Reality check

Egypt's QIZ agreement should be viewed as part of a bigger picture, writes Ibrahim Nafie

---

Egypt, the US and Israel have just signed a Qualified Industrial Zone (QIZ) agreement in accordance with which seven such zones have been established, with more to come in the future. The announcement of this protocol precipitated an outcry from some commentators who clearly fail to comprehend the larger picture of Egyptian foreign policy. Egypt has consistently worked to turn its bilateral relations with regional and international powers to the advantage of national interests and Arab causes. To home in on a single agreement or policy decision and take it out of context does a grave injustice to Egypt's comprehensive and integrated foreign and domestic policy vision.

Last week I focussed on how Egypt has optimised its bilateral relations to further Arab causes, and specifically the realisation of Palestinian rights. Today I will address the national dimension of the Egyptian vision.

To understand our current actions we must begin with the new government that was ushered in several months ago. This government is imbued with a fresh and unprecedentedly courageous spirit, and it has set itself an ambitious goal which is to stimulate solid, sustainable and comprehensive development. Towards this end it is prepared to pursue new and unconventional solutions.

The government has already shown its mettle in the customs reforms it instituted, which have already injected new life into the long stagnant Egyptian market. Similarly, its restructuring of income tax scales has had the immediate effect of easing the burden on average citizens while simultaneously curbing tax evasion and enhancing prospects for domestic investment. Spurring higher rates of economic growth and improving standards of living requires enormous levels of investment. For example, Egypt needs to create some 650,000 new jobs every year, which requires an annual investment of LE5 to 6 billion. In order to free the government's hand for investment in other vital services and activities we must strike a difficult balance by encouraging the private sector to bear some of the onus. For this reason I was impressed by the proposal to put the construction and operation of nine new toll roads out for tender to the private sector and by the idea of allowing privately owned trains to operate on the Cairo-Alexandria railroad. Projects such as these promise higher levels of investment and more jobs.

The government's recent actions coincided with the increased liquidity available to Arab investors due to the recent rise in petroleum prices and have encouraged them to seek out investment opportunities in Egypt. The government should now consider further measures to stimulate investment, bringing to bear the same bold and innovative spirit that it has demonstrated to date.

Which brings me back to the QIZ agreement, which I believe represents a well-timed investment in our relations with the US.

There has been a growing hostility towards Egypt in the US Congress as is evidenced by the bills targeting US aid allocation to Egypt. The most recent example is that sponsored by Senator Tom Lantos to divert $570 million of the military aid allocation to the economy. Although the bill was defeated, in large measure due to the rapid intervention of US Secretary of State Colin Powell and National Security Adviser Condoleezza Rice, who stressed how vital Washington's relations with Egypt were, we cannot afford to ignore its implications.

The tide of opinion in the US Congress was one of the considerations that prompted Egypt to devise a new framework for its relations with Washington, one that will better enable us to channel these relations towards advancing our political, economic and strategic interests. Egypt currently exports $1 billion of textiles, ready-made clothes and other products to the US under the quota system which will expire at the beginning of January. Faced with the prospect of a loss of a third of this volume of export due to the competition from other textile exporting countries, Egypt signed the QIZ agreement which provides for custom- free entry of Egyptian products from these zones into US markets, on the condition that they contain an 11.7 per cent Israeli component. The protocol will give a much needed boost to the Egyptian economy and safeguard our textile industry. Investments in this sector are expected to climb by $ 5 billion in the next year alone and it will encourage other countries whose export industries are threatened by the abolition of the quota system to invest in Egypt in order to benefit from the advantages of QIZ. Also, the protocol will soon benefit other sectors of the economy, such as the food, agricultural and petrochemical industries. Furthermore, because of the QIZ agreements, we will be better poised to reach a free trade agreement with the US, negotiations over which are expected to last at least two years.

We are in a race with time to fulfil our economic and development ambitions. The challenges we face compel us to abandon the hollow slogans that have thwarted so many of our national projects, and to be bold and innovative in channelling our resources. People have every right to criticise the measures we adopt towards the fulfilment of our aspirations. But before they do so we hope they take into consideration the realities of our economic and social circumstances, and the realities of regional and international developments. Only through a sound assessment of our challenges can we chart our course.