US embassy cable - 05CAIRO3493

C O N F I D E N T I A L SECTION 01 OF 02 CAIRO 003493 
 
SIPDIS 
 
FOR NEA, H, NEA/ELA 
NSC STAFF FOR POUNDS 
TREASURY FOR MILLS/NUGENT/PETERS 
USAID FOR ANE/MEA MCCLOUD 
COMMERCE FOR 4520/ITA/MAC/ANESA/TALAAT 
 
E.O. 12958: DECL: 05/09/2015 
TAGS: OREP, PREL, ECON, EFIN, EG 
SUBJECT: CODEL FRIST MAY 4-6 VISIT TO CAIRO:  PRIME 
MINISTER NAZIF REVIEWS ECONOMIC REFORM 
 
 
Classified by Charge Gordon Gray for reasons 1.4 (b) and (d). 
 
1.  (C) Summary: Egyptian Prime Minister Nazif and Finance 
Minister Boutros Ghali reviewed for CODEL Frist the GOE's 
economic reform policies and plans, particularly regarding 
tariff and income tax cuts.  Nazif also described his efforts 
to use information technology (IT) to boost Egypt's economy, 
and emphasized the value he places on the U.S.-Egypt 
relationship.  End summary. 
 
2.  (SBU) Senate Majority Leader Bill Frist (R-TN) on May 5 
called on Egypt Prime Minister Ahmed Nazif in Nazif's "Smart 
Village" office.  (Note:  The Smart Village is a high-tech 
business park on the outskirts of Cairo.  End note.)  Nazif 
was accompanied by Finance Minister Youssef Boutros Ghali, 
Internatinal Cooperation Minister Fayza Aboulnaga, Cabinet 
Secretary General Dr. Sami Saad Zaghloul, and Spokesman Magdy 
 
SIPDIS 
Rady.  Senator Frist was accompanied by the Charge; staff 
members Mark Esper and Nick Smith; and ECPO Counselor 
(notetaker). 
 
3.  (SBU)  Nazif opened by noting the Smart Village setting 
and went on to explain the state of the IT sector in Egypt. 
He explained that Egypt was blessed by geography*its 
location at the crossroads of Europe, Asia and Africa meant 
that Egypt lies right in the path of major submarine fiber 
optic cables, giving it access to more bandwidth than it can 
use.  Nazif explained the GOE's "Computer in Every Home" 
program, through which Egyptians can purchase cheap PCs on 
installment via their monthly phone bills, and its "free" 
Internet service, which provides dial-up Internet connections 
for just the cost of a local phone call.  According to Nazif, 
two million Egyptian households regularly access the 
Internet.  In response to a question from the Senator, Nazif 
admitted that providing Internet access to Egyptian schools 
was proving a challenge.  The growth of Egypt's school age 
population (50 percent of Egyptians are under 25) was 
outpacing the GOE's ability to provide resources.  Nazif also 
bemoaned the dearth of Internet content in Arabic. 
 
4.  (SBU)  Asked about economic reform, Nazif explained that 
Egypt had begun an ambitious reform and privatization program 
in the 1980s that stalled after the global economic downturn 
prompted by the Asian financial crisis and the war to 
liberate Kuwait.  His new government, Nazif continued, has 
reinvigorated economic reform by cutting tariffs, 
jump-starting privatizations, and putting forward plans to 
slash corporate and personal income taxes and reform the weak 
financial sector.  Nazif pointed to the explosive bull market 
in the Cairo Alexandria Stock Exchange. 
 
5.  (C)  Asked by Nazif to elaborate on the reform plans, 
Boutros Ghali characterized his tax reform plan as one that 
"Republicans would love."  Income taxes have been simplified 
and rates cut in half, Boutros Ghali said, adding that the 
GOE planned to move to an income tax self-assessment system 
like that in the U.S.   Customs had been improved not simply 
by cutting tariff rates, but by eliminating a plethora of 
confusing exemptions.  Simply eliminating exemptions allowed 
Boutros Ghali to idle 7,000 exemption experts who had 
previously been employed to verify importers' compliance with 
myriad overlapping exemptions, he said.  The idle experts 
have been exiled to a Ministry of Finance "think tank" near 
Cairo where, Boutros Ghali implied, they can do no harm. 
Likewise, Boutros Ghali continued, he expected that moving to 
income tax self-assessment would make redundant 39,000 tax 
inspectors.  In response to a question from the Senator, 
Boutros Ghali said that Egypt has no capital gains or 
inheritance taxes and no tax on dividends. 
 
6.  (C)  Still to be tackled, Boutros Ghali said, are real 
estate and value added taxes.  VAT in particular needed 
reform, Boutros Ghali said, as it suffers from too many rates 
and inconsistent application.  Nonetheless, Boutros Ghali 
concluded, the result so far left him optimistic.  He had 
forecast a 40 percent fall in customs revenue after the 
tariff cuts, but an increase in imports prompted by the cuts 
and economic upswing meant customs revenues fell only 24 
percent.  Over time, Boutros Ghali said, he expects customs 
revenue to all only 10 ) 15 percent due to the tariff cuts. 
 
7.  (C)  Turning to political reform and regional issues, 
Nazif stressed the value he placed on Egypt's ties to the 
U.S.  He noted President Bush's statements on political 
reform and asserted that the GOE has ambitious plans in that 
regard.  Regarding the peace process, Nazif stressed that it 
was important for the international community to support the 
Palestinian economy vigorously.  He said that Egyptian 
business is ready to invest in Palestine "if the environment 
is right".  Minister Aboulnaga added that the Japanese and 
Italian governments had already had discussions with the GOE 
on working together to boost the Gaza economy. 
 
8.  (U) CODEL Frist did not have an opportunity to clear this 
message before departing Cairo. 
 
 
Visit Embassy Cairo's Classified Website: 
http://www.state.sgov.gov/p/nea/cairo 
 
You can also access this site through the 
State Department's Classified SIPRNET website. 
 
GRAY