Room for improvement: challenges face Egypt's growing economy

Sherine El Madany
8 Min Read

CAIRO: From creating business-enabling environments and developing infrastructure to building educational skills, beating regional competition as well as combating unemployment and poverty, the government has miles to go before it can rest.

“It’s a long road, but they’ve made a very good start, said Angus Blair, head of the research unit at Beltone Financial.

He referred particularly to the government’s decision to cut corporate and personal tax rates to 20 percent as a major leap towards economic development.

“The result is that you have two major stimuli into the market. The first is an increase of profits of companies by cutting the tax and an incentive for companies to invest more, he said, “The second part of that is you have a consumer boom – we see this happening in the retail sector – which is [in turn] stimulating the private sector to invest further to supply consumers with goods and services.

He believes that the country is still at the beginning of this rising curve in consumer confidence. “We’ve seen it through the release of land to supply housing, which has stimulated the real estate [market] and, therefore, the demand for other goods and services.

According to Blair, the government has taken a number of brave decisions that worked out well and placed it on the right track. “The other thing that the government needs to do is to try to ensure that the message about Egypt’s own market is getting out to attract foreign direct investments to take part in the Egypt story, which is a growing domestic market . and [promote] the country as a manufacturing hub.

Another step the government has taken towards development is its recently announced decision to reduce energy subsidies. “The government has taken this decision of cutting the subsidies of large energy users – large companies – and this is sensible. You want to ensure that you have efficiency in the industrial sector, and not subsidize it.

Blair also highlighted that inflation rates were following a downward trend. Quite recently, inflation has declined to reach around 8 percent after soaring to an ultimate high last winter (12 percent) on account of the avian flu crisis and gasoline price hikes.

“A number of factors that [triggered] this inflationary peak over the last months has diminished, causing inflation to come off again.

Shedding light on the government’s passion for privatization, Blair firmly believes in the process. “There is absolutely no reason why governments should own a bank, for example. It should all be privatized, he said.

Governments should not own anything, he added, as “its role is to manage the economy and defend the country.

Blair underscored that countries all over the world nowadays are initiating privatizing programs. “For Egypt to question that is bad because there is no choice but to privatize.

Privatization has to happen to create an efficient economy and employment opportunities, he said. “It is totally unfounded to think that privatization is negative. People usually complain about it at the beginning, but then services start to improve and become cheaper.

Now, with the Nazif government aiming for privatization, it is expecting a lot from the private sector.

“They are looking at the private sector to do more now that they have cut taxes, Blair explained. “They [expect] it to invest more, to employ more people, and to spend more money to supply the market in Egypt – that is corporate responsibility, too.

The government still has a long way to go until the positive effect of these reforms trickles down so that it is felt by the average citizen. “The government is doing the right things, but it needs to be done over a greater number of areas to stimulate the economy.

One issue that needs to be tackled, according to Blair, is the “interface between the government – or elements of the government – and the public. Improvements need to be made so that processes are easier and less bureaucratic.

“Having been in the mogamaa [the government center for processing an array of official documents], I realized that the interface between the general public and different government departments has to be improved enormously and made more efficient. I hope this will be on the government’s list of priorities.

The government also needs to set a plan to address public transit. “With the massive expansion taking place east and west of Cairo, the government has to focus on improving mass transit, particularly through railway systems because roads, quite frankly, are not the answer.

The government is committed to upgrading transportation, “but it has to be made a priority because of population and economic growth; and because without good mass public transport, Egypt’s economic growth story could quickly slow down.

Focusing on developing infrastructure in poorer areas has to be another key priority for the government, says Blair, and this will create employment opportunities.

“As long as you have an upgrading of infrastructure and transportation [roads, railways, airport facilities], as long as you improve investment growth levels, as long as you have continued growth in foreign direct investment, that will help provide a major stimulus for growth.

As for the tourism and leisure business, Blair believes the answer is not just building hotels but rather to get tourists to spend more money. Improving what people can spend money on in Egypt will stimulate growth, he said.

“You want to increase average spending of every tourist and not just get them to come on holiday.

The service sector is another area that the government, along with the private sector, has to look out for. “It is very rare in Egypt for companies to focus on the service sector, not realizing that by improving service levels, they can actually stimulate demand, Blair explained. “This is another impediment to growth because no one has been trained in the levels of service from retail through to government departments.

Egypt faces competition from the region, particularly Morocco, Jordan, Tunisia, Turkey, and the Gulf. One way Egypt can beat this competition, Blair suggests, is to eliminate bureaucracy and enhance the country’s business-enabling environment.

“The Egypt story starts the moment you step off a plane. The treatment at the airport says enough about what needs to be done, he stated. “Enter Dubai in five seconds using an e-card. Egypt should do that, too. Things should be made easier everywhere.

“At the moment, to do anything seems to be taking a long time, and people do not seem to realize that you can have this massive jump if you aim for speed, Blair concluded.

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