"Our great challenge"

Ahead of the World Bank's Consultative Group meeting in Sharm El-Sheikh, Minister of State for Foreign Affairs and International Cooperation Fayza Abul-Naga spoke to Aziza Sami
At the World Bank's Consultative Group meeting, due to be held in Sharm El- Sheikh, the government will present donors with its development plan for the coming period. What are the plan's broad outlines?
The broad outlines have been set according to the priorities redesigned by the government under the circumstances which developed since 11 September. What we would like to convey to donors is that Egypt has suffered a sharp decline in the major sources of its national income, in tourism, transport, expatriate remittances, and exports.
We are focusing on three main priorities. Our first priority is job creation, and how to tackle the increasing rates of unemployment. The second priority is to upgrade the standards of living of the Egyptian people, with special emphasis on rural areas and giving particular attention to rural women. This encompasses the medical and health services which can be provided to them. The latter would include a healthy environment, a sound sewage system and clean drinking water.
We are concentrating on projects that actually serve this purpose. The third major priority is export promotion. As you heard President Mubarak say, this is truly a matter of life and death for Egypt.
Prime Minister Atef Ebeid has announced that approximately $3 billion is needed to resuscitate the economy after 11 September. Which sectors of the economy will receive this income?
As I said, this is the financial gap that we are trying to fill right now. We are really hoping that the outcome of the Sharm El-Sheikh meeting will help the Egyptian government fill this gap. This money will be directed to projects which will realise the priorities I mentioned. So, in preparing for this meeting, all of the nine ministries concerned have been working very hard and we have been coordinating our priorities, filtering the projects and focusing on those which would realise the three main priorities I just illustrated.
Does this sum include the $1 billion currently being dispensed by USAID?
No. What we are talking about is new, fresh money.
What is the exact estimate of losses incurred by the economy [as a result of 11 September]? Is it $3.7 billion as was announced by Minister of Planning Mohamed Osman?
Exactly. This is not a haphazard figure; it is one reached after a joint-study undertaken by the World Bank and the IMF in consultation with the Egyptian government and the Ministry of Planning.
What, apart from the $2 billion needed for exigency measures, will be the levels of assistance required from donors in the longer term? Are there any additional demands?
This is a minimal target. Of course we welcome any additional money. But we also have a very specific policy in terms of borrowing: we have a ceiling beyond which we cannot go in order to guarantee the ability of the government to repay its loans.
Under this policy, 40 per cent of every loan should be in grants. We try to increase the grant portion of that money so that we do not add more burdens to the government's budget.
Can this cautious policy of not incurring external debt (currently assessed at 27 per cent of GDP) be continued, given the economy's limited resources, rising public expenditure, and the need to create jobs?
Egypt is classified, according to the World Bank, as moderately indebted. We are not categorised as heavily indebted. This "cautious" policy has in fact been a very responsible one, monitored by the president himself and it is being very strictly implemented.
As a result, Egypt has an excellent record in terms of debt repayment. You have seen the World Bank report on this matter as well as the recent statement by the representative of the World Bank in Cairo giving excellent marks to Egypt for its capacity to honour its [commitments] even in the most difficult times.
How much is Egypt receiving in overall assistance from donors, in the form of both grants and loans?
It varies from one year to the other. It is difficult to give one precise figure. During 2001 it was around $800 million.
Some of the major donors to the Egyptian economy, such as the US, Japan and Germany, are reducing their assistance levels, as part of a worldwide trend. How will this affect the government's development plans?
This is our great challenge. We are now facing a situation of supply and demand, where there is a constantly shrinking supply of international assistance. At the same time there is an increase in demand for such assistance from our fellow developing countries.
That is why we have to work hard to convey the message to our partners that we need to be clear about our needs and credible in our dealings with those partners. I think that this will be extremely important, because when there is competition, you need to be in the forefront to obtain what you need. This adds to the difficulty, and is a reason for us to work harder.
Is there any intention also to lobby the World Bank for an increase in the funds which it provides Egypt each year [$150 to 200 million annually]?
This consultative meeting is organised by the World Bank, with which we have an excellent working relationship. Egypt has a very high credibility with the Bank, which is expected to accompany the donors in Sharm El-Sheikh in order to contribute to helping the country overcome the present situation.
This situation, in fact, cannot be considered the fault of the government or of economic policy. We are facing it because we have -- since 1995 -- adopted a market oriented policy -- one of free trade. We have joined the WTO and become committed to free trade and the open market. The Egyptian economy has been integrated into the world economy and, as such, it suffered a great shock in the aftermath of 11 September.
That is why we are facing the predicament of a shortage in foreign currency resources. This has created a gap in the balance of payments.
Our hope is that as a result of the Sharm El-Sheikh meeting, we will be able to get the financial resources that will enable the government to handle the financial gap.
Reviving the economy through private sector involvement and direct investment has become crucial. What are the plans in this regard, and how can donors help?
There will be a whole session at the Sharm El-Sheikh meeting devoted to human resources and the private sector. The first part of the session [will tackle human resources] and will be dealt with at government level: the government is preparing a paper which will be discussed. The second part will be devoted to the private sector which will have representatives there, giving their vision to donor countries and institutions.
The Social Fund for Development (SFD) will also figure on the agenda at this conference. There have been constraints limiting the SFD's ability to activate the small-enterprise sector and to generate jobs as envisaged. Are there plans afoot for additional support of the fund, or, indeed, its reform?
Let me tell you, the SFD has actually been extremely successful. When I was responsible for overseeing Egypt's bilateral relations with Africa, I travelled to most African countries. Throughout, there was great admiration for the fund.
We have received about 14 requests from African countries to transfer the SFD's experience to them. It has really done a very good job and the government will continue to support it. Of course, there is always room for improvement, and for enhancing its role to support small and medium enterprises. That is why the government most recently approved the establishment of a small and medium enterprises development organisation -- which will be under the umbrella of the SFD but with complete management autonomy. This is a very important step, done not in the spirit of reforming but rather enhancing and reinforcing the SFD's role and orienting it more towards small and medium enterprises, creating jobs for the young in particular.
Several donors are interested in the issues of democracy and civil society. Will such issues be addressed at the Sharm El-Sheikh meeting?
The social dimension will be high on the agenda at Sharm El-Sheikh. There will be an active presence and contribution by the National Council for Women, as well as the National Council for Motherhood and Childhood, who will give presentations on their needs and priorities, We are focusing more on gender issues -- as I said, rural women in particular.
What about the political component of democracy which has often been an issue for donors looking at developing countries? Donors are often concerned whether recipient countries are following the path of pluralism and democracy, etc.
This is really not the forum to discuss such issues. But let me tell you that there was the Development Assistance Group (DAG) formed by the group of donor countries, as well as the G7 group. They meet regularly amongst themselves here in Egypt and they always praise the constant progress achieved by Egypt on democracy, as well as measures it undertakes to promote and respect human rights. All of which our partners appreciate.
On Thursday, when I held a preparatory meeting for the donors prior to the Sharm El-Sheikh meeting, we actually discussed the DAG report. We very much agree with them about the need for accountability in government and this is the policy of the Egyptian government, which the president always insists upon: there must be responsible, accountable government which does not allow corruption. The measures which have been undertaken in that respect are appreciated by our donors and development partners.
The impact of the EU's industry modernisation programme on Egyptian industry has been negligible so far. And the MEDA 1 and 2 programmes regulating EU grant aid to Egypt have not yet delivered their funds. Why is this?
The EU-Egypt Partnership agreement has not come into force yet because it is being ratified by the People's Assembly. As soon as it is ratified by the Egyptian parliament, as well as by the European Parliament, it will come into force and the programme for modernising Egypt's industries will start. It is a very important programme, which we take very seriously.
As regards the MEDA 1 and 2 programmes, perhaps Egypt has not benefited as it should have. That is not because no money was allocated to Egypt but because of difficulties on both sides. We are trying to overcome those difficulties and to rectify the situation. We have been discussing with our European partners how to maximise Egypt's benefits under the next phase of this programme which takes place within the Barcelona process -- Meda 3. An EU delegation visited Egypt last week.
There was also the foreign minister of Spain, here in his capacity as the current president of the EU, who was received by President Mubarak. They discussed cooperation between Egypt and the EU, and reinforcing it within the framework of the Barcelona process.
Egypt appears to have problems meeting WTO deadlines. Testimony to this is the recent imposition of "specific tariffs" on imports of ready-made clothes at the very moment when controls on such imports should have been lifted. How do you see the economy sustaining itself in the face of economic liberalisation?
Egypt is absolutely within its rights in doing that [placing tariffs on clothes]. Our international partners know this very well. This measure was taken only with regard to textiles and in accordance with the agreement on the balance of payments, which is one of the Uruguay agreements to which Egypt is party. It allows governments, when they face a serious deficit in the balance of payments, to resort to exceptional measures in order to be able to fill in this gap -- which is exactly what Egypt did. It used the right that is stipulated in the balance of payments agreement in order to fill in the gap. This is a temporary measure, not a permanent one. As soon as we can fill in the gap and meet the deficit in the balance of payments, this measure will be removed.
Voices were recently raised at the Egyptian Federation of Industries calling for a "withdrawal" from free-trade arrangements such as COMESA, and from bilateral ones with Arab countries. They cited the lack of competitiveness of Egyptian exports. How do you see this?
I have heard those voices. Let me tell you that they represent an extremely short-sighted view: we cannot proceed with this kind of thinking. If we do, we will close the doors and isolate ourselves. Such a course would be disastrous for us.
Perhaps we have not achieved what we hoped with our membership of COMESA. We have to ask why: it is because we need to upgrade our products in quality and in price so as to compete, not only in COMESA but internationally as well.
As regards COMESA, there is tremendous opportunity for Egyptian goods in its markets, but it is up to us to capitalise on such opportunities. We will need to work hard to do this, and it is our responsibility and duty to do so. I would like to appeal to the Egyptian business community really to look into those opportunities and take advantage of the huge possibilities Egyptian products have in those markets.
We have what it takes to succeed, provided that our products are competitive in quality and in price. There has been very strong demand for Egyptian products -- but we still need to overcome difficulties in transport, structure and the whole export chain.
Egyptian foreign policy has played a major role in opening trade avenues. Such initiatives, though, seem to supersede the potential of the domestic economy which often appears constrained by poor productivity and inefficient administration. Is this a fair assessment?
We are a developing country -- and so of course we have some difficulties. But in formulating policies there needs to be a vision and progress towards the future. One needs to create the base for present and future work which is exactly what foreign policy has been trying to do, and successfully so.
We have opened markets in Africa, despite all that is being said. There are now thousands of Egyptian medicines registered in the African countries, in the former republics of the Soviet Union and in Asia. The only obstacle we have is that the competition is very harsh. In order to survive, we need to be constantly competitive -- we cannot put things on the back-burner and wait until we modernise, or deal with the inefficiencies in administration.
The outside world, and the markets, will not wait for us.
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