Egypt business environment remains to be complex with persistent investment hurdles:  World Bank Economist

Daily News Egypt
11 Min Read
Ahmed Kouchouk
Ahmed Kouchouk
Ahmed Kouchouk

By Raghda Helal

Ahmed Kouchouk , Senior Economist, World Bank in Cairo, highlight in an interview with Daily News Egypt, the opportunities of investment in Egypt.

1-      How could you see the investment climate in Egypt nowadays? Could it be a good market to attract investors again?

Government of Egypt recent efforts to improve the legal and business environment had led to a slight rebound in investors and markets sentiment after 4 year of notable setback as reflected in the sustained decline in domestic investment ratios along with lower FDI inflows that reached only 1% of GDP during 2011-2013. Latest government decisions and attempts conform with a number of good practices including; an active outreach and consultation with the private sector while acknowledging existence of investment hurdles, an attempt to widen scope and breadth of the reform agenda to include some of the toughest issues and priority constraints such as industrial license, access to land, and improving contract enforcements, and a balanced approach that focus on resolving current disputes and priorities (short-term) while also working on reforming the overall legal environment (short to medium-term).  Further, the investment climate has also benefited from a
number of key developments including progressing political road map with one key milestone in the pipeline (Parliamentary Elections) and improved power supplies.  This led to improved investor’s sentiment as reflected in pick up in private sector investments by 37% (year over year) during July-September 2014 as well as FDI inflows by 140% during the same quarter, a decline in domestic interest rates by 400 basis points compared to pre June 2013 levels, and uniform upgrading of Egypt’s rating and outlook by all rating agencies.

Despite this progress, Egypt business environment remains to be complex with persistent investment hurdles that are structural and complex in nature and the cost of doing business remains higher than most other peers. According to latest World Bank enterprise survey, firms in 2013 cited the following as most binding hurdles: political instability, lack of adequate electrical and power supplies, and cumbersome business licensing and permits. The lack of financing was also mentioned by many firms as an obstacle which might reflect higher cost of borrowing and a more risk adverse approach by the banking sector.  Thus, the GOE should maintain the reform mindset and pace after the economic conference and safeguarding private sector confidence by announcing a credible and coherent medium term reform program.

2-      In Your opinion, how could you see the obstacles that will face the foreign investor if he comes to invest in the country?

Investors are looking for a clear economic vision that is well articulated in a coherent and actionable medium term that enhances attractiveness and competitiveness of the Egyptian economy. The following are key issues that investors are looking for: commitment to a stable and transparent tax regime, competitive cost of doing business and simplified and transparent regulations, adequate energy supplies, policies that enhance social inclusion and stability, and a gradual fiscal consolidation path in order to avail more resources to the private sector while securing adequate investments and maintenance spending to close the current infrastructure gap. At the same time, the acute skills mismatch and gap need to be first acknowledged as a priority and then addressed through an ambitious private sector leading training program that prepare the labor force for the job market.

3-      How could you see the steps of the government to prepare for the”Egyptian Economic Development Summit” that held in Sharm-El-Sheikh last 13 -15 March? Is it a good idea to attract FDI?

We are delighted to know that the main objective of Egypt Economic Development Conference is to bring back Egypt on the global investment map and to build the case that “Egypt is open for business”. This landmark event should be promoted by the Government as a major milestone in a process aimed at positioning Egypt as an attracting destination on the global investment map. Authorities should build on the recent improvements in markets/investors’ sentiments following the adoption of important structural reforms since last July by announcing a credible medium term reform program that streamline business environment and allow the country to mobilize sustained financial resources needed to allow a high and sustainable growth path.

4-      What is your message to the foreign investor; would you encourage him to come to invest in Egypt?

Investors are most capable to make accurate business estimates and take the right investment decisions; on our side we are working with our Egyptian partners in the government to help Egypt improve the infrastructure base and the business environment. The WBG is ready to scale up its engagement in areas under discussion in this conference (including in the private sector development sector) and to assist Egypt in such areas as investment climate, energy, housing, agriculture, transport and social inclusion. Egypt is big market with a strategic location and the government has ambitious plans, which if steady implemented can create huge business opportunities to investors that will create productive jobs.

Egypt business environment remains to be complex with persistent investment hurdles that are structural and complex in nature (Photo courtesy of World Bank website)
Egypt business environment remains to be complex with persistent investment hurdles that are structural and complex in nature
(Photo courtesy of World Bank website)

5-      What are the economic challenges that you see Egypt faces nowadays?

Egypt’s economy is showing signs of recovery after 4-years of subdued growth. This reflects the gradual improvement in confidence, higher investment spending and favorable base effects. However, the government is facing the dual challenge of nurturing the economic recovery, while addressing long standing structural issues including large unemployment rates especially among the youth and women, ballooning government borrowing needs and debt ratios, an acute energy gap,  and a deteriorated infrastructure base. The Youth unemployment is a key challenge for economic stability and inclusion as 70% of the current 3.7 million unemployed are between     15-29 years old.  These structural problems if gradually addressed can unleash potential of the Egyptian economy and enhance it ability t generate adequate productive jobs.

Going forward,  Egypt’s main focus should enabling a private led growth that benefits all segments and groups mainly through vitalizing the private sector capacity to create large, diverse and productive set of jobs that absorb a growing labor force and to gradually bring down the unemployment rate especially among youth and women.  This requires polices that enhance investors’ confidence, promote labor intensive sectors, and mobilize adequate financial resources to finance Egypt medium-term economic development and growth strategies.

6-      What are the sectors in your opinion that Egypt wants to invest more to refresh the economic growth?

Egypt need to promote and attract additional investments into several sector including oil and gas and electricity and renewables to secure adequate and sustainable energy and power supplies; transportation, housing, health, and education to enhance service delivery and to promote sustained and inclusive growth; and manufacturing, agriculture, retail, tourism,  and  ICT to create productive jobs and to promote exports.

7-      CBE (Central Bank of Egypt) had devaluated the EGP recently to be 7.53 EGP against the US dollar, How could you see this decision?

We welcome Central Bank of Egypt recent decision to adopt a more flexible exchange rate policy that was supplemented by other supportive administrative polices. These policies strengthened the Pound in the black market and shrunk the parallel market premium to 2% compared to a higher premium (8%) earlier. Also, if these polices are sustained and more foreign exchange are availed through the banking sector, Egypt can realize   multiple dividends such as enhancing competitiveness of Egypt non-oil exports, constraining growth of the imports bill, maintaining strong remittances inflows into the country, and attracting investments into productive export oriented sectors.

8-      How could you assess the GDP growth of the country (3%-3.8% expected by the government at the end of this fiscal year) compared with the population growth rate (1.97-2 million annually)?

Egypt’s economy is showing signs of recovery since the second half of FY14with annual GDP growth spiking to 6.8% in the first quarter of FY15, up from 3.7% in the previous quarter, and a meager 1% in the same quarter a year earlier. This is the highest growth rate realized since the global financial crisis in 2008, and is much higher than the muted 2% annual growth rate realized over FY11-14 as the economy muddled through the ramifications of the January 2011 revolution. The challenge is to sustain a higher growth rate over the medium term while containing recent setback in population growth rate to enable the country to realize a notable improvement in per capita income levels. Recent discussions and polices are rightly trying to push the economy to record higher growth rates, yet limiting  rate of population increase is not yet high on the policy agenda or even widely discussed and debated.

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