability of mortgage financing, elimination of restrictions on real
estate ownership by foreigners and relatively cheap prices compared to the region.

The real estate sector has accounted for around 3.4% of total GDP during the FY2007/08.
The sector flourished during the past couple of years, reporting a growth rate of 4.3% and
3.7% during FY2006/07 and FY2007/08, respectively.

The construction sector, which is highly correlated with the real estate sector, grew
significantly during the past couple of years recording a growth rate of 14.8% in FY2007/08,
compared to 13.1% in FY2006/07. The growth in the construction activity is considered a
positive indicator for future growth in the real estate sector.

Chart 52: Real Estate & Construction & Building Materials Sectors Macro Indicators
         40,000                                                                                          16.0%
         35,000                                                                                          14.0%
         30,000                                                                                          12.0%
LE mn




         25,000                                                                                          10.0%
         20,000                                                                                          8.0%
         15,000                                                                                          6.0%
         10,000                                                                                          4.0%
          5,000                                                                                          2.0%
            -                                                                                            0.0%
                  2003/04           2004/05             2005/06        2006/07           2007/08

                 Real Estate     Construction      % growth in Real Estate       % growth in construction
*Based on 2006/07 prices
Source: Central Bank of Egypt (CBE)and Global Research


The strong performance of the real estate sector, besides its favorable fundamentals and
relatively lower valuations compared to other countries in the region, attracted foreign
investors, especially GCC investors to make huge investment in the sector. This was reflected
in increasing the share of the real estate sector from the net FDI from 0.4% in 2006/07 to
3.0% in 2007/08, where FDI flowed to the real estate sector in 2007/08 was 9 folds higher the
2006/07 figure, reaching US$400.0mn compared to US$39.0mn the year before.

Chart 53: Real Estate Share of FDI
         450
                                                                                                400
         400
         350
US$ mn




         300
         250
         200
         150
         100
                                                26                     39
          50         17
         -
                   2004/05                    2005/06               2006/07                   2007/08
Source: Central Bank of Egypt (CBE)and Global Research


74                                      Economic & Strategic Outlook                               February 2009
Global Research - Egypt                                                   Global Investment House


Egypt has a large population of 78mn people, with around 36% of its current population falling
in the 20-45 age-group, representing the main driver for housing demand. This age group is
expected to increase as a proportion of total population to reach 38% of total population in
2020, creating future housing demand.

The Egyptian residential real estate market remained characterized by a structural gap between
the supply of high-end residential properties, which dominates the residential market, and the
middle and low income housing segments, where the great majority of demand for housing
exists.

Consequently, demand for low and even middle class housing was left to be met by the
informal sector, resulting in high rate of informal settlements in Egypt relative to countries at
similar level of income in the region.

On the residential front, the trend in the high-end segment of the market is to move out from
central and highly populated districts to newly developed suburbs, Sixth of October City
(West Cairo) and New Cairo (East Cairo), where the majority of new residential communities
are developed with full range of facilities. The high-end segment started to show signs of
saturation, evidenced by slow down in the sales of luxury villas and apartments. On the
middle and low income segments, the demand is high and needs a lot of supply, where the
cumulative shortage in supply is estimated to be 2.5mn units.

On the commercial real estate front, it is witnessing a large scale development. The shortage
in supply of high quality office and retail spaces, which compromise the commercial real
estate sector, prompted investors to undertake office and retail developments. The strong
growth of the Egyptian economy attracted regional and international companies to expand
their operations into Egypt, creating demand for this segment.

The hospitality real estate sector includes hotels and resorts, which are directly related to the
tourism sector. The Egyptian government goal to increase the number of tourist arrivals to
reach 14mn, and increasing the total number of hotel rooms to 240,000 rooms by the end of
2012, as well as the renovations and expansions of existing airports, will act as a driver for
further growth in the real estate and infrastructure investments.

The Egyptian government has taken many initiatives and actions to improve the health and
the attractiveness of the country’s economy. The first step was in 2001 when the mortgage
law was passed by the parliament but this law remained ineffective until recently, as the
government made some structural changes.




February 2009                     Economic & Strategic Outlook                                75
Global Research - Egypt                                                          Global Investment House


Table 20: Developments in the mortgage market
Impediments                              Initiatives
High property registration fees,         Property registration fees have been reduced to 3% from 12%
causing almost 85% of Egypt's            with a cap at LE2,000.
properties to be unregistered.

Availability of short to intermediate- Establishing the Egyptian Mortgage Refinance Company to
term financing with a maximum           finance mortgage providers for longer-term period, up to 20
tenure of 10 years.                    years.

Lack of credit assessment for            Establishing a credit bureau, which started operation at the end
mortgage borrowers.                      of 2007, to help lenders better assess risk of their clients.
High interest rates in the range of      Lowering interest rate through better risk assessment of
12%-14%.                                 potential borrowers, which will help to adjust lending rates
                                         according to risk, in addition to mortgage refinance.

Prohibitive property tax rate at 46%. A new property tax is passed by the parliament, reducing
                                      property tax from 46% to 10%, which will be levied on the
                                      property’s annual rental value after deducting LE5,000 as
                                      a tax exemption per property, in addition to deducting 25%
                                      against maintenance expenses.

Lack of mortgage professionals.          MFA initiated training, testing and issuing licenses for real
                                         estate appraisers and brokers.

Lack of insurance participation in       The Egyptian Insurance Supervisory Authority (EISA)
mortgage finance.                         approved the establishment of Iskan, the first insurance
                                         Company concerned with mortgage finance risks, such as non-
                                         repayment risk and ownership deed risk.

Lack of data on real estate and          MFA has established real estate and mortgage market database
mortgage sectors.                        and is currently working on publishing these data.

Inadequate public awareness.             The Ministry of Investment has published a highly informative
                                         mortgage finance guide to increase public awareness.
Source: MFA, MOI and Global Research


The size of the mortgage market developed remarkably over the past 4 years, where the total
value of mortgage loans reached LE3.11mn in June 2008, compared to LE1.37mn in June
2007, achieving a growth rate of 92.5% over one year.

In addition, total mortgage value increased to reach 3.11mn in September 2008, recording a
growth of 18% over a 3-month period. However, mortgage lending stood below 1% of GDP,
compared to 65% in USA and 45% in Europe. Therefore, the Egyptian mortgage lending still
has considerable room for growth.




76                                     Economic & Strategic Outlook                         February 2009
Global Research - Egypt                                                                            Global Investment House


Chart 54: Outstanding Mortgage Loans
               3500
                                                                                                                     3,109
               3000
                                                                                                 2,635
Thousands LE




               2500
                                                                                                             2,097
               2000                                                                      1,804

               1500                                                      1,369
                                                                 1,014                                   1,012
               1000                               714                                831
                                            500
                500                                         355
                                     214
                      14    2   16
                  0
                           Jun-05          Jun-06                 Jun-07                  Jun-08             Sept-08
                                                  Mortgage Co.       Banks       Total

Source: MOI & MFA


The Central Bank of Egypt (CBE) allowed banks to participate in the mortgage market
to finance only already constructed properties and to invest from 5% to 15% of their total
loan books, to be equally distributed among real estate developers, mortgage borrowers and
touristic development companies. Currently, there are 16 banks and 9 specialized mortgage
finance companies operating in the Egyptian market, In addition to the Egyptian Company
for Mortgage Refinancing (ECMR).

Mortgage loans lending rates are still high in the range 12-14%, although the inflation rate
declined to 18.7% in December 2008 from 20.9% in November 2008, it is still considered to
be high, negatively affecting the affordability of mortgage borrowers. Furthermore, mortgage
rates should be lower than the prevailing commercial lending rates in the market to encourage
low and middle income groups to enter the mortgage market, which in the first place this
mortgage law was meant to benefit.

The spread of mortgage financing will pump billions of pounds back into the economy to be
used in economic developments and also it will create liquidity in the secondary market for
real estate and facilitate mobility to new suburban developments, as clients will be able to sell
homes and finance new ones at any time.

Another factor that affects the construction activity is the building materials prices, mainly
steel and cement. The local building materials prices have witnessed an unprecedented
rise, fueled by high demand and expensive feedstock, during the first half of 2008, which
was directly reflected in the housing units’ prices. Recently, the international prices of the
building materials feedstock have declined on the back of the world economic slowdown,
after the current financial crunch.

The building materials prices in Egypt changed dramatically over the past year. During the
first half of 2008, the ordinary Portland cement local average retail price increased by around
60%, whereas steel prices inclined by more than 100% in the local market. The prices of
building materials eased at the end of 2008, where cement average retail price reached LE495/
ton, while steel prices reached LE4,100/ton. The declining building materials prices could
work as a stimulus for the real estate sector, conditional that new real estate investments are
directed to segments, where real demand exists.




February 2009                               Economic & Strategic Outlook                                                     77
Global Research - Egypt                                                 Global Investment House


Outlook

The robust performance witnessed in the real estate sector over the past couple of years is
not expected to continue, a slow-down is inevitable at least for the next year, if not longer,
resulting from the expected slower growth of the Egyptian economy, on the back of the
concurrent global financial crisis. In addition, tight credit conditions made banks reluctant
to lend funds, which will act as an obstacle to real estate developers in the implementation
of their planned projects on all fronts, leading to delay or cancellation of these projects.
Moreover, the declining oil prices, which reached below US$40/barrel down from US$145/
barrel in July 2008, will likely affect GCC countries level of liquidity that was expected when
oil price was above US$100. Consequently, GCC countries will be more cautious in their
planned expenditures and investment.

The high-end segment of the Egyptian residential market will witness the strongest hit, in
terms of the completion of the announced projects and any new investments, whereas the
potential lies in the middle and lower-income segments, where real demand exists. Therefore,
real estate developers should supply more residential units in these segments to offset lost
sales on luxurious properties. Additionally, the expansion in commercial and hospitality
real estate development will be negatively affected, as they require large initial investments,
which always include debt financing, before they start recovering their investment cost
through revenues generated from the operations of these projects.




78                                Economic & Strategic Outlook                    February 2009
Global Research - Egypt                                               Global Investment House



Cement
The Egyptian cement industry exerted strong performance during FY2007/08, where cement
consumption achieved a growth rate of 14.1%, compared to 8.1% in FY2006/07. The
flourishing construction sector was the main driver for this significant increase in cement
consumption.

Egypt has a competitive edge with respect to the production cost of cement. The cheap and
abundant raw materials, the cheap labor and the relatively cheap energy cost. Although
energy cost has been liberalized by the government for energy intensive industries, it still
remains relatively cheap compared to other cement producing countries around the globe. In
addition, Egypt strategic geographical location that connects Europe, GCC and Africa gives
it a great flexibility to direct its exports where demand exists.

Currently, the Egyptian cement sector consists of 14 players, most of them are controlled by
multinational companies. Only one company is owned by the Egyptian government that is
National Cement Company, while 3 firms are owned by the Egyptian private sector, these are
Misr Beni Suef Cement, Misr Cement Qena and South Valley Cement.

At the end of 2008, Egypt’s cement production capacity reached 45.3mn tons, compared
to 41.6mn tons in 2007, recording a growth rate of 8.9%. The increase in the production
capacity was attributable to the opening of South Valley cement and Arabian cement new
production lines.

Table 21: Cement production capacities (000s tons)
                                                                             2007       2008
Italcementi Group                                                          11,800     11,800
  Suez Cement                                                               4,000      4,000
  Helwan Cement                                                             4,500      4,500
  Torah Cement                                                              3,300      3,300
Egyptian Cement Company (lafarge)                                           9,600      9,600
Assuit Cement (Cemex)                                                       5,000      5,000
Alexandria & Beni Suef Cement (Titan)                                       3,300      3,300
Ameryah Cement (Cimpor)                                                     3,900      3,900
Sinai Cement (Vicat)                                                        1,500      1,500
Misr Beni Suef Cement                                                       1,500      1,500
Misr Cement Qena Cement                                                     1,500      1,500
South Valley Cement                                                             -      1,500
National Cement                                                             3,500      3,500
Arabian Cement                                                                  -      2,200
Total                                                                      41,600     45,300
Source: Cement companies websites, ICR and Global Research


Total cement production in Egypt for the FY2007/08 reached 39.3mn, against 37.1mn tons
in 2006/07, achieving a growth rate of 6%, while the consumption of cement significantly
increased by 14.7% from 32.1mn tons in 2006/07 to 36.8mn tons in 2007/08. The surge in the
cement consumption was attributable to the boom witnessed in the construction activity.




February 2009                        Economic & Strategic Outlook                         79
Global Research - Egypt                                                                Global Investment House


Chart 55: Cement Production Vs. Consumption
               45.0
               40.0
               35.0
Million Tons


               30.0
               25.0
               20.0
               15.0
               10.0
                5.0
                -
                      2002/ 03   2003/ 04         2004/ 05       2005/ 06           2006/ 07      2007/ 08
                                        Annual Production      Annual Consumption
Source: IDSC & Global research


On the other hand, prices have eased lately with an average retail price of Portland cement
around LE495/ton in December 2008, compared to LE382/ton in December 2007. Local
cement prices have reached a level of LE600/ton earlier in 2008, though.

The bid for new licenses undertaken by the Industrial Development Authority (IDA) in
October 2007 for the construction of new cement capacities, either by new entrants or existing
players wishing to expand their capacities, is expected to uplift the Egyptian annual cement
industry production capacity beyond 60mn tons by 2011.

Generally, the cement industry in Egypt received a great deal of the government supervisory
authorities’ attention, because of the increasing local cement selling price, resulting from fake
supply shortage existed in the local market, as local production exceeds consumption. This
situation emerged because cement agents preferred to direct cement production to the export
market, where prices are higher than the local selling prices, in order to achieve higher profits.

To ensure local supply of cement at reasonable prices, the Egyptian government imposed
an export duty of LE65 (US$12)/ton on exported cement in February 2007. Apparently, the
export duty was not severe enough to offset cement export price differential. Therefore, the
government increased the export duty to LE85 (US$15.5)/ton in August 2007. However, local
cement prices remained high, as cement producers passed their increased cost to consumers.

In an attempt by the government to bring discipline to the local cement market, the Egyptian
government imposed a ban on cement exports for 6 months starting from April till the end
of September 2008, to calm an overheated local cement market. Consequently, the Egyptian
cement export market could be negatively affected when the exporting activity is resumed
after the conclusion of the banning period. Unfortunately, local cement prices remained high,
on the back of high local demand driven by the construction boom, as well as the agents’
malpractices of maintaining high prices through faking shortage of supply.

Furthermore, the Minister of Trade and Industry filed a sue case of anti-competitive practice
against local cement producers for the period from May 2005 till the end of 2006. The local cement
producers were accused of forming a cartel to manipulate local cement prices and dividing market
shares among them. In August 2008, the court found local cement producers guilty of exercising a
monopolistic behavior and fined 20 cement industry executives with a total of LE200mn.



80                                          Economic & Strategic Outlook                         February 2009
Global Research - Egypt                                                   Global Investment House


The imposition of LE27(US$5)/ton of clay extracted from quarries, as resources development
fees in May 2008, in addition to liberalization of energy prices for energy intensive industries,
will harm the competitive edge of Egyptian cement sector, for its relatively low cost of
production. The government felt that the subsidy, which should go to local consumers, is
passed to exports and that the producers are making high profit margins.

The global slowdown in the world economy, besides the liquidity squeeze in the global
financial markets came on the back of the concurrent global financial crisis. The situation has
resulted in credit shortage affecting project financing and resulting in declined construction
activity, which in turn has lessened the demand for cement in general.

Therefore, the Egyptian government has taken some defensive measures in order to minimize
the negative effect of the slowdown in the world economy on Egypt’s cement exports. These
measures included the removal of the LE85/ton export duty in October 2008, as well as
bringing the export ban to an end.

Outlook

The capacities addition in Egypt coming on stream, along with the new capacities installation
in the GCC region during the next 3 years, especially Saudi Arabia and United Arab Emirates,
will create an oversupply in the region.



Unfortunately, the slowdown in the construction sector, resulting from the world financial
crisis will exacerbate the severity of the excess supply situation, leading to delays in the
planned commissioning dates of the new capacities, shutdowns of some of the inefficient
existing capacities, lower utilization rates. Therefore, countries with low cash cost of
production per ton will be better positioned to survive the declining global cement prices and
export their excess capacities at competitive prices.

However, the government of Egypt adopted a rescue plan to stimulate the Egyptian economy
against the negative consequences of the global credit crunch. The plan included allocating
LE15bn to be invested in infrastructure projects to compensate for the expected slowdown
in the construction sector.




February 2009                     Economic & Strategic Outlook                                81
Global Research - Egypt                                                              Global Investment House



Steel
Steel is deemed to be one of the main industries in any given economy. With its different
types of long and flat products, it serves infrastructure and construction projects, household
durables and vehicles manufacturing, as well as housing development. The steel sector grew
with the escalation that happened in Egypt’s economy over the last years and the booming
real estate and construction sector.

The steel sector constituted of around 21 producers in 2007, with a capacity of 9.6mn tons
of finished products. Of the total capacity, 6.4mn tons went to long products, while the rest
was for flat steel products. It is worth mentioning that the industry relies heavily on long steel
products, which production is highly dominated by the private sector, namely El Ezz Steel
Group.

El Ezz Steel Group captures the lion’s shares in the steel market in Egypt. It contributed to
70% of the aggregate consumption of long products in 2007, while Beshay steel Company
came second, with a share of 12% and Misr National Steel, formerly known as Al Attal
National Steel Company, followed with a contribution of 5%. As for flat steel products,
El Ezz Group had also the highest sales share in 2007, represented by 62%, while 22% of
the aggregate sales were realized by the Egyptian Iron and Steel Company. The remaining
consumption was satisfied through imports.

Chart 56: 2007 Market Shares
               Long Products                                                 Flat Products
                                                                   Imports             Egyptian Iron and Steel
                   Misr National Steel                              16%                         22%
                                         Beshay
                          5%              12%




                                                  Others
                                                   13%




     Ezz Steel
       70%

                                                                         Ezz Steel
                                                                           62%
Source: El Ezz Steel 2007 Presentation


The boom witnessed in the construction sector has positively affected the steel sector, which
flourished in the latest 3-year period to fulfill the needs of housing, infrastructure and tourism
projects. This can be illustrated by the higher demand over steel products, which grew at a
CAGR of 14.1% over the same period, reaching 5.2mn tons in 2007, compared to 3.5mn tons
in 2004. It is worth mentioning that the per capita consumption in Egypt amounted to 69.2kg
of finished steel products in 2007, compared to an average of 35.8kg and 285.6kg in Africa
and the Middle East over the same year, respectively.




82                                       Economic & Strategic Outlook                             February 2009
Global Research - Egypt                                                           Global Investment House


Chart 57: Steel Consumption in Egypt
          6                 5.5
               5.3                                                                              5.2
          5                                                          4.6           4.5
                                          4.2
          4                                            3.5
mn tons




          3
          2
          1
          0
              2001          2002         2003          2004          2005          2006         2007
Source: World Steel Association


In response to the growing demand for steel accompanying the booming construction and
real estate sector, aggregate steel production rose at a CAGR of 9.0% over the period from
2004 to 2007, where it increased from 4.8mn tons to 6.2mn tons, representing a y-o-y growth
of 3.0% over 2006. The total production remained stagnant at 6.2mn tons in 2008. It is worth
mentioning that Egypt ranked 3rd in the Middle East steel producing countries after Turkey
and Iran, and the 27th among 41 top steel producers in the world.

Chart 58: Steel Production in Egypt
          7
                                                                           6.0        6.2        6.2
          6                                                   5.6
          5                                     4.8
                          4.3      4.4
mn tons




          4   3.8

          3

          2

          1

          0
              2001      2002       2003         2004          2005         2006      2007       2008
Source: World Steel Association


As reported by the CBE, the combined consumption and production of 4 steel producers over
the period from January to October 2008 – namely El Ezz Steel Rebars, El Ezz Dekheila
Steel Co. Alex., the Egyptian Iron and Steel Company and Delta Steel Mill Company -
reached their peak level in July, where their monthly figures reached 295.9 thousand tons
and 302.5 thousand tons, respectively. Afterwards, affected by the global economic crisis,
the monthly combined sales and output of these companies declined to 216.5 thousand tons
and 239.7 thousand tons in September 2008, respectively. In October 2008, production and
consumption started to pick up, reaching 278.2 and 228.3 thousand tons, respectively.




February 2009                       Economic & Strategic Outlook                                       83
Global Research - Egypt                                                                                                           Global Investment House


Chart 59: Steel production & Consumption in Egypt in 2008
                350

                300

                250
Thousand tons



                200

                150

                100

                  50

                   0
                            Jan-08      Feb-08        Mar-08       Apr-08         May-08         Jun-08         Jul-08        Aug-08       Sep-08         Oct-08

                                                         Production                                                  Consumption

Source: CBE


As per the Central Bank of Egypt, prices of El Ezz Steel Rebars (16mm) witnessed an up
trend over the period from January 2006 until August 2008, where they reached their peak at
LE6,630 per ton. Then, prices started to decline, to reach LE4,990 per ton in October 2008,
due to the current global financial crisis, which caused a slowdown in the construction sector
around the world. This slowdown had its effect on diminishing steel prices worldwide, leading
consequently to a decline in local steel prices. This was illustrated through the development
of steel prices over the last months. According to the Ministry of Industrial Development,
selling prices of Ezz El Dekheila Steel Company, taking into consideration factory price and
sales tax, dropped from LE5,950 per ton in September 2008 to LE 4,134 per ton in the same
month, then reached LE3,980 per ton in November 2008 and shrank furthermore to LE3,790
per ton in December 2008.

It is worth mentioning that steel prices declines were also affected by quantities of imported
steel by many local producers. Still, many players are planning to import steel to satisfy local
consumption, due to the lower prices of imported steel, compared to local prices. This fact,
along with the prevailing slowdown in the sector worldwide, is expected to reduce local
prices furthermore on the near future.

Chart 60: Prices of 16mm Rebars
   LE/ton
7,000
6,500
6,000
5,500
5,000
4,500
4,000
3,500
3,000
2,500
2,000
                                                             6




                                                                                                                7
                            6




                                                                              7




                                                                                                                                   8
                                             6




                                                                                                7




                                                                                                                                                    8
                   06




                                                                     07




                                                                                                                         08
                                                    06




                                                                                                       07




                                                                                                                                                          08
                                    6




                                                                                      7




                                                                                                                                           8
                                                             -0




                                                                                                                -0
                          -0




                                                                            -0




                                                                                                                                -0
                                        l-0




                                                                                           l-0




                                                                                                                                               l-0
                                  -0




                                                                                      -0




                                                                                                                                         -0
                n-




                                                                  n-




                                                                                                                       n-
                                                 p-




                                                                                                    p-




                                                                                                                                                          p-
                        ar




                                                                          ar




                                                                                                                              ar
                                                         ov




                                                                                                            ov
                                ay




                                                                                  ay




                                                                                                                                       ay
                                        Ju




                                                                                           Ju




                                                                                                                                               Ju
        Ja




                                                                  Ja




                                                                                                                     Ja
                                                 Se




                                                                                                    Se




                                                                                                                                                        Se
                        M




                                                                          M




                                                                                                                              M
                                M




                                                                                  M




                                                                                                                                       M
                                                         N




                                                                                                            N




Source: CBE


The acceleration that occurred in the production of steel over the last years and the increased
demand on steel in many markets resulted in an improvement of Egypt’s exports of semi-



84                                                                Economic & Strategic Outlook                                                  February 2009
Global Research - Egypt                                                            Global Investment House


finished and finished steel products, which increased from US$542.2mn in June 2004 to
a provisional amount of US$1519.6mn in June 2008. On the other hand, imports of steel
witnessed an incline, as they moved up from US$787.7mn in June 2004 to a provisional
amount of US$4,008.7mn in June 2008. Egypt imports scrap and billets, which are essential
elements for steel manufacturing. Exports reached US$389.7mn in Q1 2008/09, compared
to US$324.4mn in the same period in the previous year, whereas imports moved up from
US$769.2mn to US$1,296.2mn.

Chart 61: Steel Exports and Imports
        4500
        4000
        3500
        3000
US$mn




        2500
        2000
        1500
        1000
         500
           0
               2003/2004   2004/2005       2005/2006    2006/2007    2007/2008*    Q1 2007/08   Q1 2008/09*
                                Exports                                  Imports

*Provisional
Source: CBE


Recent Developments

The government announced in August 2007 that it would liberalize energy prices for industrial
uses for energy intensive industries. The plan was to increase energy prices gradually over
3 years, from US$1.25 to US$2.65 per Million British Thermal Unit (MBTU), which was
the cost incurred by the government, meaning fully removing the subsidy at the end of the
period. However, in 2008, the government announced that the price of natural gas used as
fuel will be increased from US$1.7 to US$3 per MBTU.

On the other hand, increased demand on steel in the local and regional markets led to a surge
in prices and shortage of supply in the local market, as producers preferred to export steel to
other markets to benefit from lucrative margins. In an attempt by the government to ensure
local supply and reasonable prices, it imposed a fee of LE180 for each ton of exported steel.
However, due to the world financial turmoil and its probable effect on slowing down the
demand on steel in the near future, the government cancelled the export fee in October 2008.
This is considered a reasonable action taken by the government to encourage exports and
help support the industry.

Over 2008, four local producers were licensed through bids to build new steel plants. These
were El Ezz Steel Rebars, Suez Steel, Egyptian Sponge Iron and Steel, and Tiba for Iron
and Steel. The combined annual capacity of these new plants is expected to reach 4mn tons
of DRI and 4mn tons of billets, to come on stream within the next 2 to 4 years. In addition,
the international player, Arcelor Mittal won the bid to establish 2 factories for producing
1.6mn tons of DRI and 1.4mn tons of billets, annually. The license cost reached LE340mn
and the investment cost of the plants’ construction is expected to range between US$800mn



February 2009                             Economic & Strategic Outlook                                        85
Global Research - Egypt                                                  Global Investment House


and US$1bn. Moreover, the Kharafi Group won a bid on a license, at a cost of LE108mn, to
construct a steel plant, with an expected annual capacity of 6mn tons of pellets. It is worth
mentioning that the Kuwaiti Company was granted a second license for pellets production
in January 2009, with an investment cost amounting to LE800mn and an expected annual
capacity of 6mn tons. To ensure that the new production would be oriented to satisfy the local
market, the government did not offer any of these licenses under the Free Zones system.

Outlook

The Egyptian steel sector is to witness stagnation in the coming period, on the back of the
world financial turmoil, which pushed many economies into recession. Though the effect
of the financial crisis on Egypt is limited, most probably Egyptian steel exports will decline
considerably, at least in the first half of 2009. However, the local consumption, though
declining, the current backlog of the Egyptian real estate sector will sustain a moderate growth
on the short-term, as the developers will try to benefit from the plummeting construction
materials prices to complete their projects.

Also, the government stimulus package, amounting to LE15bn is oriented towards
infrastructural projects, which in turn will ensure local demand.

We believe the longer term looks brighter in a country with high demographics like Egypt,
with hiking housing needs.




86                                Economic & Strategic Outlook                     February 2009
Global Research - Egypt                                                          Global Investment House



Banking
The Egyptian banking sector proved to be standing on solid ground amid the financial crisis
that hit international markets in late 2008. This came on the back of the reforms that occurred
in the sector since 2004. These reforms improved the asset quality and capital adequacy of
Egyptian banks and eliminated the weak and poor performing banks. As a result, the total
number of banks shrank from 62 banks in 2000 to 40 banks in September 2008.

One of the main features characterizing the sector in Egypt is the abundant liquidity, which
was a result of the accelerated projects by various investors in booming business sectors,
stimulated by the sound economic growth witnessed in the country over the last three years.

Over the 5-year period from 2002/03 to 2007/08, domestic liquidity (M2) grew at a CAGR
of 14.8%, reaching LE766.7bn, representing a Y-o-Y increase of 15.7%. Narrow Money
Supply (M1), represented by currency in circulation and demand deposits in local currency,
rose by 29.9%, reaching LE170.6bn, while Quasi Money, which consisted of time and saving
accounts in local currency along with demand, time and saving deposits in foreign currency,
moved up by 12.2%, reaching LE596.1bn in the same year.

As of November 2008, M2 reached LE784.8bn, representing an 11.4% incline, compared to
the same period in the previous year.

Chart 62: Domestic Liquidity Growth
       900,000
       800,000
       700,000
       600,000
LEmn




       500,000
       400,000
       300,000
       200,000
       100,000
           -
                 2002/03   2003/04   2004/05   2005/06     2006/07     2007/08      Nov-07     Nov-08*
                            M1                           Quasi Money
*Provisional
Source: CBE


The excess domestic liquidity was reflected in enhanced assets and liabilities figures, where
total liabilities reached LE1,083.3bn in 2007/08, growing at a CAGR of 13.4% over the 5-
year period starting from 2002/03 and representing a Y-o-Y increase of 15.5%, compared
to 2006/07. On the other hand, total liabilities reached LE1,068.9bn in November 2008,
compared to LE1,036.0.bn in November 2007, a slight increase of 3.2%. This minimal change
was principally a result of the decline of obligations to banks in Egypt by 76.5%. These
balances reached LE107.7bn in May 2008, and then started to shrink from June 2008.




February 2009                        Economic & Strategic Outlook                                    87
Global Research - Egypt                                                           Global Investment House


Table 22: Aggregate System’s Liabilities
In LEmn                               2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 Nov-07 Nov-08*
Capital                                18,155 20,346 22,949 27,112 33,037        37,295    33,656    39,128
Reserves                               11,805 11,454 12,419 13,418 12,552        16,141    12,429    15,672
Provisions                             40,099 44,584 49,541 54,950 53,469        62,314    63,614    71,048
Bonds and Long-term loans              14,866 15,012 14,254 17,526 26,351        22,285    21,211    19,879
Obligations to banks in Egypt          35,579 29,933 22,671 21,488 82,619        98,699    93,597    22,026
Obligations to banks abroad            16,247 10,332 12,262     8,770 10,006     13,327    16,827    20,216
Total deposits                        403,144 461,697 519,649 568,841 649,953 747,199 689,534 764,550
Other liabilities                      38,043 40,078 49,883 49,457 69,936        86,051 105,148 116,410
Total Liabilities                     577,938 633,436 703,628 761,562 937,923 1,083,311 1,036,016 1,068,929
*Provisional
Source: CBE


Total deposits, constituting 69.0% of total liabilities in 2007/08, rose by 15.0% Y-o-Y, as they
amounted to LE747.2bn. As of November 2008, these balances contributed to 71.5% of total
liabilities and stood at LE764.5bn, compared to LE689.5bn a year before, representing an
increase of 10.9%. It is worth mentioning that the household sector captured the lion’s share
in terms of non-government deposits, as it reached 73.5% of deposits denominated in local
currency and 54.8% of deposits in foreign currency. In November 2007, the household sector
contributed to 72.6% of deposits in local currency and 60.5% of deposits in foreign currency.

Chart 63: Non- Government Deposits, Including Cheques & Drafts – November 2008*
                   Local Currency                                  Foreign Currency
                     Non-Residents Public Sector                        Non-Residents
                         0.8%                                               1.6%      Public Sector
                                      5.7%                                               6.0%


                                             Private Sector
                                                 20.0%



                                                                                                 Private Sector
                                                       Household                                     37.6%
                                                        Sector
                                                        54.8%



Household Sector
    73.5%

*Provisional
Source: CBE


The increased sources of funds resulted in an acceleration of the aggregate assets of the
banking system. Loans and discount balances moved up by 13.5% in 2007/08, reaching
LE401.4bn, compared to LE353.7bn, a year before. On the other hand, total assets rose
slightly by 3.2% in November 2008, compared to the same period in the previous year, as
they reached LE1,068.9bn. This slight increase was mainly a result of the 44.0% reduction in
balances with banks abroad, fearing of the implications of the global financial turmoil. These
balances moved down from LE121.5bn in November 2007 to LE68.1bn in November 2008.
They jumped to LE145.5bn in March 2008 and started to decline from April 2008. On the
other hand, loans and discount balances increased by 13.5% Y-o-Y, reaching LE428.9bn in
November 2008.




88                                       Economic & Strategic Outlook                          February 2009
Global Research - Egypt                                                                         Global Investment House


Table 23: Aggregate System’s Assets
In LEmn                                         2003/04        2004/05    2005/06      2006/07 2007/08 Nov-07 Nov-08*
Cash                                              5,412          6,594      6,813        7,705    10,261     8,044    10,440
Securities & investments in tr. bills           137,431        170,659    193,965      176,098 201,858 179,138 249,740
Balances with banks in Egypt                    116,290        124,986    121,695      217,363 278,185 263,173 218,004
Balances with banks abroad                       43,290         51,204     72,554      124,366 122,792 121,497        68,065
Loans and discount balances                     296,199        308,195    324,041      353,746 401,425 377,798 428,916
Other assets                                     34,814         41,990     42,494       58,645    68,790    86,366    93,764
Total Assets                                    633,436        703,628    761,562      937,923 1,083,311 1,036,016 1,068,929
*Provisional
Source: CBE


It is worthy to note that 29.0% of non-government loans in local currency went to the
industrial sector in November 2008. The household and external sector followed, with 28.4%
of the total balance. In November 2007, the industrial sector was also the major contributor,
with a share of 28.7%, whereas the services sector followed, with a contribution of 27.1%. As
for non-government loans denominated in foreign currency, the industrial sector contributed
to 39.5% in November 2008, while the services sector came second, with a share of 30.4%.
A year earlier, these two sectors’ shares were 38.9% and 33.7%, respectively.

Chart 64: Non-Government Loans – November 2008*
            Local Currency                    Foreign Currency
                  Agriculture Sector                                                      Agriculture Sector
                        1.9%                                                                    1.4%
 Household &
External Sector
    28.4%                                                             Household &                              Industrial Sector
                                           Industrial Sector         External Sector                               39.5%
                                               29.0%                     14.2%




                                                                 Services Sector
                                                                     30.4%


                                       Trade Sector
Services Sector                           16.3%
    24.4%
                                                                                             Trade Sector
                                                                                                14.4%
*Provisional
Source: CBE


Over the period from 2002/03 to 2007/08, total deposits grew at a CAGR of 13.1%, whereas
total loans and discount balances grew at a CAGR of 7.1%. This resulted in a decline of the
loans/deposits ratio over the same period from 70.6% to 53.7%. This indicates that banks
avoid extending great proportions of their funds in lending activities, fearing of the risk of
default. In addition, having to abide by the minimum required liquidity ratio- as banks have
to keep a minimum of 20% in liquid assets denominated in local currency and 25% in foreign
currency- they are more inclined to treasury bills investments, as they are less risky and were
previously tax exempted. Securities and investments in Treasury bills grew at a CAGR of
12.6% over the period from 2002/03 to 2007/08, reaching LE201.9bn in 2007/08.

It is worth mentioning that tax exemption on treasury bills and bonds was cancelled on May
2008, in an attempt by the government to encourage banks to get back to their core operations.



February 2009                                 Economic & Strategic Outlook                                                   89
Global Research - Egypt                                                                          Global Investment House


As of November 2008, the loans to deposits ratio was ameliorated to 56.1%. This was spurred by
the 13.5% rise in loans and discount balances, which exceeded the 10.9% increase in deposits.
Still, this ratio is relatively low, compared to the international norm of 80%, approximately.

Chart 65: Loans/Deposits Development
     %
66
64
62
60
58
56
54
52
50
48
         2003/04     2004/05                2005/06         2006/07       2007/08               Nov-07       Nov-08*

*Provisional
Source: CBE


Over the year 2007/08, interest rate spread, represented by the difference between lending
rate and cost of funds in the aggregate banking system, witnessed a slight decrease, which was
due to the decline in lending rate, which was not compensated by an appropriate reduction
in the cost of funds, which was even raised in the case of the less than 3 months and less
than one year deposits. In October 2008, the cost of funds increased at higher rate than that
of the lending rate of the previous year, which resulted also in a reduction of the spread.
For instance, cost of funds increased from 6.9% in October 2007 to 7.8% in October 2008,
whereas lending rate rose from 12.2% to 12.4% over the same period. The result was a
decline in the spread from 5.3% to 4.6%.

Chart 66: Interest Rate Spread
     %
14
13
12
11
10
 9
 8
 7
 6
 5
         2003/04     2004/05                2005/06         2006/07        2007/08                Oct-07      Oct-08
                          Less than three-months deposits             Less than six-months deposits
                          Less than one year deposits                 Loans of one year or less

Source: CBE


Recent Developments

Banque du Caire Privatization postponed

The third largest public bank “Banque du Caire” was about to be privatized in 2008, with
67% of the Bank to be sold to a strategic investor, 28% to be offered in an Initial Public


90                                            Economic & Strategic Outlook                                 February 2009
Global Research - Egypt                                                Global Investment House


Offering “IPO”, and the rest to be distributed over the Banks’ employees. Among 14 banks
that presented preliminary offers to acquire the Bank, 5 were allowed to make due diligence.
These were the Saudi Samba Bank, the National Bank of Greece, the British Standard
Chartered Bank, a consortium composed of the Jordanian Arab Bank group and the Saudi
Arab National Bank, and another consortium led by Mashreq Bank.

Two of the competing banks, Saudi Samba Bank and the British Standard Chartered Bank,
were disqualified and did not participate in the bid. National Bank of Greece presented the
highest bid, at US$1.4bn, followed by Mashreq Bank and the consortium composed of
the Jordanian Arab Bank group and the Saudi Arab National Bank, presenting a price of
US$0.9bn and US$0.8bn, respectively.

The government announced in June 2008 that the deal was cancelled and that the privatization
of the Bank would be postponed, as the bids presented were below the minimum price set for
acquisition. We believe the government reaction expresses its view regarding the real value
of the Bank, which was not met by the presented bids, reflecting inherent opportunities in the
banking sector in Egypt.

SMEs Lending Not Subject to Reserve Ratio

Being among the most important factors stimulating economic growth, the Central Bank of
Egypt recently announced that the 14% reserve ratio, required by banks to meet their deposits
requirements, will not be applied to the amount of funds extended to Small and Medium-
Sized Enterprises “SMEs”. This came as a continuation of the statements announced by the
Egyptian government encouraging banks to lend SMEs, in order to accelerate the economy’s
development.

Exempted funds are classified as those extended to SMEs, whose annual sales revenues do
not fall below LE1mn annually and in the mean time do not exceed LE20mn. In addition,
the issued and paid-in capital of these SMEs should range between LE250 thousand and
LE5mn.

Second Phase of Banking Reforms

In an attempt to further ameliorate the sector’s performance, the Central Bank of Egypt
signed a Memorandum of Understanding with the European Central Bank, concerning the
second phase of the reforms program, which is expected to be completed over a 4-year period,
starting from January 2009. It is worth mentioning that the European Union will provide non-
reimbursable funds of Euro3mn to finance the second stage of the reforms program, whereas
the first phase funding amounted to Euro4.5mn. The program will be mainly concerned with
the implementation of Basel II standards, while encouraging lending to SMEs, which began
with the latest announcement concerning the exemption of the required reserve ratio on funds
extended to these enterprises.

Outlook

With the banking sector being primarily influenced by the economic status of the country,
we maintain a stable outlook for the sector in Egypt in 2009 and we believe the Egyptian
banking industry will remain isolated from the banking problems occurring in international

February 2009                    Economic & Strategic Outlook                              91
Global Research - Egypt                                                   Global Investment House


markets, in response to the world financial crisis. Real GDP growth reached 7.2% in June
2008, compared to 7.1% in June 2007. An accelerated growth of GDP in the near future, even
if it deviates slightly lower than expected due to global financial crisis, will tempt investors to
explore investment prospects, which represent potential lending opportunities to the banking
sector, especially that the extremely low loans/deposits ratio of less than 60% indicates that
banks have enough room for extending loans.

Alternatively, demographics outlook support the sector’s potential. With a population CAGR
of 3.4% over the 5-year period from 2002/03 to 2007/08 and the fact that large percentage
of the population is not engaged in the banking activity, with a banking penetration rate
of approximately 30%, the huge unfulfilled demand in the retail segment is expected to
increase and sequentially be absorbed by the sector in the form of retail lending and mortgage
financing. Banks are currently encouraged to explore such fields, as risk of default will be
diminished, especially after the establishment of the credit bureau, responsible for providing
information to banks regarding personal and financial information on borrowers, as well
as their financial history, including loans defaults, bankruptcies, court judgments and late
payments. In addition, banks are spurred by the government to expand lending to SMEs, as
they are considered a prospective stimulant for economic growth. This was illustrated by the
latest decisions released by the CBE concerning the exemption of loans extended to SMEs
from the 14% reserve ratio.

Moreover, most of the banks are currently updating their IT systems and expanding their
branch networks to improve their competency. This is expected to have a positive impact
on the quality of products and services provided to the public, which will increase the client
base coverage and will therefore enhance the banks’ profitability. Also, the second phase of
the banking reforms program is expected to furthermore ameliorate the sector’s performance,
in terms of capital adequacy, assets quality and risk management procedures, which should
protect the sector even more from the world financial crisis.

The activities of banks in Egypt are still far from those practiced in the West, as their
investments do not cover risky instruments like derivatives and securitized bonds. Albeit
there are many Egyptian banks that have international parent lenders, they have independent
operations, that is why we do not believe that they would be negatively affected by the
financial turmoil occurring worldwide. Mortgage lending is still considered an unexploited
segment and has a lot of potential opportunities in Egypt. Besides, the sub-prime crisis that
hit the US market in 2007 resulted in a credit crunch that banks were not able to defend
and hence many lenders failed and filed for bankruptcy. This stemmed from the paucity of
liquidity that these banks suffered from, which is not the case with the Egyptian banking
sector, characterized by its ample liquidity, as described earlier.

These facts support our stable outlook for the banking sector performance in Egypt over
2009. However, as banks are affected by the general conditions of the economy, a slowdown
in growth in the Egyptian economy, along with the world financial disorder are expected to
partially affect many business segments in Egypt, may cause various companies to default on
their loans, which represents a prospective risk that the banking sector could face.




92                                 Economic & Strategic Outlook                      February 2009
Global Research - Egypt                                  Global Investment House




                  STOCK MARKET PERFORMANCE




February 2009             Economic & Strategic Outlook                       93
Global Research - Egypt                                                                                                                  Global Investment House



CASE 30 Index
The Egyptian stock market, as represented by the CASE30 Index, dropped sharply during
2008, recording all time single year loss of 56.4%. The last year plunge swept the gains of the
CASE30 Index over the past two and half year, bringing it back to its early 2005 levels. This
unpleasant performance of the Egyptian market over the course of 2008 came on the back of
the world financial crisis, which strongly hit the world financial markets in September 2008,
resulting in a slowdown in the world economy.

Chart 67: CASE30 Index Performance
14,000                                                                                                                                                                   90.0%
                                                                                                                  -19.9%                                                 80.0%
12,000
                                    51.3%                                                                                                                                70.0%
                                                                                                                                                            -45.6%
10,000                                                                                                                                                                   60.0%

                                                                                                                                                                         50.0%
 8,000
                                                                                                                                                                         40.0%

 6,000                                                                                                                                                                   30.0%

                                                                                                                                                                         20.0%
 4,000
                                                                                                                                                                         10.0%

 2,000                                                                                                                                                                   0.0%
          3-     3-   3-     3-   3-     3-     3-     3-     3-     3-     3-   3-      3-     3-   3-     3-   3-       3-     3-     3-     3-     3-      3-   3-
         Jan-   Feb- Mar-   Apr- May-   Jun-   Jul-   Aug-   Sep-   Oct-   Nov- Dec-    Jan-   Feb- Mar-   Apr- May-     Jun-   Jul-   Aug-   Sep-   Oct-    Nov- Dec-
          07     07   07     07   07     07     07     07     07     07     07   07      08     08   08     08   08       08     08     08     08     08      08   08

                                                                    CASE 30            HV 30 days          HV 180 days

Source: Mubasher & Global Research


Although the CASE30 Index experienced some losses during the period from January to mid-
February 2008, the Index rebounded in the second half of February and continued its 2007
uptrend, touching 12,000-point mark two times in late April and the beginning of May 2008. The
Index achieved a gain of 13.1% during the period from the start of 2008 until May 5th, 2008.

On May 5th, 2008, the government issued a package of decisions, which mainly included
removal of subsidy on energy prices for energy intensive industries, increasing some types
of gasoline prices, imposing some duties on natural resources extracted from quarries and the
abolition of tax exemption on treasury bonds, as well as on the energy intensive industries that
are working under the Free Zones law. These decisions were perceived negatively by market
participants, discounting it into lower stocks’ prices. In addition, the spread of a rumor regarding
the cancellation of tax exemption on listed stocks’ capital gains deepened the market losses.

Coincidently, the global front has changed dramatically since mid 2008, resulting from
fears that the US economy showed signs of slow-down, on the back of defaulting sub-prime
mortgage borrowers, due to easy credit granted to home buyers with a low credit-worthiness.
The CASE30 performance shifted dramatically starting from mid 2008, where it started
its downward trend, on the back of investors’ worries about the outlook of the Egyptian
economy. Accordingly, the Index lost 29.2% from May 5th, 2008 to September 1st, 2008.

Moreover, the prevailed increase of commodity prices around the globe exerted an upward
pressure on domestic prices, raising inflation rate to very high levels. In response, the Central
Bank of Egypt increased interbank lending and deposit rates 5 consecutive times to reach
currently to 13.5% for lending and 11.5% for deposits from 10.75% and 8.75% in 2007 for
lending and deposits, respectively. This was reflected in higher risk free rate, which in turn
was translated into lower stocks’ valuation.


94                                                              Economic & Strategic Outlook                                                                  February 2009
Global Research - Egypt                                                  Global Investment House


In mid-September, the situation deteriorated rapidly all over the world, where Lehman Brothers
filed for bankruptcy and Merrill Lynch was acquired by Bank of America. A series of defaults
in many financial institutions occurred simultaneously, leading to the world’s worst financial
crisis. Huge stocks sell-off wave hit the world’s markets triggered by investors’ panic, leading
to tremendous losses on the global stock exchanges. Following the world trend, the CASE30
Index plunged drastically by 45.6% during a 4-month period from September 1st, 2008 to
December 31st, 2008, affected by the panic that hit the local, regional and foreign investors.

To look at the other side of the coin, which is risk, we used the annualized historical standard
deviation of daily returns based on 30 days (HV 90 day) and 180 days (HV 180 days)
periods, in order to see the CASE30 Index short-term and long-term volatility, respectively.
Annualized historical volatility for both periods since the start of 2008 remained in the range
of 15% and 30% till end of August. Starting from September 2008, the index volatility started
to increase significantly, especially the short-term one reaching 80% in early November,
before easing toward the end of 2008. The CASE30 high volatility experienced during the
past 4 months was mainly attributable to investors’ panic and lack of confidence, resulting
from unclear picture of the true effect of the world financial crunch.

It is worth mentioning that the Egyptian Exchange (EGX) has revised the CASE 30 Index
constituents, which will be effective as of February 1st, 2009. The International Agricultural
Products, Egyptian Transport (EgyTrans), Maridive and Oil Services, Olympic Group
Financial Investments, Naeem Holding and Pioneers Holding will be added to the index.
While, Upper Egypt General Contracting, Alexandria Spinning and Weaving (Spinalex),
Alexandria Mineral Oils, Extracted Oils & its Derivatives, United Housing & Development
and Egyptian Media Production City will be removed from the index.




February 2009                     Economic & Strategic Outlook                               95
                      Global Research - Egypt                                                                                                                                           Global Investment House



                      Sector Indices
                      The Egyptian Exchange sector indices were negatively affected by the remarkable plunge in
                      the stock market, where all the sectors suffered from large losses during 2008. The least loser
                      was the Food and Beverage sector, declining by 16.9% over 2008, followed by Healthcare
                      and Pharmaceutical sector, achieving a loss of 19.2%. The Chemical sector ranked the third
                      losing -30.7% during 2008.

                      Table 24: Sector Indices Performance
                        Sector Indices                                                                                                                                                          2007                        2008
                        Food and Beverage                                                                                                                                                     10.13%                     -16.90%
                        Health Care & Pharmaceutical                                                                                                                                          20.38%                     -19.23%
                        Chemicals                                                                                                                                                             13.81%                     -30.65%
                        Industrial Goods & Services & Automobiles                                                                                                                            182.53%                     -44.78%
                        Banks                                                                                                                                                                 59.10%                     -46.87%
                        Basic Resources                                                                                                                                                       20.91%                     -54.48%
                        Construction & Materials                                                                                                                                              90.26%                     -54.57%
                        Personal & Households Products                                                                                                                                         8.83%                     -54.84%
                        Telecommunication                                                                                                                                                     21.85%                     -60.81%
                        Financial Services excluding banks                                                                                                                                    45.05%                     -63.59%
                        Real Estate                                                                                                                                                          119.03%                     -69.41%
                        Travel & Leisure                                                                                                                                                      91.73%                     -70.52%
                      Source: EGX & Global Research


                      The top loser was the Travel and Leisure sector, declining significantly by 70.5%, followed
                      by the Real Estate sector, which fell by 69.4%. The third top loser was the Financial Services
                      (excluding banks) sector, realizing a drop of 63.6%.

                      The performance of all sector indices since the start of 2007 until the end of 2008 resulted
                      in a loss, except for the Industrial Goods and Services and Automobiles sector. Although
                      the sector ranked the fifth least loser in 2008, losing 44.8%, it came as the best performing
                      sector, actually the only gainer, for 2007 and 2008 whole period, achieving a positive total
                      return of 56.0%.

                      Chart 68: Sector Indices performance in 2007 vs. 2008
                                                         Banks Index                                                                                                                 Basic Resources Index
1,800                                                                                                                         1,800


1,600                                                                                                                         1,600
                  59.1%                                                                               -46.9%                                             20.9%                                                                                -54.5%
1,400                                                                                                                         1,400


1,200                                                                                                                         1,200


1,000                                                                                                                         1,000


 800                                                                                                                           800


 600                                                                                                                           600


 400                                                                                                                           400
     3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3-                                                           3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3-
    Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-           Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-
     07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08                                                           07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08




                      96                                                                            Economic & Strategic Outlook                                                                              February 2009
                          Global Research - Egypt                                                                                                                                          Global Investment House


                                                          Chemicals Index                                                                                                            Construction &Materials Index
2,000                                                                                                                             2,900

1,800
                                                                                                                                  2,400
1,600
                           13.8%                                                                                                                                                                                                                    -54.6%
                                                                                                                  -30.7%
1,400
                                                                                                                                  1,900

1,200
                                                                                                                                                    90.3%
                                                                                                                                  1,400
1,000

 800
                                                                                                                                   900
 600

 400                                                                                                                               400
         3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3-                                                           3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3-
        Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-           Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-
         07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08                                                           07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08


                                                Financial Services (excl. banks) Index                                                                                                    Food &Beverage Index
1,800                                                                                                                             2,900


1,600
                     45.0%                                                                                   -63.6%               2,400
1,400                                                                                                                                                                                                                                              -16.9%
                                                                                                                                                      10.1%
                                                                                                                                  1,900
1,200


1,000
                                                                                                                                  1,400

 800
                                                                                                                                   900
 600


 400                                                                                                                               400
         3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3-                                                           3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3-
        Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-           Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-
         07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08                                                           07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08


                                                 Healthcare &Pharmaceutical Index                                                                                           Industrial Goods &Services &Automobiles Index
1,600                                                                                                                             3,900

                       20.4%                                                                                 -19.2%               3,400
                                                                                                                                                                                                                                              -44.8%
1,400

                                                                                                                                  2,900
1,200                                                                                                                                              182.5%
                                                                                                                                  2,400
1,000
                                                                                                                                  1,900

 800
                                                                                                                                  1,400

 600                                                                                                                               900


 400                                                                                                                               400
         3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3-                                                           3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3-
        Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-           Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-
         07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08                                                           07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08


                                                Personal &Household Products Index                                                                                                          Real Estate Index
1,600                                                                                                                             2,900


1,400                   8.8%                                                                                                                          119.0%
                                                                                                                                  2,400
                                                                                                               -54.8%
1,200                                                                                                                                                                                                                                             -69.4%
                                                                                                                                  1,900

1,000

                                                                                                                                  1,400
 800

                                                                                                                                   900
 600


 400                                                                                                                               400
         3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3-                                                           3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3-
        Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-           Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-
         07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08                                                           07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08


                                                      Telecommunication Index                                                                                                            Travel &Leisure Index
1,300                                                                                                                             2,400
                        21.9%
1,200                                                                                                                             2,200
                                                                                                 -60.8%                                                91.7%                                                                                -70.5%
1,100                                                                                                                             2,000

                                                                                                                                  1,800
1,000
                                                                                                                                  1,600
 900
                                                                                                                                  1,400
 800
                                                                                                                                  1,200
 700
                                                                                                                                  1,000
 600                                                                                                                               800
 500                                                                                                                               600

 400                                                                                                                               400
         3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3-                                                           3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3- 3-
        Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-           Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec-
         07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08                                                           07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08

                          Source: EGX & Global Research

                          February 2009                                                                  Economic & Strategic Outlook                                                                                                     97
Global Research - Egypt                                                    Global Investment House


Table 25: Most active five sector
                                                          Turnover      Volume
                                                           (LE bn.)       (mn.)       PE    DY%
Personal & Households Products                               39.322       4,547      6.69   11.9%
Industrial Goods & Services & Automobiles                    32.003       3,767     11.39   29.5%
Real Estate                                                   52.15       3,663     11.51    6.3%
Financial Services excluding banks                           49.703       2,122      7.54   17.4%
Travel &Leisure                                              31.713       1,789     10.67   16.4%
Source: EGX


Table 26: Sectors Indices Constituents
                                                Reuters                                                   Reuters
Sector/Company                                  Code         Sector/Company                               Code
Banks                                                        Construction & Materials
Credit Agricole Egypt                           CIEB.CA      Lecico Egypt                                 LCSW.CA
National Societe Generale Bank (NSGB)           NSGB.CA      Orascom Construction Industries (OCI)        OCIC.CA
National Development Bank                       DEVE.CA      Giza General Contracting                     GGCC.CA
Faisal Islamic Bank of Egypt - In US Dollars    FAITA.CA     Paint & Chemicals Industries (Pachin)        PACH.CA
Egyptian Saudi Finance Bank                     SAUD.CA      Rubex Plastics                               RUBX.CA
Commercial International Bank (CIB) (Egypt)     COMI.CA      El Ezz Porcelain (Gemma)                     ECAP.CA
Faisal Islamic Bank of Egypt - In EGP           FAIT.CA      Arab Ceramics (Aracemco)                     CERA.CA
                                                             South Valley Cement                          SVCE.CA
Financial Services excl. banks                               Misr Beni Suef Cement                        MBSC.CA
Al Arafa Investment And Consulting              AIVC.CA      Sinai Cement                                 SCEM.CA
Egyptian Financial Group-Hermes Holding Co.     HRHO.CA      Delta Construction & Rebuilding              DCRC.CA
Naeem Holding                                   NAHO.CA      Upper Egypt General Contracting              UEGC.CA
Al Ahly Development and Investment              AFDI.CA      Egyptian Contracting (Mokhtar Ibrahim)       ECMI.CA
Egypt Kuwait Holding                            EKHO.CA      Egyptian for Developing Building Materials   EDBM.CA
Housing & Development Bank                      HDBK.CA
Export Development Bank of Egypt (EDBE)         EXPA.CA Basic Resources
Egyptians Abroad for Investment & Development   ABRD.CA Egyptian Iron & Steel                             IRON.CA
                                                        El Ezz Steel Rebars                               ESRS.CA
Telecommunication                                       EL Ezz Aldekhela Steel - Alexandria               IRAX.CA
Orascom Telecom Holding (OTH)                   ORTE.CA Egypt Aluminum                                    EGAL.CA
Egyptian Co. for Mobile Services (MobiNil)      EMOB.CA Asek Company for Mining - Ascom                   ASCM.CA
Telecom Egypt (TE)                              ETEL.CA
                                                        Travel & Leisure
Healthcare & Pharmaceutical                             Remco for Touristic Villages Construction         RTVC.CA
Cairo Medical Tower Laboratory (Alborg)         ALAB.CA Orascom Hotels And Development                    ORHD.CA
Egyptian International Pharmaceuticals          PHAR.CA Egyptian for Tourism Resorts                      EGTS.CA
(EIPICO)
Glaxo Smith Kline                               BIOC.CA      Rowad Tourism (Al Rowad)                     ROTO.CA
Chemicals                                                    Personal & Household Products
Samad Misr -EGYFERT                              SMFR.CA     Nile Matches                            NMPH.CA
Sidi Kerir Petrochemicals                        SKPC.CA     Olympic Group Financial Investments     OLGR.CA
Abou Qir Fertilizers                             ABUK.CA     Alexandria Spinning & Weaving (SPINALEX)SPIN.CA
Misr Chemical Industries                         MICH.CA     Arab Polvara Spinning & Weaving Co.     APSW.CA
Egyptian Financial & Industrial (EFIC)           EFIC.CA     Oriental Weavers Carpets                ORWE.CA
                                                             Ceramic & Porcelain                     PRCL.CA



98                                 Economic & Strategic Outlook                      February 2009
Global Research - Egypt                                                                         Global Investment House



Table 26: Sectors Indices Constituents - Continued
                                                             Reuters                                  Reuters
Sector/Company                                          Sector/Company
                                                             Code                                     Code
Industrial Goods & Services & Automobiles               Nile Cotton Ginning                           NCGC.CA
GB AUTO                                         AUTO.CA Arab Cotton Ginning                           ACGC.CA
Engineering Industries (ICON)                   ENGC.CA El Nasr Clothes & Textiles (Kabo)             KABO.CA
El Nasr Transformers (El Maco)                  NASR.CA Eastern Tobacco                               EAST.CA
Canal Shipping Agencies                         CSAG.CA
El Sewedy Cables                                SWDY.CA Food &Beverage
Egyptian Electrical Cables                      ELEC.CA Middle Egypt Flour Mills                      CEFM.CA
Egyptian Transport (EGYTRANS)                   ETRS.CA Middle & West Delta Flour Mills               WCDF.CA
Alexandria Containers and goods                 ALCN.CA Upper Egypt Flour Mills                       UEFM.CA
United Arab Shipping                            UASG.CA Extracted Oils                                ZEOT.CA
                                                        Misr Oils & Soap                              MOSC.CA
Real Estate                                             Northern Upper Egypt Developt. & Agri. Prodt. NEDA.CA
T M G Holding                                   TMGH.CA Cairo Poultry                                 POUL.CA
El Shams Housing & Urbanization                 ELSH.CA Mansourah Poultry                             MPCO.CA
Mena Touristic & Real Estate Investment         MENA.CA Egypt for Poultry                             EPCO.CA
United Housing & Development                    UNIT.CA International Agricultural Products           IFAP.CA
Cairo Housing                                   ELKA.CA El Nasr For Manufacturing Agricultural Crops ELNA.CA
Development & Engineering Consultants           DAPH.CA Delta Sugar                                   SUGR.CA
Egyptians Housing Development & Reconstruction EHDR.CA East Delta Flour Mills                         EDFM.CA
Cairo Investment & Real Estate Development      CIRA.CA North Cairo Flour Mills                       MILS.CA
Nasr City Housing                               MNHD.CA
Heliopolis Housing                              HELI.CA
Six of October Development & Investment (SODIC) OCDI.CA
Source: EGX & Global Research


The Construction and Materials sector contribution to total market capitalization was the
largest by a share of 26.8%, supported by Orascom Construction Industries (OCI), followed
by the Telecommunication sector, which contributed 14.8%, on the back of Telecom Egypt,
Orascom Telecom and Mobinil. The Banks sector was responsible for 9.8% of total market
capitalization, supported by Commercial International Bank (CIB) and National Societe
General Bank (NSGB).

Chart 69: Sectors contributions to market cap. (as of Dec. 2008)
                                                       Oil & Gas Healthcare
                                                         2.4%      2.1%     Others
                                   Food and Beverage                        1.2%
                                         2.5%
                             Households Products
                                    3.0%
                           Travel & Leisure                                          Construction
                                4.9%                                                 & Materials
                                                                                       26.8%
                             Chemicals
                               5.5%

                     Financial Services
                        (excl. banks)
                            5.6%

                           Basic Resources
                                6.5%
                                                                                      Telecom
                               Industrial Goods                                        14.8%
                                    7.4%
                                                   Real Estate          Banks
                                                     7.5%               9.8%
Source: EGX & Global Research


February 2009                             Economic & Strategic Outlook                                              99
Global Research - Egypt                                                                                                     Global Investment House



Stock Market Indicators
During 2008 the number of listed companies decreased by 15% to reach 373 companies,
compared to 435 companies in 2007. The decrease in the number of listed companies came
on the back of the continuous implementation of strict listing and disclosure regulations.
Although, the number of traded companies declined by about 5% in 2008, reaching 322
companies compared to 337 in 2007, the ratio of traded companies to total listed companies
increased to reach 86.1% in 2008, as opposed to 77.5% in 2007.

Chart 70: Market cap. Vs. number of listed and traded companies
                   1,000                                                                                                                            1,000


                    800                                                                                                                             800
No. of Companies




                                                                                                                                                          LE bn
                    600                                                                                                                             600


                    400                                                                                                                             400


                    200                                                                                                                             200


                     -                                                                                                                              -
                             2003               2004                    2005                   2006                2007                  2008
                                    Market capitalization end of year (LE bn)        Number of listed companies      Number of traded companies

Source: EGX & Global Research


Total market capitalization plunged substantially in 2008 by 38.3%, where it reached LE474bn
down from LE768bn in 2007. This decline is mainly attributable to the global financial crisis,
which resulted in a selling frenzy that occurred in the last quarter of the year 2008, driving
down the value of the entire market.

Chart 71: Volume vs. Value Traded
                        30                                                                                                                          600

                        25                                                                                                                          500

                        20                                                                                                                          400
Billion Shares




                                                                                                                                                          LE bn




                        15                                                                                                                          300

                        10                                                                                                                          200

                         5                                                                                                                          100

                    -                                                                                                                               -
                             2003              2004                     2005                  2006                 2007                 2008
                                                        Total value traded (LE Bn)                      Total volume (Bn)

Source: EGX & Global Research


The Egyptian stock market efficiency, as measured by the stock market depth, trading
volume, and breadth, trading turnover, have developed significantly over the past 5 years.
Since 2003, total value traded has been increasing at a CAGR of 80% and total volume traded
has increased at CAGR of 78% during the same period. During 2008, total volume traded
increased by 68.9%, reaching 25.5bn shares, whereas total value traded reached LE529bn
during 2008, compared to LE363bn in 2007, achieving a growth of 45.9%.


100                                                            Economic & Strategic Outlook                                                 February 2009
Global Research - Egypt                                                                                   Global Investment House


Table 27: Stock Market Indicators
   Indicators                                                             2004         2005              2006          2007        2008
   Volume of listed securities                                             1.79         4.20              7.76         11.38      21.94
   Volume of Over the Counter                                              0.65         1.11              1.32          3.71        3.62
   Total volume (bn)                                                       2.43         5.31              9.08         15.09      25.56

   Value traded (listed securities)                                       36.14      150.92         271.11            321.52     475.88
   Value traded (Over the Counter)                                         6.23        9.71          15.63             41.20      53.74
   Total value traded (LE bn)                                             42.37      160.63         286.74            362.72     529.62

   Average monthly value traded (listed securities)                        3.01       12.58              22.59         26.79      39.66
   Average monthly value traded (Over the Counter)                         0.52        0.81               1.30          3.43       4.48
   Total (LE bn)                                                           3.53       13.39              23.90         30.23      44.14

   Number of transactions (Listed securities)                             1,675       3,922              6,590         8,713     12,751
   Number of transactions (Over the Counter)                                 68         218                231           301        705
   Total number of transactions (000s)                                    1,744       4,210              6,821         9,014     13,456

   Number of listed companies                                               795           744              595          435           373
   Number of traded companies                                               503           441              407          337           321
   Average monthly traded companies                                         200           186              183          199           213
   Market capitalization as of Dec. 31 (LE bn)                              234           456              534          768           474
   Market capitalization as of Jun. 30 (LE bn)                              174           337              377          602           813
   Market cap % of GDP*                                                    35.7          62.6               61          80.8         90.7
   Turnover Ratio (%)                                                      14.2          31.1             48.7          38.7         96.2

   Indices performance
   Percentage change in CASE 30                                            122            146              10             51              -56
   Percentage change in DJ CASE Egypt Titans 20                            118            143              11             44              -56
   Percentage change in IFCI                                               126            159              10             52              -56
   Percentage change in MSCI                                               118            155              15             55              -54
* Calculated based on Jun. 30 figures
The Turnover Ratio is calculated annually
Securities include stocks, bonds and mutual funds
Source: EGX


Chart 72: Volume Traded throughout 2008
            3,000                     2,801
                                                        2,486
            2,500                              2,358
                                                                                                                        2,083
                             1,934
mn Shares




            2,000   1,779                                        1,762
                                                                                                1,617
            1,500                                                          1,332     1,331                  1,288
                                                                                                                                 1,170
            1,000

             500

              -
                    Jan-08


                             Feb-08




                                                                                                Sep-08
                                                        May-08




                                                                                                             Oct-08




                                                                                                                                 Dec-08
                                                                 Jun-08




                                                                                                                        Nov-08
                                               Apr-08
                                      Mar-08




                                                                            Jul-08


                                                                                     Aug-08




Source: EGX




February 2009                                      Economic & Strategic Outlook                                                           101
Global Research - Egypt                                                                                              Global Investment House


Chart 73: Value traded throughout 2008
         120
                  106.8
         100

          80
                                                              66.6
                                         60.8
LE bn




          60
                                                   46.7
                              39.1                                       41.0
          40
                                                                                    26.7
                                                                                               21.0       22.5
                                                                                                                       15.1      17.7
          20                                                                                                                               11.0

              0
                   Jan-08


                              Feb-08




                                                                                                           Sep-08
                                                               May-08




                                                                                                                       Oct-08




                                                                                                                                           Dec-08
                                                                          Jun-08




                                                                                                                                 Nov-08
                                                    Apr-08
                                         Mar-08




                                                                                     Jul-08


                                                                                                Aug-08
Source: EGX


Chart 74: Market capitalization throughout 2008
        1,000
                               898       875        875        877
         900        833                                                   813
         800                                                                         760
                                                                                                695
         700                                                                                               622
LE bn




         600
         500                                                                                                            475       461      474

         400
         300
         200
         100
          -
                    Jan-08



                               Feb-08




                                                                                                            Sep-08
                                                                May-08




                                                                                                                        Oct-08




                                                                                                                                            Dec-08
                                                                           Jun-08




                                                                                                                                  Nov-08
                                                     Apr-08
                                          Mar-08




                                                                                      Jul-08



                                                                                                 Aug-08




Source: EGX


The significant drop in all shares prices relative to the listed companies’ earnings resulted in
a corresponding decline in the market’s price to earnings ratio (PE), where it decreased from
20.2 times in January 2008 to reach 9.9 times in December 2008. Intuitively, the declining
prices compared to the market’s high dividends distribution led to an increasing dividends
yield (DY) over 2008, soaring from 4.7% in January 2008 to 8.8% in December 2008.

Chart 75: Development of PE during 2008
  25
                  20.2
        20                                         18.2
                             17.4       17.3                  17.7
                                                                         15.7       16.4
        15                                                                                     14.4
                                                                                                          12.3
P/E




                                                                                                                                 9.7       9.9
        10                                                                                                            8.1

         5

         -
                  Jan        Feb        Mar        Apr        May        Jun        Jul        Aug        Sep          Oct       Nov       Dec
Source: EGX




102                                                      Economic & Strategic Outlook                                            February 2009
Global Research - Egypt                                                         Global Investment House


Chart 76: Development of DY during 2008
      10
       9                                                                                 8.6    8.8
                                                                                 8.1
       8                   7.7
       7                                           6.5
       6                          5.8       5.7
DY%




                                                                          5.6
       5    4.7    4.8                                     4.6     4.9
       4
       3
       2
       1
       -
           Jan    Feb     Mar    Apr      May     Jun    Jul     Aug     Sep    Oct    Nov     Dec
Source: EGX




February 2009                           Economic & Strategic Outlook                                  103
Global Research - Egypt                                                     Global Investment House



Investors’ Statistics
Despite the collapse of the global financial markets, which in turn negatively affected the
local market, the number of newly registered investors continued to grow over the past year,
reflecting the attractiveness of the Egyptian market.

In 2008, the total number of registered investors grew by 4% to reach 1.68mn, of which, the
majority were retail investor, accounting for 98.3% of total investors. However, the growth
of newly registered investors in 2008 was inferior to that of 2007. The slowdown is mainly
attributed to the decrease in the amount of new Egyptian retail investors, which dropped by
32% compared to 2007.

Moreover, the growth of new Egyptian and Arab institutional investors decreased by about
11% and 24% respectively, which further contributed to the decline in the overall growth. On
the other hand, the number of newly registered foreign retail and institutional investors rose
considerably by 11% and 7% respectively, reflecting the potential of the Egyptian market in
the eyes of foreign investors.

Table 28: Registered investors
                 Total new investors registered during 2008
                              compared to 2007                      Total registered investors
                       Retail               Institutions
                     2008        2007         2008        2007    Retail Institutions     Total
Egyptians          60,895      89,128          453         508    1,627,977    18,034    1,646,011
Arabs               1,066         917          138         182       18,187     1,731       19,918
Foreigners            414         373          859         804        5,624     8,624       14,248
Total              62,375      90,418        1,450       1,494    1,651,788    28,389    1,680,177
Source:EGX


One of the good notes in the market in 2008 was the increase in the amounts of money invested
by both retail and institutional investors. For retail investors, the bulk of the increase was
concentrated at the large end of the spectrum, where investments above LE1mn rose significantly
compared to the previous year, while investments below 50,000 dropped sharply. This was also
the case for institutional investors who experienced a surge by 25% in investments between
LE10mn-LE50mn while investments between LE10,000-50,000 plunge by 37%.

Table 29: Investors classification according to amount invested
                                                 Retail                      Institutions
                                                      % change to                     % change to
LE                                            2008 previous year            2008 previous year
1-10,000                                    48,823           -30              58              18
10,000-50,000                               45,149           -32              95             -37
50,000-100,000                              19,871              4             51               -6
100,000-500,000                             44,590            18             191              19
500,000-1,000,000                           15,913            24             135              26
1,000,000-5,000,000                         25,635            33             464              21
5,000,000-10,000,000                         5,774                 41         262                15
10,000,000-50,000,000                        5,687                 40         690                25
50,000,000-Higher                            1,339                 37         676                15
Source: EGX




104                                Economic & Strategic Outlook                       February 2009
Global Research - Egypt                                               Global Investment House


In terms of overall turnover, the retail segment continued to dominate the turnover of the
market, as 66% of total turnover was conducted by retail investors, while the remaining 34%
was attributed to institutional transactions. Further analysis shows that Egyptians lead the
market with 70% of the total turnover, followed by Foreigners and Arabs who account for
20% and 10%, respectively.

During the first five months of 2008, the Egyptian stock market was able to attract around
LE2.2bn of foreign investment. However, as the rumor of imposing taxes on the stock market
spread, massive sales commenced bringing down these investments to LE1.2bn. Moreover,
as the global markets plummeted, a selling frenzy ensued between during the last quarter of
2008, bringing total foreign investments sales to a net value of LE3bn.

Chart 77: Investors’ classification
                                                     Foreigners
                                                       20%
Institutions
   34%


                                                 Arabs
                                                 10%


                                        Retail
                                        66%                                       Egyptians
                                                                                    70%

Source: EGX




February 2009                    Economic & Strategic Outlook                            105
Global Research - Egypt                                                                 Global Investment House



Capital Increases & Public Offerings
In 2008, there were 24 new companies listed, representing a 20% increase compared to 2007.
However, these companies had a combined capital of LE6.5bn, which is a massive decrease
compared to the LE21.4bn recorded in 2007. Moreover, 83 companies with a combined
capital of LE6bn were delisted during the past year.

In addition, 121 companies increased their paid-in capital by a combined total of LE14.5bn
in 2008. Most companies opted to increase their capital through stock dividends, par value
adjustments, mergers, acquisitions and equity swaps.

Table 30: Number of New listings and capital increases in 2007 & 2008
                                                            2007                  2008
                                                         No. of Total value   No. of Total value
                                                      Companies    (LE bn) Companies    (LE bn)
New listings                                               20.0        21.4     24.0         6.5
Increase in paid-in-capital Through SPOs                   37.0         6.0     44.0         7.5
                            Others*                        66.0         7.3     77.0         7.0
Delisting                                                 180.0        12.7     83.0         6.0
* Includes capital increases through cash, stock dividends, stock splits, mergers, acquisitions and equity swaps
Source: EGX


Initial Offerings conducted in 2008 valued approximately at a combined LE4.3bn. The largest
of these initial offerings was conducted by Palm Hills Development Company, which was
able to raise around LE1.9bn through a private placement and public offering. The second
largest offering was conducted by Maridive & Oil Services in April and raised an estimated
LE1.4bn, through both a private placement and public offering. The remaining offerings
were those of Misr Duty Free Shops and Pioneers Holding, which raised a combined total of
LE910bn. One notable aspect of all offerings was the large subscription coverage ratios.

Table 31: Initial Offerings in 2008
                                                                      Amount offered  Value Subscription
Company Name                Date                  Type                  (mn shares) (LE mn) coverage ratio
Palm Hills Development Co. Apr -08           Public Offering                    12.9   266.0        16.40
                                            Private placement                   72.9 1,586.0        17.00
Maridive & Oil Services            Apr -08 Public Offering                       9.4   180.0        19.40
                                            Private placement                   64.8 1,307.0        31.20
Misr Duty Free Shops*              May- 08 Public Offering                      10.0    10.0          2.99
Pioneers Holding*                  June- 08 Private placement                  180.0   900.0        42.00
* Offered through primary market
Source: EGX Annual Report




106                                      Economic & Strategic Outlook                               February 2009
           Global Research - Egypt                                                   Global Investment House



           Acquisition Transactions
           The total number of acquisitions amounted to LE105bn in 2008, compared to LE37bn in the
           previous year. The most notable of these acquisitions was Lafarge’s mega LE71bn takeover
           of Orascom Building Materials Holding. The value of this deal alone represents around 67%
           of the total value of all acquisitions that occurred in Egypt in 2008. In addition, Orascom
           Development Holding AG’s deal to acquire 98% of Orascom Hotels and Development in
           May was also one of the major acquisitions of the year, valued at approximately LE16bn.

           Table 32: Major Acquisition Transactions
                                                                                                           %    Value
Acquirer                                    Stock                                         Date       Acquired (LE mn)
Red Sea Steel                               Misr National Steel-Ataqa                     Dec - 08       4.00     14.8
Red Sea Steel                               Misr National Steel-Ataqa                     Dec - 08      96.00    355.8
Group of Investors                          General Engineering and Motor Company         Dec - 08      42.60      2.6
Naeem Holding                               Naeem Financial Investments                   Oct - 08      38.00      9.5
Mac Holding                                 Egyptian Sponge                               Sep - 08      28.80     19.2
Beltone Partners Holding Ltd.               Beltone Financial Holding                     Sep - 08      99.90     68.6
Prime Industrial Holding                    National Glass & Crystal Company              Sep - 08      88.30    192.1
Abu Dhabi Financial Services Co.            El Salam Brokerage Company                    Aug- 08       70.00       21
The Egyptian Co. for Textiles Manufacturing Dice Sport & Casual Wear                      Aug- 08       60.00       88
Group of Investors                          Chemicals for Modern Building International   Aug- 08       48.50     19.4
Sharm Dreams Holdings for Tourism & Hotels  Rowad Misr Tourism Investment                 Jul - 08      10.10     62.6
CIB - Egypt                                 CI Capital Holding                            Jul - 08      49.90    768.2
Amwal Arabian for Cotton                    El Nasr clothes & Textiles (KABO)             Jun - 08      39.60    483.1
National Co. for Construction & UrbanizationArab Architectural Design & Engineering       Jun - 08      43.60     10.9
                                            Consultancy
Ismailia Misr Arab Poultry                  Ismailia Misr Poultry                         Jun - 08      99.20    422.8
Safah Investment #                          National Drilling                             Jun - 08      60.00       75
Orascom Development Holding AG              Orascom Hotels and Development                May- 08       98.10 16,725.1
Sharm Dreams Holding General Mediterranean Rowad Misr Tourism Investment                  May- 08       26.97    167.5
Holding (Egypt) for Touristic & Real Estate
Investment
                                                                                                        20.00    124.2
Abraaj SPV 62 Limited                          Cairo Medical Tower Laboratory             May- 08       76.90    778.3
Orascom Contruction Industries #               Fertilized Egypt Co.                       Mar- 08      100.00 1,590.40
Mansour & Maghraby Investment &                Palm Hills Development Company             Mar- 08       10.10    80.77
Development
Mansour & Maghraby Investment &                Palm Hills Development Company             Mar- 08        3.70    247.7
Development
Arab International Bank                        Suez Canal Company for Technology Setting Mar- 08        23.80      413
Others                                                                                                  14.30    248.2
Dubai Ports Internatioal                       Egyptian Container Handling                Feb - 08      90.00 3,680.30
Egyptian Container Handling #                  Sokhna Port Development Company            Feb - 08      10.00       74
Others #                                                                                  Feb - 08      0.004     0.03
Lafarge                                        Orascom Building Materials Holding         Jan - 08     100.00 71,022.9
Sarwa Investment Limited                       Contact Car Trading                        Jan - 08      57.00    120.3
Seldar Egypt                                   Delta Tourism & Hotels                     Jan - 08      64.80     36.9

           Source: EGX




           February 2009                        Economic & Strategic Outlook                             107
Global Research - Egypt                                                  Global Investment House



The Bond Market
The bond market activity in Egypt is relatively low compared to the equities market. Total
bond market turnover amassed to LE20bn in 2008, compared to LE24bn in 2007. Moreover,
the total volume of bonds traded was 22mn issue, compared to 24mn in the previous year
representing an 8% decline.

Government bonds, especially primary dealers bonds, are considered to be the most active
in terms of trading volume and turnover, and accounted for almost 99% of total turnover and
90% of total volume.
On the other hand, corporate bonds witnessed a considerable rise in trading activity, as
turnover reached LE165mn compared to LE136mn, while total volume reached 2mn bonds
compared to 1.5mn in 2007.

Table 33: Total bond turnover in 2008
                                                            Trading Value     Trading Volume
                                                                 (LE mn)                (000)
Government bonds                                                  19,850.1           19,456.6
Housing bonds                                                          0.1                1.7
Development bonds                                                      0.1                0.1
Treasury bonds                                                        92.0               86.0
Treasury bonds (Primary dealers)                                  19,758.0           19,368.8
Corporate bonds                                                      164.4            2,160.0
Total                                                             20,014.7           21,616.6
Source: EGX


Table 34: Primary Dealers bond issues
                              Trading Vale      No. of Average Yield to Average Current
                                  (LE mn) Transactions   Maturity (%)         Yield (%)
Treasury bonds (Oct 2011)            2,410          93           9.711           10.948
Treasury bonds (Nov 2014)            1,144          51           9.364           10.484
Treasury bonds (Dec 2008)              949          34           9.762           10.862
Treasury bonds (Jan 2025)               29           5           9.495            9.835
Treasury bonds (Jul 2010)              699          47          10.262            9.267
Treasury bonds (Aug 2009)              788          24           9.933            9.285
Treasury bonds (Aug 2010)              754          75           9.564            9.369
Treasury bonds (Sep 2012)            1,364          46          11.269            9.789
Treasury bonds (Oct 2008)              102           6           6.594            8.958
Treasury bonds (Oct 2010)              278          20          10.965            9.424
Treasury bonds (Nov 2015)               80           5           8.781            9.048
Treasury bonds (Jan 2010)              599          26           8.341            8.945
Treasury bonds (Jan 2013)              467          28           9.322            9.012
Treasury bonds (Feb 2011)            2,502         108          10.002            8.875
Treasury bonds (May 2010)              351          21           9.694            9.040
Treasury bonds (Sep 2014)               21           1           8.150            8.325
Treasury bonds (Nov 2013)            2,543          69           9.135            8.772
Treasury bonds (Jan 2016)              444          22           9.352            9.017
Treasury bonds (Feb 2018)              612          18           9.137            9.144
Treasury bonds (Feb 2014)            1,195          61           9.328            9.253
Treasury bonds (May 2015)            1,281          29          10.534           10.594
Treasury bonds (Jun 2016)            1,149          47          10.822           10.822
Source: EGX Annual Report




108                                Economic & Strategic Outlook                    February 2009
Global Research - Egypt                                                          Global Investment House



Global Depository Receipts (GDRs)
The severe downturn in the global financial markets massively affected the performance of
the Global Depository Receipts (GDRs) of the Egyptian Companies, as most of the GDRs
witnessed severe declines. The biggest loser was Orascom Construction Industries (OCI),
which recorded a drop of 76% in 2008, compared to the same period in the previous year.
EFG-Hermes, Orascom Telecom and CIB-Egypt followed with losses of 74%, 67% and 59%
respectively.

The only company that was able to record an increase in its GDR price was El Ezz Steel
Rebars, which witnessed a 4.8% y-o-y appreciation. On the other hand, the GDR’s price
of Paint & Chemical Industries (Pachin) and Lakah Group remained at their same levels in
2008 compared to 2007. Moreover, in 2008 Palm Hills Development Company and Naeem
Holding both issued GDRs to be traded on the London Stock Exchange.

Table 35: GDRs performance in 2007 and 2008
                                     Conversion ratio
                                          from GDR Closing price US$ Closing price US$
Company                                     to shares    (31/12/2007)      (31/12/2008) % change
El Ezz Steel Rebars                              0.33           31.00             32.50    4.84%
Paint & Chemical Industries (Pachin)             3.00            2.80              2.80    0.00%
Lakah Group*                                     0.33            0.44              0.44    0.00%
Telecom Egypt                                    0.20           19.40             15.50  -20.10%
Lecico Egypt                                     1.00           10.38              6.50  -37.38%
Suez Cement                                      1.00           11.50              5.30  -53.91%
CIB - Egypt **                                   1.00           16.70              6.85  -58.98%
Orascom Telecom Holding***                       0.20           83.00             27.29  -67.12%
EFG - Hermes holding Group                       0.50           23.25              6.00  -74.19%
Orascom Construction Industries****              0.50          210.00             50.00  -76.19%
Naeem Holding^                                   0.25
Palm Hills Development Company^                  0.20
*Closing price on March 3rd 2005
** Distributed stock dividend of 1:2 in July 2008
*** Reduced paid in capital by LE 61.9mn in June 2008 and by LE129mn in December 2008 by terminating
treasury stocks
**** Distributed a cash dividends of LE305/share in March 2008
^ Not yet traded
Source: EGX




February 2009                         Economic & Strategic Outlook                                     109
Global Research - Egypt                                                                                                                                                                                                                      Global Investment House



Egypt vs. Arab & other Emerging Markets
All emerging stock markets, including Arab stock markets witnessed tremendous losses in
2008, on the back of the global financial crisis. On the international emerging markets front,
the Russian and Indian stock markets recorded the greatest decline, according to MSCI price
Index and S&P/IFCI.

Chart 78: MSCI price index % change in 2008
                                                                                                                                         MSCI Index
        0.0%


       -10.0%

                                                                                                                                                                                                                                                                       -13.0%
       -20.0%


       -30.0%
                                                                                                                                                                                                           -30.9%

       -40.0%                                                                                                                              -37.3%
                                                                                                                                                                                                                                                                                     -40.0%
                                                         -43.4%                                                                                                -42.4%
                                                                                                                                                    -44.0%              -45.1%
       -50.0%
                                                                                       -48.7%
                                                                                                  -50.1%
                -51.9%
                                                                      -53.8%                                                                                                                                                                                -53.9%
                                                -55.9%                                                          -55.3%                                                                                                  -56.2%
       -60.0%                     -57.6%                                                                                       -57.6%
                                                                                                                                                                                              -62.5%                                            -63.4%
                         -65.1%
       -70.0%

                                                                                                                                                                                                                                    -74.2%
       -80.0%
                 China


                          India

                                    Indonesia

                                                 Korea


                                                           Malaysia

                                                                         Philippines

                                                                                         Taiwan




                                                                                                                   Argentina

                                                                                                                                Brazil


                                                                                                                                            Chile

                                                                                                                                                      Mexico

                                                                                                                                                                 Peru


                                                                                                                                                                             Czech Republic

                                                                                                                                                                                                 Hungary


                                                                                                                                                                                                              Israel




                                                                                                                                                                                                                                      Russia


                                                                                                                                                                                                                                                  Turkey




                                                                                                                                                                                                                                                                          Morocco


                                                                                                                                                                                                                                                                                          South Africa
                                                                                                     Thailand




                                                                                                                                                                                                                          Poland




                                                                                                                                                                                                                                                              Egypt
Source: MSCI


Chart 79: S&P/IFCI % change in 2008
                                                                                                                               S&P/IFCI Indices
        0.0%


       -10.0%


       -20.0%                                                                                                                                                                                                                                                         -17.0%



       -30.0%

                                                                                                                                                                                                           -33.1%
       -40.0%
                                                                                                                                          -41.2%               -41.1%                                                                                                               -41.7%
                                                         -43.7%
                                                                                                                                                    -45.1%              -45.9%
       -50.0%                                                                          -48.5%
                                                                                                  -50.5%
                -52.7%                                                -53.6%
                                                -55.6%                                                          -56.2% -57.2%                                                                                                                              -55.8%
       -60.0%                                                                                                                                                                                                          -57.8%
                                  -61.1%
                                                                                                                                                                                              -62.5%                                           -62.4%
                         -64.1%
       -70.0%

                                                                                                                                                                                                                                   -73.4%
       -80.0%
                                                                                                                                                                         Czech Republic




                                                                                                                                                                                                                                                                                     South Africa
                                                                       Philippines




                                                                                                                 Argentina
                                   Indonesia




                                                          Malaysia




                                                                                                   Thailand




                                                                                                                                                                                                                                                                       Morocco
                                                                                                                                                                                               Hungary
                                                                                                                                                     Mexico
                                                                                        Taiwan




                                                                                                                                                                                                                        Poland




                                                                                                                                                                                                                                                Turkey
                                                                                                                                                                                                                                    Russia
                                                                                                                               Brazil
                 China




                                                 Korea




                                                                                                                                                                                                                                                            Egypt
                                                                                                                                           Chile




                                                                                                                                                                                                            Israel
                          India




                                                                                                                                                                Peru




Source: S&P


The Egyptian stock market is considered one of the most attractive emerging markets at its
current prevailing market prices, relative to companies’ earnings and dividends distribution,
compared to other international emerging markets.




110                                                                                          Economic & Strategic Outlook                                                                                                                                                   February 2009
Global Research - Egypt                                                                                                                                          Global Investment House


Chart 80: S&P/IFCI PE against DY for emerging markets (as of end of Nov. 2008)
      25


                                                                                   Morocco
      20



      15
PE




                                                                   China                                Israel           Chile                Czech Republic
      10
                                                                                                                                                                                   Egypt
                                        India                                                                       Philippines
                                                                                                                                                   Peru
                                    Indonesia                                                                       South Africa                                         Taiwan
                                                                                    Korea                                                            Poland
       5                                                                                                                 Brazil                                         Thailand
                                                                                                                  Hungary                                 Malaysia
                                        Russia                                   Argentina                                     Turkey

       0                                Mexico
        0%              1%               2%                            3%                         4%                5%               6%            7%             8%                 9%                        10%
                                                                                                                    DY%

Source: EGX


On the regional front, Arab stock markets followed the international markets collapse,
recording significant losses in 2008. Dubai stock market was the biggest loser in 2008,
declining by 72.4%, followed by Saudi Arabia, which dropped by 56.5%. The third top loser
was the Egyptian stock market achieving a fall of 56.4% in 2008. It is worth mentioning that
the only gainer was the Tunisian stock market, realizing a respectable increase by 10.6%.

Chart 81: Egypt vs. Arab Exchanges
80%
                                                                                                                                 61.9%
60%        51.3%                                                                                                                                                           51.7%
                                                                      40.4%                                                                                  43.6%
                        39.1%                                                                                                                   36.3%
40%                                                                                                               33.9%                                                                    30.0%
                                          26.5%
20%                                                                                            12.1%
                                                                                                          10.6%
 0%

-20%                                                                                                                 -13.5%                       -17.0%
                                                                             -24.6%
-40%                                              -33.5%
                                                                                                                                     -39.8%
                                                                                                                                                                                -47.5%            -45.4%
-60%          -56.4%        -56.5%

-80%                                                                                                                                                            -72.4%
                                                         Bahrain




                                                                                                                   Morocco




                                                                                                                                      Oman




                                                                                                                                                 Jordan
                                           (Global Bahrain Stock
                         Saudi Arabia




                                                                                                       Tunisia
            (CASE 30)




                              (TASI)




                                                          Index)




                                                                                      Index)




                                                                                                  (TUNINDEX)




                                                                                                                   (MASI)




                                                                                                                                   (MSM 30)




                                                                                                                                                 (ASE)




                                                                                                                                                               (DFM)




                                                                                                                                                                               (ADGI)




                                                                                                                                                                                            (Global General Index)
                                                                                       Qatar
                Egypt




                                                                      (Global General Qatari




                                                                                                                                                                Dubai




                                                                                                                                                                             Abu Dhab i




                                                                                                                                                                                                           Kuwait




                                                                                                 % change 2007               % change 2008

Source: EGX




February 2009                                                                              Economic & Strategic Outlook                                                                                              111
Global Research - Egypt                                                           Global Investment House



Corporate Earnings
Nearly all the Egyptian companies listed on the stock exchange have posted considerable growth
in profitability during 2007. The economic growth of the country along with the surge witnessed
in most of the commodities prices are considered the main reasons behind the improvements
witnessed in most of the Egyptian companies’ financial results. The top 55 companies by market
capitalization in the Egyptian exchange have achieved healthy growth of 37.2% in 2007. These 55
companies are accounting for 57.5% of the total market capitalization as of December 31st, 2008.

As a matter of fact, the sector’s aggregate net profits have showed positive growth rates in 2007.
The highest growth witnessed in 2007 was in the financial services sectors, which earnings
was significantly up by 80.4% during the year. This came on the back of development in the
country’s financial sector and the high sentiment of the investors towards the financial markets.
The travel and leisure sector came in second reporting a growth of 54.7% in 2007, followed by the
industrial goods and services and Automobiles, implying a yoy growth of 51.5%. Moreover, the
telecommunications and construction and materials sectors, which contributed together to about
50% of the profits of the top 55 companies, increased by 46.8% and 38.3%, respectively in 2007.

Table 36: Profitability of Top 55 Companies
                                                 Net         Net        Sector                 YoY               Sector
Sectors                       No. of           Profit       Profit   2007 Weight              Growth               Weight
(LEmn)                        Co.s*             2006        2007 Growth  2007             Sept 2008            Sept2008
Financial Services                 4           1,140       2,057 80.4%   5.6%                  8.1%                5.0%
Travel & Leisure                   5             636         984 54.7%   2.7%                75.6%                 3.3%
Industrial Goods & Services
                                   6           1,515       2,296    51.5%       6.2%          44.3%               7.3%
& Automobiles
Real Estate                        5             358         534 49.2%   1.4%                -25.7%               0.6%
Telecommunications                 3           7,548      11,080 46.8% 30.1%                  -6.3%              18.7%
Food and Beverage                  2             230         322 39.8%   0.9%                -29.9%               0.9%
Construction and Materials         9           5,303       7,335 38.3% 19.9%                  40.1%              25.6%
Banks                              6           2,089       2,757 31.9%   7.5%                 35.6%               9.4%
Personal & Household Products      4           1,212       1,489 22.8%   4.0%                  6.9%               3.8%
Chemicals                          3           1,651       2,003 21.3%   5.4%                 35.5%               6.3%
Basic Resources                    4           3,702       4,380 18.3% 11.9%                  35.7%              14.9%
Oil and Gas                        1             796         867  9.0%   2.4%                 32.1%               2.7%
Healthcare & Pharmaceuticals       3             651         708  8.8%   1.9%                -20.4%               1.5%
Total                            55           26,832      36,812 37.2% 100.0%                22.0%              100.0%
*It includes the top 55 companies by market capitalization as of December 31st, 2008. We excluded Pioneers
Holding, TMG Holding, Palm Hills and Orascom Development Holding (AG) companies’ net profits in 2007 and
September 2008, due to the absence of the comparable figures in 2006 and September 2007, otherwise they would
cause unrealistic growth rates.
Source: EGX and Global Research


During the 9M period of 2008, the top 55 companies reported a moderate growth of 22.0%,
driven by the travel and leisure and the industrial goods and services and automobiles sectors,
with respective growth rates of 75.6% and 44.3%. Also, the construction sector earnings rose
by 40.1% between the 9M period of 2007 and the 9M period of 2008. The telecommunications
and construction and materials sectors’ profits remained the major contributor to the top 55
companies’ aggregate earnings, accounting together to 44.3%, as of September 2008.

As a result of the world’s financial crisis, earnings in 2009 are expected to exhibit relatively
lower growth rates compared to 2008. However, we believe some sectors will witness fair
growth, like banks, telecommunications, food and beverage, fertilizers, as well as oil and gas.

112                                   Economic & Strategic Outlook                           February 2009
                               CASE 30 Index Constituents Statistics (as of December 31st 2008)
                                                                                                                                                                                   PE
                                                                                          Free Float                Market       Floating    Yearly                                                               Enterprise
                                                                                 # Shares    as of   Closing YoY Capitalization Capitalizing Volume                     Trailing    Forward      PBV      DY%       Value
                                Company                               RIC    FYE   000s    30/06/08 Price LE % Chg. LE 000s      LE 000s      000s                        07           08        2007     2007     LE 000s ROE

                               Orascom Construction Industries       OCIC   Dec.     214,771      45.66%     140.36   -75.2%*    30,145,217    13,764,306    76,723          8.05         4.98     1.62    3.9%   31,245,317     5%




February 2009
                               Upper Egypt General Contracting       UEGC   June      50,000      96.69%       2.37     39.4%       118,500       114,578 1,596,515          8.11         5.49     0.37    0.0%     (99,423)     7%
                               South Valley Cement                   SVCE   Dec.     414,055      20.06%       5.25    -42.2%     2,173,787       436,062 528,240            3.73        11.89     0.94    0.0%    2,632,540    27%
                               Mobinil                               EMOB   Dec.     100,000      28.58%     143.24    -25.0%    14,324,000     4,093,799    24,970          7.85         7.57     6.87    6.7%   19,238,500   104%
                                                                                                                                                                                                                                      Global Research - Egypt




                               Orascom Telecom Holding               ORTE   Dec.     899,403      37.46%      30.46    -66.3%    27,395,812    10,262,471 291,790            4.08        10.48     3.76    3.3%   55,430,701    39%
                               Telecom Egypt                         ETEL   Dec.   1,707,072      18.27%      16.26    -19.1%    27,756,984     5,071,201 417,047           10.95         9.51     1.07    6.2%   28,423,498    10%
                               Extracted Oils                        ZEOT   June     157,200      61.39%       1.61    -41.0%       253,092       155,373 1,027,893         27.19        15.47     1.39    0.0%      247,809     9%
                               Egyptian Financial & Industrial Co.   EFIC   Dec.      69,302      51.47%      25.35    -16.6%     1,756,796       904,223 118,895           15.08         7.24     2.79    4.2%    2,218,441    17%
                               Al Ahly for Development &
                                                                     AFDI   Dec.      20,000      36.71%      25.81    46.8%        516,200       189,497    116,596        16.87         N.A      2.35    0.0%     541,337    12%
                               Investment
                               CIB                                   COMI   Dec.     292,500      91.35%      37.20    -38.5%    10,881,000     9,939,794 207,491            9.54         7.63     2.04 10.8%     N.A          26%
                               Egyptians Abroad for Inv. & Dev.      ABRD   Dec.      32,000      56.66%       7.07     28.3%       226,240       128,188 224,799           29.74         8.66     1.99 0.0%    45,044         22%
                               EFG-Hermes Holding                    HRHO   Dec.     387,864      66.12%      17.43    -73.6%     6,760,470     4,470,022 442,989            5.28         6.66     0.73 5.7% 5,356,887         14%
                               Egypt Kuwait Holding ($)              EKHO   Dec.     762,995      69.06%       1.30    -41.4%       991,894       685,002 345,474            9.53         4.82     1.59 1.9% 1,399,020         19%
                               United Housing                        UNIT   Dec.      42,207      64.12%       4.79    -55.1%       202,173       129,633 144,843           13.29        11.69     4.14 0.0%   163,159         33%
                               Cairo Housing                         ELKA   Dec.      93,750      95.08%       4.33     -2.0%       405,938       385,965 583,034           64.78        53.83     0.83 4.6%   101,079          6%
                               Nasr City Housing                     MNHD   June     100,000      42.66%      28.38    -47.1%     2,838,000     1,210,691 138,267           27.04        23.17    10.68 2.8% 2,680,588         89%




Economic & Strategic Outlook
                               Asek Co. for Mining - Ascom           ASCM   Dec.      25,000      26.12%      24.56    -74.2%       614,000       160,377    47,185         21.66        16.63     1.71 0.0%   544,612         15%
                               SODIC                                 OCDI   Dec.      28,413      62.28%      42.74    -81.3%     1,214,389       756,321    22,825          3.66         8.06     0.70 0.0%   708,639         19%
                               Heliopolis Housing                    HELI   June      74,171      22.29%      26.99    -76.1%     2,001,886       446,220    49,595         15.02        13.61     5.72 4.6% 1,981,434         86%
                               Talaat Mostafa Group Holding          TMGH   Dec.   2,030,204      41.90%       3.06    -74.2%     6,212,423     2,603,005 2,253,554         23.44         3.98     0.29 0.0% 6,905,680          1%
                               Egyptians Housing Dev. &
                                                                EHDR       Dec.       75,000      48.26%       3.37 -13.1%           252,750        121,977 470,638        221.08        25.40     1.56    0.0%     182,632     2%
                                Reconstruction
                                Ezz Steel                       ESRS       Dec.      543,265      34.75%       9.95 -57.6%         5,405,487      1,878,407 451,050          4.82         2.91     0.82 10.1% 11,161,641       34%
                                Sidi Kerir Petrochemicals       SKPC       Dec.      525,000      22.45%      10.35 -45.2%         5,433,750      1,219,877 360,631          4.66         4.53     2.56 19.3% 4,474,010        76%
                                Alexandria Mineral Oils Co.     AMOC June             86,100      19.62%      47.86 -31.6%         4,120,746        808,490    36,325        4.49         3.91     2.23 16.7% 4,169,557        39%
                                Arab Cotton Ginning             ACGC       June      251,742      71.67%       3.72 -55.9%           936,479        671,175 1,050,598        3.20         3.04     0.47 8.1%     730,741       15%
                                Arab Polvara Spinning & Weaving APSW       Dec.       93,687      68.74%       2.77 -51.9%           259,512        178,388 859,520        295.71         N.A      0.37 8.3%     259,675        0%
                                KABO                            KABO       June      338,613      36.45%       1.33 -32.5%           450,355        164,154 1,422,871        N.A        153.62     0.87 0.0%     549,673       -1%
                                                                                                                                                                                                                                      Global Investment House




113
                                SPINALEX                        SPIN       June      298,234      27.08%       1.77 -27.2%           527,874        142,948 664,696         21.67        20.92     0.83 4.0%     504,691        4%
                                Sewedy Cables                   SWDY       Dec.      132,200      33.66%      75.86 -29.9%       10,028,692       3,375,658    40,869       13.85        11.61     2.64 0.0% 13,778,691        24%
                                Media Production City           MPRC       Dec.      189,630      19.92%       4.14 -61.6%           785,068        156,386 251,308         16.64         9.15     0.37 0.0%     880,726        2%
                                Total                                                                                           164,989,513 64,624,188
                                Weighted Average                                                                                                                            10.50         8.02     2.43    5.5%                27%
                               *The adjusted YoY percentage change is -46.4%, after accounting for the LE305/share cash dividends distribution in 2008.
                               Selected Companies Statistics distributed by Sector

                                                                                 Free Float Closing       Market        Floating    Yearly        PE                              Enterprise
                                                                        # Shares    as of    Price  YoY Capitalization Capitalizing Volume Trailing Forward PBV           DY%       Value
                               Sector/ Company               RIC    FYE   000s    30/06/08    LE % Chg.   LE 000s       LE 000s      000s    07        08   2007          2007     LE 000s ROE

                               Building Materials &
                               Construction
                               Orascom Construction




114
                                                        *   OCIC   Dec.    214,771    45.66% 140.36 -75.2%      30,145,217   13,764,306   76,723    8.05    4.98   1.62   3.92% 31,245,317     5.3%
                               Industries
                               Sector Average                                                                                13,764,306             8.05    4.98   1.62
                               Ezz Porcelain Gemma          ECAP   Dec.     51,045    30.24%    4.27 -72.0%       217,964        65,912   96,670   22.58   15.56   0.70   0.00%     474,639    4.3%
                               Cement
                               South Valley Cement *        SVCE   Dec.    414,055    20.06%    5.25   -42.2%    2,173,787      436,062 528,240     3.73   11.89   0.94 0.00%      2,632,540   27.4%
                               Misr Beni Suef Cement        MBSC   Dec.     20,000    50.53%   49.71   -57.2%      994,200      502,369   8,423     5.15    5.01   1.15 6.04%        861,274   27.4%
                                                                                                                                                                                                       Global Research - Egypt




                               Misr Cement - Qena           MCQE   Dec.     30,000    12.80%   77.94    -0.8%    2,338,200      299,243   5,383     8.46    7.47   2.65 6.42%      1,972,765   43.1%
                               National Cement Co.          NCEM   June    103,200     1.73%   16.06   -42.9%    1,657,392       30,960   4,380     6.55   10.51   3.25 11.52%     1,338,874   22.7%
                               Sinai Cement                 SCEM   Dec.     35,000    25.51%   34.62   -50.4%    1,211,700      309,094 12,621      3.55    3.33   0.85 3.61%      1,159,284   28.6%
                               Suez Cement                  SUCE   Dec.    181,857    14.00%   21.78   -61.2%    3,960,835      554,535   6,740     4.04    3.39   0.66 9.18%      3,942,521   17.7%
                               Sector Average                                                                                 2,132,263             4.82    6.17   1.18
                               Chemicals
                               Misr Chemicals               MICH   June     32,000    29.24%    7.01 -57.4%       224,320       65,589    80,537    8.85    4.64   1.41 7.13%       447,017 29.0%
                               PACHIN                       PACH   June     20,000    51.91%   26.04 -49.9%       520,800      270,332     8,148    4.83    5.66   1.10 13.44%      539,544 22.0%
                               Sector Average                                                                                  335,921              5.61    5.46   1.16
                               Communication
                               Mobinil                  *   EMOB   Dec.    100,000    28.58% 143.24 -25.0%      14,324,000    4,093,799   24,970    7.85    7.57   6.87   6.72% 19,238,500 104.1%
                               Orascom Telecom
                                                        *   ORTE   Dec.    899,403    37.46%   30.46 -66.3%     27,395,812   10,262,471 291,790     4.08   10.48   3.76   3.28% 55,430,701 38.9%
                               Holding




Economic & Strategic Outlook
                               Telecom Egypt            *   ETEL   Dec.   1,707,072   18.27%   16.26 -19.1%     27,756,984    5,071,201 417,047    10.95    9.51   1.07 6.15% 28,423,498       9.8%
                               RAYA                         RAYA   Dec.      56,985   68.76%    5.44 -58.6%        309,997      213,154 170,639     7.65    5.66   0.67 22.61%   524,594       9.4%
                               Sector Average                                                                                19,640,625             6.68    9.57   3.68
                               Fertilizers
                               Abu Kir Fertilizers          ABUK   June     45,886    13.00% 176.50     3.9%     8,098,948    1,052,863   14,699    8.18    8.82   4.37   6.37%    6,923,557 39.3%
                               Egyptian Financial &
                                                        *   EFIC   Dec.     69,302    51.47%   25.35 -16.6%      1,756,796     904,223 118,895     15.08    7.24   2.79   4.17%    2,218,441 16.7%
                               Industrial Co.
                               Sector Average                                                                                 1,957,086            11.37    8.09   3.64
                               Financial Services
                               Al Ahly for Development
                                                        *   AFDI   Dec.     20,000    36.71%   25.81 46.8%        516,200      189,497 116,596     16.87    N.A    2.35   0.00%     541,337 12.5%
                               & Investment
                                                                                                                                                                                                       Global Investment House




February 2009
                               Egyptians Abroad for
                                                        *   ABRD   Dec.      7,594    56.66%    7.07 28.3%         53,688       30,419 224,799     29.74    8.66   1.99   0.00%      45,044 21.6%
                               Inv. & Dev.
                               EFG-Hermes Holding *         HRHO   Dec.    387,864    66.12%   17.43 -73.6%      6,760,470    4,470,022 442,989     5.28    6.66   0.73   5.74%    5,356,887 13.8%
                               Egypt Kuwait Holding ($) *   EKHO   Dec.    762,995    69.06%    1.30 -41.4%        991,894      685,002 345,474     9.53    4.82   1.59   1.92%    1,399,020 19.5%
                               NAEEM Holding ($)            NAHO   Dec.    320,000    29.26%    0.41 -78.5%        131,200       38,389 256,002     1.22    4.87   0.36   0.00%      126,590 30.8%
                               Sector Average                                                                                 5,413,330             6.33    6.19   0.90
                                                                                                                                                  PE
                                                                                 Free Float Closing       Market        Floating    Yearly                                              Enterprise
                                                                        # Shares    as of    Price  YoY Capitalization Capitalizing Volume Trailing Forward PBV                DY%        Value
                               Sector/ Company                   RIC FYE 000s     30/06/08    LE % Chg.   LE 000s       LE 000s      000s    07        08   2007               2007      LE 000s ROE
                               Banks
                               Egyptian Gulf Bank ($)           EGBE   Dec.   200,192   51.13%     1.59   -45.9%      318,306      162,750    26,557    24.68   20.44   2.28   16.98%        N.A   10.1%
                               CIB                          *   COMI   Dec.   292,500   91.35%    37.20   -38.5%   10,881,000    9,939,794   207,491     9.54    7.63   2.04   10.75%        N.A   26.0%
                               Credit Agricole Bank             CIEB   Dec.   287,000   20.98%     8.15   -67.4%    2,339,050      490,733    49,593     4.46    4.66   1.24   12.27%        N.A   33.3%




February 2009
                               Housing & Dev. Bank              HDBK   Dec.    67,000   21.47%    23.96   -35.1%    1,605,320      344,662    42,327     8.51    5.24   1.69    6.26%        N.A   28.8%
                               NSGB                             NSGB   Dec.   302,941   22.83%    18.51   -55.4%    5,607,438    1,280,178    36,368     8.32    6.65   1.10    1.35%        N.A   15.7%
                               Export Dev. Bank of Egypt        EXPA   June   120,000   23.29%     8.01   -66.5%      961,200      223,863    26,031     3.09    7.21   0.75   31.21%        N.A    9.7%
                                                                                                                                                                                                           Global Research - Egypt




                               Sector Average                                                                                   12,441,980               9.27    7.51   1.88
                               Food & Beverage
                               Delta Sugar                      SUGR Dec.     123,651    6.26%    18.28 -29.1%      2,260,331      141,542    55,636     7.05    7.32   2.03   7.39% 2,114,589 31.8%
                               Extracted Oils               *   ZEOT June     157,200   61.39%     1.61 -41.0%        253,092      155,373 1,027,893    27.19   15.47   1.39   0.00%   247,809 9.5%
                               Eastern Company                  EAST June      25,000   38.32%   179.95 -58.8%      4,498,750    1,723,966     3,423     5.99    5.71   1.88   7.78% 5,169,022 33.4%
                               Sector Average                                                                                    2,020,881               7.69    6.57   1.85
                               Household Appliances
                               Olympic Group                    OLGR Dec.      60,076   67.16%    24.12 -65.3%      1,449,028     973,182     25,820     5.97    5.97   1.62   6.22% 1,983,030 21.3%
                               Sector Average                                                                                     973,182                5.97    5.97   1.62
                               Housing & Real Estate
                               Cairo Housing                *   ELKA Dec.    93,750     95.08%     4.33    -2.0%      405,938      385,965 583,034      64.78   53.83 0.83 4.62%    101,079 5.7%
                               Egyptian Resorts Co.             EGTS Dec. 1,050,000     39.72%     1.79   -71.6%    1,879,500      746,537 1,488,138     6.59    6.33 1.77 11.17% 1,608,771 26.2%
                               Nasr City Housing            *   MNHD June 100,000       42.66%    28.38   -47.1%    2,838,000    1,210,691 138,267      27.04   23.17 10.68 2.82% 2,680,588 89.2%




Economic & Strategic Outlook
                               Orascom Hotels & Dev.            ORHD Dec. 221,962        2.00%    17.16   -79.1%    3,808,873       76,177    37,739     9.51    6.66 1.28 0.00% 5,111,070 14.5%
                               SODIC                        *   OCDI Dec.    28,413     62.28%    42.74   -81.3%    1,214,389      756,321    22,825     3.66    8.06 0.70 0.00%    708,639 19.0%
                               United Housing               *   UNIT Dec.    42,207     64.12%     4.79   -55.1%      202,173      129,633 144,843      13.29   11.69 4.14 0.00%    163,159 33.3%
                               Heliopolis Housing           *   HELI June    74,171     22.29%    26.99   -76.1%    2,001,886      446,220    49,595    15.02   13.61 5.72 4.63% 1,981,434 86.2%
                               Development & Eng. Cons.         DAPH Dec.     8,571     46.82%    14.53   -54.3%      124,543       58,311    44,198     2.48    5.69 0.90 0.00%    166,231 40.2%
                               Remco for Touristic
                                                                RTVC Dec.     235,325   26.40%     5.52 -45.5%      1,298,996     342,935    246,691     9.10    6.25   1.34   0.00% 1,933,811 19.5%
                               Villages Construction
                               Upper Egypt General Cont. *      UEGC June      50,000   96.69%     2.37   39.4%      118,500      114,578 1,596,515      8.11    5.49   0.37   0.00%      (99,423) 6.8%
                               Egyptians Housing Dev.
                                                                EHDR Dec.      75,000   48.26%     3.37 -13.1%       252,750      121,977    470,638   221.08   25.40   1.56   0.00%      182,632 2.1%
                               & Reconstruction             *
                               Palm Hills                       PHDC Dec. 465,920       34.00%     6.16 -64.0%      2,870,067      975,823    97,959    14.07    3.96   1.08   0.00% 5,875,074 0.0%
                                                                                                                                                                                                           Global Investment House




115
                               Talaat Mostafa Group Holding *   TMGH Dec. 2,030,204     41.90%     3.06 -74.2%      6,212,423    2,603,005 2,253,554    23.44    3.98   0.29   0.00% 6,905,680 1.2%
                               Sector Average                                                                                    7,968,174              22.65   11.07   2.61
                               Iron & Steel
                               Ezz Steel                    *   ESRS Dec.     543,265   34.75%     9.95 -57.6%      5,405,487    1,878,407   451,050     4.82    2.91   0.82 10.05% 11,161,641 33.7%
                               Ezz - Dekhila Steel - Alex       IRAX Dec.      13,364    7.41%   738.18 -9.1%       9,865,342      730,627     3,877     4.37    2.74   2.60 23.71% 11,596,231 69.3%
                               Sector Average                                                                                    2,609,034               4.69    2.86   1.32
                                                                                                                                                      PE
                                                                                      Free Float Closing      Market        Floating    Yearly                            Enterprise
                                                                             # Shares    as of    Price YoY Capitalization Capitalizing Volume Trailing Forward PBV DY%     Value
                               Sector/ Company                      RIC   FYE 000s     30/06/08    LE % Chg.  LE 000s       LE 000s      000s    07        08   2007 2007  LE 000s ROE
                               Mills & Storage
                               Alexandria Flour Mills              AFMC   June     4,000   30.00%   11.76 -19.0%         47,040      14,112      2,041     4.52     3.04   0.77    6.38%     36,151    27.3%
                               East Delta Flour Mills              EDFM   June     6,000   64.50%   21.42 -4.8%         128,520      82,895     13,870     3.14     5.89   0.84   15.64%     28,472    12.1%
                               General Silos & Storage             GSSC   June    10,000   39.00%   24.84   5.9%        248,400      96,876     23,608     4.47     3.02   1.16   13.08%    242,987    41.5%
                               Middle & West Delta Flour Mills     WCDF   June     7,500   63.00%   23.01   0.7%        172,575     108,722     14,959     3.92     2.77   1.06   15.65%     78,670    42.5%




116
                               Middle Egypt Flour Mills            CEFM   June    14,723   42.55%   12.31   7.6%        181,239      77,117     38,748     7.19     9.68   1.03    6.50%    263,657    13.0%
                               North Cairo Flour Mills             MILS   June    10,700   43.68%   17.68 -5.5%         189,176      82,626     28,802     3.74     3.31   1.10   11.31%    134,924    29.9%
                               South Cairo & Giza Mills
                                                                   SCFM June       3,000   39.00%   36.90   53.8%       110,700      43,173      3,210     3.84     2.28 1.00 5.42%          31,061 49.4%
                               & Bakeries
                               Upper Egypt Flour Mills             UEFM June       7,000   63.00%   67.51 226.8%        472,570     297,719     20,762     7.16     4.58 2.87 8.89%         332,339 57.6%
                               Sector Average                                                                                       803,241                5.41     4.49 1.71
                                                                                                                                                                                                               Global Research - Egypt




                               Mining, Gas &
                               Petrochemicals
                               Asek Co. for Mining - Ascom *       ASCM   Dec.    25,000   26.12%   24.56   -74.2%       614,000     160,377    47,185    21.66    16.63   1.71    0.00%     544,612   15.4%
                               Egypt Gas                           EGAS   Dec     12,000   17.90%   52.84   -58.5%       634,080     113,475     5,793     5.02     5.37   0.73   18.93%     440,300   15.2%
                               Sidi Kerir Petrochemicals *         SKPC   Dec.   525,000   22.45%   10.35   -45.2%     5,433,750   1,219,877   360,631     4.66     4.53   2.56   19.32%   4,474,010   76.2%
                               Alexandria Mineral Oils Co. *       AMOC   June    86,100   19.62%   47.86   -31.6%     4,120,746     808,490    36,325     4.49     3.91   2.23   16.72%   4,169,557   38.7%
                               Sector Average                                                                                      2,302,219               5.80     5.20   2.29
                               Pharmaceutical Industries
                               EIPICO                              PHAR Dec.      72,124   39.77%   27.20 -11.7%       1,961,773    780,177     15,976     8.57     7.59 1.56 6.62%        1,568,560 21.4%
                               Sector Average                                                                                       780,177                8.57     7.59 1.56
                               Textiles & Clothing
                               Arab Cotton Ginning             *   ACGC June     251,742   71.67%    3.72 -55.9%        936,479     671,175 1,050,598      3.20     3.04 0.47 8.06%         730,741 15.2%
                               Arab Polvara Spinning &




Economic & Strategic Outlook
                                                                   APSW Dec.      93,687   68.74%    2.77 -51.9%        259,512     178,388    859,520   295.71     N.A 0.37 8.30%          259,675    0.1%
                               Weaving                         *
                               KABO                            *   KABO   June   338,613   36.45%    1.33   -32.5%       450,355     164,154 1,422,871     N.A    153.62   0.87   0.00%      549,673 -1.2%
                               Nile Cotton Ginning                 NCGC   June    52,993   89.18%   12.35   138.0%       654,457     583,665 423,676       N.A      N.A    1.49   0.00%      697,265 0.0%
                               Oriental Weavers Carpets            ORWE   Dec.    74,607   31.84%   23.30   -39.7%     1,738,336     553,486    36,960     5.30     5.42   0.67   6.44%    3,178,639 13.7%
                               SPINALEX                        *   SPIN   June   298,234   27.08%    1.77   -27.2%       527,874     142,948 664,696      21.67    20.92   0.83   3.95%      504,691 3.8%
                               Sector Average                                                                                      2,293,817              26.56     3.50   0.82
                               Utilities & others
                               Sewedy Cables                   *   SWDY   Dec.   132,200   33.66%   75.86   -29.9%    10,028,692  3,375,658    40,869     13.85    11.61   2.64   0.00% 13,778,691 23.6%
                               Canal Shipping Agency               CSAG   June   200,000    4.52%    8.53   -80.3%     1,706,000     77,111    88,862     34.47    19.10   5.02   2.58% 1,466,806 24.5%
                               Maridive & Oil Services ($)         MOIL   Dec.   256,000   29.00%    2.75   -40.9%       704,000    204,160 131,338        8.79     7.60   2.67   8.40%    751,490 47.4%
                               Electric Cables                     ELEC   Dec.   472,750   73.76%    1.23   -22.2%       581,483    428,890 3,088,477      N.A     19.96   1.09   0.00%    603,947 0.0%
                                                                                                                                                                                                               Global Investment House




February 2009
                               Media Production City           *   MPRC   Dec.   189,630   19.92%    4.14   -61.6%       785,068    156,386 251,308       16.64     9.15   0.37   0.00%    880,726 2.3%
                               GB Auto                             AUTO   Dec.   129,000   23.80%   16.55   -70.9%     2,134,950    508,118    33,002      4.71     3.84   1.72   0.00% 2,605,942 54.6%
                               Sector Average                                                                                     4,750,322               11.83    11.40   2.36
                               Weighted Average                                                                      235,034,559 80,252,471                9.76     7.65   2.29
                               * CASE 30 index constituent
                               N.A = Not Applicable
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