Minister of Trade and Industry is at the heart of Egypt's economic policy making. This year he also took over the portfolio of the Ministry of Investment after the departure of former minister Mahmoud Mohieldin. In an e-mail interview, he answers Al-Ahram Weekly 's queries on government policy for the coming year. What are the growth prospects for the Egyptian economy in 2011? Our prospects for growth in the Egyptian economy for 2011 is to reach six per cent or above. The government is poised to take measures that will drive up growth in the domestic economy. We want to go beyond the six to seven per cent growth barrier. What will drive that growth? Measures to support the economy include improving the educational system to empower citizens to take advantage of the opportunities provided by growth, promoting public-private partnership (PPP) deals to attract as much as LE50 billion into projects including roads, water and drainage. We have to implement more reforms including some to improve the business environment through the introduction, for example, of a bankruptcy law -- which is in the works -- and legislation, expected soon, to clear up a morass of conflicting regulations complicating investors' access to state land. Moreover, we are working on a law regulating land ownership and land utilisation. And we have just finalised a PPP law to allow more funds to come into infrastructure. We need to open up some of the services industry, such as education and health, aggressively. We want more financing to come in. There is no doubt that what we have at the moment in terms of foreign direct investment (FDI) and investment generally is far below our capabilities. We have created a dynamic economy, we have created the stability and we have attracted attention to Egypt. We now need to work more aggressively to present business opportunities in a much more complete way. We have to deal more fiercely with all the red tape and the problems facing investments. In order to boost growth, the government needs to make sensitive decisions such as cutting subsidies. How will it go about that on an election year? Or will that be delayed until after the elections? First of all we need to look into the subsidy system, not to eliminate it, but to make it more effective, more efficient so that there's no leakage that is distorting the market. Subsidies are a sensitive issue at any time in Egypt where many rely on subsidised bread and other basics. The issue is more acute now with urban inflation at 11 per cent, and food price rises double that. We need to ensure subsidies do not go to those who do not need them. In order to do that, we split subsidies into two categories. The first category covers subsidies that have prime social consequences, in particular food subsidies. The second includes subsidies that primarily have economic consequences, in particular energy subsidies. Food subsidies do not pose major risks to the budget, as they are usually within the range of one to 1.2 per cent of GDP, while considering international price hikes they can rise up to 1.8 to 1.9 per cent of GDP. This is very significant, and food subsidies are important to preserve social stability while protecting the poorest segments of the society. It is their right and our responsibility. What is needed on this front is a better distribution mechanism and better allocation vehicles, to reduce unwanted leakages of such subsidies to unintended social groups, and the government is working on those vehicles and measures in cooperation with international institutions. The issue of energy subsidies is different. The government is keen to minimise these subsidies, not only for their budgetary implications and their leakage to the rich as much as to the poor, but also because they can distort investment decisions and have negative consequences on economic efficiency gains. The timing and composition of any package usually take into consideration aspects such as inflation, the relative prices between the substitutive products, the situation of the global economy and the social consequences of increasing prices. The government will eventually phase out subsidies while maintaining sufficient protection for the poorest, by taking measures such as maintaining subsidies on butane gas cylinders while improving distribution systems through a coupons system and accelerating the expansion of the natural gas network to households. The government has already phased out natural gas subsidies to energy-intensive industries and has phased out most natural gas subsidies to other industries. Meanwhile, Egypt's food subsidy bill is expected to be on the high side in 2010/11 with the state spending an extra LE4 billion ($695 million) due to increases in global prices. Energy subsidies cost the government LE60 billion ($10.9 billion) in fiscal year 2007/08, up from LE57 billion in 2006/07. Of this amount, LE20 billion went to energy-intensive companies. Investors have often voiced concern over the upcoming presidential elections and their reservation against making major investments except in sectors such as food, agriculture and utilities. Please comment on this. What I see is people continuing to expand, continuing to invest. And, of course, I expect local people to do that because they understand the environment better, but what makes me really even more comfortable and more confident is that we are seeing many foreign investors. And we have been noticing a growth in FDI. So, for the long-term investments to which we always give priority, things are looking good. Perhaps short-term investments in the stock market will be affected. Energy shortages last summer have shown the fragility of Egypt's energy supply. And new cement licences have been told to provide their own energy. How does this affect industrial growth? There is a continuous investment in energy and the capacity of electric power. What has happened in the past few years is an acceleration of demand because of industrial growth. We are also opening power generation to the private sector, so we can ensure that, in addition to the government, there are private funds coming into that equation. We also decided that we are going to liberalise the importation of energy products for industry and we are going to be sure we create the infrastructure for that to happen, because we do not want our industry to be limited to the capacity of energy that we have. So if we are serious about becoming an industrial country, we have to plan and actually be happy that at one stage we will be importing energy.
