Just before 2024 came to close, Prime Minister Mustafa Madbouli sat down with leading investors representing various sectors to review the challenges facing the private sector and listen to their proposals for enhancing economic growth.

Madbouli said that the government has complete faith in the private sector and understands its role in the economy as an engine of growth. “Through experience, the state has become convinced that the private sector is more capable of the management and operation [of the economy],” he said.

The government is keen to maximise the role of the private sector in the economy, he stressed, adding that the state, while present in some strategic sectors, is enabling a greater role for the private sector in others. Boosting private sector contribution to the economy from 30 per cent to 65 per cent within three years was one of the goals outlined by the State Ownership Policy approved in December 2022.

In a candid discussion, the participating businessmen voiced concerns about hard currency availability and high interest rates that they said are making doing business more costly. They also stressed the importance of export support, the stability of legislation, and improving the business environment not only to attract foreign investors, but also to prevent Egyptian companies from leaving for neighbouring countries.

It was a long-awaited move from the government to engage with the business community in a real dialogue and hear their concerns, said Mohamed Badreldin, vice president for public policy at N Gage Consulting.

“If the government wants to achieve its objectives to decrease the budget deficit, increase exports, and create jobs, it cannot do so without the private sector,” he said.

Sarah Elkhishin, an associate professor of economics at the British University in Egypt, agreed, saying that the dialogue was a “very important step in the rapprochement between the government and the private sector to enable the development model that Egypt needs: one that depends on the private sector as a generator of growth.”

Badreldin highlighted the importance of expanding such dialogue to address the needs of different types of companies. For example, he said the needs of multinational companies differ from those of small and medium-sized enterprises (SMEs), which in turn differ from the needs of large companies.

Badreldin said the main responsibility of the government is to create an attractive business environment. “There is no other way to revive our economy without increasing foreign direct investment (FDI), employment, production and exports, all of which need bold moves,” he said.

Egypt is not alone in the region in wanting to attract FDI, Badreldin said. The UAE, Saudi Arabia, and other neighbouring countries are moving fast to ease regulatory restrictions to attract more FDI and encourage businesses to expand and grow in their local markets, he pointed out, adding that the number of Egyptian companies relocating and expanding in the UAE and Saudi Arabia is growing each year.

One of the participants at the meeting with Madbouli said that more than 2,300 companies had relocated to the UAE in the first half of 2024. Badreldin questioned why the rules that apply to the “golden license” scheme are not the normal practice to set up any business in Egypt. Businesses that receive this license, which was introduced in 2022, are spared a lot of red tape and the need for approvals from multiple entities.

Badreldin wants to see a three-year plan to revamp the regulatory environment with the objective of easing and lowering the cost of doing business in Egypt. “The government must set an objective to be ranked among the top three countries in all ease of doing business measures in the region,” he said.

Special incentives to attract export-oriented projects are also important to sustain foreign currency, Badreldin said. Egypt must benefit from its cheap production and multiple free-trade agreements to attract more FDI intended for export, he said, noting that in 2025 Morocco is scheduled to export $20 billion worth of automobiles. This equals around 50 per cent of Egypt’s non-oil exports in 2024.

The Moroccan success has been possible because it has managed to create the right environment for this industry to grow and flourish. Tourism is another industry that Egypt must capitalise on, Badreldin said, stressing that “any goal less than $50 billion in annual revenues by 2030 is nonsense.”

Government efforts
 

Badreldin said that he understands that some factors are out of government hands. The geopolitical situation in the region is not under its control and this could badly affect the economy, he said, noting that since 2020 global events, including Covid-19, the war in Ukraine, and the war on Gaza, have been affecting the local economy.

During the meeting with the private sector, Madbouli himself stressed that the changes taking place in the world today do not allow for the luxury of making plans over long periods, as they can impose a state of uncertainty.

Nonetheless, he said that despite the difficult circumstances, the state continues to implement its economic reform programme, in cooperation with the International Monetary Fund (IMF), pointing to their announcement of the completion of the fourth review of the programme.

This represents a message of confidence in the steps taken by the government, Madbouli said. With the fourth review complete, Egypt is set to receive $1.2 billion from its $8 billion loan from the IMF this month, said Minister of Finance Ahmed Kouchouk in a televised interview this week.

Government efforts to boost the role of the private sector are part of the reform programme agreed with the IMF.  Following the fourth review, Ivanna Vladkova Hollar, IMF Egypt Mission Chief, said in a press release that “staff and the authorities agreed on the need to speed up reforms to improve the business environment and ensure that the private sector becomes the main engine of growth.”

“In this regard, more decisive efforts are needed to level the playing field, reduce the state footprint in the economy, and increase private-sector confidence,” she said.

According to Elkhishin, without structural reforms that target a greater role for the private sector in revenue generation and take advantage of the depreciation of the currency to boost exports, the IMF programme will be no different from the previous ones and will only achieve short-term results.

What is expected from the government in the coming months are more reforms towards widening tax revenues as a more stable source of revenue, improving fiscal performance and improving the debt profile, and decreasing the vulnerability of the Egyptian fiscal sector to external shocks and regional challenges, she said.

She added that the reforms need to include social safety nets and protection against the fallout from monetary and fiscal reforms, especially for vulnerable groups.

According to the IMF press release, there was agreement with the government that further efforts are needed to accelerate the state’s divestment programme to support private-sector development and to reduce the high debt burden.

Madbouli said during his meeting that current circumstances have contributed to the slowdown in the implementation of the divestment programme. However, earlier in December he said that stakes in 10 state-owned companies are slated for privatisation in 2025.

The minister of finance said this week that three or four companies will be offered to a strategic investor or through the stock market before the end of the fiscal year. Selling stakes in state-owned companies is a means of growing private-sector contributions to the economy as well as generating much-needed revenue to support the budget and pay up debt.

According to Elkhishin, the private sector is crucial if Egypt wants to tackle its debt problem because it can generate revenues and hard currency from exports rather than depend on fragile sources that are easily affected by geopolitical circumstances.

Egypt’s external debt currently stands at $152 billion, down from $168 billion in December 2023. Kouchouk has pledged to reduce the country’s external debt by $2 billion annually. He said the government is targeting a public debt-to-GDP ratio of around 85 per cent by the end of the current fiscal year.

* A version of this article appears in print in the 9 January, 2025 edition of Al-Ahram Weekly