On the eve of President Hosny Mubarak's international tour to several Eastern countries, Minister of Trade and Industry Rachid Mohamed Rachid spoke to Assem El-Kersh and Mona El-Fiqi
Rachid Mohamed Rachid
In its quest to open up new horizons and strengthen Egypt's position in the global economy, the government is spearheading initiatives to build trade with both China and Russia. The current visit to the two countries , as well as Kazakhstan, by President Hosni Mubarak was preceded by official and business delegations headed by Minister of Trade and Industry Rachid Mohamed Rachid. Speaking to Al-Ahram Weekly, Rachid divulged on his aspirations for Egypt to forge closer links with two of the world's largest and most dynamic economies. He also spoke of his vision for the Egyptian economy, and responded to controversies about the role of businessmen in politics
This is the first time that the minister of trade and industry has knocked the door, or paved the way for President Mubarak's visit. Does this reflect a change of priorities?
Yes, it reflects the change in the world, and is due to the fact that most of the visit's agenda is economic, with the essential component being the economy.
How do you explain the apparent, sudden interest and extensive efforts by the Egyptian government to build strong economic relations with China and Russia? Why now?
Egypt has had strong, (long-standing) relations with China, which started 50 years ago. The president's visit is the ninth to China. The reason for our great interest in building economic relations with Eastern countries like China, Russia and India is that Egypt should cope with the changes which occurred in the world's economic map.
Although China has always had good ties with Egypt, 15 years ago it was a closed country that had not started its integration with the global economy. What happened (since then) was a great change, in favour of the Eastern countries. The share of the USA, the EU and Japan in the global economy was 85 per cent. This has now been reduced to 60 per cent, with the economies of the Eastern countries, excluding Japan, growing to reach 40 per cent of the global economy.
The share of this triad (USA, EU and Japan) is expected to decrease over the coming 15 years to 50 per cent.
China comes through as the world's third largest country (when we assess its share in global trade). What is now happening in China and some Asian countries determines the world's trends. The recent announcement that an Airbus company will build a factory to manufacture airplanes in China underscores this economy's importance.
Why did we wait this long before moving east?
Egypt's integration with the global economy was very limited, and so to attain integration, it activated the Partnership Agreement in 2004 with the EU, which will continue to be the most important market for Egypt. We also activated the Arab Free Trade Area in 2005 and the Qualified Industrial Zones (QIZ) agreement with the USA in 2004.
Things take time, however. The Arab Free Trade Area was finalised in 2005 for instance, even though the initiative (for an Arab FTA) started 50 years ago. Now the exports of 11 Arab countries to Egypt enjoy zero tariffs.
Egypt's economy is now ready to be integrated, and competitive, in the global economy. We were not ready prior to this, to go through agreements, since the economy was less open to global integration. The step to open markets for Egypt in Eastern countries is now important for it to complete its integration in the global economy.
Is this move to open up new markets in China aimed at replacing other markets like the American market for instance?
No, it is a step aimed at attaining a comprehensive framework of economic integration. We still have our programme of cooperation with the EU, the US and other partners. Opening up to the east does not mean closing down to the west.
The New York Times related the Egyptian move towards Asia to the government's formal, open criticism of American policies in the Middle East. The newspaper said that this new orientation aims to pressure the US into playing a greater role in settling the Palestinian-Israeli conflict. What is your comment on this?
It takes two to tango. This orientation (towards the east) could have been had a limited or temporary impact, if there had not also been interaction on the economic level.
Had Egypt tried to boost its political ties with China 15 years ago when its economy was closed, the step would have been limited, and of no positive impact on the economy. The average growth in the volume of Egyptian-Chinese trade proves that in the coming 10 years, China, and not the USA, will be Egypt's primary trade partner. This has nothing to do with politics. Both governments have no control on the companies which will lead to an increase of bilateral trade between Egypt and China.
What is the current volume of trade between Egypt and China?
Bilateral trade now stands at $2.1 billion, of which $1.9 billion is in favour of China and $200 million is the volume of Egyptian exports to China.
What steps is the Egyptian government undertaking in order to boost exports to China?
The role of the government is to establish the economic framework for this cooperation. If the government does not interfere by setting a sound framework, the volume of trade will continue to rise in favour of China. Countries all over the world are complaining of the highly competitive Chinese products which enjoy high quality and cheap prices.
The ministry of trade is also (faced with the task of raising) Egyptian manufacturers' ability to produce competitive products that can enter the Chinese market. .
According to your previous announcement the government aims at sizably raising the trade volume between Egypt on the one hand, and China and Russia on the other. What are the concrete steps taken by the ministry in this respect?
As I mentioned the aim of the visit is to set an economic framework which includes the trade volume. The role of the ministry is finding ways to promote Egyptian exports in the Chinese and Russian markets. The ministry had already concluded a protocol with Russia within the framework of the World Trade Organisation (WTO) that permits a preferential treatment for Egyptian exports to Russia. According to the protocol, Egyptian exports will enjoy a 50 per cent cut in tariffs.
As for China, we also finalised a preferential treatment for Chinese businessmen who will use Egyptian imports in order to encourage Egyptian exports to China. The trade balance will always be in China's favour. This is not a problem at all since the economic package with China includes six items, namely trade volume, tourism, investment, technology transfer, human resources development and logistics. Even if the trade volume is in China's favour, we can benefit from other items such as investment. If Egypt succeeds in attracting $100 to $200 million annually of Chinese direct investments to Egypt, this will be of great benefit.
Does the visit aim at striking a balance in Egypt's relations with the Eastern countries, as opposed to its ties with the West?
The political agenda is equally important and full of issues, yet the economic agenda is not directed by political (considerations). It is market driven. Egypt cannot isolate itself from cooperating with large markets such as China, whose import figures exceed $600 billion. It should seek for a share of this huge (export market). There is no objection to benefitting from this on the political level, since both the political and economic interact. It is time to benefit economically from the huge reservoir of our political relations with Russia and China.
Chinese investors in Egypt often utilise Chinese labour. How can the ministry maximise the benefits from such Chinese investments to be in favour of Egypt?
There are currently some investment projects underway, such as the establishment of a fairground. It will cost around $200 to $300 million which are non- refundable. The Chinese have the right to establish projects with Chinese labour and management, but the story is different when they establish companies. According to our laws these companies are Egyptian, even if they are totally owned by Chinese businessmen.
We are promoting foreign direct investments in Egypt equally, by European, Arab or Chinese businessmen. These investments will provide job opportunities for the Egyptian labour force. They will utilise Egypt's raw materials, and will help provide foreign currencies to Egypt.
China is starting to invest $50 billion annually as foreign investments throughout the whole world. The second item which is included in the economic package with China is tourism. China is expected to be the largest exporter of tourists in the world. Some 100 million Chinese tourists are expected to go abroad annually. We should work to attract Chinese tourists and raise them from the current 50,000 tourists to reach one million, as is the case with Russian tourists to Egypt. The trade balance between Egypt and Russia is now in favour of Russia. It will be changed to be in Egypt's favour if we add the revenue of Russian tourists, which is estimated at $800 million.
Egypt can also gain from transferring technology from China. During my recent visit to China, some Egyptian businessmen (decided to) buy capital goods and machinery needed for their factories from China. These would adhere to the same high EU specifications, but the price is less by 30 per cent than it is in Europe. In the current stage, Egypt needs Chinese technology to build factories and develop railways and ports. If Egypt can buy these technological items at 30 per cent less, related to our total annual investments estimated at $3 billion, then we can save $1billion, which is a good figure.
Chinese investors on the other hand, are looking to invest in Egypt because of its strategic geographical location, its huge local market, as well as cheap labour force and energy. The final aim is to establish factories in Egypt which will manufacture their products and export them to the African as well as European markets. This will be according to the privileges provided to Egyptian exports, by virtue of our agreements with these countries.
Does the ministry intend to take some protective measures to face the current trade imbalance between Egypt and China?
No, the trade volume should not necessarily be balanced with every country. The trade volume between Egypt and the USA and Britain is, for the first time, in favour of Egypt. Many imports are currently bought from China and other Eastern countries. This cannot be calculated. It is left according to Egypt's benefits. I buy an item if it is good and cheap.
Encouraging exports to be competitive tops the government's priorities. How can you permit the balance of trade not to be in favour of Egypt?
The tool is to raise the exports volume, but we are not fixated on trade balance. We should look at the current account because it includes services which represent 60 per cent of the global economy. These are tourism, transportation and financial tools which are not calculated in the trade balance. When tourism figures rise, we have to import more products to cover their needs. Although this helps the current account, it does show in the trade balance. Egypt's current account has been positive in the last two years.
Do you expect to conclude new agreements there?
No agreements; the aim is to lay the groundwork for the economy and Egyptian companies to work in a healthy and economically sound framework.
What do you expect from the visit then?
I expect that we will come back with a better economic environment related to Russia and China. The Egyptian agenda with Russia included energy, oil, gas and tourism. Moreover, we are currently negotiating on the establishment of the Russian industrial zone for vehicles and airplane components. We are also promoting fresh vegetables and fruits exports which have great potential in the Russian market.
What is the situation regarding the recent step towards the establishment of a free trade area with Russia?
Negotiations are currently ongoing. A free trade area does not mean we will open the two markets. It is economic cooperation to exchange some products that we need such as wheat. They will open up the markets for some Egyptian exports that they need.
Are Egyptian exports competitive in the Chinese market?
Egyptian products are competing with the Chinese exports in different markets such the USA, the EU and even in the Egyptian local market.
We have to develop our exports to enter Chinese markets. We should not (necessarily) export a final product. We can process some raw materials such as cotton and marble for instance, to be exported as semi- final products. We will benefit from the value added. We should not export TV sets to China, but components for other products. Achieving comprehensive integration is possible.
Moving to domestic economic policies: the presidential electoral programme included the promise of establishing 1000 new factories, what has been attained so far?
In the first year it was scheduled to build 90 factories but we did establish 110. Any new factory will not be counted amongst the 1000 factories unless its investment is at the very minimum LE15 million, with 250 workers. But new expansions of already established factories, if more than LE15 million, will be counted.
Do reformers in the National Democratic Party have their own comprehensive perception (philosophy) or it is just trials of reform?
Reform is not a temporary issue but it is a continuous one. We have a lot of programmes for reform and development in Egypt. The first one is the presidential electoral programme. What is important in this programme is not the objectives themselves. For instance, the promise to establish 1000 factories is just an indication of a new system of industry development in Egypt. So is that of providing low- priced lands for investors, and to focus on human resources development, education, transport and health care programmes. The second source of reform we are currently working on is NDP policy plans. The NDP's last conference covered a series of plans and policies including social solidarity, electricity, and transportation. This is an evolutionary process.
Do you think that economic reform should precede political reform?
It cannot be assessed like this. All reform programmes are related to each other. Nothing should come first, all have to come together. A lot of liberalisation of the economy goes hand in hand, parallel to political and social development. The story can be summarised in what we need to provide for the Egyptian citizen (better education, job opportunity, good health care and housing).
It is obvious that the reformers' policies are very liberal when it comes to the economy, but that they are hesitant when related to political reform. What is your view of this?
I do not talk about reformers, but I will talk about the presidential programme which has an aggressive policy relating to political issues. It includes constitutional amendments and political reform in all aspects, including the People's Assembly and the elections and parties law. Nothing is off limits in these discussions.
Do you think that it is acceptable to have foreign assessments of the reform programme and reformers? Recent announcements by American President G W Bush praised the 'young reformers' within the ruling party.
Reform programmes cannot succeed unless home-driven. If the government and people do not take the initiative of reform nothing will happen.
What do you make of Bush's announcements, then?
They are not positive. The assessment of officials by foreign governments is neither acceptable nor effective, whether they are positive or negative assessments. The assessment of an official should come from our own government and people.
There is talk that your future position could be that of prime minister?
I don't want to be a prime minister. It is not my ambition.
Why you do not want to be a prime minister? Do you prefer to go back to your own business?
I took the position to undertake a specific duty and that's it. I have no more ambition. Only God knows what I will do next.
In the domestic market, businessmen and producers have some reservations on the consumer protection law. How do you see their reservations?
We want to activate this law in a way that protects consumer rights. It is a good opportunity to shift power to the consumers' hands. We have taken some of the businessmen's reservations into consideration, in the executive regulations of the law. But we cannot take all of them into consideration, since this will weaken the law.
Are there any loopholes in the consumer protection law?
No. but consumer protection laws all over the world are changing. We have to reconsider the law every few years according to the consumers' culture. For instance in our law the consumer has the right to give back the product if it is not well produced or if it is defective. In Europe, consumer laws do not include such items, because a competitive market already gives such rights to consumers.
Did the ministry discover cases of monopoly on some products such as steel and cement in the local market?
There are cases that are currently being investigated by the Dumping and Anti-Trust Authority. It is judicially forbidden to talk about these cases before the end of investigations.
Being a businessman and member of the cabinet raises concerns about a conflict of interest between your business and official position. How do you see this, given your experience as a minister?
People can judge. I think I have already surpassed the stage of conflict of interest. I think that transparency is very important in this case. We broke some barriers in people's minds by having businessmen in the cabinet, because they are Egyptian citizens after all.
There is public concern that the state will be in favour of businessmen. What do you think?
No one will ever accept that a cabinet should become uniform, all businessmen for instance, or all university professors. Diversity is important in the cabinet's formation.