Egypt has entered a new economic stage with the implementation of the third generation of economic reform that includes a set of taxes, banking and customs reforms.

 

 This proves that the economic reform march goes parallel to a carefully developed plan.

 

Egypt has succeeded in achieving the first and second generation requirements of reform that aimed at re-establishing the economic infrastructure and institutional framework.

 

 The second generation included restructuring economic institutions, restoring the required balance in the basic economic changes as well as adopting policies that helped opening the door for the private sector to boost its participation in the economic activity.

 

The third generation has adopted a new philosophy based on pursuing rules of the world economy, realizing cooperation and mutual confidence between the state and the citizen.

 

The citizen's confidence is in that the state will provide him with services in the framework of justice, equality and a real interest in assissting him to face life burdens. Moreover, the state's confidence in the citizen is as being a partner, who shoulders the responsibility of assissting it in managing the resources of its public budget and in monitoring its expenditure.

 

Through this philosophy of economic reform, the private sector has become a complete partner to mobilize the necessary investments for employment and generating incomes, as well as drawing up and implementing policies instead of being a micropartner who needs support. The following reforms represent the most important features of the third generation:

 

On June 6, 2005, President Muhammad Hosni Mubarak signed the new Tax Law, by virtue of which tax categories were reduced to 50 percent or less. Businessmen, employees, traders and everyone working in the field of economy have benefited from this law; i.e., tax exemption and conciliation.

 

 Moreover, such a law is based on trusting the financer and getting rid of comprehensive scrutiny and administrative complications in order to alleviate tax burden on the citizens and pay special attention to their financing abilities, thus guaranteeing greater income and better standard of living for the Egyptian family. Within the same context, the law also has a great importance in encouraging local and foreign investor via providing an adequate climate for investment in Egypt.

 

 This new law is mainly based on the fact that alleviating burdens on investors would encourage them to pay the due taxes and increase investments, thus providing further development in the national economy in addition to more job opportunities. Such a law also applies further incentives vis-a-vis the foreign investor not only through reducing tax burden, but also through easing off procedures.

 

It includes a group of customs based on issuing a new tariff to ease off customs procedures via paring down the general average of customs tariff to 9 percent as well as reducing customs tariff denominations from (27) to (6).

 

 This procedure aims at easing off customs tax structure, realizing further transparency and surmounting disputes that emerge as a result of the various customs tariff categories.

 

Undoubtedly, the customs reform is for both investors and consumers interest; as it encourages investors to produce within the framework of “customs” on-imports that have been reduced. As for the consumer's interest, it cuts down prices of several commodities and services.

 

On the same score, the customs reform is considered another step towards economic reform that aims at stimulating markets, reducing prices, boosting exports and providing a luring investment climate, especially that the government will gradually pave down the customs tariff of all production raws and requirements between 2 to 5 percent during the next year within its amending procedures to lure investment.

 

Customs reform has led to reducing customs duties on all commodities at a rate of 5 percent as to production requirements, machines and spare parts, thus facilitating means of production for producers, businessmen, investors and indusrty men with less costs and prices in order to compete with the foreign commodities in local and foreign markets, thus boosting exports.

 

It was launched in Egypt 3 years ago through issuing a new law in 2003. Such a law grants the Central Bank the required independence and amendment of monetary policy via raising the interest rate.

 

 This raise aims at withdrawing funds of the family sector, augmenting bank resources of foreign currency, and drawing up a plan to merge banks. Such a law determined a 3 year grace period after just 2 years to increase the capital of local banks to LE 500 million and of foreign banks in Egypt to a minimum $ 50 million. The target of grace was achieved on 14/7/2005, .

 

By the end of the grace period, merging operations started under the auspices of the Central Bank so that the merger party would guarantee the rights of all employees. The bank also is responsible of wiping out any deficit in the insurance funds.

 

 By the end of these operations, the Egyptian banks has fulfilled the conditions on augmenting their capitals to LE 500 million and the branches of the foreign banks to $ 50 million.

 

 It was decided to accelerate the tempo of implementing the programmes of restructuring Egyptian banks with the purpose of ending banks merging operations in 6 months, particularly in the first four months of 2006. The number of working banks in Egypt was reduced from 56 to 35-37 banks.

 

The banking system reform aims at supporting its role of development that envisaged providing new resources and realizing huge profits for the Egyptian banks.

 

 These banks will augment the volume of finances granted to the private sector. Moreover, this augmentation is needed to surge up investments as well as increasing saving rates to 28 percent of gross domestic product (GDP) aiming at granting the national investments a new momentum so as to increase the national gross rate to 6 percent annually.

 

Furthermore, the banking reform provides a vehement banking system capable of facing the huge banking entities worldwide. It also provides international standards in the Egyptian banks so as to maintain their march along with the outside markets. The restructuring of banking sector targets providing a competent banking system to present the required banking services.

 

The international Monetary Fund (IMF) has stressed the significant role of the third generation reforms that Egypt is moving forward in its paces towards development. In its semi-annual report issued on 21/9/2005, IMF expected Egypt's growth rate to reach 4.8 percent in 2005 compared to 5.2 percent in 2006. IMF also emphasized Egypt's achievements realized in the field of economic reform.

 

President of the World Bank mission in Egypt, Emmanuel Emppi said on December the 10th that the growth rate of Egypt's economy would average between 7-8 percent in the coming 3 years.

 

 He added that the economic indicators emphasised that the growth rate in 2006 would reach more than 6 percent as a result of the increase of expected foreign investment inflows and flourishment of tourism sector. He also expressed his optimism about serious procedures carried out by Egypt's government towards activating the third generation of economic reform.

 

The World Bank in corporation with Egypt's government are currently implementing a strategy that accelerates privatization programme and encourages the private sector. The great interest of local and foreign investors in Telecom Egypt shares in the stock market reflects increasing confidence in Egypt's economy and capability of realizing high growth rates.

 

Emppi pointed out that privatization in Egypt provides new financial resources to be utilized for citizens' interest; as they enhance Egypt's economy.