16 - 22 August 2001
Issue No.547
|
Al-Ahram Weekly Online 16 - 22 August 2001 Issue No.547 |
||
| Published in Cairo by AL-AHRAM established in 1875 | Current issue | Previous issue | Site map | ||
U-turn
Now that the central rate for the pound to the dollar more closely reflects its real value, the question is: what next?
The step taken has, for the moment, ended speculation in the exchange market, by "riding the price at the highest point," and allowing for fluctuations in the exchange rate to approach and even supersede the current black market price. The flurry of transactions witnessed by banks and exchange bureaus which ensued in the wake of the new central rate (mostly sales of dollars), indicates that there was a degree of hard-currency hoarding. But initial exuberance must not obscure other, less benign factors, which are even now apparent.
While in principle devaluation should encourage exports (by making them cheaper), and decrease imports (by making them costlier), these changes will not happen in any substantial way in the foreseeable future. Nor would these changes uniformly help the economy. True, non- productive luxury items account for some of Egypt's import bill; and demand for them will wither as their cost rises. But production inputs are also imported, making up almost 50 per cent of the components in local produced goods. The costs of these commodities will now increase. And even if export revenue at the new exchange rate increases on the balance sheet, it will only do so nominally. Egyptian exports, even at a 6.4 per cent devaluation of the pound, are still expensive in their prime market, Europe. The pound remains pegged to the dollar. European currencies have depreciated against the dollar, by something in the region of 30 per cent, over the past year.
The national agenda, then, must prioritise a massive export drive, generating long-term hard currency and creating employment. This will only happen if Egypt's services sector mobilises: in tourism and financial services (banking and insurance); in free zones; and in transit and marine services. The prospects for development are clear from the experience of places where such policies have been put in place, such as Dubai, Singapore and Hong Kong. Having adopted the proper administrative and financial architecture, they have become centres of gravity for investors. Egypt, with its demographic and economic potential, can outstrip these centres combined -- if the political will is right.
Added to the above, we must admit that, so far as commodity exports go, there is slim prospect -- under the current fiscal and administrative regime -- of any export performance to boast of. The taxation burden continues to undermine whatever potential Egyptian exports may have. Until a radical policy u-turn is initiated, totally absolving exports from the plethora of fees currently imposed upon them, there can be little improvement in their current weak market penetration. That said, should the miracle happen, and economic policy muster to support commodity exports, the results will not be apparent for two or three years -- at least. And even then, given fierce global competition, Egypt's exports alone will not generate enough revenue to balance its current account.
Only a massive focusing of our economic ambitions will help overcome our yawning trade deficit, and the renewed tendency for external borrowing. None of this will happen merely because the exchange rate is made more flexible, or because of devaluation, or the "rationalisation of imports." A new economy is needed, without administrative corruption, without opaque government accounting, without irrational state expenditure and without the rigid bureaucracy which still supervises investment. Only then, will there be confidence that the economy is moving towards generating enough hard currency revenue to cover demand.
© 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 |
Recommend this page