In 1998, the U.S. and Egyptian governments agreed to reduce U.S.  economic support from $815 million to $407 million per year in fiscal year  2009. CIP Assists Egypt’s Private Sector and Supplies Funds to the Egyptian Government

The CIP provides favorable financing to importers of U.S. goods and,  through the loan repayments, supplies funds to the Egyptian government. From fiscal years 1999-2003, about 650 Egyptian firms used the CIP to  import just over $1 billion in U.S. products from approximately 670 U.S  exporters. In a 2003 USAID-sponsored survey, 66 percent of Egyptian importers  surveyed said that they would have imported U.S. goods without the CIP. However, 49 percent of survey respondents said that the CIP helped  increase their firm’s production capacity and 32 percent said that the  program helped increase their firm’s employment levels. Although three-quarters of the  U.S. exporters surveyed indicated that they would have exported goods to  Egypt without the CIP, almost half said that the CIP helped their firm  increase its exports to Egypt. Egyptian Government and USAID Jointly Determine Use of the Special Account

In an annual memorandum of understanding, USAID and Egypt’s Ministry  of Foreign Affairs jointly determine how much of the local currency from  the repayment of loans in the special account will support Egypt’s general  and sector budgets and USAID’s activities. In addition, USAID used about 6  percent of CIP-generated funds in the special account for some of its  operating expenses. Several Factors Limit CIP’s Ability to Strengthen Egypt’s Private Sector

Various factors have limited the CIP’s ability to foster a competitive  private sector in Egypt. A second factor affecting the CIP’s ability to strengthen the private sector  has been the perceived inconsistency in the government’s foreign  exchange policy, according to several U.S. government studies and a  senior Egyptian economist. In this context, the CIP can provide only limited relief  to the country’s foreign currency needs. Because of experience  with bad loans, the recent economic slowdown, and the resulting  increased risk of nonrepayment, Egyptian banks are reluctant to finance  entrepreneurial activity, according to the Economist Intelligence Unit. Finally, the CIP’s impact on the private sector has been constrained by  Egypt’s large number of informal businesses, which the program is not  designed to reach. For fiscal years 1999-2003, we analyzed (1) program participants’ use of  the CIP and the Egyptian government and USAID’s use of program funds  and (2) factors that have affected the CIP’s ability to foster a competitive  private sector in Egypt.
Why GAO Did This Study

The Commodity Import Program (CIP), managed by the U.S. Agency for International Development (USAID), is intended to foster a competitive private sector in Egypt, in addition to assisting U.S. exporters. The program also supports the government of Egypt and USAID activities and expenses in Egypt. Since 1992, Congress has appropriated at least $200 million per year for the CIP. In 1998, the United States negotiated a reduction in its economic assistance to Egypt, including the CIP, through fiscal year 2009. In this context, GAO was asked to discuss its ongoing analysis of (1) program participants' use of the CIP and the Egyptian government's and USAID's use of program funds and (2) factors that have affected the CIP's ability to foster a competitive private sector in Egypt. We received comments on a draft of this statement from USAID, which we incorporated where appropriate. In general, USAID agreed with our observations.

What GAO Found

The CIP provides loans to Egyptian importers of U.S. goods and, through loan repayments, supplies funds to the government of Egypt. During fiscal years 1999-2003, about 650 Egyptian firms used the CIP to import $1.1 billion in U.S. products from approximately 670 U.S exporters. In a 2003 USAID survey, about two-thirds of CIP importers said that they would have imported U.S. goods without the program, but half said that it helped increase their firm's production capacity and one-third said that it helped increase their firm's employment levels. The Egyptian government and USAID jointly determine the uses of the funds from loan repayments. In fiscal years 1999-2003, about three-quarters of these funds supported Egypt's general and sector budgets and about 15 percent supported USAIDadministered activities and operating expenses in Egypt. Despite the positive results reported by some CIP users, various factors have limited the program's ability to foster a competitive private sector in Egypt. According to the State Department, the slow pace of Egypt's economic reforms has created a climate not conducive to private enterprise. Further, according to several U.S. government studies, the Egyptian government's inconsistent foreign exchange policies have hampered firms' ability to do business in Egypt, limiting the extent to which the CIP can relieve the country's foreign currency needs. In addition, because of experience with bad loans, the recent economic slowdown, and the resulting increased risk of nonrepayment, bank officials told us that they are generally reluctant to provide loans to entrepreneurs. Finally, because the CIP is not designed to reach firms in Egypt's large informal economy, the program's ability to foster a competitive private sector is necessarily limited.