Investors waiting it out
Observers do not know what to make of the new make-shift government, writes Niveen Wahish
When the former government was first appointed in 2004, there was no doubt what its point of reference was. With five businessmen in office there was no doubt this was a government with a clear orientation towards the market economy.
The current temporary government, however, is not sending such obvious signals. The members of the new economic group in the cabinet are a mixture. Economist Gouda Abdel-Khaleq, of the Leftist Tagammu Party, is minister of social solidarity and social justice. Secretary- general of the liberal Wafd Party, Mounir Fakhri Abdel-Nour, is minister of tourism but not at the heart of economic policy-making. Samir Radwan, minister of finance, is a development economist with 30 years experience with the International Labour Organisation and consulting positions with the Egyptian Financial Supervisory Authority and the General Authority for Investment. And Samir El-Sayad, chairman of PACHIN, a paints company partially owned by the government, is now minister of trade and industry.
This assortment, according to Hani Tawfik, means ministers will not be able to easily reach common ground. Nonetheless, he said that it is premature to judge seeing that this government is temporary until the presidential elections are held. In the meantime, he does not expect any investments to tap the Egyptian market "before things settle down" in six to 12 months.
On a similar note, Mohamed Rahmy, research analyst at Beltone Financial, is not focussing on the ministers' economic inclinations at the moment considering they are a transitional government. "Analysts are currently more concerned with how the government is dealing with the short-term, day-to-day economic repercussions of the political situation," he noted.
Nonetheless, he pointed out that the government has reiterated its commitment to the reform programme which they had been pursuing. They also indicated they will continue with policies conducive to Egypt's investment profile while bidding for the welfare of the people and implementing policies that lead to trickle down in a more visible manner.
Notwithstanding, Rahmy said that for the coming six months, Egypt will see limited foreign direct investments, "not because of loss of interest but because of uncertainty." Investors are waiting to see what transpires of the situation, he said.
Foreign direct investment (FDI) in Egypt had been expected to reach $8 billion in 2010/11. It stood at $6.8 billion in the 2009/10 financial year. Record FDIs of $13 billion were registered in 2007/2008.
But Ashraf Sweilam, director-general of Egypt's International Economic Forum (EIEF) finds government assurances contradictory. He is worried about a reversal of economic policies. "They [the government] are offering hundreds of government jobs to calm protesters. This is contrary to previous attempts at reducing the size of the government's work force," he said, pointing out that this means a fatter wage bill and, accordingly, a wider budget deficit. also noted differing opinions on whether to maintain a flat or a progressive tax.
"The current selection of personalities cannot be called an economic team and none of them can be considered a champion of reform," he said. Nonetheless, he hopes the different ministers can work together given their different ideological background and inclinations.
But Abdel-Khaleq told Al-Ahram Weekly that the government is not reversing its policies. "Changing policies does not mean going in the opposite direction," he assured. He said that policies throughout the past six months may have been in the interest of foreign investors, but not in the interest of the Egyptian economy. "We [the government] are correcting policies to achieve national interest and social justice," he said.
Sweilam is also concerned that there is a general societal backlash against the private sector which he finds "alarming if it continues and will take its toll on domestic and foreign investments". This, he said, is the result of the fact that many businessmen, through their mere association with the ousted regime, are being investigated for embezzlement of public funds. "We support accountability, but being part of the business community should not become a stigma."
Egypt's growth rate reached 5.1 per cent in the fiscal year 2009/10, up from 4.7 per cent the previous year. It was forecast to grow by six per cent in the current fiscal year but Radwan has lowered his expectations to between 3.5 and four per cent due to the current circumstances.