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Egypt
The Development Challenge: Egypt, a strong moderating force in the Middle East, has long been an important U.S. ally. Egypt and the United States share strategic interests that include the achievement of stability and peace in the region. This continuing bilateral relationship serves the national security interests of both countries. It promotes prosperity in Egypt by assisting the country's ongoing, but incomplete, transition from an economy controlled by the state to a free market-oriented one. A key U.S. goal is for Egypt to become a fully integrated and competitive participant in the global economy.
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The greatest threat to domestic stability is popular frustration with recent weak economic performance and a persistent lack of economic opportunity. About one-third of Egypt's 69 million people live below the poverty line, despite a per capita GDP of about $1,470. Officially, the unemployment rate was said to be 9% in 2003; various independent estimates, however, place the real rate somewhere between 12% and 25%.
The government recognizes the need for increased investment, both foreign and domestic, in order to stimulate growth and create jobs for an estimated 750,000 new entrants annually. It took steps during the 1990s to improve the investment climate and raise the private sector's share in the economy. More recently, reform has lagged as the economy has slowed and suffered external shocks. Notable problems include cumbersome customs and business registration processes, a growing fiscal deficit, a foreign exchange regime that impedes business, lagging privatization (particularly in the financial sector), lack of transparency, and an educational system that does not meet Egypt's needs. Last January, the Egyptian pound was de-linked from the dollar, but the hoped-for shift to a market-determined exchange rate has been somewhat frustrated by on-and-off restrictions governing the availability of foreign exchange.
On the other hand, in 2003, the Government of Egypt (GOE) built on key legal reforms undertaken in 2002 regarding intellectual property rights, money laundering, and export promotion. New legislation promoting business competition went to Parliament this year, and that body also ratified the Patent Cooperation Treaty. Egypt acceded to the Basic Telecommunications Agreement and the Information Technology Agreement (both within the World Trade Organization) and ratified the International Labor Organization's Convention on Agricultural Occupational Health and Safety. Additionally, Egypt will shortly be included in the IMF's Special Data Dissemination Standards grouping of countries, which means that it is making available to the public timely and accurate economic and financial data. In all of these areas, USAID worked closely with the GOE to reach these goals, each of which plays an important role in improving the country's investment environment and export prospects.
The economy continued to experience slow real growth in FY 2002/03 -- about 3.2%, slightly higher than in the previous year. Nonetheless, there have been some positive signs in recent months. Tourism rebounded sharply after the war in Iraq, and this vital sector then enjoyed successive record-breaking months during the summer. Another important foreign currency earner, the Suez Canal, actually realized increased receipts in 2003 - from higher war-related shipping traffic. The deficit in the balance of trade narrowed, largely as a result of the pound's sharp depreciation since January. Through July, exports were up by 27%, and the trade deficit shrank by 42%. Nonetheless, the economic mood remains cautious because of the uncertain policy environment and regional tensions.
U.S. national interests in Egypt hinge upon a strong bilateral relationship with Egypt to form an effective partnership to combat terrorism, resolve regional conflicts, advance regional peace, ensure domestic and regional security, and accelerate economic growth.
The USAID Program: USAID/Egypt's program covers six objectives. The strategy's primary focus is on accelerating economic growth - essential to strengthening Egypt as a stable and prosperous U.S. ally. Two objectives emphasize the creation of private sector jobs: strengthening the trade and investment environment; and increasing access to sustainable utility services. Four objectives target the enhancement of the human and natural resource base: improving basic education, strengthening governance and participation, providing health services and upgrading natural resource management.
In response to Egypt's development needs and to the Administration's Middle East Partnership Initiative, the program will place greater emphasis on creating jobs through trade and investment, improving basic education, democracy and governance and on healthier, planned families compared with other areas of the program. In support of the Administration's initiative, special programs in three areas that had their beginnings in FY 2003 are continuing in FY 2004 and beyond. First, the education program will expand significantly to spread the benefits of community-based education reform to selected areas both in southern Egypt and in poorer parts of Cairo. Second, the governance and participation program will significantly expand to provide for programs to: improve election administration; increase transparency and participation in government, and train journalists and judges. Third, an enterprise fund activity may be established to provide primarily equity financing to medium-sized Egyptian firms.
Other Program Elements: Supplementary USAID-funded programs contribute to the achievement of the overall development goal pursued in USAID's Egypt strategy. ACDI/VOCA, using funding from the central Economic Growth and Agricultural Development office, is implementing a three-year, $1.39 million activity under the Dairy Directive Program, which increases the availability of safe, hygienic processed dairy products to decrease the rate of malnutrition and infant/child mortality in Egypt.
Other Donors: Two key areas of common interest for bilateral and multilateral donors are a comprehensive poverty action program, with emphasis on women and children; and further reform of the macroeconomic and investment-enabling environment. Donors emphasized these areas at the 2002 Consultative Group meeting, and they have been stressed during 2003 in donors' dealings with the GOE. The United States and European Union are the largest providers of assistance, and other major donors include Japan, Germany, the Arab Fund, the Islamic Development Bank, and the African Development Bank. USAID collaborates with other donors in all technical areas under its strategic program through regular plenary and sectoral subgroup meetings and other venues. Recently, the UNDP, which acts as the secretariat for donor coordination, compiled an extensive database showing the sectors, types, sizes, and locations of donor programs; this is now available in CD-ROM form.
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