Al-Ahram Weekly Online   14 - 20 September 2006
Issue No. 812
Published in Cairo by AL-AHRAM established in 1875

Time for step two

Egypt is grappling with transforming a sound economic reform policy into much more tangible results on the ground. Sherine Nasr reports from this week's Euromoney conference

Investment Minister Mahmoud Mohieddin was not a happy man. Speaking at the opening of this year's 11th annual Euromoney conference in Cairo, the minister directed his anger at the International Finance Corporation's (IFC) 2006 Doing Business report, which ranked Egypt at 165th worldwide in terms of countries that had improved business regulations and cut red tape. Mohieddin said the experts who put together the report did not appear to "have a full understanding of our economy". The 16 firms that the IFC -- the World Bank's private sector arm -- chose to examine for its report, he said, were not a very representative sample.

The report indicated that while African countries in general have taken strides towards adopting smoother procedures to regulate the economy, they still have a long way to go before a fully pro-business atmosphere becomes the dominant dynamic. On this point, Mohieddin seemed to concur: "We know we are [still far away from being lauded] for what we have achieved," he said, because there is still more work "ahead [for] us to do". Admitting that Egypt still suffers from problems related to financing investment, settling investment disputes, dealing with high inflation rates and bureaucracy, as well as providing for a growing bill of subsidies, Mohieddin still insisted that "this country deserves better," when it comes to global rankings like the IFC's.

Indeed, a lot has changed in the two years since Mohieddin and other members of the Egyptian cabinet's so-called "economic dream team" took office, to much international fanfare. Today, Prime Minister Ahmed Nazif told the Euromoney gathering, "we are cruising comfortably, as our economy is showing signs of healthy growth." Nazif was referring to the fact that Egypt managed to achieve a 6.9 per cent growth rate this year, a figure it has not seen for 50 years. Egyptian exports rose 25 per cent in 2006, while Foreign Direct investments (FDI) have more than tripled in the past three years to register a record $6.1 billion by last June. Investments by Egyptians have also seen an increase ranging from 20- 25 per cent over the past two years.

"Egypt is expected to meet its $8 billion FDI target in 2007," Mohieddin said; he attributed this to the fact that "we are accelerating the privatisation process." Proceeds from privatisation this year have already contributed 10-15 per cent of the FDI increase thus far, the minister said.

Citing two high-profile cases, Mohieddin said that both Omar Effendi and Shebin Al-Kom Spinning and Weaving will be sold within the next few weeks, with the proceeds directed towards helping upgrade services in many areas.

The buzz, meanwhile, at this year's Euromoney event was the growing confidence that multinational companies operating in Egypt feel towards the measures being taken to foster a pro- business environment. "The factors that effect our decisions to invest in Egypt are largely related to the kind of reform actions taken, and how they are carried through on the practical level," said Mathew Kirk, director of external relations at Vodafone Group Services; his company's investments are very large, he said, with the expected return being long-term. As such, Kirk singled out praise for "reforms taken at the customs area, for example," which he said appeared to be proceeding in "the right direction."

Local entities also seem to be profiting from reform. A survey of 93 major companies from different sectors revealed that 72 per cent recorded increases in revenues ranging from 6-200 per cent during 2005. "The enabling environment has reflected positively on these companies, as it helped them increase their profitability," said Mohamed Younes, chairman of Concord International Investments, which conducted the survey.

But while "the economy is showing signs of self-sustaining growth led by diversified economic resources," according to Finance and Social Insurance Minister Youssef Boutros Ghali, there still appears to be a gap between these positive indicators and the average person feeling their impact. An 8.5 per cent inflation rate, for one, seems to be eating up any progress. Boutros Ghali blamed the high inflation rate on the fact that the prices of many commodities need to be adjusted. "I am afraid that the prices of certain commodities -- like energy products and telecommunications -- have to be raised to adjust." He indicated that this was the transitional cost for moving ahead with a liberal, market-oriented economy.

At the same time, the minister said, the government is committed to maintaining a policy of transparency in an attempt to mitigate the negative impact of shifting to a decentralised economy. Improving the social security net to shelter the unprivileged has thus been underlined as a major concern. "The less privileged deserve more, and we have the assets," Boutros Ghali said. "We [just] need to re-distribute them."

Today, he said, the government has a clearer vision of what it is doing, and is more capable of making a conscious decision as to where to use the subsidies, and how. Clear examples of this new dynamic are abundant. Proceeds from the privatisation process, for instance, have been directed towards vital public service sectors. LE5 billion has been allocated to upgrade the railways. Some LE200 million will be used to reduce pollution in Kafr Al-Sheikh. An upgrade of the main highway connecting the Upper Egyptian governorates of Assiut, Sohag and Qena is also underway.

Special attention is also being given to training the workforce, and building its capacity. "LE500 million has been allocated exclusively to re- training a skilful workforce so as to become more able to address the actual needs of the market," Boutros Ghali said. It was quite paradoxical, he intoned, to see a 10 per cent unemployment rate while businesses were simultaneously complaining about the scarcity of the skilful labour needed to fill many job vacancies.

Partnering with the private sector has also been underlined as a tool for getting the job done efficiently. "By 2011, some 3,500 new schools, 400 healthcare units, a third underground line, and some 1,000 small and medium- sized factories will have to be built," Nazif said. But, the prime minister added, referring to the government's recently introduced Public Private Partnership initiative, "we are not doing it the old way; [instead], the private sector is taking a vital role in making these achievements come true."

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