EGYPT-ITALY TRADE AND INVESTMENT INCREASE AS EGYPT

UNCLAS SECTION 01 OF 02 ROME 001158 SIPDIS SIPDIS E.O. 12958: N/A TAGS: ECON ETRD EINV EG IT SUBJECT: EGYPT-ITALY TRADE AND INVESTMENT INCREASE AS EGYPT COURTS EU INVESTORS REF: CAIRO 1407 ¶1. (U) Summary. Italy and Egypt are significant trade partners, with trade between the two countries dominated by Italy's export of machinery to Egypt and Egypt's export of crude oil to Italy. Italy is Egypt's largest EU trading partner, and is a leading source of foreign investment in Egypt. As seen from here, trade and investment between Italy and Egypt are expected to continue growing, as Egyptian rules governing trade and investment liberalize under the 2004 EU-Egypt Association Agreement. In 2006, Italy had a trade deficit of 636 million euros, its first trade deficit with Egypt in over ten years. End summary. Bilateral Trade Up Since 2000 -------------- ¶2. (U) The volume of trade between Italy and Egypt has increased by 62 percent since 2002. According to ISTAT, the Italian Statistical Agency, total trade between Italy and Egypt reached 3.78 billion euros in 2006, although Italy registered a trade deficit of 636 million euros that year. According to the Egypt Desk at the Italian Ministry of Foreign Affairs, Italy was the European Union's largest exporter to Egypt in 2006. Italian exports in 2006 included machinery (696.6 million euros) and chemical products (268 million euros). Italian imports from Egypt are dominated by crude oil and other refined fuels. In 2006, Italy imported 1.265 billion euros worth of oil and other fuels from Egypt, which accounted for roughly 60 percent of Italian imports from Egypt. Italy's Balance of Trade with Egypt 2004-2006 -------------- 2004 2005 2006 Exports 1.352 1.387 1.551 Imports 1.280 1.279 2.187 Trade Balance 0.072 0.108 -0.636 (all figures in billions of euros) ¶3. (U) According to our MFA contacts, Egypt's efforts to liberalize and open its economy to foreign investors have helped increase trade with the EU and its members. Following the signature of the EU-Egypt Association Agreement in 2004, Egypt has reportedly undertaken measures to "establish conditions for the progressive liberalization of trade in goods, services, and capital" and "contribute to the economic and social development of Egypt." Since 2004, Egypt's trade deficit with the EU has decreased by 60 percent, illustrating the benefits of increased access to EU markets for Egyptian manufacturers. Italian Investment in Egypt -------------- ¶4. (U) Italian investment in Egypt has historically been concentrated in Egypt's petroleum and natural gas sectors. ENI, the Italian oil and gas parastatal, has operated in Egypt for close to 50 years, through the International Egypt Oil Company, an ENI subsidiary. Italcementi is the largest single foreign investor in Egypt, and has become the world's fifth-largest cement producer by acquiring Egyptian cement companies. ¶5. (U) Egyptian businesses have also made major investments in Italy. In 2005, Orascom Telecom acquired Wind Telecom, Italy's third-largest mobile service provider, for a reported $15 billion. Since the takeover, Orascom's CEO, Naguib Sawiris, has put in place new management and taken measures to streamline Wind's operations to increase profitability. Banking -------------- ¶6. (U) Italian banks have established a strong presence in Egypt in response to calls by the Governor of the Central Bank of Egypt for an increased Italian banking presence in Egypt. Banca Intesa, San Paolo IMI, and Monte dei Paschi di Siena all have branches in Egypt. Services -------------- ¶7. (U) Italy is a major contributor to Egypt's tourism industry, especially in the Red Sea region near the attractions of Ras Mohammed National Park and Sharm ROME 00001158 002 OF 002 el-Sheikh. However, tourist numbers have steadily decreased over the last three years. In 2004, one million Italian tourists visited Egypt; 2005, 823,000; 2006, 780,000. This decrease is likely due in part to wariness in the wake of the bout of terror attacks in New York, London, the Sinai, Spain, and Dubai. Comment -------------- ¶8. (U) Italian firms have responded favorably to new Egyptian policies since 2004 to increase EU trade and investment with Egypt, without which trade and investment probably would have stagnated. Italian involvement in the Egyptian economy, especially by parastatal firms such as ENI, also reflects the GOI's broader strategic interests in the Middle East and Italian determination to play a role as Europe's geographic gateway to the Mediterranean basin. End comment. Spogli