Planning for liberalisation

The private sector must participate more effectively in economic planning if the nation's development goals are to be achieved, Minister of Planning and International Cooperation Ahmed El-Darsh tells Aziza Sami
photo: Randa Shaath
The People's Assembly Planning and Budget Committee has this week begun its review of the government's budget and development plan for fiscal year 2001/2002. Stressing the "social dimension," the plan aims to provide basic services related to health and education, as well as effectuate an equitable distribution of wealth, raise income levels, increase GDP to LE312.1 billion and push the growth rate up to at least 5.5 per cent annually.
The state's development plan, set by both the Ministry of Planning and International Cooperation and the Ministry of Finance, in concert with other ministries, will try to keep public expenditure in check by balancing resources and expenditure, as well as raise national savings from the current rate of 19 to 25 per cent. Amidst increasing liberalisation, an additional challenge faced by government planners is how to lure the private sector into participating more fully in development . The necessity of mobilising private initiative is underscored by the fact that within the context of the five-year development plan for 2002-2007, the private sector is expected to furnish over 70 per cent of overall investments and 75 per cent5 of GDP. It is also to become the main provider of employment.
However, current poor investment and domestic savings levels and patterns of public expenditure cast doubts on whether the economy's resources are being directed towards generating the targeted growth rates. A dialogue must be reinstituted between the state and the private sector to address these issues, says Minister of Planning and Economic Cooperation Ahmed El-Darsh, who, by virtue of his portfolio, oversees all agencies involved in national planning.
El-Darsh chairs the board of the Institute of National Planning (INP), the national planning think-tank, as well as the National Investment Bank (NIB), which mobilises national savings to help fund the development plan. He also supervises the Central Agency for Mobilisation and Statistics (CAPMAS). Being in charge of international cooperation, he supervises the implementation of Egypt's international trade agreements, as well as the securing of external sources of finance. Minister El-Darsh spoke to Al-Ahram Weekly of why he thinks Egypt must devise a philosophy of planning suited to new economic realities
You have publicly highlighted the necessity of developing a planning concept that is in tune with a market-based economy. Has your ministry adapted to operating in a private-sector-led environment, given that its traditional expertise, as well as that of the Institute of National Planning (INP), has been predominantly Marxist and geared towards central planning?
I have tried to reorient the INP to operate in a liberalised environment. Most of its academics have learnt by experience that central planning and communism have lost their conceptual bases, as well as the viability of their practical aspects. With the exception of communist China, we cannot identify a totally centrally planned economic system. Even China is realising the benefits of transferring to a free, private-sector-led economic system.
But planning is needed irrespective of the kind of economic system. In a privatising economy like Egypt's, it is not logical to ignore the private sector's role in planning, since it is now expected to contribute some 70 per cent of total investment and is contributing 75 per cent of GDP, as well as being a major employer.
On the practical level, how have you motivated the private sector to participate in the planning process?
I have met with representatives of the private sector, NGOs and civil society. A national conference entitled "Participatory Planning" will top these meetings. This should precede the next five-year plan: 2002-2007.
Do you not think there is a need for an executive body on the national scale that can mobilise businesses to invest according to a set plan? It is obvious the General Authority for Free Zones and Investment(GAFI) has not been effective in this respect.
I think we need to have a dialogue with the private sector on what our national development goals are. This would take place by having the private sector participate in setting out the objectives of the next five-year plan. The next step would be to avail them of timely and accurate data on the economy, without which they cannot make intelligent investment decisions. I have insisted that we are no longer to conceal any data. Information is to be made available to all through CAPMAS. If it is costly, we will give it at cost price. If it entails no additional cost, we will give it for free. If the private sector, civil society and NGOs feel the development plan is their own, this will maximise its chances for success.
Although your ministry has clearly defined national priorities, in reality, sizeable funds are still being directed to basic services, such as infrastructure. National savings also tend to go into bank deposits and areas that do not promote growth, rectify the trade and payments deficits or provide employment. Why is that?
The government no longer puts money in infrastructure. It is true that over the past 18 years, we have built good roads, telecommunications, power systems, schools and hospitals, investing close to LE1 billion in this domain. Now, the orientation is towards social sector investment and human development.
We are talking about an economy whose infrastructure has been completely overhauled since the 1970s, from being below standard, to being reasonably modern, providing a basis for (private and foreign) investment. We should also keep in mind the fair amount of success the economic reform programme has attained since 1991. This economy has managed to grow at between five and six per cent consistently for the past nine years. By any standards, this is a very respectable rate of growth when keeping in mind that our population growth is 1.9 per cent. Not very long ago, this rate was 2.7 and 2.9 per cent. We are working on lowering the population's growth rate even further. The large fiscal deficit, which once constituted some 20 per cent of GDP, came down to less than one per cent a few years ago. Now standing at around 3.2 per cent, the fiscal deficit is still considered very low. The balance of trade, which had previously only reached equilibrium once, did so for one or two years. There is, however, a large deficit at present as a result of the influx of cheap imports following the Asian financial crisis.
There have lately been some positive indicators though. The gap between exports and imports is narrowing. Egyptian exports -- oil and non-oil -- have picked up and imports have declined. We are doing well in the balance of services. The recent natural gas and petroleum discoveries add to this bright picture. Based on all of these factors, I predict we will emerge from the slowdown in economic activity sooner than I had anticipated.
Figures on exports are debatable, as well as the probabilities related to exporting gas, upon which you are basing your optimism.
The basic economic fundamentals of this economy are very healthy. Good foreign exchange market performance due to the new system enacted around three months ago has resulted in a reasonably stable exchange rate and we are intent on retaining and ultimately increasing this element of flexibility in the system, so that the exchange rate reflects the market value of the pound versus other currencies.
The economy's previously double-digit inflation rate has come down to around three per cent, similar to that of many developed countries. Look at what is happening in Turkey, which is not so far away from us: the tremendous inflation rates and the great depreciation in their currency.
There is an impression on the public level that a number of mega-projects initiated over the past four years and which constituted a drain on limited state resources, such as Toshka, were not carefully planned. Did your ministry review these projects prior to their launch?
I lived a similar experience in the sixties. The same row was raised when we were thinking about the Aswan High Dam. There were doubts about the benefits to the country of embarking upon this mega-project. This was, to us, a test of our national will and of our ability to overcome our economic problems. I don't think, in retrospect, that anybody can say that the Aswan High Dam project was detrimental to Egypt's economy or its society. If there were problems in funding, they were overcome. For thousands of years, the Egyptians have lived on this very narrow strip of land along the banks of the Nile Delta. If you divide a population of 66 million over six million feddans of cultivable land, then the average share of cultivable land for each Egyptian stands at 0.1 feddans.
This cannot go on. Irrespective of economic cost, we will have to free ourselves of this narrow valley and expand into other areas. Strategically, we have to move and stretch ourselves across the map. Hence the idea of carrying the Nile waters into the Sinai Desert, in order to cultivate some 450,000 feddans of land. Moreover, there was the idea of expanding into Toshka so as to take advantage of underground water and of the lake (the Toshka reservoir). The returns on this project cannot be judged now, in the short term. But in the long run, it will prove to be a very viable project. It is also a tremendous challenge. With such a project, it is not only economic returns that count. There are other returns that have to be taken into account.
On the other hand, land-mines, the eradication of which necessitates extensive international collaboration, are hindering the development of a sizeable area of Egypt's arable, cultivable land along the Mediterranean coast. What is being done to solve this problem?
A survey of 65 countries harbouring land-mines and unexploded ordinates (UXO's), which are bodies not exploded during the war, shows that there are 102 million such bodies. Egypt's share is 22 million, which is 20 per cent of the total known UXO's and land-mines worldwide. This means that Egypt has been denied exploitation of this vast stretch of cultivable land, which also has tremendous riches and natural resources. Now, we are giving concessions to companies to dig near these areas, which first must be de-mined. There are many natural gas and oil findings around these areas as well. You can imagine the benefits foregone by Egypt, for 55 years, for not having been able to exploit an area estimated at 287,000 hectares, equal to about 500,000 feddans. If we assume that the feddan brings in an average of LE1,000 a year, a simple calculation will reveal the size of the losses, if the area were only to be utilised for agricultural purposes.
A rough estimate of the cost of clearing this area is around $250 million. Thus far, the cost in human life has been 780 deaths caused by a total 8,300 accidents, which represent the recorded instances only. There are two paths to be pursued here: one is to go through a legal battle establishing the responsibility of the countries who planted these mines during World War II-- an idea that was not adopted because of the length of the process and its politically determined outcome. The other is, through cooperation with our development partners. We have been moving on this path. We have negotiated a debt swap with the government of Italy. We owe it a debt, which is to be repaid over a 20-year period. They will swap the servicing of the debt in the period from 2000 to 2004 in return for a development fund denominated in Egyptian pounds, to be used by the Egyptian government for development projects. This fund has come to $147 million. We have also engaged in similar agreements with the German government, in the context of which we have negotiated $212 million in proceeds, also to be utilised for developmental purposes.
A national conference on land-mines was held around two weeks ago to take stock of developments in this respect. There is a lot of international awareness on this matter. We will also establish a consultative group to address the issue, with a view to asking our development partners to help develop the area by de-mining it. The Ministry of Planning is preparing a comprehensive, phased-out plan that will be presented to our partners.
Egypt is party to several international trade agreements: the Arab Free Trade Area, partnership with the EU and COMESA, in addition to trade with the Asian economies. How are we faring in this respect?
The paramount and most crucial challenge Egypt is facing at present is that of modernising its society. Globalisation, irrespective of how you define it, is exposure: culturally, economically and socially. This requires tremendous preparation, in raising our productivity levels and attaining greater competitiveness versus other markets. We are trying to modernise all of our educational institutions, industrial organisations and so forth. If we succeed, we will be able to benefit from the advantages of large markets, such as, for instance, that of the EU, with whom we have initialled a partnership agreement, which, in all likelihood, we are finally going to sign. We are also trying to engage in dialogue with the United States about signing a free trade agreement. I believe our overall chances are good. But it will depend on how serious we will be in preparing our economy for this challenge.
You have publicly asserted that Egypt is intent on honouring its international trade commitments. How would you explain the Egyptian government's unilateral postponement of the date for signing its impending Partnership Agreement with the EU?
If you describe this as a unilateral declaration on our part, you should pass the same judgement on the other side too, in setting their particular date. We were not given options regarding the proposed date of 15 March, yet we did not look at the EU's setting a date and proposing it to us, without giving us any option, as unilateral. We are free from such complexes. For some internal reasons, we thought that the signing could be done at a later time. The cabinet has been very busy, moving from one Arab capital to the other holding joint-committee meetings and negotiations. There were also several events taking place here, as well as what is going on in the Middle East peace process. Government officials are pressured for time due to all of this. Why should this be judged as going back on a commitment? We have not committed ourselves to a particular date.
Is there disagreement among cabinet members over whether to sign?
Name a country that signed an association agreement where opinion was not divided over whether they should sign or not. The UK has yet to join the EU, or am I mistaken?
It is not an easy decision to make and we want to base it on truly objective criteria. A number of productive units will no longer survive and we have to prepare the ground for this eventuality.
Any modernisation move exacts its price, which we are willing to pay. The problem, though, is that you will be paying the price now for something you will receive in the medium or long term. The price will be dear because a number of factories will close down for not being able to compete and a great number of labourers will be laid off. The minister of industry is responsible for this particular sector. This week, in an interview, he said he was not against the partnership, but that he believed some conditions should be set, which entail having enough resources to help restructure our industry in order to confront the competition ahead.
If so, then why have the funds allocated to upgrading production, within the context of the EU's industry modernisation programme, remained idle for almost two years now?
The funds have been activated now. No one can deny that time is of the essence, especially for mortals like you and me. But for nations, this is not the case. And particularly in democracies, where decisions have to be thought out carefully and where the destiny of the whole nation is in our hands. We cannot make such a decision overnight, though I am a firm believer that the partnership agreement will, in the long term, be in the best interest of Egypt and I have made this known from the very outset.
How do you assess the prospects for increasing the current low levels of foreign direct investment going into the Egyptian economy?
The demand for FDI's is getting to be very stiff, because the market is very competitive. Even countries like Saudi Arabia, Kuwait and Libya are opening up and trying to give incentives to foreign investors. We are trying to liberalise and privatise at the same time as everyone else, hence the slowness of achievement. You must also keep in mind the impact of the world economic slowdown.
Looking at the figures from a balance of payments viewpoint, for almost seven years, FDIs have averaged between $750 and $800 million a year, which is very little considering the vastness of the Egyptian economy and its huge potential. However, despite these circumstances, over the past nine months, FDI's have doubled. This is an indication that there is growing confidence in the national economy.
You have expressed the view that there is no harm in having recourse to external borrowing. Given the current inadequate levels of savings and investment, will this not push the economy into a cycle of incurring even greater costs in the long term?
It is true that we previously had our fingers burnt by external borrowing. And so the political leadership decided not to borrow. When the present cabinet, under PM Atef Ebeid, took office, that was the position. Consequently, if you look at the amount of external borrowing two or three years ago, you will find it had almost dried up completely.
Now, we have committed ourselves and outlined a policy for external borrowing. Number one: we are not going to borrow in excess of external debt servicing, which ranges between $1.2 and $1.6 billion a year. What I have proposed, and which has been adopted as policy, is to borrow within this range every year. Furthermore, I attached a condition to external borrowing, namely, that it should be through financing packages that include a grant element of at least 40 per cent. I believe that the burden incurred by resorting to external borrowing will diminish over time because we will be borrowing within the limits of our external debt servicing.
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