Controversy rages over the new government's strategy to encourage investment and boost exports, Mona El-Fiqi reports The new cabinet's decision to apply measures aimed at providing more opportunities for investors, increasing financial support to exports and cutting tariffs on imports has generated optimism in the media. However, the business community has had a mixed reaction to these moves. While some businessmen are optimistic about the new government's ability to achieve its promises, others believe that these announcements are simply not practical. Last week, Rashid Mohamed Rashid, minister of foreign trade and industry, met with representatives of the Federation of Egyptian Industries (FEI) and the Federation of Egyptian Chambers of Commerce (FECC) to discuss the problems facing producers, traders and exporters. During this meeting, Rashid announced that a package of procedures is expected to be applied soon to facilitate investment and reduce customs duties and taxes in order to boost exports. The FEI representatives asserted that the government's priority should be the cancellation of sales taxes and additional expenses imposed on capital goods in order to attract more industrial investments that will lead to an increase in production and exports. The activation of the Industry Modernisation Programme and the establishment of a fund to support the FEI's small and medium enterprises also topped the list, according to Abdel-Monem Saudi, FEI chairman. Businessmen said the Egyptian industrial sector is hampered by excessive costs that are a heavy financial burden and discourage new investment. "For example, when an investor buys land he has to pay three per cent of the total price as taxes and seven per cent if a factory is constructed. This rate is exorbitantly high compared to other countries in the region," said Shafik Boghdadi, FEI deputy chairman. Moreover, a study conducted by the Ministry of Industry said that an investor also has to pay 20 to 24 per cent of the total price on imported capital goods as tariffs. "As for the production phase, an investor has to pay 20 to 40 per cent as customs duties on raw materials," Boghdadi said. Due to these excessive taxes, the industry sector's share of Egypt's GDP fell from 22 per cent to 19 per cent in the past year, according to the annual report of the Central Bank of Egypt (CBE). In response to the FEI's suggestions for industry problems, Rashid promised the ministry will develop a strategy to eliminate the obstacles that impede the development of the sector. On the top of the ministry's plan is the improvement of the investment environment in general, through the issuance of legislation that will aid in the development of industrial projects. Rashid explained that the current state of the industrial sector has left Egyptian products uncompetitive in international markets. He stressed that a lack of good marketing is a major problem that hinders Egyptian products in open markets. To increase the competitiveness of Egyptian exports the Industry Modernisation Programme should be applied and the Egyptian labor force should receive intensive training, as the development of human resources represents one of the greatest challenges facing the industry sector. According to Rashid, reestablishing the trust between the banking and industry sectors is also necessary to boost production and exports. Helal Sheta, deputy chairman of Exporters Division at the EFCC is sceptical of the new government's promise to cut customs duties and reduce taxes on capital goods to boost production and exports. "How can the government afford the reduction of the country's revenues from customs and taxes?" Sheta asked. The government's plan also includes providing financial support for exports. Sheta explained that if the government intends to maintain transparency of information, a clear and logical explanation should be developed regarding the financial sources of an exports support programme. He added that though this plan will help boost exports, it will also raise the country's budget deficit. However, some businessmen are more optimistic about the ministry's plan. Nagi El- Fayyoumi, executive director and board member of the Egyptian Exporters Association (EXPOLINK), explained that the current exaggeration on tax estimations discourages businessmen from paying taxes. "But reducing taxes and customs rates by dividing them into pre- established categories, as the government plans, will encourage the majority of businessmen to pay their taxes. So the result will be a decrease in tax evasion, which will increase the country's national income," El-Fayyoumi said. The application of the ministry's plan will have an indirect impact on a variety of other economic issues. For example, unemployment is expected to drop, since the reduction of taxes and customs will encourage investors to begin new industrial projects. Egyptian exports have great potential. In spite of the current problems facing the industry sector, the total value of Egyptian exports of furniture, for example, has doubled every year for the last four years. El- Fayyoumi expects exports to skyrocket if the problems facing tariffs and taxes are solved. "Egyptian exports currently stand at $6 billion per year and will triple in two years if the government cuts tariff and tax rates," El- Fayyoumi said.
