Three key agricultural laws are expected to top the agenda of the new parliamentary session scheduled in November, reports Gamal Essam El-Din Most Egyptian economists agree that the path towards comprehensive economic reform is through agricultural development, since the budget, balance of payments and trade deficits are largely due to soaring bills for food imports. By the same token, they emphasise that the existence of strong agricultural credit and cooperative systems lay at the heart of any real development in this sector. To achieve the above objectives, the Ministry of Agriculture announced last week that it has drafted three key agricultural legislations, aimed at upgrading the roles of the Principal Bank for Development and Agricultural Credit (PBDAC), agricultural cooperatives and boosting the fishing industry. Saad Nassar, consultant to Minister of Agriculture Amin Abaza, indicated that the first law aims to upgrade the roles of PBDAC in an era of liberalised banking policies. "After the government's new economic reform policies resulted in opening up the banking sector for foreign investment, it became a necessity that PBDAC take on more roles in an age of cut-throat competition," reasoned Nassar. Hence, the government decided to change PBDAC from a state-controlled agricultural bank into a joint-stock company. "This new nature of PBDAC will allow citizens, especially those involved in agricultural activities, to buy shares in the bank," he added. PBDAC will assume a new name, the Egyptian Agricultural Bank (EAB), which is significant because "it suggests that the bank will no longer be confined to offering credit to agricultural producers and projects only," asserted Nassar. While PBDAC's capital currently stands at LE10 billion, the change in name and activities is expected to boost its capital and generate more financial resources from its new roles. These include offering credit and opening deposit accounts in the same way commercial banks do, and in line with the orders of the Central Bank of Egypt (CBE). Elaborating on the above, the 17-article law shows that PBDAC is currently involved in the central planning of agricultural and rural credit throughout Egypt. "Besides," states the law, "PBDAC also contributes to offering credit necessary for the delivery of production inputs and funding agricultural and rural activities." According to the draft legislation, when PBDAC becomes EAB its roles will expand to include offering credit facilities to ordinary citizens, offering capital to new companies -- especially agricultural ones -- and undertaking all kinds of banking activities inside or outside Egypt. "The law will also give EBA the privilege of opening deposit accounts for all citizens, on an equal footing with commercial banks," according to the draft law. Abaza has already asked a private auditing office to review PBDAC's financial statements ahead of turning it into EBA. "This step was necessary prior to the financial and administrative restructuring of the bank," explained Abaza, adding that a new chairman for the bank will be appointed very soon. "The new chairman will have a background in private business and investment in order to be able to carry out the bank's new roles," noted Abaza. PBDAC's previous chairmen had always been appointed by the minister of agriculture, and all were chosen from the ranks of the Ministry of Agriculture. Abaza's plans for PBDAC, however, were received with dismay in agricultural circles. Agricultural economists fear that overhauling PBDAC will be a prelude to fully privatising the bank at the expense of farmers and agricultural producers. Abaza strongly refuted these claims, saying that "restructuring the role of PBDAC is a necessity to help it compete in a market economy." But Hamdi Abdel-Azim, the former dean of Sadat Academy for Administrative Sciences, counter argued that even before it becomes EBA, PBDAC was allowed to perform non-agricultural banking activities. "When PBDAC was created in the 1970s, its main role was to offer subsidised credit to farmers, agricultural and rural producers," said Abdel-Azim. At that time, PBDAC's agricultural loans were offered at a subsidised interest rate of no more than five per cent. "Besides," he added, "these loans covered a wide range of activities such as buying fertilisers, agricultural machinery, pesticides and seeds, as well as funding animal production projects." These policies left a very positive impact on agriculture, believes Abdel-Azim, especially in the form of record cotton production and exports. But when CBE decided to free interest rates in line with IMF-inspired economic reforms in the early 1990s, commercial banks raced to raise their interest on loans, including those borrowed by the PBDAC, to 16 per cent. In response, continued the expert, PBDAC was forced to increase interest on its loans at a disadvantage to farmers. This set a record high of 16 per cent interest for unsubsidised crop production; 17 per cent for horticultural production; 18 per cent for vegetable production; and 13-19 per cent for other activities, in addition to a one per cent administrative fee. As a result of these free market loans, added Abdel-Azim, many farmers and agricultural producers found themselves feeling the pinch of bankruptcy while PBDAC became bogged down in a quagmire of bad loans. "It is estimated that PBDAC is currently saddled with no less than LE22 billion in bad loans," according to him. Abdel-Azim is of the opinion that PBDAC remain a purely agricultural bank aiming to boost agricultural production through the offering of subsidised credit. "Rather than turning it into a semi- commercial bank, PBDAC should reschedule its bad loans over long periods," suggested Abdel-Azim. The second revised law aims at upgrading the roles of agricultural cooperatives. According to a report prepared by the ruling National Democratic Party (NDP), the system of agricultural cooperatives was introduced on a large scale in Egypt in the mid- 1950s as the main venue for boosting agricultural production and phasing out the feudal system. With the introduction of open-door ( infitah ) liberalisation policies in the 1970s and 1990s, agricultural cooperatives began to lose most of their shine, according to the report. Nassar explained that the new law will secure independence for cooperatives and help them expand their activities. "The legislation seeks to make cooperatives independent entities, with new powers to establish companies in all kinds of agricultural fields such as marketing, processing and exporting farm crops," asserted Nassar. Ahmed Mansi, the NDP's secretary for farmers' affairs, said a meeting will be held on 20 September to discuss the draft law. "The law will lift all current obstacles imposed by the Ministry of Agriculture on agricultural cooperatives," according to Mansi. "This will enable them to forge partnerships with private and public sector companies in agricultural development activities." While two draft laws aim to lift restrictions on banking and cooperative activities, the third protects the fishing industry. The proposed law regulating the performance of the Fish Development Authority (FDA) forbids any government agencies or private sector enterprises from drying up lakes without prior permission from the FDA. "In order to dry up a lake, a technical committee needs to decide whether this process is economically viable or not," revealed Nassar. In recent years, some agencies in both the private and public sectors were found guilty of drying up lakes in favour of establishing investment projects. Agricultural economists were alarmed, warning that "the crime of drying up lakes could lead to undermining Egypt's vast fish resources."
