With the new extension of the Suez Canal been officially inaugurated, it's time to turn back to the urgent economic needs that require urgent intervention, especially that the possible gains from the canal extension - and other mega projects for that matter - will only be felt in the long term, while Egyptians await immediate relief in their daily living conditions.
Despite assiduous efforts by the state and many ministers, the Sharm al-Sheikh conference, Arab support, and low global oil prices, Egyptians continue to face a rising cost of living, scarce job opportunities, and (with the exception of electricity and subsidised food), deteriorating public utilities and services. And since deep reforms require time, resources, and patience to come to fruition, some immediate steps must be taken to foster investment, increase production, and provide jobs in the short term. And here are the four areas worthy of attention.
First, we must put an end to ambiguous tax policies and determine the fate of tax laws that were issued or announced last year but were not applied. The stock exchange capital gains tax was neither enforced nor repealed but simply postponed for two years, the income tax cuts announced in March have not yet been codified in law, and the timeline for implementation of the value added tax and the property tax is still unclear.
All of this creates uncertainty and gives the impression that there are no defined mechanisms for economic decision-making. The confusion was compounded by the new state budget, which projected a 32-percent increase in tax revenues from last year without specifying where these revenues would come from. The ambiguity in tax laws has damaged the investment climate, and fixing this situation only requires clarity of vision and decision-making.
Second, we need to review the exchange rate policy, and be mindful that national companies and factories in need of foreign currency to import the raw materials and intermediate goods are facing difficulties in producing, operating, and exporting. This is a more intractable problem: as long as foreign currency is not flowing into the country through tourism, foreign investment, or other sources, the monetary authorities have limited options.
But in addition to the measures the Central Bank is taking to shut down the black market, there may be no choice but to again correct currency prices in order to reassure investors that the market has reached a new equilibrium. In addition, there needs to be ongoing dialogue and communication between the monetary authorities, the market, and financial and banking institutions to allow the current situation to be met with the least possible losses.
The third issue that needs resolution is the investment law. Admitting mistakes is a virtue because it creates the opportunity to correct course before the error is exacerbated. The new investment law has not improved the investment climate nor resolved investors’ problems. Instead, it has impeded the operation of the General Authority for Investment (GAFI) and created confusion over the procedures for establishing companies, the future of the free zones, and the system for land allocation.
Every attempt to correct the law in past months—the latest being the implementing regulations issued on July 6—has only complicated the situation further. It is better to set the law aside and start over by identifying investors’ real needs, especially small and medium enterprises that are capable of creating employment. Even GAFI, the face of the Egyptian economy and the first stop for investors, has been without a board of directors and a permanent executive president since early this year, although forming a board and appointing a president require little effort and few resources.
The fourth and final issue concerns state priorities and megaprojects. Projects recently announced include the reclamation of one million feddans of land, the construction of a new capital, and new tunnels under the Suez Canal.
All of these are fine and maybe necessary, but before the final go ahead is given, the cost, funding sources, and anticipated returns must be determined, as well as how to competitively involve the private sector in their implementation.
More importantly, we should consider whether all these projects should have absolute priority or whether to direct some state revenues to improving the efficiency of existing public services and utilities that have a direct impact on people’s daily lives. There are many such projects: the development of the Agricultural Investment and Credit Bank, renovation of railroads, modernization of irrigation systems, improvements to existing state hospitals and universities, investment in industrial zones designated for small businesses, or the development of informal areas where millions of Egyptians live.
There must be a balance between what is good for country in the coming years and decades and what is necessary now to overcome the current crisis and meet people’s urgent needs. Some of these don’t require new funding or massive resources, but simply better prioritization, a willingness to correct mistakes, and a readiness to engage and involve society in the country’s economic course.
The writer holds a PhD in financial law from the London School of Economics. He is a former deputy prime minister, former chairman of the Egyptian Financial Supervisory Authority and former chairman of the General Authority for Investments.
This article was published in Arabic in El-Shorouq newspaper on Tuesday, 11 August.