Ibrahim Nafie reviews the progress made during the current financial year Egypt's reform programme is a comprehensive, multi-faceted process that cannot be reduced to a simplistic formula. This applies as much to political reform as it does in the economic domain. I would like to address the latter subject today. All indicators suggest that the Egyptian economy is on the road to a powerful recovery. Perhaps the speech given by President Hosni Mubarak when signing the new tax act best informs us of the many accomplishments that have made this new thrust possible. He opened with a succinct overview of the phases, or "generations", of the economic reform process. The first focussed on the reconstruction of the economic infrastructure destroyed by decades of war. Funded by a combination of public expenditure and foreign loans and grants, its aim was to build modern foundations that would stimulate investment and growth. Public money was also directed towards creating new job opportunities to offset unemployment. The keyword for the second stage of reform was economic restructuring. The aim was to restore an appropriate balance between economic variables, an important part of which entailed paving the way for the private sector to play a more proactive role in economic growth and job creation. During this period bureaucracy was streamlined and new laws were introduced to encourage investment and advanced tax structures were introduced, such as the sales tax and the money market and stock exchange taxes. Nevertheless, in spite of greater emphasis on the private sector during this phase the public sector still prevailed and the economy was still the centralised one that had been in place since the 1950s. In the third phase, which is currently in progress, Egypt began to bring its economic philosophy into line with the principles governing the global economy, principles that have established their efficacy in generating higher investment, growth and employment rates. A key tenet of Egypt's philosophy during this phase is partnership based on mutual trust between the state and the citizen, and numerous policies were introduced to put this philosophy into effect. The most important landmarks so far have been the amendment of the bank law to give the necessary autonomy to the Central Bank, the raising of interest rates to encourage individuals to convert foreign currency savings into high interest yielding Egyptian pound savings, and the floating of the pound in order to offset inflation. Indicative of the success of these policies are the stabilisation of the exchange rate and the marked drop in the inflation rate from 14.5 per cent last year to about 4.5 per cent today. These developments have permitted for the lowering of the savings interest rate and, hence, the lowering of the lending rate, which will stimulate private sector investment. Another major step was the reduction in custom tariffs from 16 to nine per cent. This measure works in favour of investors and consumers alike, making it easier for the former to import the necessary machinery, spare parts and semi-assembled goods for their operations while making available to the latter a greater variety of goods and services at lower prices. More importantly, it will prod Egyptian producers into making the adjustments necessary to compete with their foreign counterparts. Most recently we have the new tax law which reduces the tax burden by half, offers more exemptions to those on limited incomes while eliminating some of the exemptions accorded to investors under the old law. The reduction of the tax burden on entrepreneurs will encourage domestic and foreign investment, stimulate economic growth and create new job opportunities. One of the most important points Mubarak made in his speech was that the rapid progress we are making in the institutional and legislative structure of the economy necessitates a thorough overhaul of the existing bureaucracy. I would add that we must also end what I have termed the tyranny of the petty official. The importance of this cannot be stressed enough. The rise in petroleum prices last year generated an enormous surplus of liquidity in oil producing countries. While some of this surplus found its way to Egypt, for the most part the investment was in response to the opportunities made available by the privatisation of public sector companies. Creating a climate conducive to long-term direct investment entails not only the appropriate legislative and institutional changes but also a commensurate change in the mentality of the officials who implement these policies. These, after all, are the people who deal directly with the investors, and it is they who can either make life easier for the investor and help bring in millions or make his life hell and cause those millions to go somewhere else. Following his review of the economic reforms that have brought us to the present juncture, Mubarak delineated the most salient features on the road ahead. Among the areas targeted for reform are the sales tax, fiscal stamp and development tax systems which need to be upgraded in a manner that will stimulate the economy. Another objective of reform will be to stimulate industrial and technological development through policies aimed at enhancing productivity, such as linking incremental salary raises to increased production levels. As the president pointed out, in order for such measures to bear fruit, the banking sector must be radically upgraded if it is to deal effectively with the growing production and service sectors and their financial needs. Similarly, the stock market must undergo a similar process of development in order to cope with the anticipated rise over the next five years in the number of companies listed on the exchange and in the market value of shares traded. Finally, the president stressed the need to enhance export trade. Mubarak has set us ambitious but ultimately realistic targets for the forthcoming phase. In light of the progress we have made during the current financial year we should see a further reduction in the rate of inflation while annual growth heads towards six per cent, opening up more job opportunities and raising the standard of living for the nation's youth.
