III. ECONOMIC TRENDS AND OUTLOOK CURRENT ECONOMIC TRENDS Introduction: In 1991, faced with large external debt service arrears, declining growth, a worsening balance of payments, 20% inflation, and steadily shrinking foreign reserves, the Government of Egypt launched a comprehensive economic reform program. This program was a major departure from the statist economic policies of the previous four decades and represented a shift from the piecemeal reforms of the mid-1980's. As part of its stabilization program, supported by an International Monetary Fund (IMF) Standby Agreement, the government freed interest and exchange rates, sharply reduced the budget deficit and disciplined monetary growth. With assistance from a World Bank structural adjustment loan (SAL), Egypt developed a framework for public sector reform and privatization, and liberalized trade and investment policies. The result has been exchange rate stability, a balance of payments surplus, a liberalized banking regime, and lower inflation. Key to the next stage of the government's reform effort are privatization, reduction of trade barriers, and elimination of unnecessary regulations and restrictions. Major structural reforms proposed include accelerated sales of state enterprises; reductions in the maximum tariff rate and elimination of tariff exemptions; consistent application of quality control standards; unification of the laws governing investment and commercial activity; and a labor law that allows employers to layoff or fire workers for economic reasons. The government has announced plans to implement legislation or issue decrees that address many of these issues in 1994-1995. Laws in draft as of April 1, 1994, relate to commercial establishment, insurance, rent decontrol, patent protection, and labor. The pace of economic reform, particularly with regard to trade liberalization and privatization, has slowed significantly in the past year. An explicit demonstration of renewed government commitment to the reform program is necessary to stimulate private sector interest in the Egyptian economy and to create a climate which encourages economic growth. Egypt's Economic Reform Program: Egypt's reform program encompasses major areas of economic activity, including financial activities and foreign exchange, trade liberalization, public sector reform and privatization, and price and investment deregulation. Although important reforms have indeed been implemented, particularly in the areas of financial liberalization, trade reform and investment and pricing decontrol, serious shortfalls in other key areas, notably the privatization program, have called into question the future of the reform effort. In the financial and banking sector, banking regulation and control has been strengthened; provisions for dealing with weak banks have been increased. Local branches of foreign banks may now conduct Egyptian pound (LE) operations; three have begun such operations. Egypt has eliminated exchange controls, unified its two-tier exchange system, and opened the exchange market to nonbank dealers. Despite passage of a Capital Markets Law in 1992, capital market development in Egypt remains stalled. Although the law removed a seven percent interest cap on bonds and the tax on income from certain stocks and bonds, stock and bonds are subject to a two percent capital gains tax. The Capital Market Authority retains considerable discretionary power. Two new mutual funds have been licensed but development of other financial instruments has been slow. Egypt has made significant progress in liberalizing its trade regime, but domestic industry remains protected by non-tariff import barriers and relatively high tariff rates. A three year trade reform program, announced in July, 1993, calls for the lifting of nearly all import bans, most tariff preferences, and the elimination of non-tariff barriers. The government has ended the import ban list for all products except textiles, apparel, and poultry. In 1993, it also reduced maximum tariff rates from 100% to 80%; a further phased reduction was signed February 13, 1994, lowering the minimum rate to 70%. Several commodities, including alcohol, tobacco, and passenger cars, are exempt from the tariff ceiling. Progress on privatization is essential to a successful structural adjustment program but the results thus far are not encouraging. Law 203, enacted in 1991, forms the basis of the government's legal framework for the restructuring of 314 public sector enterprises, 70% of Egypt's industrial sector. In 1993, these companies were organized into 17 holding companies which are permitted to sell, lease or liquidate company assets, and sell government-owned shares. As part of its agreement with the World Bank, the Government established a schedule of privatization of those companies identified as most attractive to domestic and foreign investors. The government claims to have sold approximately LE 4.5 billion ($1.3 billion) in assets to date. Contracts for the sale of two bottling plants, the first companies to be privatized, were signed in April, 1994, and 11 public works companies will be purchased by Employee Shareholder Associations. Delays in the procedure, disagreements over the valuation process, and a general reluctance to follow through on bids have slowed the privatization process considerably. In early 1991, Egypt replaced its investment licensing regime with a system for automatic approval of investments in sectors not on a "Negative List," (military related industries, tobacco, and investments in the Sinai.) In July, 1993, it eliminated domestic content requirements for assembly industries, although they must still meet a local content requirement up to 40% in order to obtain customs duty reductions. A Unified Commercial Law is being drafted and should be submitted to the People's Assembly in 1994. Investors seeking incentives (primarily tax holidays) under Investment Law 230 still must obtain project approval from the General Authority for Investment and Free Zones (GAFI). To attract foreign investment, the government must improve protection of intellectual property. Progress has been made in legal protection for copyrights; recent amendments to the copyright law have increased penalties and extended coverage to computer software. The government is working on a draft patent law which should alleviate many investor concerns. Nonetheless, U.S. officials continue to stress the need for better enforcement of copyright laws, patent protection for pharmaceutical products, and increased penalties for trademark violations. The government has deregulated pricing in recent years, freeing all industrial prices except for pharmaceuticals, cigarettes, rationed sugar, and rationed edible oil products. Failure to deregulate pharmaceutical products has remained a major concern for foreign companies operating in Egypt. In agriculture, subsidies for fertilizers, feed and pesticides have been eliminated. The government is in the process of deregulating the cotton sector and reactivating the cotton exchange. Petroleum prices have risen from 36% of international prices in May 1989 to 90% by mid-1993, while electricity prices have risen from 24 to 73% of long run marginal cost (LRMC) in the same period. Both prices are expected to increase to world levels by mid-1995. To alleviate the impact of these economic reforms on low income groups, donors in 1991 pledged $617 million to an IBRD sponsored Social Fund for Development (SFD). As of mid-January, 1994, the SFD had disbursed a total of $97 million to beneficiaries, creating a claimed 95,000 permanent and temporary jobs. Now that the GOE has virtually stopped hiring graduates, the SFD's small loan and public works program has become the only "government" job creation effort. However, the SFD's labor mobility programs, directed at displaced public sector workers, remain extremely limited owing to government sensitivities and footdragging on privatization and liquidation. Growth Rates: Some observers of the Egyptian economy believe that GDP growth rate for FY 93/94 will reach 2.2%, up from 1.5% in FY 92/93. The government officially predicts a 4.4% rate in FY 93/94; this projection, however, is not supported by available statistics. Given the current recession, we believe it possible that the economy grew only slightly -- if at all -- in FY 92/93 and we expect only modest improvement in FY 93/94. Although the current spate of activity in some sectors, such as real estate, is encouraging, we do not believe it is conclusive evidence at this point that Egypt's recession is ending. No reliable data exist on Egypt's large informal sector, which may account for 30 to 50% of economic activity and serves as the employer of last resort for poor Egyptians. However, government hiring constraints and economic weakness have increased the number of job seekers in the informal sector. Fiscal policy: Budget deficit reduction is a key element in Egypt's stabilization program, and substantial progress has been made. From about 17% of GDP in FY 90/91 (year ends June), Egypt cut its budget deficit to 6.4% in FY 91/92, 4.1% in FY 92/93 (excluding earthquake relief), and a projected 4.7% in FY 93/94. Reductions in subsidies and capital expenditures, introduction of a general sales tax, and cutbacks in government hiring have all contributed to this reduction in the deficit. The government increased its total revenue by approximately 11% in FY 92/93. It instituted a general sales tax (GST), at first applicable at the import and manufacturing level, in May 1991. The GST is to develop in stages into a full value added tax by 1995. Taxes on certain consumer goods (alcoholic and soft drinks, tobacco and petroleum products) not integrated in the GST were raised and progressively converted to ad valorem taxes. Customs duties were also increased, preferential tariff rates virtually eliminated and import-related fees raised. A Unified Income Tax Law has been passed which reduces marginal tax rates, simplifies the tax rate structure, and aims to improve administration of tax policy. However, it may well have an adverse impact on revenue, at least in the short term, as it does not broaden the country's tax base. Monetary policy: Despite capital inflows and the rapid accumulation of foreign reserves, the government has continued to limit domestic money creation through a public Treasury bill auction. T-Bill auctions are the Central Bank's major tool for regulating money and credit and financing the deficit; it also anchors Egypt's interest rate structure. In an effort to control government debt, the CBE has reduced considerably the amount of T-bills available for auction. In April, 1994, it stopped auctioning six month T-bills. The average rate for three-month Treasury bills peaked at 19-plus percent in late 1991, then drifted downward to 13% by mid-1993. (Some 6 month T-bills have been made available beginning in June, 1994). The government is exploring the possibility of issuing longer term T-bills in the future but is likely to delay any decision for the time being. Ceilings on bank lending, used initially to regulate credit, were ended for the private sector in October 1992. According to the Central Bank, growth in the broad money supply increased 15.8% in FY 92/93, compared to 14.4% the previous year. With stable exchange rates and positive real interest rates for the first time in two decades, the Egyptian economy has been "de-dollarized": foreign currency holdings as a percentage of the overall money supply fell from 51% in 1991 to approximately 26.6% in mid-1993. Loan demand has been soft, with the banking system experiencing considerable excess liquidity. Balance of Payments: According to the Central Bank, the current accounts balance, including transfers, registered a surplus of $5.3 billion in FY 92/93. However, excluding transfers and remittances, the current account was $3.8 billion in deficit, due in large part to a decline in tourism revenues, a decrease in non-petroleum exports, and an increase in imports of goods and services. Preliminary government estimates project a $2.3 billion overall balance of payments surplus in FY 93/94. In May 1991, Egypt came to terms with its Paris Club creditors. The agreement, staged over a three year period, offered debt relief equal to an immediate 15% reduction in the net present value of its eligible official debt, with a further 15% reduction approved after the completion of the 1991 IMF program and the adoption of a successor IMF program. A final 20% reduction will be granted if Egypt complies with a new IMF program through June 30, 1994. This should reduce Egypt's external debt to approximately $30 billion, a significant but likely manageable figure. Egypt has yet to see significant improvement in its merchandise trade balance, with the deficit running $7.3 billion in FY 92/93, 14% higher than the previous year. Lack of significant export growth is indicative of the strong pound, the loss of traditional Soviet markets and the low rate of private sector activity. This deficit will continue. Services and transfers remain strong, in large part due to steady Suez Canal revenues and the positive impact of debt reduction. Remittances are estimated to have reached more than $5 billion in 92/93; Central Bank figures for remittances are higher due to inclusion of short term capital inflows. Relatively high rates on pound savings and stability in Egyptian pound-U.S. dollar exchange rates (at around LE 3.3 since April 1991) continue to stimulate capital inflows, albeit at a lesser pace than last year. The Central Bank absorbs dollars to build reserves and prevent pound appreciation. Treasury bill sales have helped to absorb some of the excess liquidity associated with dollar inflows but have kept interest rates high. T-bill sales have now begun to taper off. Inflation: Inflation in 1993 is currently estimated at 11.1% in Egypt's urban areas, down from 21% in 1992. Recent Government estimates indicate that inflation may be closer to 8-9% as of June 1994. Labor and Employment: Unemployment looms as Egypt's greatest socio-economic problem. The economy has failed to create the estimated 500,000 jobs needed annually to absorb new entrants into the job market. According to government figures, Egypt's total work force now numbers 16.4 million. ILO data show that unemployment has risen from 6% in 1989 to 14% by end-1992. Observers estimate that the figure could actually range as high as 20%. Underemployment probably affects one-third to one-half of workers. The two largest employers, agriculture and the government, offer very limited prospects for job expansion. Approximately 2.5 million Egyptians work overseas. PRINCIPAL GROWTH SECTORS Agriculture: Agriculture, which accounts for 20% of GDP and 36% of total employment, is the area in which the Government has pushed economic reform the farthest. Largely as a result, production has increased steadily in recent years, growing at an estimated 2% in 1993. Wheat, rice and cotton all registered gains in 1993, while citrus production fell due to poor weather. A November 1993 decree removed many export restrictions which should benefit rice producers, among others. Wheat imports continued their decline of recent years, although the liberalization of private flour imports meant a boom year for exporters who sold 450,000 MT to Egypt. Cotton and sugarcane remain the only two crops which are government regulated; new marketing regulations and laws freeing production are in the People's Assembly as of May, 1994. The government paid the price for its footdragging on cotton reform last year when its floor price for some varieties was 17% above world prices, costing the government USD 60 million in subsidies. Overall, however, reform of the agricultural sector should guarantee greater alignment of the sector to international comparative advantage. Industry: Official data show the industrial sector (at 91/92 fixed prices) contributed about 16.7% of GDP in FY 92/93, and grew by 2.7% in real terms. Anecdotal information, however, suggests overall industrial production, especially in the public sector, has declined. According to government figures, private sector investment share of the industrial sector is estimated at 58.9% in FY 92/93 compared to 53.7% in FY 90/91. Services: Egypt's services sector is dominated by tourism and the Suez Canal. Tourism, affected by the 1992 Cairo earthquake and terrorist attacks, continues its downward trend. According to Ministry of Tourism statistics, tourism nights fell by 31.7% between October 1992-October, 1993, causing an estimated $900 million fall in revenues. Suez Canal revenues topped $1.9 billion in 92/93, holding steady from the previous year. Energy: The petroleum and natural gas sector accounted for about 10% of Egypt's GDP in FY 92/93, while petroleum products made up about 53% of total exports. In 1993, Egypt produced approximately 900,000 barrels of oil a day or approximately 45 million tons per year. The value of Egypt's petroleum exports increased slightly in FY 92/93 to $1.8 billion, compared to the previous year's level of $1.6 billion. Natural gas accounts for approximately 28% of total energy consumption in Egypt. In 1993, production increased to 8.7 million metric tons of oil equivalent, up from 7.6 million metric tons of oil equivalent in 1992. In the next three years, production of natural gas and its derivatives is expected to increase by 5.2% annually. By 1997, Egypt hopes to have sufficient production for export. Egypt's electrical capacity has grown substantially over the last decade, reaching 11,910 MW. Hydroelectric power represents about 8.3% of the total annual energy production in the country. In FY 92/93, electrical generation grew by approximately 3.2% to 47 billion KWH. Environment: The January 1994 Environmental Protection Law provides authority for enforcing standards and mandates environmental impact studies prior to the approval of industrial and tourist projects. The Egyptian Environmental Affairs Agency (EEAA) is preparing executive regulations due in July, 1994. The World Bank, Denmark, Japan, the United Kingdom, and Canada have begun new environmental projects in collaboration with the EEAA. USAID has conducted a feasibility study for conversion of diesel fuel to compressed natural gas in the public transportation sector in the greater Cairo area. PROSPECTS FOR THE FUTURE A significant pickup in Egyptian economic growth will depend on progress on structural reforms and continued improvements in the macroeconomic situation. Government actions, particularly with regard to privatization and trade liberalization, are being closely monitored by investors both at home and abroad. Extremist violence, heightened social concerns, and reduced donor leverage resulting from the release of the final tranche of Paris Club debt relief could further slow the reform process, which is already behind schedule. Revival of economic growth in the coming year will depend greatly on Egypt's ability to create an economic climate conducive to private sector activity. Recent indications that economic activity is beginning to pick up are encouraging, but inconclusive. Interest rates should begin to head downward, causing a temporary -- but manageable -- outflow of capital. The government will remain firm in its commitment to maintain the current LE/USD exchange rate, though corrections to improve Egyptian export competitiveness cannot be ruled out. Balance of payments prospects are fair: tourism, hard hit by the events of the last two years, should begin to pick up and remittances will remain steady at approximately $5 billion annually. Further action to lower the deficit will be much less dramatic than in the last two years, but the government will continue to hold the line on government expenditures. Excess liquidity in the banking system -- and the resulting increased competition among banks for clients -- will make loans more available, but the increased accessibility of loans may not necessarily stimulate much new economic activity. Lending rates, which have been higher than economic conditions appear to warrant, will move downward. Faced with growing competition for business, less profitable banks will likely merge, while some foreign banks may exit the market altogether. Inflation should continue at a moderate level, assuming continued monetary and fiscal discipline. The purchasing power of middle and lower class consumers may well be reduced by further cuts of subsidies and increased costs passed to the consumers through the implementation of public-sector reforms. The subsidy on bread, however, will remain. Weak demand, excess capacity, and a relatively stable dollar/pound exchange rate should inhibit development of an inflationary spiral, unless the government attempts to reflate the economy in order to stimulate job creation. MAJOR EGYPTIAN AND THIRD-COUNTRY COMPETITORS IN SPECIFIC SECTORS The major competitors to the United States, in terms of exports to Egypt, are in this order: France, Germany, and Italy. Each has between 15% and 20% of the market, compared to the United States' 35 - 40% share. The British have maintained a share of Egyptian markets, partly a legacy of their historical role in Egypt. German firms dominate sales of chemicals, textile machinery, and are second or third to the U.S. in sales of telecommunications, oil/gas, and medical equipment, and plastics. Italians supply much of the food processing and textile equipment, and are second or third largest suppliers of plastics, chemicals, and oil/gas machinery. Italian weapons are favorites of the security services, and Beretta pistols are manufactured under license by the army. French firms compete with the U.S. for air conditioning, electrical, and telecommunications equipment. French contractors have largely monopolized the metro construction projects. Japan is important in broadcasting, earthmoving, and telecommunications equipment, and in consumer sectors including cars, light trucks, and electronics. In specialized sectors, other countries are significant. Israel supplies over 40% of the irrigation market. Spain supplies chemicals, Switzerland broadcasting and electrical equipment, and paper/pulp comes from Russia, Ukraine, and the former Yugoslavia. Local Egyptian firms offer cheap products acceptable to consumers or to budget-tight government procurement offices. Most needs of the average household, and most office consumables, are met by locally manufactured/assembled products. Even some sophisticated products, such as Xerox office equipment, is assembled in Egypt. Where high-technology or modern management is needed, however, Egyptians generally look abroad. INFRASTRUCTURE SITUATION: GOODS/SERVICES Egypt is relatively well-off in terms of basic infrastructure because of past decades of investment. Some of it is old and inadequate for today's needs, however. Telecommunications are modern and relatively efficient. Roads are asphalted, but only a few axes (Cairo-Alexandria desert road, and roads from Cairo to Ismailia and Suez) are four-lane. None are restricted access, and most are poorly built and unsafe. Egypt Air's safety record is very good, and airports exist in major tourist and population centers, with scheduled and charter international flights into Cairo, Alexandria, Luxor, Hurghada, and Sharm El Sheikh. International flights are planned to Port Said. Since economic reforms began in 1991, there have been no significant shortages of consumer goods or industrial/agricultural inputs. Anything can be had for a price. Port Said's free port occasionally offers a better variety of consumer goods than Egypt's other cities, but its depressed economy is evidence that Egyptians are able to get what they need elsewhere without going to the free port. MAJOR INFRASTRUCTURE PROJECTS UNDERWAY Hydrocarbons In the hydrocarbons sector, the government oil authority (EGPC) has feasibility studies underway to build a $450 million hydrocracker near Suez. Other studies are also underway for a private Egyptian-Israeli joint venture, MIDOR, for a $900 million 100,000 barrels per day oil refinery to make a variety of refined products in the free zone area near Sidi Kreer on the Mediterranean. There are several natural gas pipeline projects planned for near- term construction. From fields in the Western Desert, a new gas pipeline will bring product into the national gas grid at a point near Sidi Kreer, for expanded use by industry and the country's combined system electric power plants. One or more other gas pipelines are planned to gather the gas from offshore fields in the northern Sinai. This gas may be surplus, and available for export to Gaza, Israel or beyond. Energy The world's largest power plant currently under construction is located in Kureimat, 95 kilometers south of Cairo. General Electric won an $85 million USAID-funded contract for the two 600 MW turbines, and Babcock and Wilcox won the $122 million boilers. Other U.S. firms hope to win other parts of the project. Two other 300 MW power plants are expected to be tendered in 1994: one at Sidi Kreer, another at Ayoun Moussa south of Suez in Sinai. These reportedly will be the last government-built power plants. Other power needs are expected to be initiated by the private sector. Energy-producing windmill projects are underway on the Red Sea at Hurghada and Zafarana, one of the world's windiest locales. The Danish government has underwritten a demonstration project in Hurghada, and a U.S. firm has received Government approval for a profit-making windmill farm at Zafarana. Transport Cairo's metro line's phase two is under construction by a French consortium, with construction management by the U.S. firm Parsons Brinckerhoff. Other phases will carry the line across the Nile into Giza, and east from downtown Cairo. A bridge or tunnel crossing the Suez Canal at El Qantara is much discussed in the press, but Egyptian hopes that the Japanese would fund it have apparently not been fulfilled. The project will remain in the news because of its linkage to enhancing Egypt's trade with Gaza, Israel, and points beyond. Railroad construction includes a new phosphate-carrying line from Abu Tartur in the desert west of El Kharja, to the Red Sea port of Safaga - $200 million worth of large locomotives are needed for this line. Another $200 million worth of smaller shuttle locomotives are to be purchased or partially assembled in Egypt. In addition, a feasibility study has been done for the construction of El Salloum-Toubrog railroad link between Egypt and Libya. This track will be about 112 miles, and is expected to cost $600 million. Airport expansions (new terminals, and other upgrades) are planned for Cairo, Noueiba on the Gulf of Aqaba, and Port Said. Telecommunications The government recently cancelled its two-year old plan for a nationwide, privately-operated cellular telephone system, in favor of a phased-in government monopoly. A new tender for cellular coverage in Cairo and the Cairo-Ismailia corridor (with an option also for Luxor and Aswan) appeared in June 1994. Nilesat, a satellite uniquely built for Egypt, has been on and off the shelf of the Ministry of Transport and Communications for years. Recently it has been dusted off again, although no formal announcements have appeared. Security A new national identity card system was let for bids in Spring 1994. Related projects will include new systems for drivers licenses and passports. Numerous security upgrade projects are underway in response to terrorist incidents over the past two years in Cairo and certain Upper Egypt locales. These are typically small specialized projects for individual ministries or other clients, but in their totality security projects represent a large market. Defense and "Defense Conversion" U.S. military aid finances many of Egypt's big-ticket defense procurements - $1.3 billion annually for several years. Projects underway include the M1A1 Abrams tank manufacturing facility, which is in production; F-16 assembly; military radars; minesweepers; and rehabilitation of originally Chinese-supplied submarines. Such projects can be expected to continue, although improvements to and maintenance of existing force capabilities are more likely targets of future spending than entirely new systems. "Defense conversion" (reinvestment) in the sense of making productive use of surplus military capacity is under intense discussion within the Egyptian military. Most of the two dozen military factories under the Ministry of Military Production, the four companies of the National Service Projects Organization, or the Arab Industrialization Organization (AOI)'s nine factories, already produce a wide range of civilian products, ranging from sewing machines to jeeps. They want to expand into new, productive product lines for domestic and export sales, and are open to foreign licensing/joint venture proposals. The tank factory, for example, might expand into assembly and repair of other vehicles. Agriculture and Water Projects The Salaam (Peace) Canal is planned to bring Nile water to irrigate 400,000 acres of northern Sinai desert, via a tunnel under the Suez Canal. Bridges and Water Pipelines A new barrage/bridge across the Nile is planned for the aluminum- producing town of Nag Hammadi in Upper Egypt. Another project studied by Bechtel proposes a bridge to carry vehicles and a crude oil pipeline from southern Sinai to Saudi Arabia, via the Straits of Tiran. The latter project awaits a source of funding. Tourism Projects Many new resort complexes are under construction, and planned, for the Red Sea coastal areas, including: the Hurghada-Safaga corridor, the head of the Gulf of Suez roughly 50 kilometers south of Suez city on both sides of the Gulf, and along the Sinai coast on the Gulf of Aqaba at Sharm El Sheikh, Dhahab, Noueiba, and Taba. Marriott, Hilton, Holiday Inn, and other international hotel management firms are looking at these sites to supplement their existing hotels. Other tourism construction projects include privately sponsored amusement park proposals around Cairo, hotels in Cairo, and resorts along the Mediterranean west of Alexandria. USAID-Funded Projects U.S. firms should remain alert to USAID policies which dictate much of the directions of spending in Egypt, as elsewhere. Since 1975, $18 billion in economic aid to Egypt has been directed at four major areas; telecommunications; electric power; water, waste water, and sewerage; and agriculture. While dialogue with USAID staff in Cairo or Washington will help a U.S. firm understand USAID priorities and plans, all USAID procurement is announced in advance via the "Commerce Business Daily" U.S. government newspaper. The purpose of U.S. AID's Private Sector Commodity Import Program (PRCIP) is to increase the private sector's contribution to Egyptian output by expanding investment in productive Egyptian private sector enterprises by providing short and medium-term credit and foreign exchange to finance the importation of capital equipment, intermediate goods and raw materials from the U.S. Primary implementation responsibility (e.g. application processing, analysis, issuance of letters of credit) rests with twenty-one Egyptian commercial banks. The program is budgeted at $200 million per year. Since its inception in 1986, over 850 Egyptian importers have utilized the PRCIP, resulting in over 4,200 individual transactions valued at about $1.1 billion. Agriculture's GSM The Commodity Credit Corporation (CCC) of the USDA underwrites credit extended by private U.S. banks through the GSM-102 Credit Guarantee Program. This is a one-year credit line that U.S. suppliers use to make sales to Egyptian buyers of U.S. agricultural commodities. The FY 94 level of financing is $200 million which is being used to make sales of U.S. wheat, flour, corn, dairy products and beef products to Egyptian companies, but most U.S.-sourced agricultural products could be eligible for coverage through this program. The FY 95 GSM-102 line is certain to be at least $200 million. Details on the GSM-102 are available from the FAS office at the U.S. Embassy or from USDA/FAS Washington. U.S. Military Aid-Funded Projects All U.S. military aid-funded projects in Egypt are published in advance in "Commerce Business Daily." Privatization Program and Infrastructure Projects As discussed above, the government plans to sell off 314 government-owned factories, department stores, hotels, cruise boats and other entities to private buyers. This will offer opportunities to U.S. design, contracting and equipment supply firms to upgrade facilities for new private owners. The first plants privatized (in 1994) included some 15 soft drink bottling plants owned by two new joint ventures that include Pepsi and Coca Cola, and a steam boiler making factory purchased by Babcock and Wilcox.