Pragmatism is the winning formula: a pragmatic rather than dogmatic approach to economic growth is proving a winning formula for Egypt as the country nudges new growth records. Neil Ford reports on Egypt's new approach to economic health.

Author:Ford, Neil
 
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While economic growth in Libya and Algeria is largely being fuelled by oil and gas revenues, Egypt is following the Tunisian model far more closely. High oil prices have made its sizeable oil sector more valuable and the growing gas sector has certainly added another string to the country's bow, as well as boosting its industrial muscle through the development of a liquefied natural gas (LNG) sector.

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Despite earlier security problems and terrorism scares, the country was able to announce the highest tourism revenues on record in 2004, adding to the rosy picture.

The government has been determined to adopt a slightly unusual approach to reform and a genuinely broad based economy is beginning to take shape.

In January, the Egyptian finance minister, Youssef Boutros-Ghali revealed that the government expected the economy to grow by 6% this year, up from 5.1% over the previous year, which was already the most impressive figure for five years.

In addition, the currency has stabilised and inflation stood at just 3.1% in 2005, the lowest for 20 years. It is widely recognised that countries in Africa and the Middle East generally need to grow their economies by over 5% in order to make real improvements in living standards, partly because of relatively high population growth.

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Official Egyptian unemployment currently stands at 10% but the real scale of the problem is likely to be much greater, given the impact of underemployment.

If it ain't broke, don't fix it

The higher levels of growth are being achieved without any dogmatic approach to the private-sector versus state-control debate. While Egypt has traditionally favoured state control of key enterprises and vital national infrastructure, the current government has adopted a policy of selective privatisation. Where state owned companies function well, utilities remain in state hands; where they do not they are privatised. The most extreme example of this policy comes from the power sector.

The Egypt Electricity Holding Company (EEHC) was created in 2000 out of a previous power sector parastatal with the aim of acting as an umbrella body for the outright privatisation of power sector assets, particularly at the level of generation.

Yet the EEHC has done such a good job of improving its financial performance and of bringing new capacity on stream in the form of new thermal facilities that consume Egypt's own natural gas, that the government is reconsidering...

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