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Al-Ahram Weekly 28 Oct. - 3 Nov. 1999 Issue No. 453 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 28 Oct. - 3 Nov. 1999 Issue No. 453
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Features Profile Study Special Sports People Time Out Chronicles Cartoons Letters Recipe for a healthy pound
By Hassan Abbas Zaki
Despite the recent criticism of the way in which the "dollar crisis" was handled, one can still maintain that the Egyptian economy is in a fairly good condition. Inflation has dropped to almost 3.5 per cent, down from 25 per cent a couple of years ago. The budget deficit is 1.5 per cent of national income, comparing favourably with the economies of Europe and the United States. The exchange rate has maintained its stability over the past seven years, save for minor fluctuations in the range of 1.5 per cent. Growth rates verge on six per cent, with a potential to reach eight per cent over the next couple of years.
Hassan Abbas Zaki
The "dollar crisis" which occurred over the past year was primarily triggered by extraneous causes. These include the dwindling of hard currency reserves caused by the drop in world oil prices and the devaluation of Asian currencies which resulted in the Egyptian market being inundated with cheap Asian goods. A crucial point to be noted here is that concurrent with this, Egypt's export performance was poor with little, if any, improvement in quantity or quality. Imports also rose drastically, not only as a response to public demand, but also to fulfil the needs of the expansion in investment projects. To avert similar future imbalances, which put pressure on hard currency reserves, a long-term view is required, focusing on achieving a substantial improvement in Egypt's export performance.
This can only be done by creating the institutions and policies which will vitalise exports. A lesson may be learnt from Japanese exporters who have displayed genius in marketing strategies: studying markets and tastes down to the minutest details of colour and shape and then perfecting their industrial performance to demand.
One would suggest here that the government establish, as did the Japanese government, an apparatus directing exporters to specific markets, with carefully studied recommendations on the needs of these markets. This is an undertaking which obviously cannot be shouldered by individual exporters who lack both the material and technical means needed for this.
'Export chambers', each specialising in a group of similar or integrated commodities, should also formulate a plan to bring about the needed amount of exports and ensure the provision of requirements for these exports. These include raw materials, spare parts and technical expertise. Missions directed to study potential foreign markets will report their findings to the Supreme Council for Exports, which the government formed two years ago, as well as the concerned export-funding bank.
The all-important question of incentives given to exporters remains pressing as well. Without going into detail over the recent government directive abolishing taxes on export activities -- which has been criticised for its ambiguity -- one can maintain that a much more radical, and also more carefully studied, policy encouraging exporters with more incentives is needed. This should eliminate obstructive routine procedures and effect drastic reductions in customs and taxes imposed on export activities.
There is also another dimension to exports, that of the new global order in which economies are now grouped in blocs in order to counter the effects of trade liberalisation in the context of the General Agreement on Tariffs and Trade (GATT) as well as the dumping practices of international trading partners. In this aspect in particular, the Arab countries have lagged behind. Arab countries must continue establishing free trade areas between them as a first step to realising the elusive, but much-needed, Arab common market.
The Arab League has established 20 commercial companies so far, but none of these are functioning. Commodity councils should be encouraged, as well as groupings of Arab chambers of commerce, federations of industries and businessmen's associations.
In Egypt, parallel with export-boosting policies, immediate measures must be taken to resolve the exchange rate problem which was primarily represented by a shortage of dollars and the liquidity needed to fund import and investment requirements.
There should be immediate and unrestricted allowances for the provision of hard currency needed to fund direct and non-direct investment. Any lapse in this respect will totally abort the government's efforts to attract foreign investment.
A 100 per cent cover of the credit needed to fund import requirements could be reduced depending on the commodities involved. The provision of credit should be made conditional on the commodity and not on the importer.
Factories must also be allowed a 20 per cent cover on credit directed to funding import needs -- be they raw materials, machines or spare parts -- as long as this is in line with the government's plan. The government can compile a list of necessary imports, such as medicines, where the same principle of a 20 per cent cover on credit will be applied.
As for commodities imported by traders, primarily consumer commodities, a system guaranteeing a lack of extravagance in this direction is in order. This does not mean the enforcement of a quota system or restrictions on imports. But, in this respect, there are policies rationalising imports, which every country follows and where governments retain the privilege of discretion or even 'secrecy'.
Imports and consumption can be rationalised by virtue of these measures without Egypt violating its obligations under the GATT or compromising its integration into the global economy. An allowance should also be made for a limited adjustment of the exchange rate -- as in all countries -- so as to prevent speculation.
A limited raising of interest rates is also called for to increase investment and encourage saving in Egyptian pounds rather than in dollars. A national campaign encouraging saving must also be launched to instil a 'savings' culture. This issue has been researched by the National Investment Bank and should be pursued further.
Cooperatives and small enterprises must be encouraged because they are the basis for industrial expansion and establishing technical expertise.
Finally, in order to qualify for global competition, Egypt must -- as have India and other developing nations -- realise a high-tech exports base. A target of $3 billion worth of high-tech exports -- in the fields of computer programming and technical expertise -- may be attained within two years if the endeavour is seriously undertaken.
The writer is a former minister of economy and current board member of the Central Bank of Egypt.
