Egypt's economic growth in 2015 will be pro-poor: Planning minister

Salma Hussein , Wednesday 31 Dec 2014

Egypt's Minister of Planning Ashraf El-Araby explains why 2015 will be a good year on the socio-economic front; reveals that the oil subsidy reduction plan is on hold until a new parliament nominates a cabinet

Ashraf El-Araby - Egypt’s minister of planning and international cooperation (Photo: Al-Ahram)

Ashraf El-Araby, minister of planning and administrative reform, is foreseeing a year full of economic news. In January, the long-awaited IMF report on Egypt’s economy (the Article IV Consultation Report) will be published. The government is optimistic to see the report emerge "with a positive tone," hopes El-Araby. "I am sure there will be a lot of suggested reforms, but the discussions we had with the delegation were overall positive." For him, it is a very important report because it is the first in four years, and also "the first international report to assess the new economic policies introduced in the country."

In February, the consultation consortium Dar El-Handassa will announce the master plan of the Suez Canal Development Project. "It is a cornerstone for the development of this region. It includes three main cities: Port-Saïd, Ismailia and Suez, in addition to the north and south of the Sinai Peninsula."

The plan will be offered to investors invited to attend the international economic conference that will take place 13-15 March. "This is by far the most important event of the year," where "the story of a new Egypt will be told," El-Araby underlines, explaining that by the time of the conference, parliamentary elections will be underway, to end the political transition. The government will also present its maga development projects, which opens a lot of investment opportunities, in addition to the 2015-2050 economic vision.

By July, the master plans of two other regions would be ready: one for “the golden triangle” of mineral resources, parallel to the Red Sea in the east desert. The plan is currently being elaborated by a consortium led by an international company, which he refused to name or reveal the way it was hired. The second is in the North Cost and was elaborated by the minister of housing. “It is an urbanisation plan based on tourism development.” The minister of housing is currently discussing with different stakeholders the development plan. El-Araby reveals that old cronies of the Mubarak regime are among these stakeholders. Names include many of the companies that were generously granted cheap land banks in the coastal region of the Mediterranean Sea, like Mansour and Maghraby Group, Soliman Amer, Talaat Mostafa Group and Ibrahim Kamel. “It is normal that those who already have touristic projects in the region be present at the table,” says the minister, who served in almost all post-2011 revolution governments.

Seducing sovereign funds

Egypt is aiming at attracting LE206 billion in private investment, including LE10 billion in foreign direct investment (FDI). “The Q1 figures (July-September) show we are on the right track. The industrial input statistics, industrial consumption of energy and the number of newly established projects and expanding ones are on the rise as well." El-Araby says that the goal is “quite achievable,” even without counting $0-12 billion in foreign investment that is expected to flow due to the March conference. For him, this is a different track. A team of three ministers, backed by a dozen of other ministers, are preparing for the conference, with the help of the international consultancy group, Lazard Ltd, an investment bank and advisory group working in 26 countries. “Its role is mainly marketing our proposed projects.”

In order to achieve this ambitious goal, Egypt is counting primarily on its neighbours, especially sovereign funds that belong to the rich oil monarchies. And in order to succeed, the government signed reconciliation contracts in the majority of the cases where Arab investors were accused of being granted privileges in the Mubarak era, mainly cheap land banks. "We are working on a new investment law, in addition to a set of other laws governing the investment climate. We won’t wait for the parliamentary elections. This set of laws will be approved by the president, before the March conference," underlines El-Araby, giving the example of the law on mineral resources (which was already issued) and the one on civil servants.

Something new, something old

Is Egypt back to the old days of investment and growth as sole objectives of economic development? El-Araby denies this. For him, it is important that investors see that Egypt has stable executive and legislative institutions. They would also need to know how Egypt perceives private-led growth. “Egypt post-2011 has a better regulated market economy with a bigger role of the state."

El-Araby is planning to more than double the growth rate to 3.8 percent, a rate that exceeds the IMF’s forecast, “despite a year of political transitions and anti-popular reforms.” He is counting on the generous public investment scheme in infrastructure and housing.

“This is a different growth than what have been seen pre-2011,” he assures.

Before, there was high growth, but the vision was, 'Grow first, distribute later.' Now, "we are keen that growth is linked to social justice. First, the nature of the projects is labour-intensive and they require low-skilled workers. Second, the projects are destined to improve the services delivered to the poor, like the new system of food subsidies, or the housing projects destined for those at the lower scale of income, and to improve utilities in poor rural areas, like sewage systems and drinkable water."

The government also launched in early December “Ayadi,” a joint venture with the private sector in which the government has a 20 percent stake. “It aims at creating to create 0.5 million jobs in rural governorates, to ensure geographically balanced growth,” El-Araby says.

In addition, "we plan to grant free health insurance that will be introduced for the 1.5 million recipients of the social security pension." The roads network comes under the same social spending. "This is by far the longest motorway network implemented in one year. We are talking about 3,400 kilometres to be executed before the end of June 2015 (the fiscal year), almost triple of the previous record."

Critics say that such projects were assigned by direct order and that the armed forces were granted the lion's share of public funds. El-Araby defends the step. "The whole point is to accelerate the process of implementation." So public investments were distributed over three public institutions by direct order (i.e., not through tender offers): the army, the urbanisation authority, and the roads authority. These, in turn, hire subcontractors to do the job. They also have a supervisory role over the quality of the roads. Same for the new Suez canal being dug. "Take my word for it: there is not a single road contractor that is not currently working in the whole country."

Another critique is that such projects exploit cheap labour, since they are not obliged to pay their workers the minimum wage of LE1,200, because the contractors are private construction companies. But El-Araby says: “As far as I checked, the workers are granted LE50 a day, or LE300 a week. My worry is not about the minimum wage, but rather that these workers don’t enjoy any social or health insurance. They are hence vulnerable if they lose their jobs, and when they get older," he admits.

No rise in oil prices in January

Finally, the minister admits that the falling price of oil would have mixed impacts on Egypt. On the negative side, Russian tourists, Egypt’s first clients, would be hit by the economic crisis that is hitting their oil-dependent economy. On a positive note, it offers Egypt some fiscal space. Hence, El-Araby says that the current government is not implementing the second phase of increasing energy prices, earlier planned to take place in January. "This government is not undertaking any further (price) increases," he assures. Instead, in April, smart cards for fuel would be used all over the country, so the next government would have all the needed information about consumption trends. "They will have to decide what to do further ahead." The original plan was to fully liberalise energy prices within five years. The first step was taken in July 2014, and led to a hike in inflation to 11.8 percent in October, before slowing down to 9.1 percent in November. 


* This story was first published in Ahram Hebdo.

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