What's in a name

Between cash shortages and fragile confidence in the government, the new economic team in the Cabinet has an uphill struggle ahead, writes Niveen Wahish

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The choice of ministers for Egypt's new Cabinet was the cause of much debate throughout the week. Some were unhappy with the appointment of new names, saying they lack political experience, while others criticised the fact that some old faces stayed on.

The economic team was no exception, where three of the key ministries are now headed by old faces; Minister of Finance Momtaz El-Said held onto his post; Minister of Investment Osama Saleh was head of the General Investment Authority since 2009; and Ashraf El-Arabi, minister of international cooperation and planning, was an advisor to the former minister and had previously headed the Tax Authority.

But investment bank CI Capital in a macro note issued after the Cabinet was announced believes that, "the continued service of such key economic ministerial figures should help to assuage some investor fears." The investment bank added that, "confidence will hinge strongly on the Cabinet's performance and its pace of response to pressing economic issues," and that "the governing capacities of the new names in the Cabinet still need to be tested."

The members of the new team know already their work is cut out for them. They said their target is to deal with the gaping budget deficit, rationalise public spending, attract investment, settle disputes with investors and resume negotiations with the International Monetary Fund on a $3.2 billion loan, among other things.

But one well-positioned observer who preferred to remain anonymous does not believe it is a question of names. He criticised the assumption that this is a stable government, pointing out that the role of the presidency versus the military is not year clear, and these ministers do not have much leeway.

Likewise, Ibrahim Saif, resident scholar at the Carnegie Middle East Centre, questioned in his article "Will Morsi Rise to Egypt's Economic Challenges?" who will be in control of policymaking and direction. "Will policies be determined by the [Muslim Brotherhood's] Freedom and Justice Party? Or will they be controlled by the Supreme Council of the Armed Forces, which has a firm grip over Egypt's destiny? Uncertainty when it comes to who actually has what power is limiting the ability of decision makers to implement long-term reforms."

Added to that, said the anonymous source, is the fact that some of the new names are ministry officials who have risen in the ranks. "They are used to implementing directives, not issuing their own. They will not be taking any fateful decisions," he said.

On a similar note Hani Genena, chief economist at Pharos Holding, believes that the real test stems from the fact that the government is cash-strapped and the economy is seriously cornered. He pointed out that electricity shortages shrouding the country nowadays are the result of falling investment in the past two years, particularly in setting up new power stations to meet growing demand. Cash shortages are also a main cause behind the recurrent fuel shortages in the past months.

The economy grew at 1.8 per cent in the first three quarters of 2011/12. The Ministry of Finance has estimated it will grow at 3.5 to four per cent in 2012/13. Egypt's foreign currency reserves, needed to finance imports of essential food items, such as wheat, are down to around $15 billion from around $36 billion in January 2011. And according to the June financial monthly bulletin issued by the ministry, the budget deficit to GDP rose to 8.8 per cent during the period July-May 2011/2012, recording LE136.5 billion compared to LE112.6 billion during July-May 2010/2011.

Resumption of discussions over an IMF loan of $3.2 billion could help. While the sum is not huge it would be seen as a vote of confidence in the Egyptian economy by an international financial organisation. Genena points out that the IMF has said that the loan hinges on popular consensus and support from other donors.

The loan, which was about to be disbursed a year ago, was stalled by the military, and later by a lack of consensus before the presidential elections. The issue remains unclear, said Genena, adding that there is no parliament in place to back the loan, and as far as support from donors, they are waiting to evaluate the performance of the new president.

But to Ashraf Abdel-Wahab, assistant minister of administrative development and the charge d'affaires of the ministry for the past year, the real challenge to the Cabinet is reinstating trust between the government and the people. He said employees are afraid of taking decisions lest problems arise. "Ministers have been put behind bars, so now they think twice before making a decision," he said.

Abdel-Wahab believes the government can solve its problem of cash shortage by reverting to private-public partnerships, especially for projects that need huge upfront investments, such as electricity power stations. However, he said these projects must be accompanied by a high degree of transparency to avoid being questioned in the future, or accused of corruption. He added the government could do better at rationalising its expenses -- not just in terms of cars or air conditioners, but the logistics of running the government's day-to-day operations. He pointed out that each ministry currently has a data centre to manage payroll information for its employees, each with its own bill. "Why not have one data centre for all the ministries and avoid the redundancy in computers, computer programmes and employees?" he asked.

Abdel-Wahab said that ministers of the new Cabinet, particularly new faces, will need time not only to acquaint themselves with the various issues at hand, but also to learn to coordinate with other ministries. For example, he said, the Ministry of Investment has made great efforts to allow investors to set up a company in a day. But investors still face problems in obtaining licences and land. That requires coordination with various authorities and ministries. "And that coordination is important if the Cabinet has any chance of achieving the goals it set for itself."