Egypt Reforms Economy

By John T. Haldane

Egypt is launching a structural adjustment program aimed at boosting economic growth and improving living standards. The World Bank is supporting this effort with a $300 million loan.

For most of the past four decades, Egypt has pursued a development strategy that has been led by growth of the public sector. The strategy, along with declining revenues from petroleum exports, resulted in a heavy debt burden, rising inflation, and low rates of economic growth. The new structural adjustment program is expected to turn the economy around and increase the role the private sector plays in the economy.

The new plan includes such measures as budget reductions, relaxation of controls on prices of some agricultural and industrial products and energy, lifting trade barriers, and eliminating obstacles to private sector growth.

The program also includes restructuring of state owned enterprises. The government will sell more than 2,000 public enterprises and divest its equity in about 240 joint ventures. Some unproductive, financially weak enterprises will be closed.

The World Bank backed program is expected to reduce inflation and restore economic growth, leading to higher incomes and improved living conditions. It also is expected to help Egypt become more creditworthy in the international capital markets.

In July, a group representing 15 aid donor nations and 15 international organizations agreed to provide Egypt with $8 billion to help finance the country's economic development and adjustment programs during the next two years. The group said that Egypt's efforts to reform its economy were "bold and comprehensive" and that these efforts were being strongly supported by the international community.

A World Bank official concludes that Egypt's financial future is brighter than it has been for many years. Egypt's reform program should have a positive effect on the economy through higher growth rates and a greater role played by the private sector in the country's development. If Egypt continues to carry out reforms, an additional bonus could be to attract private investment from oil rich neighboring states.

Dubai Growing as Trade Center

Dubai, the second largest of the seven United Arab Emirates (UAE), is facing the future with confidence after the traumas of the eight year Iraq-Iran war and Iraq's invasion of Kuwait.

Mohammad Ahli, director of operations with Dubai's Department of Civil Aviation, stated recently that while the Iran-Iraq war had served to generate above normal air cargo movements through Dubai, Iraq's incursion into Kuwait had caused sharp decreases in air cargo shipments. He was optimistic that Dubai's strategic geographic location between Western Europe and the Far East, combined with one of the most modern shipping infrastructures in the Middle East, will continue to make it attractive to shippers.

A recent government report indicates that more than 11.5 million metric tons of cargo passed through Dubai in 1990. An estimated seven percent of the world's total cargo is now passing through the emirate by air, sea and land.

A new Department of Commerce economic report supports the optimism of Dubai officials. It stated: "The free trade zone at Jebel Ali at Dubai continues to show enormous growth in the value and weight of the imports and exports which it handles, due largely to the generous incentives it offers users."

Jebel Ali also has been playing a key role in the Kuwait Emergency Recovery Program. The Kuwait Petroleum Company and the Bechtel Corporation set up a joint office in the free zone earlier this year. According to local sources, the office has been acting as a procurement and liaison center for the repair of Kuwaiti oil installations.

Iran continues to be the major destination for Dubai's sizable re-export trade. In 1990 Iran accounted for $520 million of the emirate's $2.1 billion re-exports, followed by Saudi Arabia, Qatar and West Germany. A Dubai trade expert says: "In spite of problems with documentation, Iran is a good country to deal with. It is a huge market and the Iranians pay on time."

Considering that Dubai is second only to Abu Dhabi in oil production within the UAE, it is clear that the combination of increasing oil and trade revenues bode well for Dubai's economic future.

John Haldane is an international economist and Middle East specialist.