Egypt’s ministers came together on Monday to address the many economic challenges facing the country and to instill a dose of trust in the business environment. But both the challenges highlighted and the rhetoric used to address them seemed to be taken straight out of 2010, when the country’s economic indicators were arguably much healthier than today’s, though the same issues persist.
By day’s end it was obvious that the obstacles Egypt’s ailing economy is facing are the same that those successive governments have promised but failed to tackle over the past decade at least.
At the 19th annual Euromoney Egypt Conference, one of the first major business events to be held after the ouster of President Mohamed Morsi, ministers of the interim Cabinet put on a friendly face and walked a firm line of confidence building.
It was perhaps Hisham al-Khazindar, managing director of Citadel Capital, who put it best when he said, “Egypt has been in a period of standstill for the past five years. Fundamental structural problems have been building.”
He went on to add that while the current Cabinet is one of the most competent since 2011, with more funding available to it thanks to the generosity of Gulf states, “the sense of normality is superficial and the build up of problems needs to be addressed.”
He highlighted the welfare and subsidy systems as key issues, and opening up the energy sector as vital to viable economic development. For now, the government has done well in “identifying the low-hanging fruits.”
Ministers and industry insiders highlighted important projects being planned in their respective sectors as a way of telling investors that they have a place to put their money.
Meanwhile, they vowed to work on regulations that create snags in the process of doing business, and touted the verbal and financial support of friendly governments as guarantees of Egypt’s unscathed fundamentals.
Finance Minister Ahmed Galal did cite Egypt’s recent dire rankings in competitiveness, where it came in at 128, but added that “the problem with these reports is that they look at what happened and now what could potentially happen,” encouraging a more forward-looking vision for the country’s beleaguered economy.
Growth reached 2.1 percent, he said, while it should be at least between 3-5 percent. But the problems of high unemployment and lack of social justice persist, he added, and have been around for the past 10 years despite growth rates under the previous regime of around 8 percent.
Galal told Reuters that the government plans to launch its second stimulus package before January, which would be worth around LE24 billion. This would be the second package, the first having been announced in August to the tune of LE30 billion. However, details about practical long-term plans to spur economic recovery have not been spelled out, save for promises of focusing on labor-intensive infrastructure projects.
Investment Minister Osama Saleh said Monday that by the end of December, Egypt will complete a master plan for the development of the Suez Canal, followed by a global tender. The mega-project, a new buzz word among officials, is set to bring in a significant flow of investments and construction activity in hopes of stimulating the overall economy.
Saleh was quite optimistic in saying that investment interest is increasing and will get a needed boost “with more stability and security, and after the completion of the roadmap and the finalization of the constitution in December.”
Since the January 25 uprising, foreign direct investment has averaged $2.2 billion, representing 25 percent of overall investments, which reached LE153 billion in June 2013, said Saleh.
The FDI figure is a far cry from the 2008 peak of $12 billion, but even then, investments were centralized in sectors that played to the interests of big businessmen and where they could make the most profit.
Talking about boosting investment and developing large-scale infrastructure projects is well and good, but the conversation needs to be steered adeptly toward injecting money in sectors that can bear the most fruit for the overall economy and avoid the top-down development approach of economic growth.
Though the biggest flow is currently coming from the Gulf countries, investment interest is diversified, Saleh said, adding that, “Russian investors are also very serious.” On December 4, Cairo will play host to the Egyptian-Gulf Investment Forum, and at the end of January, a delegation of American officials and investors is due for a visit.
One of the regulations authorities are working on to reassure and protect investors, Saleh said, is the law to facilitate land auctions versus direct allocations, which should “offer a relief to investors.”
Experts are also working on improving the licensing system by cutting the red tape around the process and pushing for temporary licenses to be issued at the Investment Authority’s One-Stop Shop. The framework for One-Stop Shops was put in place years ago — with much pomp and circumstance — to improve the ease of doing business and the process of starting a company, but it was never fully implemented.
Asked about the longstanding contentious issue of privatization, Saleh said they are “studying new mechanism for robust state-owned companies to work hand in hand with private companies,” highlighting a dynamic that has been attempted numerous times before in different forms but has never materialized fruitfully, such as investments via public-private partnerships.
Saleh suggested opening up the most robust public companies to be listed on the stock market as a way of increasing their capital and liquidity.
Tourism, one of the country’s staple revenue earners that has been hardest hit by the constant bouts of political turmoil, is one its way to relative recovery as more and more travel bans are eased, said Tourism Minister Hesham Zaazou.
Zaazou said tourism numbers took a “nose dive” as travel bans were placed on Egypt in mid-August, when violence broke out after the forcible dispersal of two pro-Morsi sit-ins left hundreds dead.
The minister had previously said that a marketing campaign will aim to attract 14.5 million tourists next year. Numbers are down from 14.7 million visitors and $12.5 billion in revenues in 2010, 9.8 million visitors and $8.7 billion in 2011, and 11.5 million visitors and $10 billion in 2012.
The priority markets remain the more traditional ones of proximity, but in the future, “long haul tourism is where Egypt’s emerging markets lie.” While sun and sea travel is still the main attraction, the ministry is trying to tip the ratio more to the side of culture travelers.
Still, problems that have for long burdened the development of the sector continue to do so, namely quality of service and the lack of training of human resources, as well as traffic problems and hazardous roads, besides the constant harassment of tourists that impedes return visits.
Minister of Civil Aviation Abdel Aziz Fadel said that Egypt will work on projects to expand the capacity of all of its airports. One new project being developed will create a free zone hub around the airport grounds with investments worth $17 billion. The global bidding will start by the beginning of next year and the implementation will take five to seven years, creating 100,000 jobs.
In other panels, insiders of real estate and banking highlighted the resilience of their sectors and the potential of the still untapped opportunities in both.
But the question of addressing the shortage of low-income housing was left unanswered, as it has for the past few years. Property developers still focus on the profitable high-end market, which leaves millions of Egyptians’ needs unmet.
In the industrial sector, productivity remains low and labor issues continue to plague robust development.
On the financial services side, the banked population remains a meager 10 percent, while access to finance is constrained for small and medium enterprises at around 6 percent of lending.
When one panel moderator asked whether there has truly been a revolution in Egypt on the economic and political fronts, the question hung uncomfortably in the room. When put to the floor, most attendees agreed that indeed there has been, but rightly so, experts made it clear that a daunting amount of work still needs to be done to put the economy on the right track.
“We remain strongly committed to the economic development of the nation – whatever the political situation,” sai Richard Banks, regional director of Euromoney Conferences, highlighting “the need for viable and inclusive dialogue on the true state of the Egyptian economy and the impact of instability on domestic and foreign investment.”