2008 has left the Egyptian economy edging towards slowdown, no thanks to a global recession. Minister of Trade and Industry is in the midst of it all. Now perhaps more than ever he is on the alert for the slightest change in financial variables, locally and internationally. Of late he has adopted a cautionary tone urging market players to beware. Nevertheless, he remains hopeful, and even believes that what may lie ahead of the crisis could be good for Egypt. On the eve of a new year, he speaks to Niveen Wahish about his fears and hopes What is your outlook for 2009? Do you believe the financial crisis has cast shadows on growth in Egypt? Clearly 2009 will be a very difficult year. All indicators show that global growth will be declining significantly, led by the US and Europe. Emerging markets will continue to grow, including Egypt, China, India and Brazil, but this growth will be significantly slower than in 2008. Slower growth will reflect on employment, investment as well as overall economic activity. We are expecting prices to continue to drop overall; this is an outcome of the financial crisis -- by prices I am referring to the prices of products and services in the global sense. We expect that in Egypt we will have a negative impact on exports, investment, Suez Canal income and tourism. There will be some level of slowdown or reduction in our growth rate. This will continue through 2009. We are hoping that by the second half or last quarter of 2009, we will see a global reversal and things will start to improve. How will the crisis manifest itself during the coming two months? The difficulties I am signalling are going to be in slower demand for products and services. I am not trying to predict the future. I am only trying to read what is happening today in some of our major markets. Prices are dropping, and Europe and the US are starting to suffer in terms of unemployment and recession. This is definitely going to get deeper and deeper in the next few weeks . And this is what everybody around the world is saying. We cannot isolate ourselves from the rest of the world and we will definitely feel the pressure in terms of our exports, especially to Europe and the US. After all, more than 40 per cent of our trade is with Europe and 20 per cent of our trade is with the US. We will export less, especially after the holiday season. We will feel it in prices and the competition because countries like China and India will be more aggressive in pricing their exports. We will see it in tourism because our main source of tourism is coming from Europe and I am sure people there will be less enthusiastic to spend money at this stage. And everybody already has seen the start of reduction of international trade, so I cannot expect this not to have an impact on the Suez Canal. This is reading today's news and what happened in the last couple of weeks and seeing clearly the facts of today and the facts of the next few weeks. We are all hoping that serious restructuring of all these activities will lead to ways that can take the economy into positive territory after a few months. Is this why the tone of the government has changed from reassurance to warning? Sure, because I am in the middle of the production scene and I know that there is less utilised capacity in factories in Egypt and I know that in industry and trade there is an increase of stocks. I know that prices will continue to decline locally because we have seen what is happening everywhere in the world. And for that reason, I am strongly advising all the producers and traders to move fast. There is a storm that has started and it will get worse in the next few weeks. I have to be honest in my advice and tell them not to expect this to go away soon. The rest of the world is already ahead of us in this crisis, and we are seeing the prices drop. I cannot put my head in the sand and mislead people by telling them things will be better in the next few weeks. They will not be better for producers and manufacturers. It will be better for the consumers. Prices will drop and they will continue to drop in the next phase. The crisis we were facing at the beginning of 2008 was very high inflation. The cost of commodities was borne by the consumers. This crisis will be putting all its weight on the producers and traders, not the consumers. These are not pessimistic views or false warnings, but a reflection of what we are looking at. My advice to producers and traders is: Move, get rid of your stocks, reduce prices, and make special offers for the people. Even if you lose money now, it is better to lose in the short term than to drag your feet and lose over the longer term, when you really might get stuck. Consumers on the other hand should go out and grab any special offers. My advice: buy more Egyptian-made products, as long as they are good quality and well priced. This way you will help yourself, your family and your friends, who are all in one way or another related to this production activity. Criticism has been made that prices have dropped internationally, but not locally. How can traders be forced to lower prices? Prices have dropped and are continuing to drop fast. There was a period of a few weeks during which prices were adjusting depending on the type of product, but the reality of the past three weeks on the marketplace is that every single day prices are decreasing on all levels, whether for durable goods or consumer products. Prices started to go down under the pressure of supply, demand and competition. Traders may have wanted to resist the lowering of prices at first, but as soon as new shipments started to arrive with new prices, they had to lower their prices, otherwise they will stop selling. This is already happening and will continue to happen. Trips were made by government officials, and visits were received by Egypt. How are these materialising into something that could help out? The cause of the financial crisis is that confidence has collapsed. These visits are extremely valuable to instil the confidence that people have lost. Investors, financial institutions and companies have lost confidence in everything they had before the crisis, be it banking institutions, economies or even countries. What is really important from all these contacts is to reassure people and give them confidence that the Egyptian economy and institutions are in a safe position and they are not going to be terribly messed up by this crisis. People should have confidence in Egypt's direction, and that we will continue to reform. Egypt ought to be positioned as one of the countries that should benefit from the crisis in terms of investment flow and increase of activity. People also want to understand what is going on and who are going to be the winners and losers. We are trying to say that we are in good shape and we can continue despite the crisis. Of course, like everybody else we will see some sort of a slowdown, but we are not going to fall apart. We are going to continue our reform, get stronger and we are going to be among the countries that will be active during the crisis and continue to attract more investment, to attract trade and cooperation with the international community. Where are the funds for the stimulus coming from? The money is coming from the budget. The minister of finance announced that we will be financing the LE15 billion, over a period of six months, starting now, up to end of June. Maybe the money is not enough, but this is only for six months. The minister of finance has said that we will increase our budget deficit, but some of it will also come from the reduction of subsidies. The money will be spent in three areas. First, infrastructure. These are projects that were planned for 2009, 2010 and 2011, but we have accelerated their implementation. The logic behind this is that the more you spend as an investment, the more you move markets because whatever project you are making you create a service that is required and more importantly you create activity. This will make factories work because they supply material. It will make contractors work, which means more people will be working. Any of these projects will mean that this money will go to Egyptian companies, factories and employees in the marketplace. We are increasing activity in the marketplace by providing a service as well as initiating investment which will create hundreds of thousands of jobs in the next six months. The second part of the stimulus package is going to support production and exports. We need to put them on equal footing with their competitors abroad. We want to give them enough support. And we have a programme which is related to supporting marketing activities, exhibitions, rebate on taxes, supporting some of the areas related to training of young people and industrial modernisation services. The third part of the stimulus package is going to support investment. We announced that whoever comes with an investment in 2009 will have a special package, like exemption from the sales tax on capital goods, reduction of taxes, better payment terms for the land and better payment terms for installation of utilities and so on. All this has to be spent before the end of June 2009, at a rate of LE2.5 billion every month. Which export sectors could be less affected? There are sectors that will be affected more than others depending on their nature. Food industries, agricultural products and consumer goods in general will be less affected by the crisis. On the other hand, durables like furniture, electrical and engineering goods will be more impacted. Building materials will witness an even higher impact. How will companies exporting under the terms of Qualified Industrial Zones (QIZ) be faring? They will be affected like everybody else. It is a reflection of demand and consumer purchasing power in the US. We all see a reduction of consumption in the US. Whether they are going through QIZ or the normal trade channels, they will have the same impact in the short term. But of course with the QIZ and other preferential trade agreements with the EU, we might be less affected than the people who are subject to paying duties upon entry into these markets. These agreements were supposed to protect us against higher levels of competition and I am sure they will work in that direction. But if the overall market is dropping, we cannot go anywhere else. Some industrialists have called for the devaluation of the Egyptian pound; do you believe that would really help exports? We have floated the Egyptian pound and we respect the market forces. I personally believe that this is a short-term solution. If there is any depreciation of the value of the pound, it will give a boost only for a few months, but costs will catch up because most of our needs are imported and the other local costs will grow with inflation so it will be a temporary measure. I am neither excited about it nor am I going to interfere with it. How do you evaluate the Central Bank of Egypt's (CBE) decision to cancel the 14 per cent reserve requirement on loans to small and medium enterprises (SMEs)? That is a very positive move. SMEs need a lot of support. Banks were not equipped nor interested to finance SMEs for a very long time. And there was always a serious complaint from SMEs that the banking system is not giving them enough attention and access to credit. I hope this is implemented as quickly as possible. We as a ministry are well focussed on SMEs and we have been trying to push the issue of financing for SMEs for a long time. This is exactly what we have been calling for. Do you believe the market as a whole needs lower interest rates? This is monetary policy and we respect that the CBE is in charge of it. The CBE has announced it clearly that monetary policy is linked to the level of inflation. Indicators show that inflation is going to drop which means that as soon as inflation starts to drop, this will reflect on interest rates. Of course this will help economic activity. Less inflation, lower interest rates, and lower costs on loans will help everybody. Is the Doha round of trade talks dead amidst all this? It has been in intensive care for the last year, but it is not dead yet, nobody has yet pulled the plug. The crisis is not making things any easier. There were plans to have an exceptional ministerial round in the second half of December, but Director-General Pascale Lamy, after consultation with many people including myself, thought that the timing is not very suitable. We need to delay it a few weeks and hope to hold it by the first quarter of the year when there is a new administration in the US, because we need an active partner. After the new administration is in place, we might see a serious attempt to push the Doha round. If countries start looking inwards and go for protectionism, that could aggravate the problem very seriously. Under political pressure some governments might decide to close the borders and protect their products; if that starts to happen, it can cause a domino effect and then we will all get into serious trouble.
