Deficit danger AHMED Heikal, chairman and managing director of Citadel Capital, warned this week that should the government do nothing about reforming its expenditure, the budget deficit for 2013/14 could reach LE300 billion. Heikal said that with the budget deficit already at LE175 billion, 10 per cent of GDP for the first nine months of the current fiscal year, it could hit LE240 billion by the end of June. The deficit was LE113 billion from July-March 2011/2012. Heikal stressed that the government needs to act immediately to deal with pressing issues including fuel subsidies which are currently contributing $22 billion to the current account deficit. “While we could have moved slowly 10 years back, today we do not have that luxury,” Heikal said. Speaking at a panel called “Energy challenges in challenging times” organised by the American Chamber of Commerce this week, Heikal explained that in 2002 when Egypt started importing energy the cost was offset by hard currency earnings from exports, FDIs and tourism. “This is not the case today.” He added that in a few years “when this current account deficit reaches $40 billion, there will be nothing we can do to ease the pressure on the currency.” He said fuel subsidies had caused many distortions foremost among which is that many industries that should have been doing well in Egypt are not thriving. He gave the example of River Nile transport saying that in 1960, 60 million tonnes were transported on the River Nile. Today that figure is down to one tonne. This is because fuel for trucks is much cheaper. The processing of solid waste as an alternative source of fuel could have also thrived were it not for the availability of cheap subsidised fuel. Heikal stressed the need to eliminate distortions. “Yes it will destroy certain industries but will create employment in others. The government cannot worry about every single industry.” “We cannot have the unavailability of energy. Everything in this country will be determined by creating employment. Lack of energy will translate into unemployment.” In the meantime, he said power blackouts this summer, which are being anticipated, could easily have been avoided if the private sector had been allowed to import natural gas. Tamer Abu Bakr, chairman of the Energy Committee at the Federation of Egyptian Industries, reiterated a similar view, also calling for reforms to the fuel subsidy system. But Abu Bakr said that transparency and clarity of energy pricing policies are essential to that reform. He said that prices should be raised within the framework of an integrated system for all products to prevent customers from shifting their consumption to cheaper products, and that prices be raised gradually over four stages. Furthermore, Abu Bakr said that there should be one price for all users to prevent corruption. Abu Bakr recommended moving towards replacing oil-derived fuel with natural gas because it is cheaper. He said power stations should operate with natural gas and there should be a national plan to convert 50 per cent of vehicles to operate with natural gas as well. He said government should phase out gas supplies to energy intensive industries. Egypt's production of oil and gas is 82 million tonnes per year of which 57 per cent is Egypt's share (47 million tonnes) while the rest belongs to the foreign partner. Meanwhile, Egypt's consumption stands at 77 million tonnes. Sukuk on the doorstep THE FINANCE Ministry is preparing the executive charter of sukuk, or Islamic bonds law. Finance Minister Fayed Abdel-Moneim made the announcement at a conference held this week in Cairo on the practical implementation of sukuk. Nesma Nowar reports. Sukuk was given the green light by President Mohamed Morsi and published in the official gazette last week after being unanimously approved by the Shura Council, the upper house which until a new parliament is formed has legislative powers. This came after the Shura last month incorporated remarks issued by the Islamic Research Academy (IRA) of Al-Azhar, said Ahmed Al-Naggar, advisor to the finance minister, during the conference. Abdel-Moneim said the executive charter of the law is the final step before its implementation, adding that the ministry would open the issue for public discussion on the ministry's website. Abdel-Moneim added that the ministry is now studying several projects to be financed through sukuk bonds including railway and wheat silos. “The ministry is very keen on choosing projects that are very productive,” said Abdel-Moneim. He added that the recent downgrading of Egypt's long and short-term credit rating would not affect the issuance of sukuk bonds, explaining that such downgrades would only affect regular bonds that depend on credit. Also speaking at the conference, Hussein Hamed Hassan, a Shura Council member, applauded the issuance of the sukuk law in Egypt, saying it was the only way to finance development projects in the country without highly associated cost. Hassan added that traditional interest bearing financing had presented several countries with many economic challenges. Hassan pointed out that financing through sukuk bonds, as stipulated in Article 18 of the law, is temporary financing to fund or develop a certain project which afterwards is returned to the project owner. He added that in order for a project to be financed through sukuk, its revenues should be greater than its cost. Abdel-Aziz Al-Hanae, vice president of the Islamic Development Bank (IDB), said that the IDB would support Egypt and promote the Egyptian issuance of sukuk bonds and would also provide technical assistance throughout the issuance process. Al-Hanae added that sukuk global had grown over the past three years from $34 billion in 2009 to more than $140 billion in 2012. New business journal THE SCHOOL of Business at the American University in Cairo (AUC) has launched its new quarterly publication, AUC Business Review. The magazine includes contributions by business gurus, academicians and practitioners, as well as members of the magazine's editorial team. “Most business journals are very academic in nature and are far too complex for members of the business community,” a press release quoted Ahmed Tolba, co-editor-in-chief of AUC Business Review and associate professor of marketing and director of Al-Khazindar Business Research and Case Centre (KCC), which produces the magazine, as saying. The magazine aligns with KCC's mission to become the primary link between academic research and practical applications. Entrepreneurship, leadership, innovation and responsible business are among the themes that the magazine will focus on.
