Egypt will be presenting its case to the international business community as an attractive investment destination during this week's economic conference in Sharm El-Sheikh. How do you see the current state of the Egyptian economy? Recent measures by the Central Bank of Egypt [CBE] signal a shift in monetary policy from fighting inflation to supporting growth. The CBE is taking advantage of lower oil prices and inflationary pressures of the weaker exchange rate. While headline and core inflation moderated to 10.1 per cent and 7.7 per cent year-on-year respectively in December 2014, the inflation outlook remains benign in the light of the drop in oil prices, food and other commodities on the international market. The direct effects of the hike in regulated fuel prices starting in July 2014 seem to have passed. The monetary easing comes on the back of strengthening growth performance. Real GDP growth jumped significantly from 3.6 per cent in the second quarter of 2014 to 6.8 per cent in the third quarter of 2014, the highest annual growth rate since 2008. Notwithstanding the favourable base effect, the expansion in economic activity was driven by robust growth in manufacturing and tourism. The recent steps by the CBE should help to sustain the positive growth momentum by increasing the competitiveness of Egypt's export sector and encouraging investments by mitigating currency uncertainty and reducing the costs of borrowing. We are confident that Egypt's economy is on track to reach our growth forecast of 3.7 per cent year on year in fiscal year 2014-2015. In your view, what reforms are still needed? Egypt's cabinet approved a draft law on investment on 4 March, aimed at making deals less vulnerable to legal disputes or changes in government and reducing stifling bureaucracy. The government is seeking to address foreign investors' concerns before the Sharm El-Sheikh conference. The investment law aims to create a “one-stop shop” to make Egypt more attractive to foreign investors. It is also expected to protect investors from changes in the price of land agreed to in contracts with the government. Egypt's economic reform programme has received a boost from the International Monetary Fund, which last month said that measures implemented by the government were spurring growth and starting to produce a turnaround. The Fund's endorsement provides a welcome boost to Cairo as it hosts the economic conference this month, that the government hopes will attract billions in foreign investment. Investment flows have yet to return in any significant volume, but the authorities hope that reforms enacted over the past year, along with planned improvements to the business climate and opportunities in energy and infrastructure, will attract fresh funds from the Gulf and elsewhere. Cairo slashed state spending on energy subsidies by a third last summer and has introduced new taxes. A value-added tax is to be introduced later this year. The government is increasing cash transfers and spending on health, education and infrastructure. Those programmes should also give a boost to human and physical capital, productivity and potential growth, which is very important for job creation. However, Egypt's legal process needs reform, while its EDB [World Bank Ease of Doing Business Ranking] of 112 is poor compared to Morocco's (71) and Tunisia's (60). Do you expect the economic conference will succeed in attracting the targeted investments? Which sectors do you think are the most attractive and will get the highest attention from investors during the conference? Egypt hopes to attract investment of $10 billion to $12 billion in 20 projects in energy, transport and water, as it seeks to revive an economy battered by political turmoil since the 2011 uprising. Attendees at the event will be pitched a total of 35 investment projects, at their head a number of major energy projects which Egypt will use to increase its meagre electricity-generating capacity, that results in blackouts hitting the country during the peak summer months. In addition, investment in a number of other key sectors, including manufacturing, real estate, petrochemicals, and tourism, will get the attention of investors. Gulf money is likely to feature heavily among those flows. Saudi Arabia, the United Arab Emirates and Kuwait have provided Egypt with $23 billion of aid in the 18 months since former president Mohamed Morsi was ousted. Arranged by order of priority, which are the most important to foreign investors when looking at a country: politics, economic fundamentals or investment climate? How does Egypt fare in each? First, economic fundamentals, then investment climate and then politics. Egypt is on a reformist track. Granted, the political side is not evolving as fast as the economic and investment climate, but the key priority is economic fundamentals. Do you think the delay in the parliamentary elections will negatively affect investors' willingness to invest in Egypt? Even though there is going to be a delay in the parliamentary elections, this will not have a negative impact on investors' willingness because currently the country is run by political decree and the investor climate is favourable. Do you think the developments in Libya and possible military actions in Yemen could undermine the appeal of Egypt as an investment destination? The region has always been volatile. But regardless of Egypt's external involvement, we do not believe this will hinder Egypt as an investment destination as long as the domestic security situation is under control. Egypt's privatisation deals have not always attracted a good press, and the government seems to be embarking on a series of IPOs in the oil and food industries. What guidelines should be followed to guarantee fair legal deals? Egypt should try to uphold international standards for foreign exchange and value due diligence regarding IPOs, in order to create a conducive environment for local and international investors going forward. In its reforms, the government is taking steps that could cause social protests, including by slashing subsidies and increasing taxes. What kind of social-friendly measures need to be taken to cushion the effects of such moves? The key is the distribution of areas where the subsidies are being cut. The low-income segments of the population should be protected, while the affluent and the well-to-do, as well as corporations, should bear the brunt of the tax burden. Because of the predominance of major conglomerates/heavy industries in Egypt, a disproportionate amount of energy subsidies goes to these players, and the tax system should be modulated to better capture revenues from them.
