The official media last week offered a retrospective of the economic conference held in Sharm El-Sheikh a year ago, seeking to convince the public of its marvellous success and the gains it brought to the country.
But the unfortunate truth is that the optimism and confidence of a year ago have been replaced by apprehension and concern on the part of investors, that an opportunity to attract investment in more propitious circumstances, before the decline in oil prices, was lost, and that for the last year, Egyptians have faced rising prices, scarce jobs, and deteriorating public services.
The media coverage was occasioned not only by the anniversary of the conference, but by talk of an impending Cabinet shuffle, which brings with it campaigns to commend some ministers and excoriate others.
But in my view, the failure of investment policy over the past year can’t be chalked up to the performance of a minister or two. The problem was and continues to be the absence of a coordinated government policy, sound priorities, and feasible objectives. Accordingly, the decline in the investment climate has four causes.
The first is the issuance of a flawed investment law that prompted objections from all legal and economic experts and then refusing to modify or reconsider it, though it caused severe confusion in procedures and the remit of government bodies and curbed the independence of the Investment Authority.
Worse than the law itself was that it was presented to the international investment community as a historical leap forward in economic legislation—“the best investment law in the world,” according to one official. People attending the Sharm al-Sheikh conference believed this and got excited, only to be disappointed when the promises didn’t pan out.
Second, amid modest investment rates and poor results, the state again devoted itself to attracting large multinational companies, especially in energy, and following up on a handful of mega-investments.
It lost interest in small and medium enterprises, though these are the only way to markedly reduce unemployment, unleash young people’s energies and creativity, and distribute the gains of economic growth more widely.
With the exception of the microfinance law submitted by the Financial Supervision Authority and the initiative to fund small businesses recently launched by the Central Bank, the state has offered no assistance to this sector, which has the potential to lead the country out of the current crisis.
In a recent conversation with presidential economic advisor Dr. Abla Abd Al-Latif, I indicated my frustration that state policy is limited to providing financing without fostering the climate and capacities for these enterprises to flourish. Her response was the coming government program would introduce measures to address this, and I hope it does.
The third cause is that state economic agencies and institutions often operate at odds to each other. Part of the government is pressing for reduced spending to cut the deficit while another part pursues expansionary policies and moves ahead with megaprojects of uncertain economic benefit.
One wing of the state supports an agreement with international financial institutions like the IMF while another wing calls it an infringement of national sovereignty and denies that talks are underway. One camp wants to maintain the price of the Egyptian pound and another wants to devalue it.
These contradictions were not lost on either local or foreign investors. Their natural and reasonable response was to stand back while the state sorted out its economic position, instead of taking risks in an unstable environment.
The fourth and final cause is the deterioration in the overall political climate, which today, as in past decades, is never far from investors’ minds.
The security situation, social tension, the restriction of liberties, the persecution of civil society, parliament’s poor performance—all of these factors are taken into consideration, not necessarily out of respect for rights and liberties, but because they demonstrate society’s willingness to engage positively with government economic policies and accept necessary reforms.
It is a grave mistake to think that local or foreign investors are only interested in hard numbers like growth, inflation, and exchange rates, with little concern for a country’s political and social conditions.
When the government presents its program next week, I hope it goes beyond the usual promises to foster investment and remove obstacles, to offering a clear, coherent vision, one that demonstrates a bias for small and medium businesses, coordination between various state parties, a willingness to abandon failed legislation, and a realization of the need for a more relaxed political climate. We don’t want to waste another year and face the potentially grave consequences.
I would have liked to conclude this article with a happy mother’s day wish, but instead I offer my condolences to the families of those killed in terrorist attacks in Sinai, their comrades, and the entire Egyptian people. Our hearts are with them, and we pray for the safe return for every mother’s son.
The writer holds a PhD in financial law from the London School of Economics. He is former deputy prime minister, former chairman of the Egyptian Financial Supervisory Authority and former chairman of the General Authority for Investment.
This article was published in Arabic in El-Shorouq newspaper on Monday, 21 March.