“Where there's a will there's a way” pretty much sums up how the Egyptian government is going about trying to reboot the economy after almost four years of stagnation. No stone is being left unturned. Mega-projects have been launched alongside initiatives aimed at encouraging small- and medium-sized enterprises. Infrastructure is being upgraded and policies overhauled. Addressing an economic conference organised earlier this week by Akhbar Al-Youm newspaper, Prime Minister Ibrahim Mehleb said everyone must take part in shaping a vision for Egypt because without a vision “we will lose our compass.” “We want Egypt among the top 30 economies in the world, among the top 30 in terms of competitiveness and among the top 30 in terms of citizen satisfaction,” he said. Mehleb's goal will be an uphill struggle given that Egypt has been ranked 119th among 144 countries in the Global Competitive Index, released last week by the World Economic Forum. In 2010, Egypt was ranked 81. Since the ouster of Mohamed Morsi there has been a raft of initiatives seeking to stabilise the economy and spur growth. They gained momentum following the election of President Abdel-Fattah Al-Sisi, crowned by the announcement of plans to widen the Suez Canal and develop its banks. The spate of recent electricity blackouts serves to underline the need for massive investment in infrastructure. In a speech this week, Al-Sisi said that the electricity sector had suffered from many years of neglect and it would take at least LE130 billion, and five years, to refurbish the national grid. He also addressed the problem of access to water and drainage systems, pointing out that only 20 per cent of Egypt's villages have adequate wastewater disposal. The extent of the challenges Egypt faces has left many people confused about where to begin. “Wouldn't it be better to direct the money people are paying for Suez Canal certificates towards upgrading basic infrastructure?” asks Noha Mahmoud, a 35-year old kindergarten teacher. Within two days of going on sale, LE14.5 billion of Suez Canal certificates, which pay a 12 per cent premium, were snapped up. The government is hoping to raise LE60 billion in total. Abla Abdel-Latif, a professor of econ-omics at the American University in Cairo, says Egypt has no choice other than to pursue massive development projects while simultaneously upgrading existing infrastructure. The mega-projects are needed because they represent Egypt's future and investment in them is as important as investment in existing infrastructure. Egypt has recorded an average annual growth rate of two per cent since the 2011 revolution. Before the uprising, growth was around five per cent. The Ministry of Finance's August bulletin included GDP quarterly data that suggests the economy is beginning to recover. Growth in the third quarter of fiscal year 2013-2014 increased to 2.5 per cent, compared to 2.2 per cent in the same period last year. The government is targeting three per cent growth for 2014-2015. Angus Blair, president of Signet Institute, a research group providing information on the business environment in the Middle East and North Africa, believes a growth rate of eight per cent is needed to make any real difference. “It is incredibly difficult, but doable,” he says. Abdel-Latif agrees. Achieving such a growth rate, she says, means working on all economic fronts. Mega-projects alone will not work. Their impact is long term and real benefits will take a decade to start being felt. To engineer quicker returns and the immediate creation of jobs the government needs to focus on projects that improve people's lives, such as recycling and the generation of energy, and work to guarantee that job opportunities extend to poorer areas. It needs to offer incentives to encourage investment in Upper Egypt, which would have the advantage of redirecting resources to some of Egypt's poorest governorates, thus reducing migration to Cairo. A high growth rate will also depend on the ability to attract foreign direct investment (FDI). “Domestic savings are simply insufficient,” says Abdel-Latif. Reuters reports that FDI in 2013-2014 reached $6 billion, double the sum for the previous year. Yet it is still less than half the $13 billion Egypt attracted in 2008. What Egypt needs, argues Blair, is “a change in domestic sentiment.” He points out that in 2004, when income tax was cut to a flat 20 per cent, positive sentiment prevailed, people began to invest and the economy grew. Many people also stopped spending time trying to avoid paying tax. “Tax revenues grew substantially. And the economy also grew,” he says. He advises adopting the same policies now. “Cut taxes, the economy will grow and more people will pay more tax.” The government, though, is seeking to increase revenue by imposing new taxes: on stock market gains, on individual and company earnings abroad, and by an exceptional temporary tax levied on yearly incomes of LE1 million or more. And it is doing so at a time when the private sector is feeling other pressures, including increased energy costs as subsidies are trimmed. The government's fiscal reform programme, says Abdel-Latif, has placed the private sector under pressure. “The reform agenda needs taming so as not to scare investors,” she warns. She is also concerned that, despite the fact the new constitution specifies the private sector should lead development efforts, the state's role is expanding. However, she believes this is understandable in a period of transition, when the government wants to make sure that things are on the right track. The private sector, she says, is ready to throw its weight behind the Egyptian economy. “They see a promising future for Egypt and want to take part in shaping it,” she says, adding that they need to be encouraged by a reduction in red tape, easier and cheaper access to land and to credit. The most recent World Competitiveness Report showed a business community unhappy with everything, from political instability to access to finance, corruption and inadequate infrastructure to weak investor protection. Blair identifies the reduction of bureaucratic hurdles as a top priority. “This heavy bureaucracy really holds Egypt back. Egypt needs to look at commercial laws in successful economies and draw lessons from them,” he says. “What is needed is serious institutional reform, and commitment to reducing geographic inequalities, providing sustainable economic development and ensuring greater social justice,” says Abdel-Latif. Blair also believes “cutting hydrocarbon subsidies is essential to increasing oil and gas FDI.” He would also like to see investment in the tourism sector extend beyond hotels. “There are few options for tourists in the evening beyond the Sound & Light show and Khan Al-Khalili. Yet Cairo is competing with other global cities. Egypt needs to invest in attractions that boost tourism spending, like Dubai is doing.” But how will all this be financed? Blair sees no problem with an increase in government debt if the resulting investment stimulates job creation, increases taxes and encourages private-sector investment. Abdel-Latif believes Gulf investments could finance long-term mega and infrastructure projects. Egypt has received around $20 billion in aid from the United Arab Emirates, Saudi Arabia and Kuwait since 30 June 2013. A donor conference scheduled for early 2015 may help increase that figure. Meanwhile, Egyptians can lead the way by investing in Upper Egypt and in poorer urban areas, but to do so they will need permits to be issued and for land acquisition to be made simpler. “The private sector would even be ready to go into the desert and reclaim land if the right incentives are in place,” says Abdel-Latif. “What is needed is a more coherent approach to funding and an efficient division of roles. In many areas the state should reduce its involvement, though only after ensuring regulations are in place to prevent the monopolistic practices of the past from recurring.” The presidential advisory council, created earlier this week by presidential decree, could serve an important role by imposing greater coherence across government policy. The council's mandate covers everything from religion to mega-projects.
