The government is attempting to translate promises to support the economy into action, writes Niveen Wahish Finally, the government seems to have resigned itself to the fact that there is no way the Egyptian economy can avoid being affected by the global financial crisis. This week Minister of Finance Youssef Boutros Ghali announced a set of measures designed to inject funds into the economy. The package, worth some LE15 billion, will be pumped to boost investment in the economy through support to infrastructure and industrial projects. "It is the right strategy," said Rainer Herret, chief executive officer of the German-Arab Chamber of Industry and Commerce. "The government has been handling the crisis very well." To him the measures are needed to maintain growth of the economy. "We should have growth beyond seven per cent. If it falls below that, citizens do not benefit." Minister of Investment Mahmoud Mohieldin, in London to take part in the first Egypt Capital Markets Day at the London Stock Exchange, told Bloomberg that Egypt's economic growth is in reality "badly" affected by the global credit crisis. Mohieldin added it would be very good if Egypt achieves a five to six per cent growth. In fact, initial figures have shown that the Egyptian economy has started to experience the negative effects of the global economic slowdown, with growth for the first quarter of 2008/2009 dropping to 5.8 per cent compared to 6.5 per cent in the same period last year. It is worth noting that fiscal year 2007/08 had witnessed growth rates of 7.2 per cent. Of the government's package, LE12 billion will be translated into increased public expenditure through various economic entities. It will be spent on upgrading infrastructure in terms of roads, water, sanitation, health, education and railroads. This move will require an amendment to the public budget law before being presented to parliament. The package also comprises steps aimed at encouraging investors to expand and pump in new investments. These include LE1 billion to exempt investors from paying sales tax on capital goods. Meanwhile, LE1.2 billion will go towards discounting customs on production inputs and capital. Governorates will also receive a share of the cake, to be directed towards local infrastructure projects. In addition, LE2.6 billion will be directed towards the industrial and trade sector. It will be used to support industrial zones in the Delta area and infrastructure for internal trade. But this is not all. The Ministry of Trade has announced that aside from the funding it will receive from the Ministry of Finance, an additional LE4.3 billion will be immediately infused into the trade and industry system. That will go towards increasing funding to the Industrial Development Authority, small and medium enterprises, and industrial modernisation, training and technology transfer. This package is designed to "reduce the cost of production in order to increase competitiveness of Egyptian-made products," Minister of Trade and Industry Rachid Mohamed Rachid said in a statement. It is also hoped that it will help create new job opportunities in the industrial sector and to maintain the current level of Egyptian exports to traditional markets, as well as facilitate entry into new markets. "This is a good start," said Galal El-Zorba, chairman of the Federation of Egyptian Industries. However, he said that more is needed in terms of facilitating access to credit and lowering interest rates. For his part Herret believes these measures targeted towards the industrial sector are vital because "industry will ignite the growth of the economy". And, he added, infrastructure is needed to better connect Upper Egypt with Lower Egypt, by both road and rail. Since the global financial crisis first broke out, Rachid has held many meetings with the various stakeholders, trying to gauge their problems and listening to their recommendations as to what they need to be able to deal with the crisis. As such the stimulus plan is tailored to meet many of the investors' calls. Among the decisions that form a part of the package is the decision to freeze the increase in the price of natural gas and electricity for all factories until the end of 2009. It will also delay the payment of due instalments for industrial land due in 2009 for up to one year. And it will adopt measures to expedite the issuing of permits and registrations for industry. To some the package may have come short of expectations, but as Rachid said in a televised interview, "we wish we could do more, but we have to be careful, we will inherit the consequences of any actions we take today." In fact overspending remains the overarching fear. But according to Mohieldin, the budget deficit will be under control, remaining within the government's seven per cent of GDP's limit this fiscal year. The government has already pledged to reduce the budget deficit to 4.5 per cent of GDP by 2010. Another important announcement by Mohieldin was the government's intention to take back a decision it had made back in May 2008, wherein the free zone status was lifted off energy-intensive projects, including refineries. Mohieldin was quoted in Bahrain's Gulf Daily News as saying amendments are currently being drafted to reinstate the free zone status for energy refineries. He said the country expects $3.5 billion in energy refining investments in the coming two fiscal years.
