In response to a letter from the minister of planning, Ibrahim Nafie cautions against unrealistic projections and promises If we are to engage in a comprehensive process of reform and development, we must begin with a frank and honest assessment of our current situation. Indeed, I would suggest that attempts to portray a rosier picture than reality warrants, or to otherwise deceive ourselves and mislead the public, are a form of treachery. Our tendency to focus on past or possible future achievements and overlook our shortcomings is one way we paint rosy pictures -- ultimately the reason why Egypt received no votes for hosting the 2010 World Cup. Long ago I had cautioned that we must produce concrete realities on the ground well before the vote took place. Sadly, when the inspection committees arrived they discovered that facts belied the documentation they had received and no amount of patriotic chanting could save the "paper pyramid" we had constructed. That zero vote sums up our problem in a nutshell. Only when we learn to face the unvarnished truth will we be able to accurately diagnose what ails us, and find an appropriate remedy. In last week's article I wrote that Egypt has made considerable progress in the process of development and modernisation and that this progress can be tangibly felt by the average citizen in infrastructure, health care, education and industrial and agricultural growth. However, I added, "this is not enough to place Egypt firmly on the path to a true national revival, especially in view of the fact, which we must be frank enough with ourselves to admit, that there are certain areas in our social and economic life that have suffered an element of decline, as has our regional and international status." That article elicited considerable response from politicians and intellectuals, most of who agreed with what I wrote. Of particular note is the letter I received from Minister of Planning Mohamed Othman. The people of any society, he wrote, have the right to aspire to a higher quality of life. "The foremost responsibility of any government is to fulfil this aspiration and it is on the basis of its performance and the specific achievements it makes towards this end that it wins or loses the people's confidence." The minister went on to caution against surrendering to apathy in the face of the onrush of profound changes at home, regionally and abroad. While acknowledging the challenges and additional complexities that such changes pose, we must sustain our search for and commitment to viable solutions to our problems. "Our first task should be to assess the costs, or loss of revenues, sustained by society as a result of these changes and then to assess the policies and measures needed to offset the damage." To illustrate, he takes us back to the "shocks" that buffeted the Egyptian economy "five" years ago. "As a result of the economic crisis in Southeast Asia and the terrorist attack in Luxor in 1997, the Egyptian economy lost $600 million in export revenues while import payments skyrocketed to $1.3 billion. No sooner had the economy begun to recover its equilibrium, 11 September struck, precipitating a loss of some $1.8 billion. However, because of the flexibility and vitality of our economy and the greater maturity of our fiscal policies we were able to avert much of the potential fallout, after which our economy gradually regained its vigour, to which testify the rise in exports from $7.2 billion in 2001/ 2002 to $8.2 billion in 2002/2003." According to the minister, there are three prerequisites for meeting development targets efficiently, and at the lowest possible cost, and for making a smooth and dynamic transition from one development phase to the next. The first is to distinguish clearly between aims and means. He urges us to bear in mind that stabilising the exchange rate, reducing the national debt and offsetting the national deficit are not ends but rather means for spurring economic growth and, moreover, that there exist economic criteria for assessing the efficacy of such mechanisms. Take the government's decision a year and a half ago to deregulate the Egyptian pound, for example. Othman argues that this was adopted to stimulate export trade, reduce the balance of payments deficit and boost the economy as a whole. As gauges of success, he notes, "The difference between the official and unofficial exchange rates has virtually disappeared, agricultural and manufactured exports were 16 per cent higher in the second half of 2003 than in the same period the previous year and economic growth has risen over the past two years from three to four per cent." The second prerequisite is to distinguish between short-term priorities and long-range strategies that require an extensive timeframe before they begin to pay off. He writes, "When the government pumps LE7 billion over six years into the mega projects in Toshka and the Sinai, we naturally expect an increase in the area of reclaimed land, an attendant rise in agricultural production and exports, greater self- sufficiency and the growth of urban development outside the Nile Valley." He counsels patience, however, for such progress will only be felt gradually, and after many years. The same applies to the setting of interest rates, about which he wrote, "It may be appropriate, in the short term, to increase the interest rate in order to offset the problems of liquidity and increase people's earnings on their deposits. However, as soon as possible, we should lower the interest rate so as to lower the lending rate and stimulate investment and stock market activity." Othman's third prerequisite is "an agreed upon and balanced distribution of roles and responsibilities among the partners in progress and development". In this regard, he appeals for a new "social pact" based on a collective commitment to "domestic peace, social cohesion and security; the modernisation of Egypt and change for the sake of progress and development; and the rights of citizenship, the protection of human rights and popular participation". He continues, "People have the right to feel that the government is aware of the magnitude of their problems and that it has a clear vision, solid policy and distinct priorities for producing progress. However, the government cannot solve all problems on its own and every solution has its costs as well as benefits." Nor is candour alone sufficient to solve problems: "We must designate the roles that the various parties should play and each party must fulfil its responsibilities." Specifically, he seconded a point I made in my article in which I wrote: "The government cannot succeed in implementing an ambitious development plan without the assistance of the private sector." Expounding on this point, the minister maintained that in order for the private sector to perform its role effectively four conditions had to be met. Firstly, the government had to commit itself to promoting a legal, fiscal, economic and bureaucratic environment conducive to investment. Secondly, it had to devise a detailed list of proposed development projects and make information on these projects available to the investment organisations and governorates. "For the first time, the development plan for 2004-2005 contains a schedule of proposed projects and the Ministry of Planning is currently undertaking preliminary feasibility studies on those projects to which it hopes to attract private investment," Othman added. The third condition pertained to financing, the major onus for which fell on the banking sector. This sector, he said, "has an important part to play in the processes of studying, promoting and financing viable investment and development projects, whether through loans or active participation." He adds, "What should encourage banks to perform this role is the rise in private sector savings to 23 per cent of the GDP." Fourthly, the private sector had to be willing and able to attract foreign investment. "Although the influx of foreign investment has been hit by political and security developments in the region and the world, the government is doing its utmost to generate the appropriate climate to revive the influx of foreign investment. However, it is important that society be prepared to accept the influx of these investments, that we help it overcome its suspicion of everything foreign and that investors actively acquaint themselves with the most promising opportunities and invite international companies to work with them in pumping more investment into production and export enterprises." The minister of planning concludes: "Our greatest challenge is to boost our economic performance and to raise the growth rate to five per cent next year and to an average of seven per cent thereafter. This requires an investment of LE85 billion, half of which should derive from private sector investments a third of which would be injected by public sector or holding companies ... The countries of Southeast Asia, which have made great strides in progress and development through the combined efforts of their governments and private sectors, offer much we can draw on. This, together with the store of expertise and experience we already have in Egypt will help us realise our ambitions and aims for all the people of the nation." Although I agree with the general drift of Mahmoud Othman's letter, I feel certain clarifications are in order. I could not help but to be struck by how vague he was on the question of "timeframes". On the question of lowering interest rates, "as soon as possible" is not very specific. At what point do we know when the objectives of a high interest rate have been met, and what specifically are the means for rapidly lowering interest rates? Simultaneously, while we readily acknowledge that certain projects can only begin to pay off in the long run, certainly there must be a point at which that long run becomes too long and instead of bringing relief it exacerbates our problems. Current generations cannot be expected to sustain too many sacrifices in favour of future generations, and most governments take pains to strike a clear balance between the needs of the present and the needs of the future. Secondly, officials have been strikingly ambivalent in their assessment of how the "shocks" of international events have affected our economy. Either they tend to minimise their impact, claiming that our economy is immune, or they blow them out of all proportion. Such conflicting opinions only compound the public's confusion and lack of confidence. We should also note that while Southeast Asian nations had largely recovered from their crisis by 1999, we in Egypt are still using it as a cause for growth rates of only three to four per cent. I do not want to quibble with the minister over figures, but is it not odd that we have been aiming for a seven per cent growth rate target for years without ever coming near to that target? One cannot help but wonder whether the minister's projections are indeed realistic and founded on precise data and calculations. Moreover, the 23 per cent of GDP private sector savings he cited begs more questions than it answers. Such a savings rate alone should permit for at least a six per cent growth, which combined with foreign investment should generate a growth rate of seven to eight per cent. However, our growth rate has never exceeded four per cent in the last six years, which suggests that the problem resides not in our potential but in mobilising this potential. Finally, with regard to the improvement in our export trade last year, a considerable portion of this must be attributed to the rise in petroleum prices. More importantly, the actual value of exports remains minimal when we take into consideration the effects of the devaluation of the Egyptian pound. Again, I stress the extent to which Mahmoud Othman and my views coincide. Nevertheless, I felt compelled to take issue on several points in the hope of underscoring the fact that conditions in our country are such that we can no longer afford to air the same ideas and promises without realising them.
