During the Economic Development Conference (EEDC) , Egypt received pledges of financial support in several economic sectors in large volumes that exceeded expectations. However, it is necessary to deal in a scientific way with the numbers published during the conference, which contained many pledges, not contracts or agreements.
It is noteworthy to mention that the rich countries pledged before, in 2011, massive aid to Egypt and Tunisia ($38 billion) after the overthrow of the Mubarak and Ben Ali regimes. But these countries didn't fulfill any promises. For instance, the agreement with BP for oil exploration and drilling valued at $12 billion means that the corporation received a concession on such works in a specific area and it pledged to spend this sum on oil exploration operations during a certain period, maybe 10 or 15 years or more, according to the terms of the agreement. Thus, the mentioned sum will be distributed over the years of the concession on oil exploration and drilling.
The same goes for the agreement with Italian corporation Eni, and other agreements that have been reached.
Certainly, the Sharm El-Sheikh conference has contributed indeed to creating a positive impression regionally and internationally. This means that Egypt is a country heading towards an economic take-off. What consolidates this is the recorded growth rate in the current half of the fiscal year, which exceeded 5.6 percent according to official Egyptian statements. International Monetary Fund estimations point out that the real growth rate of Egyptian gross domestic product (GDP) will reach 3.7 percent in the year 2015 in comparison with two percent in 2014. Most probably these estimations will be modified to an upper level in light of the improvement in economic performance, the mobility created by the new Suez Canal project, and the anticipated mobility in investment after Sharm El-Sheikh.
It goes without saying that the stage subsequent to the conference demands hard work, to follow up on the execution and completion of what has been agreed upon, initially or contractually. It is true that raising the economic growth rate, diversifying and developing the economy and creating new employment opportunities are major objectives if local investment is to be awakened, along with Arab and foreign investment. However, this must be based on the rules of justice and parity in the relationship between the state and those investors, accompanied with policies that distribute the fruits of economic development equitably. In other words, to achieve social justice, which was one of the main objectives of the January 25 Revolution and its second wave on 30 June 2013.
One day before holding the Sharm El-Sheikh conference, President Abdel-Fattah El-Sisi used his legislative powers, which he enjoys exclusively in the absence of a parliament, to issue the new investment law, published in the official gazette dated 12 March. This law champions the free economy model. This model does not differ from the model adopted by Mubarak's regime in the last 20 years of his rule, except in embracing real facilitation in founding businesses in the market via an effective one-stop shop system, and in exiting it. These kinds of facilitations are demanded by local and non-Egyptian investors, whatever the volume of their business. It constitutes the positive side of the investment law.
However, the general outline of this model is providing all kinds of facilitation for businessmen to expand their businesses and improve profitability through privileges offered to them based on the idea that establishing new businesses and creating job opportunities will allow the economic fruits to trickle down over the poor and the middle class. The trickle-down theory has proved to be a failure in practical reality in treating the negative social consequences of the free market model, which is represented in the state's general budget deficit due to the expansion of taxes and customs, exemptions for the benefit of the capitalists and their companies, the increase of poverty and widening its scale, set against the increase of richness of the upper class and a widening gap between classes, and the spread of monopoly and monopolistic prices.
Hence, it is necessary that the embrace of such a model will be accompanied by implementing a basket of economic–social policies that treat its negative aspects. Despite the importance of economic growth and jumping on the swift development bandwagon, social justice constitutes one of the main guarantees of this growth's sustainability. For the more that income distribution is just, the conditions of those receiving the least incomes will turn it into effective demand on commodities and services. This in turn will incentivise the private and public sectors to establish new enterprises to satisfy these demands. This means hiring new employees and distributing incomes among them, which in turn will be transformed into effective demand for commodities and services in ways that incentivise establishing new enterprises. This is called the investment multiplier, which constitutes an essential and driving element of an economic growth and prosperity cycle. Here, such justice transcends being a social necessity for achieving consent and social peace into being a fundamental basis for economic continuity and sustainability.
The fundamental bases for creating social justice are enabling human beings to earn a living with dignity through providing job opportunities that are suitable for their qualifications and capabilities. It also implements a fair wage system that guarantees a decent life for those employees and ensures that wages increase in a rate that equates to or exceeds inflation rates, in order to preserve the purchasing power of the wages or improve it. Moreover, the social justice bases include constructing general systems for medical care and education for the poor, low-income earners and even the middle class free of charge or at nominal prices.
Furthermore, it sets up a comprehensive taxation system for all tax bases, multi-segmented and progressive on income and on company profits in a way that contributes in redistributing and improving incomes and funding the state's public finances. The fact is that moving towards improving the bases of social justice in the taxation system is threatened after the finance minister announced decreasing the upper segment of income tax for the rich from 30 percent for those whose annual income exceeds LE1 million to 22.5 percent only.
We must put into consideration that the rate in advanced, developing and attractive to investment capitalist countries exceeds by far the current level intended to be decreased, for the upper segment of income tax amounts to 62 percent in Denmark, 57 percent in Sweden, 50 percent in Japan, 45 percent in China, 35 percent in Turkey, 37 percent in Thailand, 40 percent in South Korea and 40 percent in Britain, France and Italy.
In addition, the social justice bases include price controls in the market in a way that is connected with the production cost of commodities and services and combating monopolistic practices, in order to ensure fair prices for commodities that strike a balance of interests between producers and merchants on the one hand, and consumers on the other. It also comprises the state providing social funds for the poor and setting up a system for subsidies in the form of commodities or cash for the poor and low income earners.
The biggest project agreed upon in Sharm El-Sheikh is the project of building a new administrative capital for Egypt. Such a capital was an old dream for alleviating the enormous population pressure on Cairo whose infrastructure is overburdened with the massive numbers of its dwellers, especially that the infrastructure and its renovation were rarely efficient. This is quite obvious in the problems appearing in roads and water and sewage networks long before the expiry of their projected life span.
But it would have been better if the vast investments allotted to build this new capital ($45 billion) were directed to construct a network of industrial projects in industrial cities localised in mining and quarry areas, on the outskirts of large areas of agricultural production that are manufacturable, especially vegetables and fruits and in areas of the north coast, in order to exploit potentialities in aquaculture and the industries depending on it, such as processing and canning, in building ships and their maintenance, on the eastern coasts for fertilisers, mineral and oil refining industries relying on local raw materials, and those imported from Arab and African countries.
That a non-Egyptian company is to build the new administrative capital raises a number of questions that it is the right of citizens to have answers for. The new investment law grants non-Egyptians the right to own lands and buildings. Are the lands of the projected capital owned by the company before it sells these on to those who will buy buildings on it? And what is the price of the state's lands in this project?
The ownership of lands in Egypt by non-Egyptians is one of the issues that needs reconsideration in the investment law. Agricultural lands should be excluded totally. Note that during King Farouk's reign in 1951 a law was passed that prohibited the ownership of agricultural lands by non-Egyptians. As for real estate and industrial lands, it is better to implement the usufruct system for non-Egyptians.
Perhaps there are remarks or reservations to be made on the generosity Egypt is displaying towards local, Arab and foreign investors through the new investment law, but at the same time it also means that we have an investment-supporting environment for their benefit in an exaggerated way. There are measures such as lowering sales taxes on machines, equipment and refunding it to the investors when they present their first tax returns, and lowering customs duties on imported machinery and equipment to two percent. These measures are received with general acceptance as a facilitating factor in the industrialisation movement, provided that what falls under this privilege is tightly controlled and tax and customs evasion is prevented.
For instance, the state's general finances are losing around LE3.5 billion annually due to exemptions provided on car components that are assembled in Egypt, although it is not a real car industry — just a "screwdriver industry" through which components manufactured abroad are assembled and customs exemptions are granted without reason.
This law also permits using foreign labour without setting a maximum limit on this kind of labour. Thus, it comes in contradiction to the main objective of attracting foreign investment, which is creating jobs for Egyptian labour. Moreover, it permits this kind of labour to transfer all its income without setting a maximum limit on these transfers.
In Article 20b, the law gives the cabinet authority to grant privileges to labour-intensive companies, including having access to energy at discounted prices and the government bearing part of the training costs of workers. Furthermore, according to the law, the government bears the share of the employer's and employee's insurance for a certain period. This issue specifically raises questions about double standards. For instance, the national press establishments, which are totally owned by the state, are characterised by being labour intensive although treated harshly, with obligatory delays in paying insurances, and its cars' licenses stopped.
Insurance rights are indisputable. However, since the state has this readiness to bear the share of the employee and the employer's insurances for private businesses, it is better to do so for its establishments at times when they are facing pressing circumstances.
Back to the original topic: the Sharm El-Sheikh conference, on the whole, can be said to have succeeded in the political field and created a distinguished impression about Egypt. As for the economic field, there are a great number of initial agreements that need gigantic and sustained efforts to reach completion. We must put into consideration that economies are built up mainly by the muscle, minds and money of its sons and that the participation of foreigners is a supporting factor. This calls for taking all measures to incentivise savings, small local and medium and large cooperative investments, and encouraging Egyptian expatriates to participate effectively in pumping investment back into their country with the state insuring those investments. Most probably Egypt would be able to enter a path of swift growth if it were able to manage the economic file with efficiency and flexibility.
However, the social justice considerations elaborated above will not materialise spontaneously. They need measures, policies and legislative amendments in a country where injustice, corruption and repression was a major reason for its revolution. It will remain concern for a people aspiring to "Freedom, Dignity, Development and Justice."
The writer is the chairman of the board of Al-Ahram Establishment.