By Khaled Diab

CAIRO, April 1, 2001 (Reuters) – The United States aid agency is prescribing a new formula of "trade not aid" on its silver jubilee in Egypt.

And as aid declines, President Hosni Mubarak and Egyptian business leaders are pushing hard for freer trade with the Arab state's biggest commercial partner.

The U.S. Agency for International Development (USAID) says its economic aid programme in Egypt will shrink by half in nominal terms over the next decade, to about $400 million from $815 million in 1999.

“It’s time to move from an aid-based relationship...to one that is more of a trade-based relationship, in which Egypt relates to countries like the U.S....in a more normal or
traditional fashion,” USAID-Egypt's mission director Willard Pearson told Reuters.

USAID says it has provided Egypt with more than $24 billion in economic assistance its 25 years here, with the focus shifting from upgrading the country's crumbling infrastructure in the early years to economic reform and trade liberalisation.

It has also provided funds for commodity imports, basic services such as health and education, as well as food aid.

OPENING DOORS TO TRADE
Mubarak will be in the United States in the first week of April to boost bilateral trade and investment, although rising tension in the region will also feature high on his agenda, Egyptian diplomatic sources say.

Analysts say Egypt hopes a freer trade regimen will fill the gap left by diminishing aid payments and shore up the enormous trade deficit, amounting to $2-3 billion annually between 1997-99, that Egypt runs with the United States.

“Reduced economic aid is being compensated by attempts to increase investment and create a free trade agreement,” said Abdel-Moneim Said, director of the al-Ahram Centre for Political and Strategic Studies.

“(A free trade agreement) will enable us (Egypt) to increase our exports in certain areas - agricultural products, ceramics and textiles, in particular – in which we've reached the peak of our quota in the U.S. market at the present time,” he said.

Mubarak's trip comes on the heels of the annual “door-knock” mission to Washington of Egyptian and U.S. business executives.

In addition to promoting investment opportunities in Egypt, this year's mission is actively promoting the idea of a free trade agreement between Egypt and the United States, a source close to the mission told Reuters.

“A free trade agreement is on the agenda this time...But at this juncture, the U.S. might like Egypt to go for a Qualified Industrial Zone (QIZ), like that set up between Jordan, Israel and the U.S.,” the source said.

Jordan's arrangement permits the entry of goods, produced jointly by Jordan and Israel in a special industrial zone, into the U.S. market without import duties or quotas.

USAID'S SHIFTING FOCUS

While some Egyptians are concerned about the repercussions of a smaller aid package, others welcome the change.

The U.S. aid programme has been criticised for years by many Egyptians who accuse it of fostering corruption and say it has prevented Egypt from pursuing a more independent regional foreign policy.

Some critics have argued that economic reforms promoted by USAID have hurt local industry and jobs, made Egypt more dependent on imports and weakened social safety nets for the poor.

“The big problem with aid is that it reinforces patronage networks,” said a British researcher at Oxford University who declined to be named.

“Part of the aid package is loans to private sector business. The big chunk of these loans go to large businesses, i.e. those with strong connections with the government. The result: smaller businesses have seen less of the action and there is plenty of scope for corruption and insider dealing,” the researcher told Reuters.

The biggest single item of the aid package is the Commodity Import Programme (CIP), which accounts for about one quarter of total aid dispersed.

The CIP, which finances imports of U.S. products, has often been criticised as a means of promoting or subsidising U.S. exports.

“One shortcoming of USAID is the stipulation that we have to buy equipment from the U.S., which is sometimes more expensive than if Egypt had the freedom to buy from world markets,” Said said.

Some critics have also argued that the capital-intensive nature of certain USAID projects means they do not create enough jobs for Egypt's burgeoning labour market.

“We certainly agree that there's a need for more jobs and, together with the Egyptian government, we in fact have begun a programme of phasing down our investments in the infrastructure sector,” USAID's Pearson said.

“Egypt needs to create 500,000-600,000 jobs a year...By creating the broad economic conditions to allow Egypt to become a healthy, strong, growing economy, jobs are going to be created,” he added.

Pearson pointed to a number of retraining programmes and about $600 million in loans to small, medium and micro enterprises that USAID has funded and organised over the years.

ã Reuters Limited 2001.

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