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Al-Ahram Weekly 25 - 31 May 2000 Issue No. 483 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 25 - 31 May 2000 Issue No. 483
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Focus Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters One more vicious circle
By Hassan Abbas-Zaki*The current fluctuations in liquidity do not, alone, constitute a crisis. They occur regularly in every economy and when they do, central banks either inject money into the market, or reduce the amount, depending on whether there is a lack or surplus of liquidity. More significant, perhaps, than the immediate measures related to liquidity undertaken by the government is an issue that has yet to be settled -- the fixing of interest rates on loans and deposits. Industry is demanding that interest rates on loans be reduced to help activate the market.
The CBE would be wise to consider decreasing the percentage of reserves placed by banks in its custody. Banks currently place 15 per cent of their total deposits at the central bank, on which they receive interest. Were this to be decreased to 13 per cent, it would free up to LE5 billion, which would certainly help resolve the liquidity problem. It might also consider reducing interest rates by 0.5 per cent, which would save costs on long term deposits.
But while the recession might be partially alleviated through monetary policies, the root causes of the problem -- long-standing patterns of productivity -- must be reversed. The Egyptian economy has for long suffered from poor productivity. In the face of increasing global competition the situation is likely to deteriorate further unless radical solutions are found, solutions that inevitably must include an upgrading of education and of technological skills.
Patterns of investment, too, must be overhauled. The government, in its drive to encourage business, has encouraged several projects which have yet to yield results. Agricultural projects have been launched in which billions of pounds have been spent on reclamation and infrastructure. A more coherent balance must be made, specifically in the agricultural sector, between horizontal and vertical expansion. We need to focus more intently on improving productivity per feddan in the old agricultural lands of the Nile Delta.
Agricultural waste is estimated at around 20 per cent of production, a result of inefficient transportation and the mishandling of produce. Economic growth might be boosted by at least one per cent, without any additional costs, if we reduced such wastage to the minimum.
In industry as well, enhancing the productivity of existing factories is no less important than establishing new ones. Factories not operating at full capacity -- and they are many -- must be reassessed and where necessary pruned. Those capable of responding to inputs so as to reach full capacity must be identified and encouraged to boost production without incurring additional costs.
Poor export performance is one of the most potent reflections of the dilemmas afflicting patterns of productivity. This low export performance in its turn compounds economic problems by exacerbating the need for hard currency. A vicious circle is created in which revenue is required to boost production and employment, while a minimum standard of the latter is necessary to boost exports. A restructuring of productivity, then, must go hand in hand with policy initiatives targeting export promotion.
The difficulties encountered by Egyptian exports in international markets are compounded by poor marketing and a seeming inability to ensure the consistent quality control necessary if international standards are to be met. Furthermore, the protectionist measures undertaken by potential trade partners will not be overcome unless the global market is studied and a clear plan devised on how to venture into it.
One possible model is furnished by Japan's successful creation of a government agency mandated to study the needs of foreign markets. Identifying potential markets, locating and exploring them thoroughly, must then be followed up by efficient packaging and shipping. Small businesses cannot possibly hope to undertake such analyses themselves, the costs would be prohibitive, hence the need for a government sponsored institution.
The drive to open up more markets for exports through a mutual lowering of tariff barriers must also be vigorously pursued. The expansion -- current difficulties notwithstanding -- in establishing free trade zones with Arab and African countries is in this respect a necessity. It is also necessary to establish joint commodity councils in areas where this would provide a strategic advantage. Egypt, Bahrain and the United Arab Emirates, for instance, together produce 20 per cent of the world's aluminum. By working together they can effectively widen their export market on the one hand, and protect their own industries on the other.
Egypt's competitive edge lies in the export of services rather than in industrial goods which require time and expenditure in the making, and for which international demand is notoriously fickle. The export of services in the tourism, marine, transportation and technological service sectors, on the other hand, if successfully implemented could boost Egypt's export performance by several billion dollars in just a few years. Other emerging economies have successfully developed their software industries -- India, for example, has been able to export $8 billion annually, and is aiming to raise this figure to $70 billion in 10 years, while Israel's current exports of software are estimated at $1 billion.
Egypt's potential to enter the global software market is no less than these countries, though to capitalise on this opportunity the government must emphasise the importance of software production through education, equipment and training in addition to soliciting IT investments.
* The writer is a board member of the Central Bank of Egypt and a former minister of the economy.
