At 119 in Global Competitive Index, Egypt pushes new reforms

Deya Abaza, Thursday 4 Sep 2014

This year's World Economic Forum report on global competitiveness places Egypt one rank down at 119th out of 144 countries, though the drop is less steep than in recent years as reform efforts continue

Real estate is one major sector that fully experienced the venom of Egypt's unrest (Photo: Reuters)

Egypt dropped one spot to rank 119th among 144 nations in this year’s Global Competitive Index, released Wednesday by the World Economic Forum and which highlighted the key economic weaknesses of a country in the midst of reform. 

The index ranks nations according to 12 “pillars,” including infrastructure, institutions, education, labour market, technological readiness and business sophistication, to determine overall economic competitiveness.

Egypt’s position in the annual rankings has been declining since 2010, when the country ranked 81st, though the past year’s drop was the least steep in the past five years.

The ranking was nonetheless described as “very troubling” by Minister of Planning Ashraf El-Araby in his address to a press conference hosted by the Egyptian Centre for Economic Studies to dissect the country’s ranking.

Successive cabinets have been striving to get the Egyptian economy back on its feet since regime change in January 2011 and ensuing political turmoil, and the later fall of Islamist president Mohamed Morsi in July 2013.

Political instability was cited by 21 percent of responders as the most prominent obstacle to doing business, followed by government instability/coups (12.5 percent).

Access to financing (10.2 percent) came third, followed by foreign currency regulations (8.4 percent), corruption (7.7 percent), and inadequate supply of infrastructure (5.5 percent).

Egypt’s rank in terms of strength of investor protection plunged from 69th to 117th place, despite the introduction earlier this year of a new investment law protecting contracts between private investors and the government from being challenged by third parties.

In July Egyptian construction tycoon Nassef Sawiris, CEO of now Dutch-listed OCI N.V., was sentenced in absentia to three years in prison and fined LE50 million in a tax evasion case that had reportedly already been settled with Egyptian authorities.

His brother, businessman Samih Sawiris had told Reuters in June that he did not plan to invest in Egypt until “there are changes to the legal system to support and protect investors.”

“We realise that life is very difficult for investors in Egypt at the present time,” said El-Araby, promising legal reform through a special committee appointed by President Abdel-Fattah El-Sisi, and the settling of disputes with investors in the coming months.

Over the last three years, Egyptian courts have issued over 11 rulings invalidating privatisation deals made under the Mubarak regime, including textile and cement companies, in some cases after rejecting appeals made by the state itself against their re-nationalisation.

In terms of basic requirements, such as infrastructure, the country dropped to 121st place from 118th in the previous year, despite two stimulus packages worth over LE60 billion with an emphasis on infrastructure development projects.

“These things take time to bear fruit,” said El-Araby about the stimulus, adding that infrastructure spending allocated in the current fiscal year’s state budget represents a 46 percent leap from last year’s budget.

Al-Araby was also confident that reforms launched by the government of recently elected President El-Sisi would positively impact next year’s ranking.

Starting in July, the government of Egypt raised the price of state-subsidised fuels by as much as 78 percent, along with electricity, in a move to reign in the budget deficit by cutting LE44 billion in fuel-subsidy spending, which has consumed about a quarter of Egypt’s budget in recent years.

A budget deficit exceeding 14 percent of GDP from the 2013/2014 fiscal year landed Egypt in 142nd place out of 144 in the “Government Budget Balance” category this year.

"The political will is there," said El-Araby, referring to legal, administrative and economic reform required to protect investors, streamline bureaucracy and redirect state-spending away from subsidies. 

Switzerland topped the Global Competitive Index for the sixth consecutive year, followed by Singapore and the United States. 

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