Following the global financial meltdown of a year ago, experts are now breathing a sigh of relief for having been spared the worst. What was a doomsday scenario has turned into optimism on the assumption that things will not get any worse. Egypt's Minister of Trade and Industry Rachid Mohamed Rachid speaks to Niveen Wahish about the road the country needs to take to get its growth rate back up to job-generating levels How would you assess the crisis a year later? When the crisis began, it was difficult to forecast how the situation was going to develop, especially in the markets that are meaningful to us in terms of trade and investment. But as things turned out, there was a difference between expectations and what actually happened. In Egypt we moved quickly. We put in place a clear stimulus package. Some may have doubted its effectiveness at the time, but it resulted in increased investment in infrastructure in particular, and provided help to exporters and new investors. It had a very positive effect: our numbers, in terms of growth, investment and momentum all outdid our initial expectations. Over the past fiscal year our growth rate stood at between 4.5 and 4.7 per cent. Although foreign direct investments dropped, they were made up for by increased local investments. Exports too dropped by seven to eight per cent. But taking into account that prices dropped between 20 to 30 per cent, this indicates that volumes increased. This is apparent in factories' capacity utilisation. Besides, bear in mind that we have not seen layoffs at the level we had expected. Industrial investments also continued. Although they dropped from eight per cent in 2007/08 to around five per cent, we remain on good turf. Industrial output and growth worldwide has been negative through the first half of the year, at between minus five and minus 20. We in Egypt did not make that dip. Our industrial output is still ahead of GDP growth again, which can only be good news. So, have we hit the bottom? I am not pessimistic that things will get worse, but while everyone is celebrating having hit rock bottom, I worry about the challenge that that poses. We think that things cannot get worse, but being where we are is not necessarily good news. As such, though we no longer have a doomsday scenario, we do face a challenge. The question now is: how do we move from the bottom to the surface? Our challenge is to go from a growth rate of four per cent back up to seven and eight per cent. Whatever we do we will be influenced by the rest of the world. The big question for us is whether we will be able to achieve seven to eight per cent growth in the next two years, and we have no choice but to find the way to achieve that. How can we face up to that challenge? We have to do more of the same: secure more investments and increase productivity, exports and local consumption. The industry is a strong engine: I am not worried about it, but it is not enough. I want more investments, of no less than LE10-20 billion, going into internal trade annually. Investment in infrastructure must also continue at a rate of LE30-40 billion annually. The same goes for services and exports. And we need our key export markets, such as the United States and the European Union, to return to normal. What is the plan of action for the post-crisis period? We are clearer today on what we want to do and the areas we need to concentrate on. Infrastructure such as roads, ports and electricity is a priority. Internal trade is another clear priority that must be pushed hard. Exports continue to be critical as well. Aside from our traditional markets such as the US and the EU, we must take on other markets more aggressively. The Arab region including the Gulf, Asia and Latin America all present good opportunities we need to maximise. Human resource development and education are also crucial for the next phase. We intend to tackle human resource development on all levels, from leadership down to technical schooling. In the past few weeks these issues have been the focus of our meetings with Prime Minister Ahmed Nazif. Why has nothing concrete emerged from the renewed relationship with the US? As a government, we do not sign contracts. We are merely opening the road up to the private sector by creating the framework for the private sector to operate. Nonetheless, we signed a framework agreement to double Egyptian exports in the next four years from $8 billion to $16 billion. And we have broadened the number of Qualified Industrial Zones (QIZ) and are working on adding more areas in Upper Egypt. This is a blanket trade agreement that I want everyone to be able to take advantage of. QIZ areas in Upper Egypt could make the region more attractive to investment. Why is it that only textile and garment manufacturers have benefited from the QIZ protocol while the size of other QIZ exports remains insignificant? That, too, is one of our priorities -- to help expand diverse exports from QIZs such as food, leather products and furniture. Other industries could and should make use of this protocol. We plan on helping other industries to make use of this agreement. We will work with other industries as we did with the textiles sector, by offering them services such as marketing, contact offices, and exhibition organisation, just to enable them to enter the US market more aggressively. Observers believe QIZ textiles and clothing exports remain modest despite growth. Why? It is true that QIZ textile and garment exports could do better. Other countries have done better. But expanding QIZ textile exports has to be part and parcel of the total improvement of productivity and competitiveness of the whole textile" and garments industry in Egypt. We have some structural problems related to the garments industry that we need to resolve. This is dragging us down. We have a very weak structure to feed industries. We depended on the fact that everything came from abroad and was assembled here, but this is not a very competitive situation. Competitiveness improves dramatically when you begin to use your own raw material. This is where the distortion has been for years. We had a spinning and weaving industry but its financial, technical and administrative structure is distorted. The problem is being gradually tackled, but it will take the next five years before we can start to see an improvement. Are there other trade arrangements with the US other than the QIZ that Egypt can benefit from? There is also the Generalised System of Preferences (GSP). Both GSP and QIZ allow for preferential treatment in customs. The rest is down to assistance in marketing, support in technical know-how and management. You have just returned from a trip to New Delhi. What was the outcome? The purpose of my trip was twofold. On one hand, I held bilateral negotiations with India's prime minister. Egypt's relationship with India will heat up in the coming period in terms of increased Indian investments. Meanwhile, I also took part in the World Trade Organisation (WTO) informal ministerial meeting. That meeting was attended by 18 ministers and its aim was to set the course for negotiations in the coming period, especially as the heads of state had decided during the G8 meeting in L'Aquila, Italy that they want to get the negotiations over by 2010. We spoke of how that target can be achieved. We agreed that a roadmap will be drawn out at the ministerial meeting scheduled to be held in Geneva end of November. Can the round be completed by 2010? Technically it can, but I have doubts politically, mostly because of the fact that we need to have clarity on the US side. With unemployment rates hitting a high of 10 per cent in the US and the EU, it makes it politically difficult for them to say they want more free trade. In recent months we have seen various safeguard measures being put in place on products such as rice, cement and sugar. How do these measures help in regulating the market? We have to be responsive to market conditions. We have had a very dynamic market situation in the past two years. Commodity prices are jumping up and down. And we have to react particularly on the products that are sensitive to consumers to contain inflation as much as we can. But cement prices have continued to rise despite all the measures taken by the Ministry of Trade and Industry to regulate the market. The challenge to bear this year is a serious spike in consumption. Imports jumped from 40 million to 55 million tonnes. It is normal that we find ourselves in this situation. We have tried to balance it through the establishment of new factories and we opened up importation. Things are going to gradually cool down. How are negotiations proceeding over a Free Trade Area (FTA) with Mercosur? We have a memorandum of understanding with Brazil, Argentina, Paraguay and Uruguay to deliver an FTA. We had a first round of negotiations at the end of last year. And we will have a second round next month. We are trying to push to finalise the FTA within the next 12 months. Can we handle competition with a country like Brazil? Competition is good. And there will be something in it for both parties. Mercosur is a huge consumer market. We were faced with the same question when we were thinking about the FTA with Turkey. And the size of trade with Turkey went up from $700 million to between $3.5 billion to $4 billion. In other words our exports to Turkey increased threefold. And we got around 250 Turkish factories. When these factories start production they will export to the EU and to Turkey itself.
