Glass half-full
The government painted a rosy picture of Egypt's economic performance in a conference hosted by The Economist. Sherine Abdel-Razek attended the inaugural session
The exchange rate regime is completely free, there are two billion dollars of annual foreign direct investment (FDI) in Egypt, and the growth rate is above four per cent. This is not the government's ambitious dream for next year, but, according to Prime Minister Atef Ebeid, what has already been achieved during the past year.
Ebeid was addressing attendants speaking in The Economist magazine's Business Roundtable, where it brings together members of the Egyptian government and business community to discuss economic issues behind closed doors. Only the opening session was open to members of the media.
Ebeid used this same conference last year as a forum to launch Egypt's long-awaited currency floatation. This year, the exchange rate regime was once again the main topic of Ebeid's speech. While asserting that the economy absorbed the first shock following the floatation, Ebeid defended the decision to float the pound, which resulted in a 25 per cent decline in the value of the pound, so that the US dollar is now worth LE7.20 on the black market.
During the past year, the government has come under intense fire for its handling of the flotation. Many analysts have accused the government of contributing to the problem by intervening from time to time to stop the further depreciation of the pound rather than leaving it to market forces. According to Ebeid, though, the truth is quite the opposite.
"We are committed, once and for all, to a free market in foreign exchange," Ebeid said, "the price will be set only by market forces."
A new interbank system for lending dollars among banks is set to start in two weeks. This is aimed at covering the exposed foreign currency positions among banks and meeting the demand of its customers.
While there has been much concern lately over the decline in FDI channelled to Egypt, Ebeid said that this was a "misunderstanding".
The officially announced FDI figure for 2002-2003 of $600-800 million was "not accurate", explained Ebeid, as it did not include all kinds of FDI. He noted that taking into consideration the FDI in both the inland and free zone areas together with investment in the petroleum sector, real estate and capital market, the FDI figure would be closer to $2 billion.
To deal with such misunderstandings, Ebeid said that starting next year the General Authority for Investment will be the only accredited source for investment figures.
Panelists in the opening session expressed some concerns regarding the slowdown of the privatisation programme and the recurring problem of non-performing loans in banks.
Ebeid said that the unimpressive pace of privatisation is a worldwide trend due to the international economic slowdown. He added that the Egyptian programme has had to deal with additional complications.
"We started by selling off the profitable entities," Ebeid said. "Now we have to deal with the loss-making companies which are burdened with problems related to debt settlement and excess labour and different ways of evaluating their assets."
He revealed that the government is about to finalise a deal with local banks to pay off the debt of these companies over 15 years and finance this from the sale proceeds, a deal that one anonymous banker attending the conference described as "another blow to the banking sector".
According to official figures, 158 public enterprise companies have been partly or totally privatised since 1992 and another 32 closed down. Public Sector Minister Mokhtar Khattab announced last week that Egypt plans to sell off 114 loss-making or low-profit state companies over the next three years. All of the companies in question are either in the red or have annual profits of less than five million Egyptian pounds.
Sidestepping the issue of non-performing loans, Ebeid revealed a three-year plan to restructure the banking sector. This includes broad financial, manpower and managerial restructuring, but Ebeid did not elaborate on the details of the programme.
According to the prime minister, Egypt boasted a 4.2 per cent growth rate in the first quarter of the current fiscal year. Ebeid predicted the rate for the entire year would be between four and 4.5 per cent.
Less optimistically, the International Monetary Fund (IMF) forecast in a report in September 2003 that Egypt would record growth rates of 2.8 per cent in 2003 and three per cent in 2004.
