Eu-Mediterranean economic policy and the case of Egypt

During the last decade, Egypt introduced a strategy for a continuous and stable economic growth. Since 1991, the Egyptian government has successfully implemented a program of economic reform and structural adjustment (ERSAP) that has turned Egypt into a vital and prosperous emerging market. This as a result of economic policies that have addressed market forces to their maximum potential to drive growth and employment. The burden of centralization and domination of the public sector in the economy has been largely eliminated even if the efforts in this direction must be increased.
The macroeconomic discipline is maintained and processes introduced are continuing to bring results.
The annual rate of growth was 6% for the year 2000. Inflation fell to 2.5%. The budget deficit was reduced to 1% of GDP in 1999 and the impending tax reform includes a renewed commitment to fiscal stability and efficient management of debt. The current account deficit for 2000 was 0.8% of GDP (reduced from 1 .9% in 1998). The international reserves, after a period of decline, have now stabilized at around 13 billion dollars. The unemployment rate fell from 9.4% in 1994 to 9.1% in 2000.
We can therefore say that the Egyptian government achieved its objective of stabilizing the economy, but some problems are still open.
First of all, the state's role in the economy is still relevant in key sectors such as services, banking and the textile industry.
Secondly, barriers to trade (tariff and non-) with the European Union and neighboring countries are still quite substantial and should be permanently eliminated if Egypt wants to compete in the global market.
In recent years the trend has been the increasing privatization of large state enterprises. In fact, privatization has been an essential component of the overall reform program implemented by the government. This phenomenon is has been used to erode state monopolies and to transfer state's properties to the private sector, thereby promoting private investment and establishing a more competitive environment, mostly for the benefit of consumers. The trend of the privatization process was slow until early 1996 due to the time needed to introduce regulations that will reduce risk and also due to the fact that the socio-economic climate was not yet ready for a revolution of this magnitude. Consequently, the Egyptian government has moved cautiously toward his goal, but was rewarded positively by local markets and internationally. In fact, both have welcomed the efforts made by the government.
European Union is very important in this context as it represents an opportunity for differentiated investment, low risk and high return because:
1) privatization is not limited to a particular sector, but extends to the whole economic structure of the country
2) there is more than one method of privatization that can adapt to any type of investor
3) government's commitment has been constant and all privatization plans have been closely followed and implemented.
Another important objective of the Egyptian government is to encourage a higher level of investment, including foreign direct investment (FDI). Attracting FDI is important because they are a source of know-how and technology, create jobs and facilitate trade.
The relationship between investment and GDP is currently 23%, significantly below the dynamic economies of export-oriented South-East Asia, but has a growing trend.
The cooperation agreement between the EU and Egypt could generate a considerable number of dynamic effects, increasing the level of investment, but it is possible that the reduction of barriers to trade reduces incentives to FDI. In fact, when tariffs and other barriers to entry will be eliminated, European industries will no longer have a reason to produce in Egypt, but will focus more in European countries where they will have easier access to ancillary services and markets around the world since the Union has signed free trade agreements in different regions ("hub and spokes" theory). From this observation follows that Egypt will certainly make an effort to liberalize its economy.