Egypt

Politics:

• Analysis

  Egypt politics: Quick View - Shura Council approves new draft of electoral

  Event

  The Shura Council, the upper house of parliament and currently the sole legislative authority, has given its preliminary approval to a revised draft of legislation that is to govern the election of a new House of Representatives (lower house) later this year.

  Analysis

  The Shura Council passed an earlier version of the legislation-comprising amendments to two existing laws-in February, which prompted the president, Mohammed Morsi, to set dates for the election over eight weeks starting in late April. However, the legislation was challenged by an administrative court on the grounds that it had not been properly reviewed by the Supreme Constitutional Court (SCC), and Mr Morsi suspended the election. The government has lodged an appeal against the court challenge.

  Meanwhile, on March 26th the Shura Council gave its approval in principle to a new version of the election legislation. It will be open to further debate by the upper house in the first week of April. The Muslim Brotherhood-affiliated Freedom and Justice Party (FJP), which is the largest bloc in the upper house, has said that the revised law will be passed to the SCC for review. One of the critical issues raised by the SCC in its initial review of the earlier legislation was the need to make changes in electoral districts in order to take into account changes in the size of the population. Few details of the proposed changes have been made public. However, Rami Lakah, an appointed member of the upper house (and a prominent Coptic Christian businessman), criticised the changes for dividing districts on sectarian criteria and for using the number of registered voters rather than overall population as the basis for the new electoral boundaries.

  Mr Morsi was quoted in Doha, Qatar, where he was attending an Arab summit, as telling Egyptian expatriates in the Gulf state that the election was now likely to go ahead in October, and that the new parliament would be sworn in by the end of the year. Given the pending legal issues and the slowdown in activity during Ramadan (which starts in July) and over the summer holidays, this appears to be a realistic timetable.

  March 27, 2013

• Background

  Egypt: Key figures

  Mohammed Morsi

  An engineer by background, Mr Morsi served as an independent member of parliament in 200o-05. A relative unknown, he was appointed head of the Muslim Brotherhood's Freedom and Justice Party (FJP) in 2011. He became the Brotherhood's leading presidential candidate after its first choice, Khairat al-Shater, was disqualified in April 2012. After a close run-off against Ahmed Shafiq, the last prime minister to serve under Hosni Mubarak, Mr Morsi was elected president in June. He has demonstrated surprising leadership, forcing the Supreme Council of the Armed Forces to withdraw from politics and has sought to appeal to all Egyptians. Despite having resigned from the FJP and the Muslim Brotherhood, secularists are suspicious of his ongoing ties to the group.

  Mahmoud Mekky

  Mr Mekky was appointed vice-president in August 2012, becoming the first civilian to hold the position since 1952. He began his career in the police and went on to study law, working his way up eventually to become the vice-president of the Court of Cassation. Mr Mekky was active in campaigning for an independent judiciary and against vote-rigging during presidential elections under the former regime. Mr Mekky's brother, Ahmed, has been appointed justice minister in the Qandil cabinet.

  Mohamed ElBaradei

  A lawyer and former diplomat, Mr ElBaradei came to prominence as the director-general of the International Atomic Energy Agency from 1997 until 2009, for which he was awarded the Nobel Peace Prize in 2005. His return to Egypt in 2010 invigorated the opposition movement. Mr ElBaradei's decision to withdraw from the presidential race in January 2012, citing the lack of a system to guarantee free and fair elections, won him respect among many Egyptians. In April 2012 he set up the Constitution Party and is seeking to form a broad coalition to contest the next parliamentary election.

  Hamdeen Sabahi

  A former member of parliament, Mr Sabahi is the leader of Karama, a Nasserist party. He was a founder of the opposition Kefaya movement in 2004 and was arrested several times by the Mubarak regime. Mr Sabahi came third in the first round of the presidential election in May 2012, but performed exceptionally well in Giza, Cairo and Alexandria, securing the most votes in the latter two governorates. He has founded a new a liberal alliance, the Popular Current movement, which he says could later become a party.

  Abdel Fattah al-Sisi

  Mr Sisi was appointed commander of the armed forces and defence minister in August 2012, replacing the chairman of the Supreme Council of the Armed Forces (SCAF), Mohammed Hussein Tantawi. One of its youngest members, he served on the SCAF as head of military intelligence. There is speculation that Mr Morsi's power grab was made possible by an internal coup by younger military generals. Mr Sisi will play an important role in defining the military's role in the future.

  September 13, 2012

• Structure

  Egypt: Political structure

  Official name

  Arab Republic of Egypt

  Legal system

  A new constitution was approved in a referendum in December 2012

  National legislature

  Formally bicameral: the Majlis al-Nowab (House of Representatives, or lower house) must have no less than 350 directly elected members. Members of parliament serve a five-year term. The Shura Council (the upper house) must have no less than 250 members. The president may appoint additional members up to 10% of the elected total

  National elections

  Parliamentary elections were held between November 2011 and February 2012. The lower house was dissolved in June 2012, however. New elections were due to begin in late April 2013, but will be delayed. In the meantime, the upper house holds legislative authority. A new election to the Shura Council is due to be held within a year of when a new lower house convenes

  Head of state

  President, directly elected. Mohammed Morsi was elected in June 2012

  National government

  Council of Ministers headed by the prime minister. Hisham Qandil, the former irrigation and water resources minister, has been appoi0nted to the role

  Main political parties

  Freedom and Justice Party; Nour; Free Egyptians Party; Progressive Unionist Party (Tagammu); Social Democratic Party; Wafd; Wasat

  Key ministers

  Prime minister: Hisham Qandil

  Agriculture: Salah Abdel Momen

  Civil aviation: Wael el-Maadawy

  Communication: Atef Helmy

  Defence: Abdel Fattah el-Sisi

  Education: Ibrahim Deif

  Electricity: Ahmed Imam

  Finance: El-Morsi el-Sayed Hegazy

  Foreign affairs: Mohammed Kamel Amr

  Health: Mohammed Hamed

  Higher education: Mostafa Mesaid

  Housing: Tareq Wafiq

  Information: Metwaly Abdel Maqsoud

  Investment: Osama Saleh

  Interior: Mohammed Ibrahim

  Irrigation & water resources: Mohammed Bahaeddin

  Justice: Ahmed Mekky

  Local development: Mohammed Ali Beshr

  Manpower & emigration: Khaled al-Azhari

  Petroleum & mineral wealth: Osama Kamal

  Planning & International co-operation: Ashraf el-Araby

  Supply & internal trade: Bassem Ouda

  Social affairs & insurance: Nagwa Khalil

  Tourism: Mohammed Hisham Zaazou

  Trade & industry: Hatem Saleh

  Transport: Hatem Abdel-Latif

  Utilities, drinking water & sanitation: Abdel-Qawi Khalifa

  Central Bank governor

  Hisham Ramez

  March 13, 2013

• Outlook

  Egypt: Key developments

  Outlook for 2013-17

  • Political uncertainty will remain high in the early part of the forecast period as Islamists and non-Islamists clash over policy. New parliamentary elections, due to begin in late April, will be delayed, but it is not clear by how long.
  • The Muslim Brotherhood is once again expected to perform well, but it will not match its previous electoral success. More hardline Islamist parties, such as Nour, will benefit from disillusionment with the Brotherhood.
  • There is potential for the political situation to stabilise once parliamentary elections are out of the way. However, ongoing social and political unrest, combined with weak economic prospects, poses downside risks.
  • Economic policy will combine a focus on social justice and economic growth. Faced with a large fiscal deficit, the government will be forced to make some progress on increasing taxes and cutting energy subsidies.
  • Real GDP growth weakened to 2.2% in the second quarter of 2012/13 (October-December) owing to ongoing political uncertainty. We forecast that growth will average 4.1% in 2013-17, assuming greater stability from 2014.
  • We expect the current-account deficit to narrow from 2.2% of GDP in 2012 to 2% of GDP in 2013, as exports pick up and the services surplus widens. This trend will continue, and the current account will move into surplus in 2017.

  Review

  • Parliamentary elections, which were due to begin in late April, will be delayed, although it is not clear by how long after an administrative court ordered they be suspended.
  • Prior to their suspension, the National Salvation Front, an opposition umbrella group, said that it would boycott the elections in protest at the electoral law, which it argues is biased in favour of the Muslim Brotherhood.
  • The government has presented a revised economic programme to the IMF. The Egyptian media reported that the Fund is dissatisfied with the plan, which waters down previously agreed tax reforms and fuel subsidy cuts.
  • The price of natural gas supplied to industry has been raised by 50% to US$6/mBtu and the price of fuel oil has risen to E£1,500 (US$223) per tonne from E£1,000.
  • Real GDP grew by just 2.2% year on year in the second quarter of fiscal year 2012/13 (October-December), down from 2.6% in the first quarter owing to ongoing political unrest.
  • Inflation rose to 6.3% year on year in January as the Egyptian pound continued to depreciate, pushing up import costs.

  March 13, 2013

Economy:

• Background

  Egypt: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	84.1	Population growth	1.8
  GDP (US$ bn; market exchange rate)	254.3b	Real GDP growth	4.2
  GDP (US$ bn; purchasing power parity)	540.8	Real domestic demand growth	4.9
  GDP per head (US$; market exchange rate)	3,023	Inflation	11.6
  GDP per head (US$; purchasing power parity)	6,430	Current-account balance (% of GDP)	-2.0
  Exchange rate (av) E£:US$	6.1b	FDI inflows (% of GDP)	2.6
  a The Economist Intelligence Unit estimates. b Actual.

  Download the numbers in Excel

  Background: In 1952 an army coup brought an end to the monarchy in Egypt. Gamal Abdel Nasser (1954-70) introduced radical, nationalist policies. Under his successor, Anwar Sadat (1970-81), Egypt's political stance shifted towards the West and its economic policies became more liberal. Mr Sadat's signing in 1979 of a peace treaty with Israel led to Egypt being temporarily isolated within the Arab world. A popular uprising backed by the military forced the resignation of Mr Sadat's successor, Hosni Mubarak, in February 2011. The Muslim Brotherhood, which had been officially banned since 1954, won parliamentary and presidential elections in 2012.

  Political structure: Egypt is a republic undergoing a political transition to what is likely to be a more democratic system. The Supreme Council of the Armed Forces ruled by constitutional decree from February 2011 until the new president, Mohammed Morsi, reclaimed executive power in August 2012. Parliamentary elections, which took place in November 2011-March 2012, returned an Islamist-dominated legislature. This was subsequently dissolved by a Constitutional Court ruling in June 2012. New elections for the House of Representatives (the lower house of parliament) are scheduled to take place in April.

  Policy issues: From 2004-11 an economically liberal cabinet pursued an economic reform programme with far-reaching plans for change. Public opinion has turned against liberalisation and post-Mubarak governments have demonstrated some populist tendencies. The government of Hisham Qandil has articulated a ten-year economic programme, which espouses social justice while seeking to boost growth. However, the government has pulled away from necessary economic reforms for fear of sparking renewed unrest. A critical US$4.8bn stand-by credit facility from the IMF has been delayed.

  Taxation: A new 25% bracket for individual personal income and corporation tax was introduced in 2011. The previous regime abolished tax exemptions. The implementation of a new property tax, which had been scheduled for January 2011, has been put on hold. A capital gains tax on stockmarket profits is planned.

  Foreign trade: Egypt has a large structural trade deficit, which stood at an estimated US$30.5bn in 2012, up from US$28.2bn in 2011. Merchandise exports slowed to US$27.2bn from US$27.9bn in 2011 and the import bill rose to US$57.7bn from US$56.1bn the previous year. The current account recorded an estimated deficit of US$5.5bn in 2012.

  Major exports 2011	% of total	Major imports 2011	% of total
  Crude petroleum & petroleum products (incl charcoal)	49.7	Semi-finished goods	28.8
  Finished goods (incl textiles)	37.9	Consumer goods	22.5
  Semi-finished products	7.5	Capital goods	18.6
  Iron & steel	1.5	Crude petroleum & petroleum products (incl coal)	11.0
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Italy	8.8	China	11.5
  Germany	5.5	US	9.8
  US	5.5	Italy	5.6
  India	5.2	Germany	4.9

  Download the numbers in Excel

  Download text file (csv format)

  March 13, 2013

• Structure

  Egypt: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 13, 2013

• Outlook

  Egypt: Country outlook

  Egypt: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: Political uncertainty will remain high, particularly in the early part of the forecast period, as the president, Mohammed Morsi, and the Muslim Brotherhood clash with non-Islamists over the direction of policy. A move in late November by Mr Morsi to extend his already substantial powers and in effect place himself above the judiciary deepened the schism between Islamists on the one hand and liberals and leftists on the other, sparking large protests and counter-protests by the president's opponents and supporters. The extent of this polarisation was highlighted by the results of the referendum on the constitution held in December-an estimated 63.8% of voters cast their ballots in favour, but turnout was just 32.9%, meaning that the document was passed with the backing of only 20.9% of eligible voters. Non-Islamists have questioned the legitimacy of the document on this basis and will continue to voice their concern over the concentration of power in the presidency and the Muslim Brotherhood. Renewed serious violence since the second anniversary of the January 25th 2011 uprising has been a further demonstration of the fractured state of Egyptian society and has exposed the failings of key institutions, including the presidency, the judiciary and the forces of law and order.

  ELECTION WATCH: Elections to the House of Representatives (lower house of parliament), which had been due to begin on April 22nd and run until late June, will be delayed. An administrative court suspended the elections on the grounds that the electoral law should have been returned to the SCC for final review after it was amended and passed by the Shura Council (upper house). The Supreme Constitutional Court could move quickly to approve the law, but any new objections could lead to a more protracted back and forth process between the court and the Shura Council. The opposition remains opposed to the electoral law, which was passed by the Shura Council in late February, claiming it does not guarantee free and fair elections. Under the new constitution, a new election to the Shura Council is due to be held within a year of when a new lower house convenes.

  INTERNATIONAL RELATIONS: Mr Morsi will seek to reclaim Egypt's position as a key player in regional diplomacy. He revived Egypt's role as mediator between the main Palestinian groups in Gaza (led by Hamas) and Israel, brokering a ceasefire between the two sides following a confrontation in mid-November 2012. His intervention won him the gratitude of both the US and Israel.

  POLICY TRENDS: Severe macroeconomic distortions coupled with a volatile political environment pose considerable short- and medium-term challenges, requiring the government to take corrective measures on the macroeconomic front. The government issued a ten-year development plan, focused on both social justice and economic growth, in late 2012. However, faced with renewed political upheaval, the government's commitment to economic reform has waned. In early December the president approved and then suspended a law introducing a spate of tax increases within a day. The move prompted the government to ask the IMF to delay a decision on a US$4.8bn stand-by credit facility. It has since prepared a revised package of economic reforms and invited the Fund back for talks. However, the media have reported that the Fund has expressed some dissatisfaction with the package, which includes raising the income tax exemption level from EP9,000 (US$1,320) to EP12,000 a year, diluting previously announced stamp duty and sales tax measures, extending the coverage of social security pensions and applying a flat 25% corporate tax. The government will remain hamstrung by fears of social unrest and, particularly ahead of the parliamentary elections, of losing popular support. The Economist Intelligence Unit does not expect a final agreement with the IMF to be concluded before the elections, and an interim bridge finance package is likely to be considered. The much-delayed IMF credit is part of a US$14.5bn package that includes funds from the World Bank, the EU, the US and Gulf Arab states.

  ECONOMIC GROWTH: The real economy grew by just 2.2% year on year in the second quarter of fiscal year 2012/13 (October-December) taking growth for the first half to 2.4%. We expect growth for the full year to average 2.4% as political instability continues to weigh on the economy. Growth will remain well below potential in 2013-17, averaging 4.1% a year as a result of continued domestic political upheaval, macroeconomic imbalances and financial constraints. Output will also be constrained by weak global demand, particularly in the euro zone, which will affect Egyptian exports and Suez Canal revenue. Assuming that the political situation will begin to stabilise after a new parliament and government are in place, we expect growth to pick up from 2014.

  INFLATION: Tight foreign-exchange restrictions, which have forced importers to rely partly on the more expensive black-market exchange rate, and the deterioration of domestic production capacity will continue to fuel supply-side pressures. As the world's largest importer of wheat, Egypt also faces upside risks to inflation owing to damage to the 2012 US crop. Inflation rose sharply in January to 6.3% from 4.7% in December 2012 as the pound depreciated more rapidly following the launch of foreign-exchange auctions by the Central Bank of Egypt. We expect inflation to average 8.5% in 2013, rising to 9.9% in 2014. It will moderate in 2015 as the currency and global commodity prices stabilise, before picking up again in 2016-17 on the back of rising commodity prices and higher domestic demand.

  EXCHANGE RATES: The Central Bank has managed a gradual depreciation of the Egyptian pound since the revolution. As a result, foreign reserves fell from US$36bn in December 2010 to US$15bn at end-December 2012, prompting the Central Bank to announce a series of measures to protect its stock. These included introducing foreign-exchange auctions and rationing the availability of foreign exchange to banks and their customers. The depreciation of the pound has accelerated at auction, with the currency losing 9% of its value between late December and early March. In early February the Central Bank intervened again to slow the pace of depreciation, reducing the frequency of auctions. It has also cut the cap on interbank currency trades to a margin of 1 piastre above or below the weighted average rate in the most recent auction. In addition, it persuaded three major domestic commercial banks to push up rates offered on local-currency deposits.

  EXTERNAL SECTOR: The current account recorded a deficit of US$279m in the third quarter of 2012, bringing the total deficit for the first nine months of the year to US$4.1bn. We estimate that the deficit narrowed to US$5.5bn (2.2% of GDP) for the full year. It will narrow further in 2013, as export revenue picks up, import growth remains subdued and the services balance strengthens. The transfers surplus will narrow, as remittances from Egyptians living abroad stabilise. The current-account balance will turn positive in 2017 on the back of a steady rise in export earnings and a widening of the services surplus, as greater political stability results in a recovery in the tourism sector. We expect export earnings to grow to US$40.9bn in 2017 and import costs to US$73.6bn. The income balance will benefit from the improving political situation from 2014 as the government's cost of borrowing declines. The current account will record an annual average deficit of 1.2% of GDP in 2013-16 and a surplus of 0.1% of GDP in 2017.

  March 08, 2013

• Forecast

  Egypt: Country forecast summary

  Country forecast overview: Highlights

  • Political uncertainty will persist in the early part of the forecast period as Islamists and non-Islamists clash over the direction of policy. The political situation could stabilise from 2014 once key institutions are in place, but there is potential for ongoing popular unrest and political bickering.
  • Elections to the House of Representatives (lower house of parliament), which were due to begin in late April, will be delayed. The Muslim Brotherhood's Freedom and Justice Party is likely to perform well, although it is unlikely to match its previous level of electoral success.
  • The government has articulated a ten-year economic programme focused on enhancing social justice in tandem with boosting growth. However, faced with the prospect of social unrest ahead of the parliamentary election, it has softened planned tax and subsidy reforms.
  • The IMF is reported to be dissatisfied with the revised plan, which would form the basis for a US$4.8bn stand-by credit facility. We do not expect a deal to be concluded until after the election. Further delays would have serious negative consequences for the economy.
  • Economic growth remained weak at just 2.2% in the second quarter of fiscal year 2012/13 (October-December). We expect growth to pick up from 2013/14, averaging 4.1% over the forecast period. However, this forecast assumes increased political stability from 2014, resulting in a recovery in exports, increased investment and a rise in tourism activity.
  • We expect the budget deficit to widen in 2012/13 as the government fails to implement reforms, including tax increases and fuel subsidy cuts. With the fiscal balance under pressure and as part of an agreement with the IMF, the government will be forced to make some progress on reforms. As a result, we expect the deficit to narrow gradually to 7.9% of GDP in 2016/17.
  • The Central Bank has launched auctions to ration foreign exchange. Despite attempts to manage the depreciation of the currency, we expect the pound to continue to slide owing to weak fundamentals, averaging E£7.02:US$1 in 2014. The currency will strengthen over the remainder of the forecast period as the political situation stabilises and macroeconomic fundamentals improve.
  • The current-account deficit will narrow in 2013, as exports rise and the services surplus widens. We forecast that the deficit will average 1.2% of GDP in 2013-16 and that the current account will move into surplus in 2017.

  

  March 13, 2013

View detailed map

Country Briefing

Land area

997,739 sq km, of which only 5% is inhabited and cultivated territory

Population

83m (end-2009 estimate)

Main towns

Population (July 2007 official estimates)

Greater Cairo (capital; Cairo, Giza, Helwan, 6th of October & Kalyoubia governorates) 18,440,076

Alexandria 4,123,869

Port Said 570,603

Suez 512,135

Climate

Hot and dry, with mild winter

Weather in Cairo (altitude 116 metres)

Hottest month, July, 21-36°C (average daily maximum and minimum); coldest month, January, 8-18°C; driest months, July, August, 0 mm average rainfall; wettest month, December, 5 mm average rainfall

Language

Arabic

Measures

Metric system. Local measures are also used, especially for land area: feddan=0.42 ha or 1.04 acres; cereal crops: ardeb=198 litres or 5.6 US bushels; 8 ardebs=1 dariba; cotton: Egyptian bale=720 lb (325.5 kg), qantar (metric)=50 kg (replacing the traditional qantar equivalent to 44.93 kg)

Currency

Egyptian pound (E£) = 100 piastres

Time

Two hours ahead of GMT

Public holidays

The dates of Islamic holidays are based on the lunar calendar and are therefore approximate: National Police Day (January 25th); birthday of the Prophet Mohammed (February 4th 2012); Sinai Liberation Day (April 25th); Labour Day (May 1st); National Day (July 23rd); Eid al-Fitr (August 19th 2012); Armed Forces Day (October 6th); Eid al-Adha-Feast of the Sacrifice (October 26th 2012); Islamic New Year (November 15th 2012)

January 01, 2013