Liberalisation vs protectionism

MPs are unanimous that Egypt needs to export more; they just can't agree how. Gamal Essam El-Din reports
"Export or die" has been the economic catch phrase of Egypt's three governments since 1995. But seven years of bitter experience show that talk is easier than action. Statistics from the Central Bank of Egypt (CBE) show that in financial year (FY) 1999/2000, (the first year in the administration of current Prime Minister Atef Ebeid) the trade deficit was an unprecedented $11.4 billion. This fell to $9.3 billion in FY2000/2001, but is expected to soar again in FY2001/2002. Figures already released by the CBE for the first half of FY2001/2002 show the value of exports was $100 million less this year than in the first half of last; down from $3.4 billion to $3.3 billion. This can hardly encourage a country which feels exports to be a mortal matter.
On Sunday, Industry Minister Ali El-Sa'idi was summoned to parliament to face eight information requests and four questions about the role of industrial exports in closing the chronic trade deficit. His summons came in tandem with discussions of the parliamentary report "Modernising the Egyptian Industrial Sector in Light of the National State Modernisation Project."
Presenting the report to parliament, Amin Mubarak, chairman of the assembly's industrial committee, remarked that industry's contribution to GDP has increased by a mere eight per cent in five years (12 per cent in FY1996/1997 to 20.1 per cent in FY2000/2001). "This is a very modest increase in light of the country's long- term strategy to curb imports and boost exports. We planned in the early 1990s to raise industrial production by 7.5 per cent a year," Mubarak said. Worse, he added, industrial exports accounted for just six per cent of total industrial production in FY2001/2002 (LE8.8 billion- worth out of LE168 billion). "This is largely due to the protectionist policies of the 1960s. Not to mention industrial mismanagement, lack of technological innovation and quality control methods and a feeble interest in exporting. The result is now clear: a ghastly deficit in our trade balance," Mubarak said.
In response, El-Sa'idi talked of a long-term strategy to buoy industrial production and exports. "This is incorporated into the National Industrial Modernisation Project (NIMP). NIMP's objectives are numerous: raising industry's share of GDP to 50 per cent and boosting industrial exports by 100 per cent over the next five years," he said. To achieve these objectives, El- Sa'idi said, his ministry is relying on an agreement reached between Egypt and the European Union (EU) in 1998. "The Egypt-EU agreement, which came into force last January, aims in five years to raise the competitive capacity of 5,000 industrial projects (mostly belonging to the private sector), upgrade the Industry Ministry and its affiliated research and training institutes, enhance the technical powers of Egyptian business associations, rehabilitate 300 industrial consultation offices and improve industry's regulatory and administrative environment," El-Sa'idi said. The agreement, he continued, will provide 355 million Euros towards these aims and is expected to boost industrial production by 12 per cent a year and generate up to 600,000 jobs.
El-Sa'idi said the Egypt-EU industrial modernisation project will be mainly directed at four strategic industries: engineering, textiles, leather and food.
This was something of a red rag to a bull. Tayseer Mattar, a member of the ruling National Democratic Party (NDP), leapt up to complain that the leather industry has been embattled for three years. "This is largely due to the door being opened to imports. The quantity of manufactured leather rose from 82 tonnes in 1992 to 4,900 tonnes in 2000, but shoe imports climbed from 139,000 to 450,000 in 2000," Mattar said. As a result, he continued, the local leather industry is currently working 25 per cent shy of capacity.
More obloquy came from supporters of the textile industry. MPs attacked the government for slackening import tariffs in line with the GATT, to the detriment of local textile manufacturers. Muslim Brotherhood and Leftist MPs slammed Public Sector Minister Mokhtar Khattab for saying last month that the "strategic" textile industry faces a bleak future and that there is little immediate hope of putting it back on a sound footing. Left-wing MPs then savaged the government as a whole. "Egyptians are now in the mood to boycott foreign textile products, especially those coming from markets dealing with Israel and America. Why not seize this golden opportunity and boost and upgrade our production and exports?" Muslim Brotherhood MP Mohamed El-Azabawi demanded to know.
Khattab, clearly stung by the criticism, riposted that "in its entirety, the future of the textile sector is not so bleak...we still have glimmers of hope." According to Khattab, the industry is not in such a slough of despond; he argued that the value of textile production has climbed from LE11 billion in 1990 to LE17.2 billion in 2001. "As for textile exports, they rose from LE1.5 billion in 1990 to LE3.3 billion in 2001," he said.
Khattab argued that those "glimmers of hope" come mainly from private sector factories. He said the private sector's decision to move into the sector in the second half of the 1980s led to better quality export products and investment in dilapidated machinery and equipment. "Not only has this been reflected in a remarkable growth in Egypt's textile exports, but also in its exports of tricot and wool," he maintained.
Here the lines of battle became clear: private vs public; liberalisation vs protectionism. Leftist and Brotherhood MPs were adamant that the state take the leading role in boosting industry. "The government must remain the driving force behind investments in this sector. Of the bank loans taken by the private sector, it is proven that 60 per cent were invested in fast-return commercial activities, not industry," said leftist- oriented MP Kamal Ahmed. Fathi Nemaatallh, a public sector industrialist, said the state's role is necessary, especially in the area of cushioning the industry against smuggling which is estimated at LE25 billion a year. Warming to the theme, Seif Mahmoud, an independent MP, rounded on industrialists, calling them "opportunists" and accusing them of "plundering the banks' loans for personal gain." This outraged Mohamed Abul-Enein, a prominent businessman and major ceramics producer, who insisted that private firms have played "a great role" in modernising Egyptian industry. "Thousands of highly sophisticated, export-oriented factories in new industrial cities clearly attest to this fact," he said. Ahmed Ezz, another major ceramic producer and chairman of parliament's budget committee, intervened to denounce protectionism. "We can ask for restructured customs duties and monetary policies that serve export-oriented industry. But calls for a return to the protectionist policies of the 1960s will do more harm then good," he cried.
The gulf between the protectionists and the liberalisers seems as wide as ever, then. Tune in to parliament next week for the latest installment; this is one debate that is set to run and run.
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