As Egypt’s agreement with the International Monetary Fund (IMF) comes to an end with the awaited disbursal of the last $2 billion tranche of the $12 billion extended fund facility (EFF), Al-Ahram Weekly spoke with Tamer Wagih, chairman of Prime Group and economic advisor to President Abdel-Fattah Al-Sisi, to identify the viewpoints of Egypt’s business community on the three-year economic reform programme.
Prime Group was set up in 1995 as a construction company, but later expanded to tap foreign trade, tourism and pharmaceuticals.
How do you see the current economic situation in Egypt after three years of fiscal reforms?
Egypt’s economic reform programme, which has been in effect since November 2016, was a necessity. Most of Egypt’s businessmen agree that this programme was inevitable in order to put the country back on a sound economic track. But some might differ on how it was implemented.
Many think that it should have been implemented in a gradual and less painful way, while others, including businessmen like me, think that the style of President Abdel-Fattah Al-Sisi in implementing economic reforms in a radical and free-wheeling way and in a very limited period of time was the best option. The quick way in which the programme was implemented was a necessity in order to achieve fast and tangible economic returns.
The UK Economist magazine said last week that after three years of comprehensive economic reforms Egypt ranked third in the world in terms of economic growth, registering 5.6 per cent during the first quarter of 2019. This is a very promising signal, as in this respect Egypt comes only after China (6.4 per cent) and India (5.8 per cent), and before economic dynamos like the US (3.2 per cent), Thailand (2.8 per cent), Saudi Arabia (2.4 per cent) and Britain (1.8 per cent).
What is your opinion of the floatation of the Egyptian pound?
The floatation was a basic part of the reform programme. It achieves economic benefits only in the long run. It made tourism very cheap, for example, helping boost foreign tourist traffic into Egypt to record levels. More importantly, the floatation made it hard for Egyptians to travel abroad and spend money on foreign tourist trips. The majority now prefer to spend their summer holidays in Egypt, a development which also contributed to cutting the demand for foreign currency.
The floatation also reduced the demand for foreign imports. It was not good for the country to continue spending billions of dollars on the imports of consumer products. So, the programme came as a necessity to stem the demand on foreign currency.
The first half of 2019 saw the US dollar losing 10 per cent of its value against the Egyptian pound (from LE17.86 per dollar one year ago to LE16.56 today). How do you see this?
One might guess that the increase in foreign tourist traffic and remittances of Egyptian workers abroad led to a high supply of dollars on the market. This, combined with the drop in imports, led the dollar to depreciate. But this only partially answers the question.
To me, the most evident reason for the continued drop in the dollar’s value over the past two months was largely due to foreigners’ investment in government treasury bills. I think that the dollar will lose more ground when Egypt becomes a major exporter of natural gas and oil derivatives by the end of this year. Egypt is gearing up to be the region’s hub for natural gas markets.
How do you see the government’s new subsidy policies?
These new policies represent a radical shift from the past. The government, and in agreement with the IMF programme, was able to save close to LE60 billion in funds by cutting fuel and electricity subsidies.
This money can instead go towards offering better education and health facilities that serve the poor better.
In my capacity as chairman of the General Society of Voluntary Action, I have had the chance of touring all of Egypt’s 27 governorates. Many districts in Upper and rural Egypt lack access to basic medical services simply because there are no hospitals nearby. And many villages in Egypt still lack potable war or electricity. This is a complete injustice.
But the harsh economic reform measures, particularly the pound’s floatation and the subsidy cuts, have left the middle-income classes in a bad situation?
I agree that the middle-income class in Egypt, which forms the heart and mind of society, has been hit hard by the economic reform programme. But still it can survive. These classes can still meet their basic needs and even save money.
Besides, I think that they fully understand that it is no longer acceptable that they have access to subsidies which should rather go to the poorest and most needy sectors of society. It is completely fair not to offer subsidised fuel or electricity to the middle and high-income classes, and instead use those funds to offer better services for the poor.
Do you think that Egypt’s restoring stability under President Abdel-Fattah Al-Sisi has helped make the economic reforms a success?
Gamal Essam El-Din interviews Tamer Wagih
Absolutely. In security terms, I think that every Egyptian will surely recall how just three years ago terrorist cells linked with the Muslim Brotherhood were doing their best to make the everyday lives of Egyptians a hell. Now this has become a thing of the past.
Meanwhile, President Al-Sisi’s active diplomacy and foreign visits, particularly to Germany, Russia and China, have led to a quick fixing of Egypt’s electricity sector.
I was a member of the president’s team that held intensive talks with the German Siemens Company to build mega-generation stations in Egypt. I think that every Egyptian can surely remember how life before 2014 was a hell because of repeated power cuts and blackouts. Again, this has become a thing of the past.
Egypt has even become on its way to be an exporter of electricity in the region. So, when you have security and electric power fully restored, this will sure boost your economic growth prospects and help create a favourable climate for investment.
Do you think that Egypt is in need of a new programme with the IMF? And what do you think the government’s economic policies should be in the next stage?
Finance Minister Mohamed Maait said in an interview that Egypt would not be in need of a new programme, but there would be a kind of regular coordination and consultation between the government and the IMF. Apart from this, what is important for the coming period is that the government should move into two basic directions. First, a new clear investment map should be made public.
This map should show what sectors are an investment priority to the country. I am a member of the Egyptian-Saudi Businessmen’s Council, the Egyptian-Emirati Businessmen’s Council, and the Egyptian-Canadian Businessmen’s Council, and they all complain about the lack of a clear-cut investment map.
The new investment law is good, but the law alone is not enough: an investment map is needed, and it should be accompanied by promotion campaigns for all potential projects. Closely related with this is that investment policies should be transparent. There should not be discrimination among investors, and they all should be put on an equal footing in terms of licensing measures and facilities. There should not be a place for favouritism or discrimination.
Meanwhile, the government should move fast towards stemming the tide of foreign borrowing. To meet this objective, the government should focus on three major foreign exchange earners: natural gas, tourism, and agricultural exports. If the government fails to achieve a remarkable boost in these three vital sectors, it will be forced to seek the help of the IMF again.
What about the construction sector? Some think that it is going through hard times?
This is true to some extent. There is a lot of supply on the market now, particularly in terms of housing units. Right now, the market is rife with plenty of construction companies and real-estate developers that have tapped the market without much experience.
They have called themselves “groups” and advertised heavily during peak times about luxurious compounds and integrated cities. But in the end they have not been able to deliver because of a lack of experience and due to a dramatic rise in the price of building materials. They have been forced to sell units at a much lower price or sell on a longer-term basis, with instalments extending to 10 and 15 years. Now there is a kind of market correction, and these inexperienced companies are exiting the market.
Do you think the government was able to achieve maximum benefit from organising the 2019 Africa Cup of Nations in June and July?
Unfortunately, the government was not able to make use of this championship to market Egypt on the world tourism map. There were no good promotional campaigns. International football players like Mohamed Salah are good ambassadors for the country. We should have invested in 100 Salahs in order to create good perceptions about Egypt in world tourism circles.
*A version of this article appears in print in the 25 July, 2019 edition of Al-Ahram Weekly under the headline: A businessman’s agenda