4 - 10 January 2001
Issue No.515
|
Al-Ahram Weekly On-line 4 - 10 January 2001 Issue No.515 |
||
| Published in Cairo by AL-AHRAM established in 1875 | Current issue | Previous issue | Site map | ||
Plotting a global course
The Egyptian economy is facing immense difficulties. To reverse course, the government must go beyond the traditional approach of promoting exports and should regard the success of Egyptian firms in the global economy as the most meaningful test of its policies. At the macro level, this requires changes to interest rates and exchange rates, while on the micro-level entrepreneurship and innovation need to be encouraged.
Firms may not be able to survive high interest rates and high exchange rates, as these tend to decrease aggregate demand for domestically produced goods which can result in a liquidity squeeze. To finance the costs of holding unsold stock, firms have little choice but to engage in "distress borrowing" -- taking additional loans despite high interest rates.
In such an environment, even healthy firms can face cash-flow problems. Firms committed to investment programmes and those dependent upon exporting are especially vulnerable to rising interest rates. The Central Bank of Egypt's policies often force banks to try to maximise their short-term returns at the expense of firms.
The socialist authoritarian mentality is also still manifest in the content of taxation and regulatory policies. The cost of these is disproportionately high for small entrepreneurial firms and too expensive even for larger ones.
Also, the relatively high costs of exchange characteristic of most sectors are a major cause of low productivity. Shipping by air from Egypt to Europe costs twice as much as it does from Israel, making it difficult to export many perishable goods at internationally competitive prices. We should make the costs of exchange more visible and calculate them over many sectors of the economy.
Export promotion schemes should include a partial exemption from corporate taxes and a tax rebate system to refund taxes paid by exporters during the production process. Other incentives that should be provided are payment of cash premiums and the offering of export credits.
At the micro-economic level, dependence on cheap labour and the paternalistic relationship between government and the private sector must be overcome. Better knowledge about foreign customers' purchasing preferences and the activities of competitors must be sought, while inter-firm cooperation and integration into global markets should be increased.
Until such changes are made, our exports will compete on the basis of low prices due to low wages. These are exports based on poverty -- not on the creation of wealth.
* Sherif Delawar, businessman and economic expert.
© Copyright Al-Ahram Weekly. All rights reserved
 |
|
|||||||||||||||||
| ARCHIVES Letter from the Editor Editorial Board Subscription Advertise! |
WEEKLY ONLINE: www.ahram.org.eg/weekly Updated every Saturday at 11.00 GMT, 2pm local time weeklyweb@ahram.org.eg |
 Al-Ahram Organisation |
