A seminar organized by Al-Masry Al-Youm at the office of Prime Minister Ibrahim Mehleb late Saturday had witnessed a heating debate on economic challenges ahead of the Egypt Economic Development Summit slated for 14-15 March.
The seminar presented a paper addressing the non-official economic community, and containing the results of deliberations by experts, businessmen and businesswomen.
The paper was worded by Abla Abdel Latif, assistant minister of industry, Ahmed Galal, chairman of the presidency’s Economic Development Council and Al-Masry Al-Youm’s board chairman, Abdel Moneim Saeed.
Interlocutors concluded with a set of recommendations meant to save the economy from its current conditions, as well as to support current monetary and economic reforms.
Mehleb, meanwhile, asked his aides to present Al-Masry Al-Youm’s economic vision, included in the paper, to a number of government ministers, most notably the Minister of Finance, Hany Qadry Dimian, and the Minister of Investment, Ashraf Salman.
The seminar’s opening speech was made by Al-Masry Al-Youm’s chief editor, Mahmoud Musallam, who stressed on his newspaper’s anxiousness to act as a connection between state institutions, as well as to ensure a satisfying representation of of the private sector in the seminar.
Salah Diab, board member at the Egyptian Businessmen Association (EBA), emphasized on the private sector’s eagerness to support the state in its quest for development, noting that businessmen representatives, the Federation of Egyptian Industries and banks have decided to adopt an idea that materializes the role of civil society in development.
Diab revealed that a copy of the paper had been sent to the presidency, adding that the door is still open for other sectors to share their views, such as the tourism sector. Diab pointed that the Sharm el-Sheikh conference is only a start.
Abdel Moneim Saeed, on his part, highlighted numbers mentioned in the paper which explain the development in the private sector’s contribution to the GDP, investment, and employment. He maintained that the paper was meant to reflect the non-governmental economy’s view on the way out of the current “limbo”. Saeed maintained that social justice and sustainable development can only be achieved via a developmental module based on the encouragement of investments, the enhancement of the business atmosphere and the resolving of private sector problems disregarding their scale.
Saeed also demanded to accomplish stability in macroeconomic policies, applying a faster mechanism for dispute settlement and immediately proceeding with infrastructure investments.
The purported scarcity of lands has also to be addressed, said Saeed, who also tackled the need to expand the taxation base, and the necessity to adopt laws on investment and bankruptcy and to establish a bank that have a specific authority over Egyptian lands.
Mehleb lauded the paper submitted by Al-Masry Al-Youm, saying it was largely congruous with the government’s strategy.
On his part, EBA chairman, Hussein Sabbour, urged to resolve land problems by addressing the scarcity for lands available for investments.
"During the 1980s, there were powerful companies that could construct whole cities,” Sabbour said. He called for eliminating government control over land grants and to return to socialist-style system of licensing.
"The government employee neither cares for the interests of the state nor the citizens, and is always dealing with the public in a bureaucratic manner,” Sabbour added, urging the government to allow companies to make use of lands and to oblige its employees to abandon bureaucracy.
Responding to the suggestions, the prime minister assured that problems related to the land allocations would be resolved soon. He stressed that a number of companies had already obtained lands, adding that banks already hold lands under their management. “The door is open for any company with a project to partner with the state,” said Mehleb.
The prime minister noted that in the past, lands at specific areas were used to be allocated either for free or via usufructs and direct orders. “But all that is history now,” Mehleb stated, adding that 10.000 feddans of lands will be put up for investment during the economic conference.
"Bureaucracy is an old legacy that cannot be resolved overnight, and we have to draw a distinction between administrative errors and corruption,” Mehleb said.
Abla Abdel Latif, assistant trade and industry minister, addressed Prime Minister Ibrahim Mehleb, saying that the new investment law has been issued in a new form, taking advantage of closed-door consultations. She stressed, however, the necessity to amend the bankruptcy law as well.
She added that the delay in financial and institutional reforms hinders economic development by contributing to a lack of coordination among state institutions.
Information regarding administrative and institutional reforms are overlapping and unclear, she said, adding that they should be prioritized accordingly. Moreover, there should be more transparency regarding current and future tax policy, as investors are very concerned about what changes are going to be made in the tax system in future.
She said city administrations are the most deficient parts of the system, and that resolving their issues will help settle many of the difficulties faced by investors. She stressed that technical training has links to education, culture and changing the culture within state institutions.
In her final remarks, she spoke about the non-official sector, which the government considers to be a potential source of tax revenues. As the sector is very large, integrating it with the official economy would help achieve a high rate of growth. She also stressed the necessity to provide social insurance to workers employed in the informal economy.
Prime Minister Mehleb responded that there is a text within the investment law on exit through stock market. He also added that coordination between disputed authorities and agencies are a main role by the prime minister, saying that the Cabinet is trying to resolve all the problems. “We are still in the reformation process of the institutions.”
Nevine Lotfy, head of the Abu Dhabi Islamic Bank-Egypt, highlighted the guarantees that foreign investors should enjoy to transfer their money, stressing need for guarantees that laws are not changed, prevent double taxation and ending the dollar black market.
Elhamy al-Zayyat, chief of the Egyptian Tourism Federation, stressed that government must consider numerical, rather than qualitative growth in tourism especially in light of increasing incoming tourists with low incomes. He stressed necessity to enhance tourism and assisting the sector with financial restructuring.
He indicated the increase in building hotels, which exceeds the sector’s need. He demanded halting the construction of new hotels for the coming 10 years. The number of hotel rooms has reached around 180,000 in 2010, when number of tourists reached around 14 million tourists. While the current number of rooms has reached 225,000 rooms, another 200,000 rooms are under construction necessary for 45 million tourists, indicating the infrastructure cannot bear such a large number of rooms.
Mehleb expressed understanding to this issue calling for formulating a new strategy for tourism in collaboration with the tourism minister and the federation.
Regarding efficiency of employees dealing with industrial legislation, Tamer Abu Bakr, head of Federation of Egyptian Industries’ Chamber of Petroleum and Mining, said executive measures of many laws are being concluded by citizens who are not aware of importance of such laws. He added that if the Suez canal developmental corridor is not run by efficient employees, it will fail, especially since investors in the eastern Port Said area face many issues.
Abu Bakr also called for canceling the gasoline octane 80, expanding issuance of smart cards for petroleum substances, liberating price of gasoline octane 92 to guarantee its quality and creating database on those who deserve the subsidy through studies by the ministries of social solidarity and administrative development. He also called for dividing the poor into segments so every segment would receive its subsidy through the smart cards according to their needs. This system will help rationalize consumption.
“Petrol price will increase during the coming period, which will affect the energy subsidy budget within the public state budget. Price of gasoline octane 90 and 95 should be increased to rationalize the subsidy,” he added.
Paying for dues of the foreign partners through loaning from banks at high interests will burden the state budget, he said concluding that the importing gas from Israel has become imperative, which Mehleb did not comment on.
Tax expert Taha Khaled said tax rate was decreased in 2005 from 42 to 20 percent, causing 300 percent increase in the outcome. Number of those who filed their financial disclosures increased by 250 percent. Imposing tax on stock market profits, which took place recently, hit investment, he said adding that some countries, like China, reduced taxes before due to the few number of investors.
Taha also noted that the government always considers exporting of goods rather than the materials, despite its importance. He expressed optimism about the new investment law, however, there should be readiness to the phase after the conference through changing the real estate tax. Attracting factors should be provided.
Mehleb responded saying that the reason behind success of the investment law is the participation of the private sector represented by the FEI and the commercial chambers. Laws on taxes will be tackled once again after the conference ends, he added.
Information Technology Industry Development Agency board member Ashraf Sabry called for inventing unconventional technology mechanisms to deal with the unofficial sector "small and medium-sized enterprises," especially with the government desire to increase and expand the tax community, increasing revenues.
Access to the owners of these activities needs unconventional means, especially that small and medium-sized enterprises are the real engine of growth and development and would help achieve social justice, to reshape the investment map, and to achieve the target of these enterprises through integrating them in the official economy system, according to Sabry.
Sabry called for administrative and institutional reform through fighting corruption and bureaucracy in state bodies and the exclusion of old mechanisms, alluding to the need to increase transparency in government procedures like the issuance of licenses, and providing state bodies with modern technology.
He called for dealing with the unofficial sector with the utmost caution, to enact legislation to integrate the unofficial economic sector in the official, and to grant it insurance, customs and tax facilities.
The liberalization of the energy sector and reforms related to the subsidies of petroleum products and electricity prices, starting to use coal instead of gas to run cement factories, establishing investments in the wind and solar energies sectors require the establishment of a unified facility for organizing the energy sector to monitor supply and demand on market, put standards, and regulate the market, said member of the Egyptian Junior Business Association (EJB) Emad Ghaly.
"It's important that we do it now and not tomorrow in the very beginning, before things get complicated," Ghaly mentioned.
Establishing a regulatory facility for the telecommunications sector after liberalization of the sector was a good step, he pointed out.
"The existence of a higher council for energy including a number of ministers, and a regulatory facility for the electricity sector and another for gas does not deny the need for the suggested new facility," he said.
The unified regulatory facility will be more inclusive, he concluded.
President of the Federation of Industries Mohamed al-Suwaidy praised the establishment of a ministry for technical education and training, in the recent cabinet reshuffle, saying it was a requirement as the new ministry is expected to contribute to raising the efficiency of trained manpower.
Suwaidy called on the Cabinet to solve the problems of holding companies, including eight companies belonging to the public business sector that employ about 290,000 workers.
Prime Minister Ibrahim Mehleb responded saying that the Cabinet plans to focus on the crisis of suspended factories as many stopped due to the lack of feasibility studies, wrong studies, inability to repay loans, among other reasons.
Banks, which make good profits from investing in government debt instruments like bills and treasury bonds, contribute to suspending the growth of industry, Suwaidy said.
Banks should get prepared to deal with the industrial sector, whether in Egypt or Africa, Suwaidy added.
Many companies and factories closed due to failure to meet their requests to open letters of credit in dollar, according to Suwaidy.
We are facing a difficulty in terms of access to international grants, which we should focus on so as not to increase the number of non-performing factories, Suwaidy said.
Broadening taxes has been discussed with the finance minister, apart from the tax rate, which would positively impact different industries, said Suwaidy.
"I spoke with the Prime Minister personally with regard to liquidity and the danger of continuing to deal in cash, which is killing and is considered a type of economic terrorism."
"I hope limiting deals in cash is a priority for the (Cabinet)," Suwaidy mentioned.
"We talked a lot in these subjects, and there must be solutions to the shortcomings of the government from the private sector's point of view," Mehleb said.
Dealing in cash is part of the Egyptian culture, and is associated with the integration plan in of the official and unofficial economies, said Mehleb.
The Governor of the Central Bank of Egypt is studying well this file and achieved good results in confronting the black market through a number of measures, according to Mehleb.
Technical education is the only solution to the problem of unemployment, that is why the Ministry for Technical Education and Training was established.
It is a universally applicable experience with a number of countries, including Korea, Mehleb added.
The new investment law does not give tax breaks to investors, which would support the state foreign budget and confirm tax policies for 10 years, Mehleb said.
Deputy chairman of the EJB Khaled Farouk criticized not marketing small and medium-sized enterprises well and not granting it enough privileges for competition, as well as corruption, funding and liquidity problems.
The government should encourage such projects, he said.
Farouk called for increasing transparency, and addressing the lack of information. He also asked the Cabinet to clarify whether it plans to compete with the private sector.
Mehleb asserted that the private sector is the basis for development, especially that the government needs US$ 400 billion to achieve high growth rates, whereas the available resources do not exceed $ 65 billion.
The recommendations and suggestions regarding the small and medium sized enterprises could be implemented through coordination with the Ministry of Small and Medium Sized Enterprises and NGOs, Mehleb said.
Mehleb expected the dollar crisis to be solved on market soon with increased tourism and export rates and the influx of foreign investment following the economic conference.
The Cabinet revived the "Homeland's land project" through which the Cabinet achieved $300 million by selling lands to Egyptian expatriates.
There must be unconventional ideas and the heralds of the economic conference are reassuring, according to Mehleb.
Abla Abdel Latif, assistant trade and industry minister, addressed Prime Minister Ibrahim Mehleb, saying that the new investment law has been issued in a new form, taking advantage of closed-door consultations. She stressed, however, the necessity to amend the bankruptcy law as well.
She added that the delay in financial and institutional reforms hinders economic development by contributing to a lack of coordination among state institutions.
Information regarding administrative and institutional reforms are overlapping and unclear, she said, adding that they should be prioritized accordingly. Moreover, there should be more transparency regarding current and future tax policy, as investors are very concerned about what changes are going to be made in the tax system in future.
She said city administrations are the most deficient parts of the system, and that resolving their issues will help settle many of the difficulties faced by investors. She stressed that technical training has links to education, culture and changing the culture within state institutions.
In her final remarks, she spoke about the non-official sector, which the government considers to be a potential source of tax revenues. As the sector is very large, integrating it with the official economy would help achieve a high rate of growth. She also stressed the necessity to provide social insurance to workers employed in the informal economy.
Prime Minister Mehleb responded that there is a text within the investment law on exit through stock market. He also added that coordination between disputed authorities and agencies are a main role by the prime minister, saying that the cabinet is trying to resolve all the problems. “We are still in the reformation process of the institutions.”
Nevine Lotfy, head of the Abu Dhabi Islamic Bank-Egypt, highlighted the guarantees that foreign investors should enjoy to transfer their money, stressing need for guarantees that laws are not changed, prevent double taxation and ending the dollar black market.
Elhamy al-Zayyat, chief of the Egyptian Tourism Federation, tackled necessity that government considers numerical, rather than qualitative growth in tourism especially in light of increasing incoming tourists with low incomes. He stressed necessity to enhance tourism and assisting the sector with financial restructuring.
He indicated the increase in building hotels, which exceeds the sector’s need. He demanded halting the construction of new hotels for the coming 10 years. Number of hotel rooms reached around 180,000 in 2010, when number of tourists reached around 14 million tourists. While the current number of rooms reached 225,000 rooms, while other 200,000 rooms are under construction necessary for 45 million tourists, he said indicating the infrastructure cannot bear such huge number of rooms.
Mehleb expressed understanding to this issue calling for formulating new strategy for tourism in collaboration with tourism minister and the federation.
Regarding efficiency of employees dealing with industrial legislations, Tamer abu Bakr, head of Federation of Egyptian Industries’ chamber of petroleum and mining, said executive measures of many laws are being concluded by citizens who are not aware of importance of such laws. He added that if the Suez canal developmental corridor was not run by efficient employees, it will fail, especially that investors in eastern Port Said area face many problems.
Abu Bakr also called for canceling the gasoline octane 80, expanding issuance of smart cards for petroleum substances, liberating price of gasoline octane 92 to guarantee its quality and creating database on those who deserve the subsidy through studies by the ministries of social solidarity and administrative development. He also called for dividing the poor into segments so every segment would its subsidy through the smart cards according to their needs. This system will help rationalizing the consumption.
“Petrol price will increase during the coming period, which will affect the energy subsidy budget within the public state budget. Price of gasoline octane 90 and 95 should be increased to rationalize the subsidy,” he added.
Paying for dues of the foreign partners through loaning from banks at high interests will burden the state budget, he said concluding that the importing gas from Israel has become imperative, which Mehleb did not comment on.
Tax expert Taha Khaled said tax rate was decreased in 2005 from 42 to 20 percent, causing 300 percent increase in the outcome. Number of those who filed their financial disclosures increased by 250 percent. Imposing tax on stock market profits, which took place recently, hits investment, he said adding that some countries, like China, reduced taxes before due to the few number of investors.
Taha also noted that the government always considers exporting of goods rather than the materials, despite its importance. He expressed optimism about the new investment law, however, there should be readiness to the phase after the conference through changing the real estate tax. Attracting factors should be provided.
Mehleb responded saying that the reason behind success of the investment law is the participation of the private sector represented by the FEI and the commercial chambers. Laws on taxes will be tackled once again after the conference ends, he added.
Information Technology Industry Development Agency board member Ashraf Sabry called for inventing unconventional technology mechanisms to deal with the unofficial sector "small and medium-sized enterprises," especially with the government desire to increase and expand the tax community, increasing revenues.
Access to the owners of these activities needs unconventional means, especially that small and medium-sized enterprises are the real engine of growth and development and would help achieve social justice, to reshape the investment map, and to achieve the target of these enterprises through integrating them in the official economy system, according to Sabry.
Sabry called for administrative and institutional reform through fighting corruption and bureaucracy in state bodies and the exclusion of old mechanisms, alluding to the need to increase transparency in government procedures like the issuance of licenses, and providing state bodies with modern technology.
He called for dealing with the unofficial sector with the utmost caution, to enact legislation to integrate the unofficial economic sector in the official, and to grant it insurance, customs and tax facilities.
The liberalization of the energy sector and reforms related to the subsidies of petroleum products and electricity prices, starting to use coal instead of gas to run cement factories, establishing investments in the wind and solar energies sectors require the establishment of a unified facility for organizing the energy sector to monitor supply and demand on market, put standards, and regulate the market, said member of the Egyptian Junior Business Association ( EJB) Emad Ghaly.
"It's important that we do it now and not tomorrow in the very beginning, before things get complicated," Ghaly mentioned.
Establishing a regulatory facility for the telecommunications sector after liberalization of the sector was a good step, he pointed out.
"The existence of a higher council for energy including a number of ministers, and a regulatory facility for the electricity sector and another for gas does not deny the need for the suggested new facility," he said.
The unified regulatory facility will be more inclusive, he concluded.
President of the Federation of Industries Mohamed al-Suwaidy praised the establishment of a ministry for technical education and training, in the recent cabinet reshuffle, saying it was a requirement as the new ministry is expected to contribute to raising the efficiency of trained manpower.
Suwaidy called on the Cabinet to solve the problems of holding companies, including 8 companies belonging to the public business sector that employ about 290000 workers.
Prime Minister Ibrahim Mehleb responded saying that the Cabinet plans to focus on the crisis of suspended factories as many stopped due to the lack of feasibility studies, wrong studies, inability to repay loans, and other reasons.
Banks, which make good profits from investing in government debt instruments like bills and treasury bonds, contribute to suspending the growth of industry, Suwaidy said.
Banks should get prepared to deal with the industrial sector, whether in Egypt or Africa, Suwaidy added.
Many companies and factories closed due to failure to meet their requests to open letters of credit in dollar, according to Suwaidy.
We are facing a difficulty in terms of access to international grants, which we should focus on so as not to increase the number of non-performing factories, Suwaidy said.
Broadening taxes has been discussed with the finance minister, apart from the tax rate, which would positively impact different industries, said Suwaidy.
"I spoke with the Prime Minister personally with regard to liquidity and the danger of continuing to deal in cash, which is killing and is considered a type of economic terrorism."
"I hope limiting deals in cash is a priority for the (Cabinet)," Suwaidy mentioned.
"We talked a lot in these subjects, and there must be solutions to the shortcomings of the government from the private sector's point of view," Mehleb said.
Dealing in cash is part of the Egyptian culture, and is associated with the integration plan in of the official and unofficial economies, said Mehleb.
The Governor of the Central Bank of Egypt is studying well this file and achieved good results in confronting the black market through a number of measures, according to Mehleb.
Technical education is the only solution to the problem of unemployment, that is why the Ministry for Technical Education and Training was established.
It is a universally applicable experience with a number of countries, including Korea, Mehleb added.
The new investment law does not give tax breaks to investors, which would support the state foreign budget and confirm tax policies for 10 years, Mehleb said.
Deputy chairman of the EJB Khaled Farouk criticized not marketing small and medium-sized enterprises well and not granting it enough privileges for competition, as well as corruption, funding and liquidity problems.
The government should encourage such projects, he said.
Farouk called for increasing transparency, and addressing the lack of information. He also asked the Cabinet to clarify whether it plans to compete with the private sector.
Mehleb asserted that the private sector is the basis for development, especially that the government needs US$ 400 billion to achieve high growth rates, whereas the available resources do not exceed $ 65 billion.
The recommendations and suggestions regarding the small and medium sized enterprises could be implemented through coordination with the Ministry of Small and Medium Sized Enterprises and NGOs, Mehleb said.
Mehleb expected the dollar crisis to be solved on market soon with increased tourism and export rates and the influx of foreign investment following the economic conference.
The Cabinet revived the "Homeland's land project" through which the Cabinet achieved $300 million by selling lands to Egyptian expatriates.
There must be unconventional ideas and the heralds of the economic conference are reassuring, according to Mehleb.
The full text of the paper submitted to the Prime Minister by seminar participants:
Egypt is experiencing a historic moment that would determine the future of the country for decades and generations to come. We have no choice but to start the modernization process that has been delayed for a long time. It will be a difficult process because we have had an “ongoing” revolution for three years and because of the structural deterioration of the state institutions and the economy. The state has no clear vision. It takes conflicting economic decisions because it is facing Egypt’s greatest security challenge in modern times that seeks to replace the country’s civil identity by a religious identity.
We will make it or break it. We must take advantage of the political fray and the promising road map. For failure is not an option.
This is a message by the non-governmental economic community. It is a message to public opinion, the decision-maker and the participants in the Sharm el-Sheikh economic conference. It is a message about the future of Egypt in general and the economy in particular.
Evolution of the private sector contribution to GDP, investment and employment
The rapid achievement of a sustainable development depends mainly on the non-governmental sector, which is worth LE1,571 billion in 2013/2014 or 61 percent of GDP, with investments of LE165 billion, or more than 62 percent of the total implemented investments. It employs 14.7 million workers, or 71 percent of the workforce. It carries out 80 percent to 100 percent of economic activities in agriculture, forestry, fishing, manufacturing, wholesales, retails, construction, education, health, services, real estate, tourism, communications, information technology and others.
This enormous machine driving the national economy can grow more, not only with Egypt’s investment and growth capabilities, but also because new generations of investors have the expertise and knowledge to develop the country if conditions are favorable and laws are encouraging and supportive of the investment climate.
The global experience in this regard is clear. A non-governmental economic sector and a disciplined open market are the means to achieve economic growth and social justice by providing employment opportunities to low-income people and save them from poverty.
The objective of this paper is to present the vision of the non-governmental economic community as to how we can get out of this troubled stage with a philosophy that believes that social justice and sustainable development can only be achieved by encouraging investment, improving the business environment and solving the problems of the private sector, while the government should make sure growth returns contribute to development.
The third merit of the road map, namely the election of the House of Representatives, paves the road to completing a legislative structure that ensures an economic take-off and inevitably helps resolve security problems.
Philosophy of building the future:
The philosophy of building the future to achieve economic and social development is based on two factors. The first is for the public and private sectors to achieve highest returns at lowest costs for the community. The role of the state is as follows:
1. Regulate a market balance that safeguards the interests of businessmen, workers and consumers.
2. Devise a balanced and fair tax system, spend on education and health to create equal opportunities, and combat poverty with a social insurance network.
3. Support activities that have a positive return on the community, such as training, research and development, new technology and infrastructure, as well as activities in geographical areas that need to be developed more than other areas or need specific activities that the private sector cannot carry out.
The non-governmental economic community has distinctive characteristics, such as taking initiatives, innovation, knowledge of supply and demand in local and global markets, efficiency in using various means of production, and flexibility in dealing with technological advancements. And as mentioned before, this sector drives the vast majority of economic establishments, constitutes the greater share of GDP and employs more people.
Experience tells us that when the economic climate improved in the last two decades, the private sector built more than 30 new cities, established new settlements on the coasts of the Red Sea, the Mediterranean and South Sinai, and recorded significant leaps in banking, insurance, export, transport and communications.
And perhaps most importantly, this sector can expand under the right conditions and climate. It should be noted that the private sector is not homogeneous in terms of size. For there are large, medium and small enterprises, as well as formal and informal businesses, which gives that reliable sector a wide area to work on in the national economy.
The second factor of the philosophy is to remove imbalances in the economy resulting from political taboos that might have made sense before but are no longer fit for the current reality.
One such imbalance is that the public sector not only causes huge losses for the community and the state, but also impedes rational policies for investment, wages and pricing.
Another imbalance is the corrupt relationship between the state and the capitalist investors, favoring certain groups and companies.
A third imbalance pertains to the pension policies, the subsidies and the oversized government institutions.
The government needs to form infrastructure partnerships with the private sector to develop poor areas with new technologies and prevent monopolistic practices.
It also needs to improve education and health services to provide opportunities to low-income social brackets.
Finally, the informal sector of the economy must be incorporated, as it constitutes 35 percent of the national income and 50 percent of employment.
Launching the creative capabilities of the non-governmental economic sector:
If the non-governmental economic sector will lead the development process as in other countries, the government and society should help it by changing the public image that it contradicts the general interest of the community because it is only concerned with making profit, and the notorious image of the rich being unethical. This sector is also accused by being corrupt, although it contributes more than half of the GDP and the vast majority of the tax income and other fees.
Also, this sector cannot work under political instability and social unrest, two problems that must be resolved. The private sector incurred heavy losses in the last four years that have affected economic growth rates.
The government should devise stable policies, especially tax policies for energy and public facilities, that make economic speculation possible. For the way the private sector works is by spending now and reaping later.
There are three procedures required to give the non-governmental economic sector a chance to improve the economy. The first is to stabilize macroeconomic policies with a clear monetary policy and a disciplined fiscal policy. The second is to substantially improve the investment climate by adhering to the rule of law, creating rapid dispute resolution mechanisms and investing in the infrastructure in order to adapt to the expected economic growth. And the third is that although Egypt exceeds 1 million square kilometers, with shores 3,000 kilometers long and hundreds of islands (155 islands in the Nile and 81 in the Red Sea), there is a scarcity of investable land because it is not known who owns or controls certain land lots. This is a major obstacle to investment.
What should be done now:
There are urgent measures to take for the non-governmental economic sector to push the Egyptian economy. The first is to periodically announce specific targets for the monetary policy (specific inflation rates), using the exchange rates, the interest rates and the financial liquidity as tools to achieve that goal. It would be impossible to retain confidence in a free economy if the country's currency is subject to arbitrary control without taking into account the reality that the free economy stipulates, whatever the authorities' ability to impose a real rate for the currency. It is unbecoming for Egypt to act again as in the 1980s when there were seven rates for the Egyptian pound. The Central Bank has already begun such measures, but they should be codified so as not to repeat multiple currency rates as happened again at the end of the 1990s and in the past few years.
Also, restrictions on capital transfers to and from Egypt should be lifted in order to allow flexibility for exports and imports as per local and global market requirements.
The government should reduce the budget deficit by rationalizing resources and expenditures to raise growth and investment rates without crowding out the private sector. Also, taxes should be revised to achieve maximum flexibility for investors and highest return for the state. Improving the tax laws and collection raised the tax revenue between 2005 to 2010. Exaggerated tax penalties should be avoided the tax base should be broadened, as it is very limited compared to other countries.
Finally, Egypt needs a new investment law that allows its capabilities to compete, taking into account the recommendations of the World Bank report “Doing Business in Egypt 2014: Understanding Regulations for Small and Medium Size Enterprises.” The Egyptian bureaucracy must take after the best international practices in this regard.
Facilitating investment is not limited to the “One Window” or “One Body” process, be it the General Investment Authority or the Investment Ministry. It needs a whole investment culture to prevail within the state administrative apparatus. Local and foreign investment should adds to the national wealth and not take from it by building assets on the ground. The law must also regulate bankruptcies and allow for safe market exits and entries.
The scarcity of land lots mentioned before should be resolved in order to reduce prices of land and, consequently, selling prices of commodities. Egypt has vast desert land that can be invested in. It is recommended that this land be owned by a “Land Bank” that deals with land as an economic investment opportunity, except military and archaeological territories or land allocated for agricultural expansion to achieve food security.
Energy should be available for affordable and competitive prices. Unfortunately, the successive governments used the limited energy sources recklessly, which has depleted them. Also, the post-revolution policies halted investments in this important sector, raised its debts and increased energy imports. Fortunately, the current leadership of Egypt is encouraging correct energy policies, but this would not be achieved if further leaps are not taken to subject this sector to the general market rules.
Finally, all forms of the Egyptian economy should come under a legal framework, as this is the best way to take advantage of the informal sector that employs 50 percent of the workforce under unacceptable conditions. The policies should stimulates this sector to switch to the formal sector voluntarily.
For whom the bell tolls:
The main objective of this white paper is to clarify the accuracy of the economic situation in Egypt and deliver a vision that allows the private economic sector to help the country get out of a critical situation. We do not present this only to the government and the economic conference, but to all Egyptian people and political and cultural forces. We are saying that there are things that will take time and other things that can not wait and that place Egypt on the starting line. For we will not reinvent the wheel.
The wheel we are talking about is based on two principles. The first is that there is no food for free and no radical reform without pain. They say in Eastern Europe that economic reform is like a surgical operation without anesthesia.
Our reform will be achieved by stating facts frankly and by a consensual political, cultural and intellectual participation of the Egyptian people in order to make the next generations be part of the developed world.
The second principle is that the government and the private sector play their roles efficiently. They complement each other, not compete with each other.
Egypt is facing an important turning point in its modern history. It can not afford to fail. It needs a new vision and resolute decisions.
