CAIRO: “If you are in a good mood and enjoying your time, then leave now because what I’m going to say won’t leave you in a good mood, this is how Minister of Trade and Industry Rachid Mohamed Rachid opened his speech on impacts of the global financial crisis.
The minister justified his statement by citing the International Monetary Fund (IMF) recent report on World Economic Outlook that said, The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s.
The IMF said the worst financial trauma since the Great Depression would exact a heavy economic toll as investors wrestle with a crisis of confidence and global credit is choked off.
In its biannual World Economic Outlook, the IMF slashed its 2009 forecast for world growth to 3 percent, which would be the slowest pace in seven years and warned that a recovery would be unusually slow.
It said global growth this year would come in at 3.9 percent, compared to 5 percent in 2007.
Rachid pointed out that advanced economies (mainly the US and Europe) will see their growth rates shrink from 3 percent in 2006 to 0.5 percent in 2009. “Many people say this is very optimistic and that it will be difficult to see growth numbers rise above zero percent.
The IMF sees the US economy screeching to halt and warned a recession was increasingly likely. For all of next year, it projects US growth of just 0.1 percent. As for growth in the euro zone, the fund said it was set to slow to 1.3 percent in 2008, easing to a scant 0.2 percent in 2009.
“Despite everything, it’s not doomsday, the minister said. “This crisis creates an opportunity, as it makes people see the reality that there’s more dependence on emerging markets to deliver growth, which is good news.
Rachid highlighted the bright side amid all these bleak forecasts, saying emerging markets – mainly China, India, Egypt, and Latin America – will be “oxygen to the world’s economy.
Emerging markets, he added, would be more resilient than developed ones in dealing with the economic meltdown. “Growth rates in emerging markets are expected to reach 6.9 percent this year and 6.1 percent in 2009, [albeit] it compares to 8 percent in 2007, he explained.
As for Egypt, Rachid said it enjoys a “luxurious position during these financially troubled times. The government, he clarified, is maintaining its growth target at 6 to 7 percent for 2008/09. “Seven percent growth rate in 2009 will be equivalent to 10-11 percent in normal conditions.
The minister reiterated previous statements by the Central Bank Governor Farouk El-Okdah that the banking system is secure in Egypt and all deposits and investments are moving safely.
“Deposit to loan ratio is in a safe zone at 50 percent which shows abundance of liquidity in the banking system, Rachid said. “While governments across the world are pulling liquidity out of the market [and giving it to banks] our central bank is doing the opposite. The government is pumping liquidity into the system.
But fallout from the global crisis that has stoked recession fears could come in the form of a drop in tourism revenues, exports, foreign investments, and Suez Canal receipts, he said.
One way to remedy that, he pointed out, is liquidity that could easily finance sectors related to exports and investments and thus strengthen economic growth.
“Having liquidity is one of our strengths, and we need to see that it is pumped into the right place . that will generate more exports, more investments, and more local consumption.
As for investment figures, Rachid said the next stage is to focus on local rather than foreign investment. “We’d like to see more foreign direct investment (FDI), and we’ll act in an aggressive way to see it happen. But we need to make sure that Egyptian companies will continue to invest in the country, and that can be done through financing.
Investment Minister Mahmoud Mohieldin said earlier that Egypt would be content to attract $10 billion in foreign direct investment in the current 2008/09 fiscal year, down from the record high $13.2 billion in the previous year.
“People will not stop investing in the country, but it will be more difficult, Rachid said. “We need to focus on emerging markets at the coming stage. We need to strengthen trade ties and highlight investment opportunities with countries such as Turkey, China, India, and Saudi Arabia.
The minister’s remarks came during an event organized by the American Chamber of Commerce in Cairo which was entitled: Financial Crisis and its repercussions on Egypt, which according to the Chamber saw “massive turnout.