The severity of the current financial crisis took everyone by surprise. Since all hell broke loose weeks ago, policymakers have been trying to find exit solutions, globally and at home. In search of answers, Niveen Wahish attended a closed meeting last week with Egypt's Minister of Investment , open only to a limited number of journalists, for a candid opinion on where he thinks the country is headed amidst the turmoil. Al-Ahram Weekly publishes excerpts from the interview What is the purpose of your upcoming trip to the Gulf, and which countries are you heading to? We are scheduled to visit Kuwait, Bahrain and Oman. During the visit I will meet with the ministers concerned with the economic portfolios of their countries, and we will discuss the fallout from the financial crisis and how we can coordinate our policies to deal with the situation. It is also a chance to refresh our investment relationships, as well as to showcase our ability to carry out projects in these countries. There are many Arab investments in Egypt. Over the past four years they have grown to almost 40 to 50 per cent of the total number of Arab projects since the 1970s. Nonetheless, Arab investments are still below the desirable level and there are many untapped possibilities for joint investments. Besides the traditional areas for investment of interest to Arab investors, now there are infrastructure projects, logistical projects related to agriculture, and the opportunities offered by the renewable energy and manpower intensive industries in various parts of the country, particularly Upper Egypt. In light of the expected change in the economic performance of Europe and the US and their zero per cent growth rates, we seek to attract investments from other countries. This does not mean that investments from Europe and the US will be null, but they will grow slower than expected. We have done well to vary Egypt's sources of investment lately. China, India and Turkey, which in the past were simply not on our investment map, have become among the top 30 investor countries in Egypt. And other countries which had limited or no investments in Egypt at all have also joined in. These include Mexico, Brazil, Singapore and Malaysia. Meanwhile, we are working with Common Market for Eastern and Southern Africa (COMESA) members, and with non-Gulf Arab countries new to the Egyptian investment map such as Algeria, Syria and Sudan. What are your expectations for foreign direct investments (FDIs) and what type of incentives are you offering to attract investors to bet on Egypt? Our target figure for FDIs for 2008/09 is $10 billion, which is the average of what we have experienced over the past three years. To reach this level we will need to make an effort on all fronts, namely industry, agriculture, infrastructure, renewable energy and logistics. On average, Arab investments including oil investments over the past four years have represented between 40 and 60 per cent of our FDIs. In reality this level is not very hard to achieve. This figure includes net FDIs in oil, acquisitions, green field operations and expansions. Meanwhile, we have several incentives that may not be well known to Arab and foreign investors, related to industrial investments in Upper Egypt. There is thought to extend these incentives to the agriculture and tourism sectors as well. A good selling point for Egypt is the safety it offers investors, a stable growth rate, a supportive environment and a financial sector ready to support and partner with incoming investors. The government may consider offering additional incentives to projects that are manpower-intensive. In the case of such projects, the government may be willing to bear the cost of training employees, share in the cost of project infrastructure or possibly extend tax credits. Will growth fall below six per cent? Up until this stage we have not had any indication that our growth rate will fall below six per cent. This growth is supported by the momentum of investment as well as by the huge number of companies which have been established here over the past three years. These companies will be continuing with their projects of expansion or processes of establishment. Don't forget that we are talking here about an economy that is not having the troubles of the countries that were directly affected [by the crisis]. A functioning financial system, ample liquidity, and an agile economy should help us cruise at six per cent. What we have been doing is directing part of our investments into new areas such as Upper Egypt through some sustainable projects such as infrastructural projects. That will help us a great deal. As a small economy, the injection of funds is going to be much more effective in our case than the giant economies of the Western hemisphere. This is as far as we can look ahead. If the trouble continues in the Western hemisphere we have to come back with new suggestions and work on more investments. Meanwhile, the priority of this government is basically high growth. We are not going to be compromising with that. We did not compromise the growth target when we had threats of inflation. Our challenge is availing job opportunities, fighting poverty and raising income, and our bias is towards growth. What are the lessons learnt from the crisis? The first lesson is that we have to have mortgages, credit and funding for investments and business, but subject to prudent regulation as has been the case here, as well as very high quality supervision, good screening and monitoring of activities. Nothing is wrong with mortgage finance if you do it right. Nothing is wrong with credit if it is subject to proper risk assessment and good scrutiny of borrower profiles. There is nothing wrong with driving a car even though there are many reckless drivers around. We are now finalising the creation of a non-bank financial supervisory authority to help coordinate between the different components of the non-bank financial services, namely the mortgage, insurance and capital markets. The experience of the world today has revealed the strength of the linkages between these three sectors. We have been working on this since 2004 and we got the approval of the Cabinet on the draft law in May 2008. And we will be submitting the finalised draft law very soon (to parliament). Coordination between the three regulatory agencies through one body and through one ministry has been undertaken since 2004. In the past each of these was reporting to a different ministry. Now they have one body responsible. This will improve communication between the three regulatory agencies and also improve coordination between them and the Central Bank of Egypt (CBE). For its part the CBE will continue to act as the supervisor of banks and as the entity responsible for monetary policy. It will also be much better off coordinating with one body rather than with three. The other lesson learnt is that when we wrongly claimed that we are not close to trouble and everything was under control during the emerging markets crisis in 1997, we paid the price with a bad seven years. When you acknowledge problems, take the right measures, emphasise your strong points and support the economy's various sectors early enough, you are bound to minimise problems in the future. Otherwise we will repeat our mistakes. We lost a good seven years of our economic development to recession, lost two thirds of our international reserves, and we lost credibility. Today, a completely different story is in place, as evidenced by the coordinated and concerted efforts between the various ministries and the CBE. We are not in denial. Do you see a trend towards cutting interest rates? That is not a government decision, but one that is made by the CBE. Nonetheless, our meetings with investors have indicated that they want to see a cut in interest rates. The lending rate in Egypt has reached 13 and 14 per cent for some prime borrowers. What investors want is to see these interest rates cut by two or three per cent. We should not expect interest rates to drop by 10 per cent. That would encourage unregulated and excess borrowing. Are bailout plans going to work? Nothing seems to be enough so far to calm markets. The issue is not about funding but confidence in the system, the credibility of governments and trust in the capacities of the lender and the government to help when needed. That is why when the announcements came from the governments of the UK and the US they said this is "the latest and not the last" measure. This means they are willing to help support and maintain the backbone of their economy to the end of their resources. Do not depend on daily reactions. The system is based on a system of credit, credit that goes beyond the real resources, so for these kinds of stimulus packages and assurances to have their impact, certain multipliers of confidence should be taking place on the ground. Until that happens, things are going to be shaky. But we should not be worried about that. Even with all the talk about recession, the US and European economies still exist. We should not portray them as if they are lagging economies. The machinery is still there. It just needs lubricating and the trust of the system. The economies of the US and Europe continue to be very bankable. We need to have the banks first to do the funding. It's a matter of time. The difference between today and the past is the huge flow of information between East and West. This is one of the factors guiding investors' decisions here. After all what flies even quicker than good news is the bad. And there is much good news especially on the inflation front, and proof of the willingness of governments to do what is needed to support their financial systems. Did you see the crisis coming? No. I was expecting some serious trouble in the US economy and European markets, but did not expect it to be so severe, overwhelming or confusing.
