Egypt Independent: Economy interviews

On first Egypt visit, IFC head says investors await clarity, commitment from government

Amira Salah-Ahmed — Mon, 18 Mar 2013 19:55:00 +0000

On his first visit to the Middle East in his new capacity as the CEO of the International Finance Corporation, Jin-Yong Cai reiterated what has been repeated for months — investors are still seeking clarity and certainty before putting money into Egypt’s ailing economy.

Both domestic and international investors are waiting to see if the government can make tough decisions and stick to them, which has not been its strong suit — particularly when it comes to the economy.

“Domestic and international investors need clarity, they need [to see] a commitment to private sector development.

“There are a lot of wait-and-see attitudes, and until that moment, people will show interest; but are they going to come in? They'll look for signals from authorities,” he told Egypt Independent in an interview last week.

Despite the challenges the country has faced since the January 2011 uprising, and the ones it will undoubtedly continue to face as foreign reserves continue dwindling and capital inflow dries up, the IFC says it has been one of the largest investors in the nation.

“This last fiscal year, we put in US$730 million in 11 projects, with a focus on creating opportunities for business in the areas of service, infrastructure and banking. We believe these are the critical areas for job creation to help economic growth," Jin-Yong says.

Looking forward, Jin-Yong says that the IFC would like to invest more than it did last year, but without citing a specific figure.

He adds that while these plans are “subject to market situations,” the IFC has no limit to what it can spend.

“If we see a good project we will do whatever it takes," Jin-Yong asserts.

The IFC continues to focus on investing in key sectors such as infrastructure, access to finance, private sector development, healthcare, education, wastewater management and supporting small to medium business enterprises (SMEs).

There’s also a heightened interest in the power sector, as the country faces mounting hurdles meeting domestic energy needs, which will become increasingly acute as the summer season approaches.

“There’s a large power transaction which is critical. We talked about our involvement with some of the smaller oil and gas companies in financing part of their operation,” Jin-Yong says.

Recognizing that capital formation has been slow in Egypt, and as the population continues to grow, pushing up demand, “without adequate investment, we are going to run into acute bottlenecks in many areas,” he adds.

Future prospects

One project officials have spoken about repeatedly is an ambitious mega-plan to develop the Suez Canal Corridor, mainly employing the public-private partnership scheme — the kind of projects the IFC is typically interested in.

Asked whether any concrete plans were discussed during his meeting with Prime Minister Hesham Qandil and other ministers, Jin-Yong says a few initiatives were mentioned, and the “ideas are all interesting to a lot of people, but investors need certainty, transparency, [and] they want to know the rule of the game before they make their final decision.”

“We are all waiting for certain decisions from the government's side,” he adds.

In July 2011, IFC provided Orascom Construction Industries with a loan and equity investment package worth US$450 million. The company has recently come under fire after being accused by the authorities of tax evasion, though OCI has said this is a misinterpretation of the tax law.

The case is perceived as a politicized move against the Sawiris family — the owners of OCI — and in a statement, the company said that the Egyptian Tax Authority is “attempting to create a context for a tax liability when an incidence does not exist and/or is not applicable.”

The move has hit OCI stocks and resulted in overall losses in the market, and investors see it as a sign of further uncertainty.

Jin-Yong says he did not talk about the situation directly with Egyptian officials, but adds that “we want to make sure both sides can come to a mutual agreement based on the regulations and rules. “

“There was history, and we understand there are certain reviews, but the critical thing is that those reviews on historical issues should be done transparently and based on rules and regulations and be helpful in boosting domestic and international investor confidence,” he adds.

Similarly, with regards to the contentious US$4.8 billion International Monetary Fund loan, which is seen as vital to unlocking a stream of aid and investments pledged to Egypt, Jin-Yong says, “We come with the message that the government needs to make decisions including potentially on this IMF agreement, which from our perspective is very much focused on … sending a strong signal to investors that Egypt is open for business with clear regulation.”

In the context of these challenges, Jon-Yong stresses that the IFC is undeterred.

“We continue to invest [in Egypt] because we believe in the long-term potential of this economy … we believe there will be recovery and in the future it will be in good shape,” he says.

Jin-Yong, who took office this past October, was due to visit Jordan and Saudi Arabia after leaving Egypt, “to identify potential opportunities.”

Brotherhood businessman urges business to play role in development

Nadine Marroushi — Sun, 15 Apr 2012 15:52:00 +0000

One month after the regime of former President Hosni Mubarak fell, in March 2011, Hassan Malek was released from jail. He had spent four years and three months in prison, alongside 39 others, including Muslim Brotherhood leader and, until yesterday, presidential candidate Khairat al-Shater, on charges of illegally funding the Muslim Brotherhood, a group that was banned under Mubarak, and for alleged money laundering.

A year later, smartly-suited, the 54-year-old businessman walks into a sleek-looking office in Heliopolis, a middle-class neighborhood, with a boardroom that has the usual furnishings of men and women that mean business: ergonomic black leather chairs that tuck neatly into a long rectangular glass table. This is the base of the Egyptian Business Development Association that Malek launched this March.

In the corner of the room, a white board stands with blue marker sketches of the association’s governance structure, a recent subject of discussion by its 15-member board, which Malek heads and whose members include other prominent Muslim Brotherhood businessmen.

Malek wasted no time in getting back to business after his release from jail. In April of last year, in the midst of Egypt’s revolutionary fervor, when many of his nemeses found themselves behind bars and as his allies in the Islamist movement were gradually rising to power, he began making plans to set up Ebda (the acronym translates to the Arabic word for “start”). Its slogan is: “It’s never too late to start.”

“Truthfully, before I came out of prison and during the period that Gamal Mubarak was being prepared for inheriting the presidency, I decided not to take part in any business or trade in Egypt,” he tells Egypt Independent in an interview in his office. “Personally, I would not be able to operate in this environment, in which Gamal would be taking over, especially since this was the third time that I was brought before the courts and put in prison. I wasn’t prepared to put up with this again.”

After the 25 January uprising, Malek decided to work “hard and fast” to ride the wave of change. “I got involved with civil society work, especially as it related to businessmen, because in the previous period they did not play an appropriate role in society,” he says, in reference to the crony capitalists associated with the Mubarak regime.

Over the last year, Malek has been meeting with a large number of businessmen, not just from the Brotherhood, he emphasized, but a wide section of society, to encourage them to play a more developmental role in Egypt’s economy. It culminated in the creation of Ebda, which aims to act as a channel between investors and the government, encourage the development of small and medium-sized enterprises across Egypt, and conduct vocational training.

“Business should benefit the widest possible base of society, and not just a small tier, as was the case under Mubarak,” Malek says. By drawing upon his years of experience as a businessman and innovator, he plans to accomplish this through Ebda.

Between 1988 and 1995, Malek came up with the idea of helping small and medium-sized enterprises to manufacture, exhibit and sell their products through professional syndicates. This was a novel idea for syndicates at the time, Malek says. He used to act as a coordinator between these businesses and help them find the right market, as well as assist them in getting funding from banks. This was accompanied through social projects in health care.

“But every time I was successful, the government would hit me with a court case,” he adds.

Through Ebda, Malek wants to encourage Egyptian businesses in a similar fashion to expand their manufacturing capabilities in various sectors, so that the economy is based on production and exports, and not just trade.

Ebda takes its inspiration from Turkey’s 22-year-old Independent Industrialists and Businessmen’s Association (MUSIAD), with whom it has a cooperation agreement.

MUSIAD played a role in helping decentralize Turkey’s economic development, particularly in the development of small and medium-sized enterprises throughout the country. In doing so, the association also helped cement the power of Turkey’s Islamists, whose entrepreneurs set up the association.

Today, MUSIAD’s companies represent 15 percent of Turkey’s exports, and Malek thinks Ebda has an even better chance for success.

“MUSIAD started with only five members at its launch, while we have 150 members already and 700 applicants are on the waiting list. What MUSIAD did in 22 years, I hope to do in five,” he said.

Ebda also looks to similar associations in Malaysia, the US and Europe as models, and sees itself as a continuation of existing associations in Egypt rather than a replacement. It is also planning an annual conference for building relationships with external partners and encouraging business and investment, but the date has yet to be decided.

On a personal level, Malek says he is still feeling the effects of the financial hit he took when the Mubarak regime placed a ban on his assets. This was only lifted two months ago, meaning that from the time he was released from prison until earlier this year, Malek was not allowed to trade using his own wealth and businesses.

His business empire is consolidated under the Malek Group, which deals in furniture, clothing, yarn, industrial raw materials and electronics. A graduate with a degree in commerce from Alexandria University, Malek comes from a trading and industrial family that deals in textiles and ready-made clothes.

Malek says he plans to expand his own businesses, but it is too early to make any announcements given that “Egypt has yet to stabilize.”

In 2006, he began to build a large, 1,000-square-meter furniture factory, but it was shut down. He plans to revive it, though it is not clear when. “I don’t produce anything now, just trade,” he says.

Malek and Shater are former business partners, and still have some companies in common. In 1986, they launched the software company Salsabil, but it was also shut down by the government.

“In February 1992, after seven years of hard work making Salsabil one of the biggest computer companies in Egypt and the Middle East, they accused me along with my partner, engineer Khairat al-Shater, of belonging to, and attempting to revive, the Muslim Brotherhood group, attempting to hold a coup and threatening social peace, the same repeated and silly charges. Due to this, my company was closed and I remained in prison under provisional detention with no fair trial or any evidence to prove these charges. I was released after that to find my company closed and my business stalled,” Malek said in an interview with the Muslim Brotherhood’s English-language news portal Ikhwanweb in 2007, while serving another prison stint.

Keen to avoid talking about politics, Malek says he is not a leader in the Muslim Brotherhood, just an ordinary member. He also is not a key funder of the group, but pays his annual dues as other members do. “This ranges between 5, 7 and 10 percent of a person’s annual income,” he says.

Malek won’t reveal whether he supports Shater’s presidential candidacy, but says, “At the end of the day, I will support whatever the Muslim Brotherhood decides.”

US expert: Leadership of 'Military Inc.' is running Egypt

Nadine Marroushi — Wed, 26 Oct 2011 09:00:00 +0000

The Egyptian military’s economic interests have long been considered too taboo to discuss in the mainstream media, so little is known about the sections of the economy that fall under the military’s control. But now that a military council is formally ruling the country, the time is ripe to examine the issue more closely.

Robert Springborg has written extensively on the Egyptian military and the politics and political economy of the Middle East. He is the author of two books on Egypt: "Mubarak’s Egypt: Fragmentation of the Political Order" (1989) and "Family Power and Politics in Egypt" (1982). His most recent work is a chapter on gas and Egyptian development in "The Handbook of Oil Politics," due for publication in 2012. From 2000 to 2002, he was director of the American Research Center in Egypt, and has held numerous other positions in the US, UK and Australia leading programs on the Middle East.

Al-Masry Al-Youm recently spoke on the phone with Springborg, who is currently in the US, about the importance of the military’s business interests in its decision-making process, what is meant by the military economy and the military’s relationship with Egypt’s privatization program.

Al-Masry Al-Youm: In early February, before Hosni Mubarak stepped down, you warned that the military would look to hold on to power. This is what we seem to be witnessing now with a longer-than-planned transitional phase.

Robert Springborg: I don’t believe I said the military would seek to hold onto power in the form of a classical coup d’etat. What I meant to say in any case was that the military would seek to ensure that it was not subordinated to any other power. The delay in constituting a new system of government results probably not from a change in the military’s strategic objective of “ruling but not governing,” but from the tactical difficulties of forming a civilian government that forswears any meaningful control over the military.

Al-Masry: How much do you think the military’s vast business interests in the country influence their desire to stay in power?

Springborg: The business interests of the military are hugely important to their decision-making, and the leadership of "military incorporated," which is same as the leadership of the military itself, is now running the country.

A key problem is that the military economy lacks transparency. It is opaque, so we don’t know its exact size or components. Another issue is that the military’s business interests distract them from their national security roles, of which the key but not only one is to defend the country. The Egyptian military lags behind others in the region in part because it is so preoccupied with generating revenues. Its abilities to carry out search and rescue, humanitarian assistance, disaster relief, anti-piracy, and to operate with other, friendly forces are weak. They have modern equipment, but much of it is not operable because they aren’t training personnel adequately to use nor to maintain it. One reason why they are not is that they employ conscripts in military-controlled businesses.

Al-Masry: How do you define the military economy?

Springborg: The military economy includes the numerous factories and production facilities that fall under the Ministry of Defense and Ministry of Military Production. These also include companies affiliated with the Arab Organization for Industrialization and National Services Production Organization. In theory, these are state-owned entities but their accounts are not subject to financial oversight by the Central Auditing Organization.

Al-Masry: A trend in the economy during the transitional phase is the re-nationalization of companies privatized under the Mubarak regime. How much is this in the military economy’s interests?

Springborg: The military opposed privatization that intensified in 2004 under the government of former Prime Minister Ahmed Nazif, and that was overseen by former Investment Minister Mahmoud Mohie Eddin. It was upset at the increased pace of privatization. That said, the military was happy with privatization as long as it ended up [gaining from it]. It didn’t want the government to sell state-owned enterprises to Gamal Mubarak’s cronies. So under the Nazif government, some of the privatization in state-owned enterprises went to the military to mollify its leadership. Its interests in strategic areas, such as port facilities, ship repair and building, increased. The Alexandria Shipyard, for example, is owned by the military, and under Nazif they acquired a competitor company. There was also an unwritten rule under Mubarak that mid-ranking officers and generals would get senior positions within privatized companies. Aviation companies and construction companies do have senior generals working in them.

Al-Masry: How important are their business holdings given that strategic industries, such as cement, are not within their control?

Springborg: Well, they are unhappy about that state of affairs. The military is not strongly represented in energy-intensive industries. The compensation to that is that they do control a lot of land. The total asset value of their land holdings is not clear, but we know that much of the land allocated to the construction and tourism sectors was or remains under military control. Starting from the 1980s, under Mubarak, the military got the land and crony capitalists got the energy intensive production industries.

The military’s biggest interest is in the construction industry. This is because the military has its own, internal construction capacities; because of its influence over the allocation of land; and because construction depends heavily on relations with government, either because it is paying for it or because it must authorize it. Military officers have the governmental connections that facilitate contracts and approvals.

Al-Masry: From the perspective of protecting the military economy, is the military threatened by the upcoming parliamentary and presidential elections?

Springborg: Yes. What it wants is a weak parliament and a presidency that will not challenge its authority. As it now looks the parliament will be weak because it will be divided among various political forces and because it will not be based on any definitive constitutional authority. So it will not be strong enough to oversee the military, such as by examining its finances. So, any civilian control of the military by default will fall to the president.

That is why the apparent thinking now of the military is for the president to be someone from the military. The delay of the presidential election is due in part probably to the attempt to prepare the ground for a candidate either from the military or absolutely subordinate to it. In the meantime the military will look to expand its role in the economy, either through acquiring more companies or by assisting officer-owned companies gain more business.

Egypt’s Finance Minister does not rule out return to IMF

Reuters — Tue, 19 Jul 2011 15:01:00 +0000

Egypt's finance minister-designate told Reuters on Tuesday that the government was committed to a market economy and to creating an environment in which investors could predict the future "reasonably well".

Hazem el-Beblawi, who has yet to take the oath of office, said he did not rule out the possibility of borrowing from the International Monetary Fund, after his predecessor negotiated a US$3 billion loan package that Cairo later turned down.

He also said in the telephone interview that his message to investors was that Egypt's difficulties were temporary.

"For someone who has a long-term view, this is the time to come and to act on the future because of course anyone who comes now will find much better terms than he can later," said Beblawi, who is also a deputy to the prime minister.

Egypt's economy has been hammered by a popular uprising that turfed out Hosni Mubarak, driving investors away, sending tourists packing and leading to an expanding budget deficit.

Protesters, who have demanded sweeping political change, have also sought an end to a system they said filled the pockets of a rich elite allied to Mubarak's government at the expense of the poor. Some investors have feared that the call for spreading wealth could lead to a retreat from liberalisation policies.

"We are committed to the market economy. There is no doubt that whatever the abuses or distortions that happened in the past they were not simply due to adoption of a market economy but to abuse or corruption," Beblawi said.

"For the investor environment, we will honor all our obligations and commitments ... We are very committed to the notion of stability and creating an environment where anyone can predict reasonably well the future. We would like to reduce as much possible uncertainty," he said.

Shrinking revenues due to the turmoil and rising demands on spending have driven up the budget deficit. The initial forecast deficit for 2011/12 was 11 percent.

This led the previous minister, Samir Radwan, to turn to the IMF and seek financial support from Gulf Arab states and others.

Radwan said the ruling military council's concerns about taking on debts prompted him to revise the budget -- so the forecast 2011/12 deficit was reduced to 8.6 percent -- and turn down the IMF package after it was agreed. Economists questioned both the budget assumptions and the decision to reject the loan.

Asked if he would return to the IMF, Beblawi said he did "not rule out any possibility".

"It is too early to judge now. I don't exclude anything. If a possibility is available it would be unfair to say that I will limit myself to one option or two options, but every option should be assessed quite carefully," he said.

Economists say the ruling army council, which vetoed the previous minister's bid to borrow from the IMF, could again block any renewed attempt to return to the Fund.

Asked about any foreign borrowing, he said: "I can tell you my position in principle, I don't see borrowing as good or bad. In fact, in many cases, it is necessary but the whole thing depends on circumstances that the borrowing takes place, the terms of the borrowing and more importantly the use."

Beblawi said it was too early for him to outline forecasts for growth or other indicators. But he said the economy could start showing signs of a pick-up from early 2012 as the country emerged from parliamentary and presidential elections, and also built up new democratic institutions.

"I can see the economy will pick up gradually. I hope starting next year it will start picking up and later on it could grow even quite fast," he said, suggesting this could start happening from early 2012.

"I don't have details, but I can see that there are signs that there is very good potential for this country. But this is not to underestimate the immediate difficulties we are going through."

Irrigation minister: Allocation of LE450 million to solve summer planting problems

MENA — Fri, 10 Jun 2011 11:09:00 +0000

Minister of Water Resources and Irrigation Hussein al-Atfy announced the allocation of LE200 million to improve drainage networks and LE250 million for the construction of new pumping stations, digging wells and the establishment of canal nutrients to improve water flow and mitigate irrigation problems this summer.

Atfy also decided at the end of his visit to Daqahlia and Kafr al-Sheikh governorates Friday, to direct LE100 million for the protection of crops and property along 3,000 miles of beaches around Rashid, Baltim, Ras al-Bar and Gamasa.

He decided to give a half-month's salary bonus to irrigation and drainage workers in Daqahlia and Kafr al-Sheikh for their efforts and their success in removing bottlenecks to make the water flow all the way to the canal ends.

The minister also decided to allocate LE70 million on an urgent basis from the ministry's budget for the establishment of a new pumping station at the end of the Mansouriya Canal to help irrigate 65,000 acres in the region, besides contributing to the establishment of fish farms over the next 18 months.

Translated from the Arabic Edition

Q&A with Dave Robinson: FDI expert says Egypt has great potential

Rana Khazbak — Tue, 10 May 2011 14:08:00 +0000

There are numerous problems facing Egypt’s economy these days: high rates of unemployment and inflation, a growing national debt and shrinking tourism revenues. One of the biggest, though, is the threat of fleeing foreign investment. The Egyptian economy heavily relies on foreign investment, with almost US$7 billion in annual inflows.

Al-Masry Al-Youm recently met with Dave Robinson, the CEO for the Middle East, Turkey and Africa with Hill & Knowlton, a global communications consulting firm, to learn what he thinks it will take to sell post-Mubarak Egypt to foreign investors.

Al-Masry Al-Youm: Some people say that it would have been better for stability, in terms of investors and the economy, if Mubarak stayed until September. Do you share this opinion?

Dave Robinson: Investment cycles vary from a matter of days and hours, even sometimes to weeks, months and years. So when you know there is going to be change, whether it will be tomorrow or in six months, you still know there is going to be change. Any concerns or hesitance you have are still going to be in play. I think whether he stayed or didn’t stay until September is academic: He didn’t stay, we have a situation of an interim government, we are going to have elections, people will be watching and looking to see the outcome of those elections and, to a large degree, their decisions will be made partly on the nature and outcome of those elections. The new reality will be set and they will make the decisions accordingly.

Al-Masry: Egypt incurred big economic losses during the uprising. Some experts say more than US$30 million were lost each day. What kind of image does Egypt need to present in the short- and medium-terms in order to prevent an economic collapse?

Robinson: The important thing in any crisis situation is not to overreact or underreact. The situation is clearly significant and I think truth is always the best solution in any economic crisis situation. The reality is that Egypt is a large economy; it has a very large work force. Also, there are very good, compelling investment opportunities in Egypt. There are also clearly some infrastructure problems and some policy problems in terms of capturing those opportunities and working on them.

So for the government - current, interim or future - the challenge would be to communicate more effectively what the government is doing to build on the opportunities in Egypt, to communicate that clearly and effectively to audiences and stakeholders and to communicate it in a truthful, accurate way that makes sense - one of which is particularly hard to do, but it requires rigorous planning and very clear focus and targeting.

Al-Masry: How would you pitch Egypt to investors?

Robinson: There are many compelling opportunities in Egypt, some of which are geography, logistics, a large work force (skilled and unskilled), fairly cheap or cost-effective labor compared to many other countries and some particular industries where Egypt has deep experience. The IT industry is one of them.

Al-Masry: How can Egypt rebrand itself in the international market?

Robinson: In terms of rebranding Egypt overall, you have an opportunity ahead, and opportunities should be taken and not wasted. The opportunity is turning a new page. There is a new Egypt ahead; that doesn’t mean that the old Egypt is history. It just means that there is a new way to how Egypt works.

There is going to be an election later this year which will be a democratic process involving all of the 88 million people having the opportunity to vote, participate in the democratic process and choose their destiny in terms of political leadership. That political leadership will work broadly by public support on shaping the new Egypt. It’s an opportunity to create a more dynamic Egypt and an Egypt that is fairer for all the people who live and work here - an Egypt that is built on medium- and long-term opportunity, not short-term opportunity, and an Egypt that has strong international partnerships.

There are great opportunities when we have that clean sheet to do exciting things, which, maybe, the past regime had more difficulty achieving.

Al-Masry: How will the upcoming parliamentary and presidential elections affect investors’ decisions? Do they have concerns?

Robinson: The future government, the future parliament and the future president will decide the economic foreign policy and investment policy in Egypt. If you are an investor, you will obviously wait and see before you make certain decisions. That said, Egypt has been a pretty stable place for investment over the last few years. People have a reasonably high degree of familiarity with what Egypt has to offer, so there is a broad base of interest and support for Egypt that needs to be further refined and clarified with what is going to happen in the future.

Al-Masry: What are the emerging economic sectors in Egypt that you promote for investors?

Robinson: Information technology is certainly one of them, Egypt has got an increasing level of skills base in terms of programming, technology, and infrastructure. It’s becoming a hub for that in a very competitive global market place. But I also think that some of its traditional assets, such as tourism, will remain strong. The uprising made people concerned about travel to Egypt for personal safety and so on and so forth, but that is diminishing quickly, and hopefully as the economy restores itself to a position of stability and growth, there will be further investment in the tourism sector. Egypt has fantastic natural and historical assets, whether it is diving in Sharm el-Sheikh or spending the time on the coast in Alexandria or the history of the ruins and museums of Cairo. I am sure that will come back quickly.

Confidence, business as usual, acknowledgement that some things need to be fixed and improved, clear articulation of how those things are going to be fixed as much as can be done before elections, and continuing to communicate actively about those things is the right way to go.

Al-Masry: What do you think needs to be fixed?

Robinson: You need to significantly improve understanding of the realities of the economy in Egypt in the world. What many people internationally have been left with is, I think, the images on TV screens of Tahrir Square of demonstrations, the closed stock exchange, the country under military rule and so on and so forth because of the comparative lack of communication of the reality. I am here in Cairo, we are doing business, we are meeting clients, we are talking to media, we are doing active business for clients. There is an economy functioning, people buying and selling goods and this reality needs to be communicated. Is it as good as it was six months ago or a year ago? Probably not. There are some things that have been affected by the revolution - the regime change and those things are going to take a little bit of time to stabilize - but the efforts to stabilize those things, identify where those problems are and communicating that will give people the confidence that things are being done.

Q&A with Ahmed Galal: The tough yet bright road ahead for Egypt's economy

Mohamed Elmeshad — Sat, 19 Feb 2011 15:27:00 +0000

The 25 January revolution is set to bring about a broad shift in Egypt's administration, away from the Mubarak regime whose policies kept the country in the realm of lagging, underdeveloped nations. One of the most important elements in the shift of will be on the economic front.

While reforms in the mid-1970s and early 1990s helped liberalize its economy in a way that brought more nominal growth, Egypt still counts itself a relatively poor country. The deceptive 5 percent growth figures have been made negligable by the inequitable distribution of wealth and opportunity, poor government services, as well as the fact that the oppressive political system led to massive brain drain from the country.

The attempt to steer Egypt in a new direction will require a swift democratic shift, as well as a concerted effort to reverse many of the policies and norms that have arguably held the country back from fulfilling its potential. Economists are optimistic regarding the post-revolutionary prospects of the country.

Ahmed Galal, former World Bank economist and Managing Director of the Economic Research Forum, is one of them. He sat with Al-Masry Al-Youm to discuss his views on steering Egypt along a sound economic path.

Al-Masry Al-Youm: How would you describe the revolution we went through?

Ahmed Galal: Egypt is no longer going to be the same after 25 January. It is going to join a crowd of developing countries that are making the transition, not only the economic, but also the social and political transition.

Al-Masry: Can Egypt emulate the successes of certain other countries that have experienced similarly drastic shifts? Where do you see the similarities?

Galal: We Egyptians like to think we are very distinct, and indeed we are. However, since the second World War until now, Egyptian modern history is very similar to what has happened to countries in Latin America. Most developing countries after WWII went for the so-called import substitution strategy where you basically protect your domestic industry to industrialize and diversify. Governments had a heavy handed role in the economy and in social provision services. In most countries that strategy has produced enormous benefits, but it also had its limits. The inefficiency of bureaucracy and limits of social programs without enough economic growth resulted in these countries pretty much giving up on it. They moved on and liberalized on the economic front, and frequently on the political front… The Latin American model is what I have in mind. Egypt has done exactly that, although we lagged behind a little bit.

Al-Masry: How so?

Galal: The opening that we started in the mid-70s was a partial opening. It generated some of the disadvantages of capitalism, and the old disadvantages of socialism remained. Up until 1991 we had a system that combined the disadvantages of both (capitalism and socialism). In 1991 we started a process of economic liberalization that continues today. However on the political front we really lagged behind. Now we are completing a story that was inevitable. The only question was how it will happen.

Al-Masry: What made Egypt ripe for this kind of a revolution?

Galal: The society is very young, around 60% are younger than 30. The population is becoming increasingly educated, and educated people don’t accept less than full rights. Three, the technological revolution: the world has become much smaller. People don’t compare Tanta and Cairo, now we compare Cairo to Rio de Janiero.

Al-Masry: Some say that after 1991 we had the correct economic direction, but the wrong implementation…

Galal: No, it was flawed. It focused on policies that would promote private sector and economic growth, and did not do much on the social front or on the distribution of benefits. Nor did it do enough on the political liberalization side. It was a wrong strategy, and it produced the revolution.

Al-Masry: What would you think the ideal economic strategy should be in the coming period, short-term and long-term?

Galal: If I were to figure out the strategy in the coming period, the next ten years or so, I would say the following: Egypt needs to continue its economic reform agenda to maximize the benefits from private initiatives. Capitalism can be bad. You want to encourage creative capitalism, not crony capitalism, or the kind based on ripping off somebody else.

Then comes the distribution of as well as generation of wealth. We should make sure to reward effort and that no one is left behind. The government’s responsibility is to equalize opportunities for people of different socio-economic classes. We have to make sure that kids who can’t afford to go to school go and are able to get health services, etc.

The third part is making sure those can’t participate in the economic process--or example, the disabled--have a safety net.

Finally, accountability and political liberalization is fundamental to achieving the objectives of growth. Without accountability, policies will be made to benefit the few. At the end of the day we would get neither growth nor distribution.

Al-Masry: One of the things that incited demonstrations before and after Mubarak resigned was the figures floated of how much certain people in the government make or have stolen. These drove many to ask, if the money is there, why would it be difficult to implement certain policies such as a higher minimum wage in the short run?

Galal: I am all in favor of subjecting those who violated laws to legal persecution. If you push that too far, so as to punish anyone with wealth now, you are punishing yourself. That would lead to eventually having to cope with fear and lack of investment, so one has to be careful when tackling these issues.

The issue of income policies cannot be collapsed to the minimum wage. First, if the minimum wage is too high it will cause unemployment. The discussion should focus on how we go about setting the minimum wage to not increase unemployment, while giving wages for people to live easily. This is not easy. It needs careful scrutiny, and an increase in wages has to accompany productivity.

Al-Masry: Labor productivity has recently been a great weakness in Egypt. It has been calculated at around 28 minutes per day for government employees. How should the coming government rectify this?

Galal: The government can implement policies to encourage productivity. One thing that increases productivity is competition. Another thing the government can do is link productivity to rewards. I should have a system so that whoever is working harder is the one getting recognized and promoted. When you and I are working for the same place, and are both making the same amount of money and I get promoted on seniority basis, there will be no increase in productivity.

Al-Masry: What can be done to fix the inefficiencies of Egypt’s notorious bureaucracy?

Galal: It is probably one of the hardest challenges facing this government, the next government and the one after. It has faced the government since 1991. There are too many Egyptians locked into government bureaucracies essentially not making enough money to sustain their living. People need second jobs, or get involved in petty corruption, and then get promoted based on seniority…

It needs to be reformed, but it will take time. A few things like this will take a lot of time to fix and this is one of them. Education is another one.

Al-Masry: As a former World Bank Economist, what has been and do you foresee as being their reaction--as well as that of the International Monetary Fund (IMF)--to the situation in Egypt?

Galal: The World Bank and IMF are two international financial institutions among many others that we can benefit from. From an Egyptian development perspective we should be using all instruments to achieve all we want. It’s not about them, it’s about us. It would be a disaster if we let them come and tell us what to do. I don’t worry too much about what they think; I worry about what we think. They actually offered help. I heard that some in power were reluctant to accept some World Bank support right now, because they didn’t want the stigma… That maybe they’re coming to help Egypt and Egypt is falling apart. That might scare investors.

We are not going through a crisis of the kind that the IMF and the World Bank have to come rescue us from. We are going through a serious transition, and the bulk of the work is going to be ours, it isn’t going to be somebody else’s. We should be using all the help we can get, provided we know what we want.

Al-Masry: How do you think fiscal and monetary policy should be used in the coming period, and to what ends?

Galal: In the short-run--by which I mean the next 6 months to a year--we should be careful not to jeopardize national stability. We should be careful, vigilant and prudent in responding to popular demands or getting panicky in response to capital flight if and when it takes place. We should stay cool and collected, and make sure we don’t push the wrong policies into higher inflation, pressure on the pound, and runaway budget deficit. Prudence is the name of the game in the short run.

The priority right now is the political transition. Economic policies should be in the business of making sure we remain stable, much more than figuring out what to do in the long run. The next government will figure that out.

This short period is for political reconciliation. This includes making sure that those who have stolen are penalized and ensuring that economic welfare is not shifting too dramatically in one direction over another. The government should basically adopt a “do no harm” policy.

Al-Masry: Which of the previous regime’s policies have had a positive effect and which have been detrimental?

Galal: We moved halfway on the economic reform agenda. On the social side we went for “let things be as they are,” and dealt with those things on the margin. This formula didn’t take us very far. On the political front, we started with a little bit of openness in the media. It was too partial, too timid, and too unreal. It didn’t allow for a full-fledged democracy.

Going forward, we need to do more, with equal force on all three fronts. We have not fulfilled our full potential. Justin Lin, a chief economist at the World Bank always asked me, “Can you tell me why isn’t Egypt doing X, Y, or Z? They look like a country who can, they have all the components.” I think the political context, the policies made, the lack of attention to social cohesion, were responsible. Now you are unleashing that, I think Egypt has enormous potential for the future. That is why I am very optimistic about what’s happening.

Al-Masry: Which sectors should the government focus on propping?

Galal: I think the government should be in the business of setting up the rules equitably and fairly. They should be encouraging all activities and let people be innovative and creative. Maybe for reasons of distribution the government should intervene. They should provide infrastructure more in Upper Egypt and rural areas, as is provided in urban areas. The government may also want to engage in training activities so that young people can meet the demands of the labor market.
There is much the government can do, but for it to come in and say “I want to promote agriculture at the expense of tourism… or cement at the expense of soft drinks”--I am not sure. Historically, governments who have done so have failed. I am not against selective-intervention, but we have to be very careful.

Al-Masry: Should formalizing Egypt’s large informal sector be a priority?

Galal: The informal sector is at least 30% of GDP and close to 50% of employment. Neglecting this group was one of the biggest mishaps of the previous era. They essentially introduced economic reform that excluded the informal sector. The informal sector is seen as residual. Despite that whenever the economy experienced a shock, it is the informal sector that absorbed that shock. If you’re laid off from a job at a factory in 6th October you can go work in Khan al Khalili or someplace like that.

When I worked for the Egyptian Center for Economic Research, we produced a draft law on the notion of creating a set-up where it would be beneficial for Egyptians in the informal sector to be integrated into the formal sector, and [the government] really didn’t pay it any attention. By helping the informal sector you are helping reduce poverty.

Al-Masry: Another huge problem that has been a talking point is internal revenue--can the majority of the country be persuaded to pay taxes and have faith in the system soon?

Galal: The problem with taxes is that for the higher brackets they were seen as being too high. The other problem is that they didn’t really see the benefits of the taxation. Third, the increasing inequality in society also enforces that sense that paying taxes is not so beneficial. Then there was the sense of arbitrariness: a frequent problem was that a tax collector would not be convinced by a statement from a business owner and so indicate an arbitrary figure to be taxed.

We need to address these concerns, by first introducing a just, progressive tax rate. Arbitrariness should be removed. You have to have clear rules. Then people have to see the money collected from taxes spent wisely. People see tax revenue as misallocated and benefiting a few.

Al-Masry: What kind of guarantees should the military give to investors, internally and externally to guard from capital flight, and ensure long term economic stability? How can we convince investors of our commitment to correct and consistent policies?

Galal: The credibility of commitment is a very interesting topic. It is very much a function of the institutional set-up of each country. There is no one way of building credibility. For example Jamaica and Chili wrote commitments into law to guarantee investors. It didn’t work in Jamaica, it did work in Chili. In Jamaica every election would bring in a whole new regime that would take over the parliament. When one would takes over, they override the commitments made by their predecessors. In Chile, they had more groups competing politically and so it was not as easy to change based on majority or power, so there is consistency in policies and agreements.

Investors like checks and balances and predictability regarding what’s happening in a country. I think if you have a democratic set-up you are more likely to be predictable. Investors have their political analysts for their investments in other countries. Political and economic multiplicity, checks and balances, and openness are likely make your country more attractive for them.

In Egypt you have really good investment opportunities on the one hand, and the potential to build credibility through a democratic process. I think we are going to be in better shape than we were before.

Q&A with the head of the Consumer Protection Agency

Riham al-Iraqi — Mon, 08 Nov 2010 10:14:00 +0000

In the following Interview, head of the Consumer Protection Agency Saeed al-Alfi discusses a Ministry of Industry and Trade decision to impose stricter punishments on false advertisement violators. The amendments introduced--expected to be passed during the next parliamentary session--also require traders to issue receipts to consumer.

Al-Masry Al-Youm: Why has the Consumer Protection Law been amended?

Saeed al-Alfi: The Consumer Protection Agency (CPA) receives complaints about misleading advertisements on a daily basis. We have noticed that these ads, which run on satellite channels and in the papers, have become widespread. The products also harm the consumer’s safety and health, so we have decided to raise the financial penalties in such cases. We have also contacted the Supreme Council for Journalism, satellite channels and the Arab League to stop these ads.

Al-Masry: When can an advertisement be described as misleading?

Al-Alfi: When they do not reflect the nature of the product advertised or give false information to the consumer who then discovers the product does not do what it promises. Some of these companies have phone numbers but no physical existence.

Al-Masry: Some have criticized the CPA, saying it is undermining the freedom of the media?

Al-Alfi: When an ad is proven to be misleading, then action has to be taken or else the consumer will be harmed. We issue a warning to the channel in question to remove the commercial.

Al-Masry: Who is fined in this case, and how much is the fine?

Al-Alfi: The producer of the product, the advertiser and the media channel used. Previously, fines ranged between LE5000 and LE100,000. The amendment will raise the minimum fine to LE10,000 and the maximum to LE300,000, which could reach LE400,000 if the product threatens the life of the consumer.

Al-Masry: How are you going to tell people that misleading ads will be criminalized?

Al-Alfi: We will launch a campaign in the coming stage before the law comes into force. We will use the different media.

Al-Masry: Why is the issuing of receipts being made obligatory?

Al-Alfi: Dozens of consumers ask us to help them return or exchange a faulty product, but we are often unable to help because the consumer does not have a receipt attesting to purchase. Therefore, we’ve decided to amend the law to compel traders to issue receipts.

Al-Masry: When is the new law going to come into force?

Al-Alfi: The amendments will be submitted to the cabinet, who will in turn pass them on to parliament for approval in the upcoming session.

Al-Masry: Does the consumer have a role in whistle-blowing traders who do not issue receipts?

Al-Alfi: Definitely. The consumer is the most important player. In fact, 60-70 percent of market transactions are not documented in receipts. This is very dangerous since the producers are quite often illegal and do not have commercial registers.

Al-Masry: What are the kinds of products that consumers can report to you?

Al-Alfi: We have a hot line--19588--for complaints. We receive reports about durable products, cars, foodstuffs, home appliances, electronic devices and all kinds of products.

Al-Masry: How do you handle reports with which you are not concerned?

Al-Alfi: We still respond to them. The CPA receives complaints about medications and communication services, which are not within our jurisdiction. We refer them to the concerned bodies, though.

Al-Masry: Does the CPA intervene in the pricing of consumer products?

Al-Alfi: There isn’t a single body in Egypt that intervenes in the pricing of any product, except for subsidized consumer products which are distributed by the Ministry of Social Solidarity and which are consumed by 66 million Egyptians.

Al-Masry: Some traders increase the price of products by a certain percentage if the consumer demands a receipt. What do you say?

Al-Alfi: The price attached to the product is its selling price. When the law will be enforced and traders will be required to issue receipts we will start processing complaints by consumers for such offenses. We will work in conjunction with the Finance Ministry and the Food Supply Police.

ِAl-Masry: Low-priced, low quality products are widespread. How is the CPA combating that?

Al-Alfi: Our role begins after a sale. We have no authority to monitor products. Besides, the consumer has to have a receipt to be able to exchange a product. There are other monitoring bodies that carry out this role.

Al-Masry: Why are consumer cooperatives being reorganized?

Al-Alfi: Since their establishment, their purpose was to provide products at low prices for low-income categories. There are 1080 branches of these cooperatives around Egypt, which together make LE650 million, whereas one single branch of Carrefour makes LE850 million. There must be something wrong.

Al-Masry: So how are you going to rectify the situation?

Al-Alfi: By making them sell only basic products--300 products at the maximum--at prices suitable for low-income groups. We will avoid luxury products such as caviar.

Translated from the Arabic Edition.

Egypt ranked 81 on Global Competitiveness Index

Amira Saleh — Tue, 21 Sep 2010 13:19:00 +0000

Egypt moves down 11 places from a year ago to 81st place on the 2010 Global Competitiveness Index (GCI), which ranked 133 countries. The Global Competitiveness Report 2010-2011 published Tuesday indicated that Egypt has not achieved any improvements in the areas of infrastructure, health, basic education, higher education and training, market efficiency, technology or innovation.

Chairman of the Egyptian National Competitiveness Council (ENCC) Helmy Abouleish attributed the lower ranking to the entry of six new countries in this year’s index that were not previously included. He also pointed to the economic recoveries of a number of countries that were hit hard by last year’s global financial crisis.

Executive Director of the ENCC Dr. Mona al-Baradei said Egypt has a number of reservations regarding the methodology used to prepare the report, and that the ENCC will communicate these reservations to the Global Forum.

Al-Baradei said some sub-indices did not accurately reflect the reality of Egypt’s economic performance and that these inaccuracies affected the final results of the report. She pointed to Egypt’s decline in ranking on the "losses caused by terrorist acts" sub-index--despite the fact that such acts decreased in the past several years.

In addition al-Baradei said that "the enrollment rate in primary education sub-index results conflicted with the Ministry of Economic Development’s official statements regarding the state’s economic and social development plan which indicated that Egypt achieved a net enrolment ratio in primary education of more than 90 percent in Cairo," and she cited the low ranking on "the participation of women in the workforce" sub-index, despite the increased participation of women in both the formal and informal sectors.

Countries ranked by the GCI for the first time included Iran, which ranked 69 and Lebanon, which ranked 92 on the report.

Abouleish said Egypt has showed a noticeable improvement on a number of sub-indices such as the "availability of scientists", "judicial independence", "domestic and foreign market size," and prevention of "organized crime."

Translated from the Arabic Edition.

Energy council demands gas supply for power stations

Ashraf Fekry,Hesham Omar Abdel Halim — Sun, 05 Sep 2010 17:53:00 +0000

The Supreme Council for Energy has demanded that the Ministry of Petroleum provide enough natural gas to supply new power stations planned to be completed within the next year. The new stations are being built as Egypt faces a huge electricity supply deficit.

An official source, who requested anonymity, told Al-Masry Al-Youm that Electricity and Energy Minister Hassan Younis said the Dumyat and al-Shabab power stations will only be offered up to investors after the Ministry of Petroleum agrees to supply them with the necessary natural gas. The source said Prime Minister Ahmed Nazif has agreed to this condition.

The source also said the Ministry of Petroleum has agreed to supply a daily 110 million cubic feet of gas to the al-Shabab station, and 112 million cubic feet to the Dumyat station.

Younes relied on a decision by the Supreme Council for Energy last January to increase gas supplies to power stations from 78 to 87 percent as soon as possible. Electricity Ministry spokesperson Aktham Abul Ella explained the additional gas supply was previously agreed upon by Petroleum Minister Sameh Fahmy, with the target of adding an additional 1000 megawatts of electricity to the national grid to overcome the current electricity crisis.

Translated from the Arabic Edition.