Dealing with brass tacks

While acting to upgrade and modernise the nation's infrastructure, President Hosni Mubarak also set his sights on incorporating Egypt into the global economy, writes Niveen Wahish
Those who live abroad and return only for holidays will experience most keenly the major changes that have swept Egypt during the past two decades. Cities are certainly more crowded -- during the past 20 years the population has grown from around 45 million to over 68 million -- and there are definitely more cars jamming the streets. But Egypt has also undergone a major face-lift to meet these challenges. Signs of new infrastructure and services are everywhere: there are better roads, bridges, a smooth-running underground, Internet connectivity and modern pay phones. These improvements may be taken for granted by citizens who have forgotten the days when one had to lift the telephone receiver and wait for a while before the dial tone was heard. The difficulty of making phone calls is just one example of the dilapidated and often obsolete condition of Egypt's infrastructure 20 years ago.
And it was not just the infrastructure. The whole economy was in shambles. There was a wide gap between the gross domestic product and consumption. There was a budget deficit, inflation, debt and a dearth of foreign currency.
To grapple with these problems, President Hosni Mubarak called for an "economic conference" in February 1982, only a few months after coming to power in October 1981. At the time of the conference, he said that economic stability would be maintained, affirming that the country respected its international economic agreements as a matter of national duty. And the first requirement of economic reform was to steer a direct and coherent course, avoiding vacillation and conflicting decisions. Mubarak pledged to continue the open-door policy. He said that he would expand and reinforce this with the aim of improving the quality of industrial production, increasing job opportunities and adopting the latest technology.
But reforming the economy was not an easy task. A chain reaction was triggered in the mid- 1980s when oil prices fell worldwide, affecting state income. This was insufficient to cover expenditures, most notably for consumer subsidies. Thus the state was pushed to borrow money. During the second half of the 1980s, the budget deficit was some 15 per cent of the GDP which contributed to pushing inflation up to approximately 20 per cent per annum. And the total external debt stood at $46.08 billion in 1988.
Although a 1987 agreement with the International Monetary Fund (IMF) did not work, reform regained momentum when the government began to implement measures aimed at facilitating a new agreement on macro-economic stabilisation with the IMF which was eventually signed in 1991. With the signing of the IMF standby agreement, the government launched a comprehensive stabilisation and reform programme for promoting growth rates and generating employment opportunities. The principal objective of the programme was the reduction of budget deficits by cutting expenditures and increasing revenues. It involved liberalising policies related to regulations concerning everything from prices to external trade. It also included plans to reform the public sector by privatising over 300 companies and encouraging private entrepreneurship. The programme succeeded in turning around the economy and was commended by the IMF as "an achievement that has few parallels."
Inflation dropped to three per cent, according to the government, and foreign reserves increased to $20 billion. Since then, several laws and decrees have been enacted to provide a framework for implementing additional reforms. One of the most recent of these laws is the mortgage law which was intended to reactivate the real estate market. Parliament has also approved the issuance of dollar denominated sovereign Eurobonds worth up to $2 billion. The success of Egypt's Eurobond debut, worth $1.5 billion, last summer, surpassed financial observers' expectations.
Success, however, was not achieved smoothly. A major crisis facing the national economy has been the shortage of hard currency. In fact, the dollar shortage is, to a great extent, to blame for the drop in the country's foreign reserves to around $14 billion. But the dollar crisis appears to have been settled by the Central Bank's recent decision to raise the central exchange rate to LE4.15, allowing for a three per cent fluctuation above or below that rate.
The deregulation of the economy and the upgrading of the regulatory framework have created more opportunities for the private sector which, President Mubarak believes, plays a crucial role in development. As a result, the share of the private sector in the economy rose from 20 per cent of the GDP in 1981 to around 75 per cent today.
Hopes are pinned on the private sector to boost exports, a goal that is vital for the growth of the national economy. In fact, Mubarak has been working to open markets for Egyptian goods by signing regional free trade agreements, such as that signed with the COMESA (the Community of Eastern and Southern Africa), as well as with Arab countries. On a more ambitious level, Egypt also signed the Egypt-EU association agreement which, among other things, allows Egyptian industrial exports unconditional access to the EU market. Egypt has also signed a Trade and Investment Framework Agreement with the US.
One product which holds considerable export promise is natural gas. Whereas there were five trillion cubic feet (TCF) of gas 20 years ago, discoveries since that time put reserves at 50 TCF by 2000. It is estimated that national reserves amount to 100 TCF. With such abundance in reserves, Egypt not only will cover domestic demand, but will be able to make significant exports secure in the knowledge that it has enough gas to cover domestic demand for at least 25 years to come. Two liquefaction plants are being established at present.
While the 1991 reforms were radical, Mubarak was careful to implement them gradually to make them socially acceptable. International financial institutions have praised the fact that reform of the national economy took place without causing public unrest. A key factor in this regard is the Social Fund for Development (SFD) that was established to lighten the side-effects of reform. It aims at creating job opportunities by providing loans for launching small and micro enterprises and offering retraining. Free market institutions, such as the Egyptian Stock Exchange, were reactivated to play a major role in attracting investments, both local and foreign.
In grappling with economic issues, Mubarak also dealt with the population problem that had been eroding efforts at development. In Mubarak's own words, the population explosion represented one of Egypt's most complicated issues, and could be the main problem from which all others have emerged. In 1985, the population growth rate was 2.8 per cent. By introducing a national population control programme, the growth rate fell modestly to two per cent, and is expected to drop to 1.5 per cent soon.
To meet the continued growth of the population, Mubarak has looked beyond the crowded Nile Valley. His ambition was to establish a new "valley" and he chose Toshka, in the south- western desert, to be its location. Toshka became one of the mega-projects launched by Mubarak, involving the reclamation of 2.3 million feddans -- the first phase of which comprises reclaiming 540,000 feddans of desert land. The East Ewainat project, also in the south-western desert, aims at cultivating more than 200,000 feddans.
Another major project is that of the Al-Salam Canal which transports the water of the Nile to 620,000 feddans located to the east and west of the Suez Canal. The Sinai Development project involves the reclamation of 200,000 feddans east of the canal.
The Toshka and other mega projects have been blamed for contributing to the liquidity and dollar crunch during the past two years, but only history will judge their importance. The ambitious projects are not only aimed at creating new communities for the growing population but also increasing the area of cultivable land and, consequently, agricultural production.
Mubarak believes that national security and food security are intertwined and a country that cannot produce its own food will not have freedom in its decision-making.
He stressed the need not only for horizontal expansion of agriculture, through increasing cultivable land by no less than 150,000 feddans annually, but also for vertical expansion by increasing the productivity of available land. The objective is to achieve the greatest degree of food self-sufficiency for a population that increases by more than one million annually.
What was cultivated during the past 20 years surpasses what was cultivated in the previous 50. Progress is particularly noteworthy for wheat, rice and maize whose production rose from 8.5 million tons in 1982 to 20 million tons in 2001. Egypt today produces over 60 per cent of the wheat it consumes annually.
This is a significant achievement in view of the dearth of rain, population growth, migration to cities and increased demand on food.
Increasing the size of crops is not the only aspect of reforming the agricultural sector. Like the rest of the economy, agriculture, too, was liberalised. The state's role became strictly one of guidance. It cancelled the centralisation of crop delivery and allowed farmers to sell to private entities. The government liberalised the marketing of cotton, ended subsidies on production inputs, such as fertilisers and pesticides. To avoid price distortions it lifted restrictions on the crop structure, which stipulated what farmers should or should not plant, and passed a law regulating the landlord-tenant relationship.
Added to its focus on the sector that has traditionally been the source of Egypt's wealth, the government has also steered communications' infrastructure into the 21st century. During the past 20 years, the number of fixed telephone lines was increased from 510,000 to 7 million. In the past, people had to wait to up to 10 years before getting a phone installed; today it is a matter of weeks. By next year, waiting lists for telephone lines will be a thing of the past. Moreover, the number of mobile phone lines has reached around 1.5 million since the service was introduced three years ago.
In terms of information technology (IT) Egypt has linked up with the information superhighway. Although the number of the country's Internet users -- half a million -- remains small compared to the overall population, it is growing in leaps and bounds. Basic computer skills are being introduced to young people with the aim of raising a computer-literate generation capable of servicing a fledgling IT industry. At present, the groundwork is being laid to attract foreign investors and major players to establish "smart villages" -- industrial parks for the IT sector -- the first of which will be located off the Cairo- Alexandria desert road.
Also, in an attempt to ease pressure on the Nile Valley, 13 industrial cities, home to 4,700 factories, have been established since 1981. These facilities played a considerable role in increasing annual production by six-fold, compared to two decades ago.
To service these cities, good roads were needed. The ring road around Greater Cairo improved the flow of traffic, particularly for trucks shuttling between the north and south of the country. The Al-Mounib Bridge, connecting Giza and the Cairo district Maadi, and the 26th of July route, both parts of the ring road, have been completed. The Al-Mounib bridge,which cost LE420 million, is one of the longest bridges across the Nile. The 26th of July route runs from the heart of Giza to the beginning of the Cairo-Alexandria desert highway near the Pyramids. Moreover, the ninth, and final, extension of the 6th of October Bridge, costing LE360 million, has been inaugurated, connecting Giza with the airport road.
Two new bridges across the Suez Canal, located at Al-Firdan and Al-Qantara, were also inaugurated this week, connecting Sinai with mainland Egypt. And after a 34-year hiatus, railway transport will resume across the Suez Canal thanks to a railway line that will traverse the Al- Firdan bridge.
The movement of people throughout Cairo was significantly eased by the construction in 1987 of the Cairo subway, which currently comprises over 60 kilometres of tracks.
A new port, east of the city of Port Said, is designed to be a container hub and should be completed by October 2002. It is located at the crossroads between the Mediterranean and the Red Sea and aims at serving up to 3.5 million containers annually. The development of the area north- west of the Gulf of Suez is another mega- scheme, consisting of industrial areas and a port designed to attract trade to and from Asia.
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