Egypt's tiny stock market is struggling to spread its wings and make a bigger contribution to the economy, but a sluggish privatisation programme, high interest rates and an overvalued currency are among a host of problems holding it back.

The appointment of a widely trumpeted new government last October gave the market a distinct push and along with the soaring share-price of Mobinil, one of only two mobile telephone companies in Egypt, the market ended 1999 33 per cent up on the year before, using the Hermes Financial Index of actively traded stocks as a measure.

The numbers look impressive. According to Egypt's capital markets authority (CMA), turnover in 1999 was up by 68 per cent, compared with the year before; market capitalisation was up 37 per cent; the volume of stocks traded was up 89 per cent and 36 new companies were actively traded.

But, says Ahmed Haikal, head of brokerage at EFG Hermes, one of Egypt's leading finance houses: "Last year's figures are misleading. If you factor out our star performer, Mobinil, whose share price more than quadrupled, then the market was essentially flat. What we need is a much deeper modernisation of the institutional and legal framework, a sharp increase in the pace and scope of privatisation and a controlled depreciation of the overvalued Egyptian pound."

Few items on this wish-list seem likely to materialise soon. There are no plans to privatise ports, banks or the national airline, while the stock market and mortgage laws seem stuck in a parliamentary mire.

"We are trying to build a field of dreams," says a US stock market expert who is helping advise the government on creating a capital markets law. "The market is looking for liquidity, transparency, investment protection measures and a level playing field before the law. It has quite a way to go."

Such institutional weaknesses have slowed down the development of the market. The widely quoted Hermes index ended the year at just under 14,000, but this was still well below it's all-time high of 16,200 in 1997, just a few years after the market was relaunched.

Equally worrying, the market has turned against Ataf Obeid, the new prime minister and former privatisation chief, judging that a series of recent controversial decisions over cement privatisation and prices meant his economic reform programme was unlikely to bring about a rapid transformation, as had earlier been hoped.

This, coupled with last month's correction in the US markets, means that Egypt's stock market is down about 25 per cent from its New Year peak and is heading back into the doldrums. Of the 1,033 companies listed on the exchange only 120 are actively traded, and, of these, only 40 are traded every day.