CAIRO: Responses varied towards the economic recovery plan presented by presidential hopeful Mohamed ElBaradei on Sunday — while some said the measures fall in line with the goals of the 2011 uprising, others expressed concerns towards financing mechanisms.
“I think it’s very disappointing that only now — almost a year into the revolution — just one presidential candidate has given thought to the matter,” said Karim Helal, board member of Egypt’s CI Capital, who feared that ElBaradei’s 10-point plan is “vague, unsustainable, and short-sighted,” being only a repetition of former headlines.
“I don’t see any specific roadmap or action plan to implement any of them,” he continued, saying that it neglected the key point of financing the current deficit and how to deal with the issue of dwindling foreign reserves.
ElBaradei’s economic stimulus plan was submitted to incumbent Prime Minister Kamal El-Ganzoury on Dec. 15, 2011, with the declared goal of helping “attract investments, boost production, provide job opportunities and partially achieve the desired social justice in the short term.”
Helal timidly agreed however with the idea of creating mega-projects, which would create “lots of jobs” and get the ball rolling. “They present the tight frame to activate the PPP [public private partnerships] concept and attract foreign investors. However, the country doesn’t have the resources for them.”
On the other hand, Karim El-Assir, fellow at The Signet Institute, said ElBaradei’s program is “very mindful of the need for social justice, which was one of the central demands of the revolution,” citing the emphasis on dialogue between workers, employers and the government in the implementation of reforms.
El-Assir said the plan prioritizes job creation by stimulating the construction sector and setting up mechanisms to finance small and medium businesses. “Both of these issues are vital to stimulating the Egyptian economy in the short term and are positive.”
However, both Helal and El-Assir said the plan stumbles when it came to financing the outlined strategies.
“The plan mentions the need to seek assistance from Arab and international organizations, although such efforts have already proven to be a stumbling block,” said El-Assir.
“Attracting international and Arab organizations is fine,” said Helal, but is not enough when it comes to concerns over cash-flows. “Big budget deficits need to be plugged, and ‘dollar agencies’ can’t be depended upon for long-term financing,” he added.
El-Assir also remarked that Egypt has been reluctant to accept an IMF loan (at $3 billion, it was turned down in June 2011); meanwhile, several pledges from the Arab states after the 2011 uprising, such as direct assistance in the forms of grants and loans, have remained unfulfilled.
Helal criticized another point in ElBaradei’s plan which proposes managing government spending by reducing salaries and increasing taxes. The core problem is “increasing productivity and creating productive jobs, by growing the gross domestic product (GDP) to mitigate the unemployment time bomb,” Helal said.
“You don’t achieve any of those by increasing taxes; rather, you get a contrarian effect,” he said.
Regarding the proposal to reduce energy subsidies, El-Assir said it was a very important step towards freeing up the budget and allowing for more diverse public spending.
Egypt recently raised electricity prices for energy-intensive industries, but lifting energy subsidies in general is seen as a more contentious move with perilous social consequences.
However, he warned that “it could carry some political implications” and that the government may be reluctant to pursue unpopular policies with the current political climate.
Helal agreed with the proposal to reduce energy subsidies, saying that they cost the country tremendous amounts and “didn’t do their exact job.” However, he also protested the program’s capital gain taxes, believing they were an “extremely naïve” and likened them to being “the last nail in the coffin.”
“The capital market first has to be very strong, deep and healthy,” he explained, saying that the Egyptian market was none of that, adding that it was “very stupid to introduce capital gain tax on an economy that is already faltering.”
El-Assir concluded that other proposals were previously brought up that also discussed government wage caps and subsidy restructuring, but were generally limited by the duration the government was expected to last, in order to see them fulfilled.
He said that the realization of the plan, if adopted, depended “on whether this Cabinet stays in place after the conclusion of parliamentary elections,” and that serious economic reform may need to wait until a government with a long term mandate was installed.
On his part, Helal agreed with the plan’s ideas of encouraging relations with emerging economies such as Brazil, Russia, India and China (BRICs), as he perceived it were a must. “They have the capital know-how and are long term partners.”
Helal, however, concluded that a “clear and transparent framework to attract investors,” was still needed, and so were efforts to regain the credibility lost by the market after revoking contracts and land reclamation. “All these have to be addressed as they’re a deterrent [to growth],” he said.
Economic Stimulus Plan
1. Implementing a "national investment program" to boost public utilities, housing and infrastructure in a bid to create more jobs.
2. Establishing a fund for financing industries, in collaboration with public sector banks.
3. Instituting incentives and tax exemptions for new "labor-intensive" investments.
4. Activating, financing and restructuring the Social Fund for Development.
5. Setting wage caps (minimum and maximum) in all government institutions.
6. Restructuring medium debts of farmers and ending prison penalties.
7. Activating the Supreme Council of Investments, removing investment hurdles and providing safeguards for investments of more than LE 1 billion.
8. Developing tourism from emerging economies, namely China.
9. Adding at least 2,500 locally-made buses running on natural gas to existing mass-transit fleets.
10. Setting priorities for the transitional period: enhancing investment environment, releasing stalled factor and construction licenses, and land allocations.
Mechanisms for funding
1. Reducing energy subsidies and conversion to natural gas.
2. Seeking financial assistance of international and Arab organizations to provide fiscal liquidity and investment resources.
3. Gradual review of tax-policies in parallel with economic recovery, imposing "reasonable" taxes on capital gains.
4. Encouragement of investment and commercial trade with emerging economies BRICs, Korea and Indonesia.