Egypt: Dealing with the economic crisis

Ziad Bahaa-Eldin
Tuesday 20 Oct 2015

It’s hard to call Egypt’s current economic woes ‘a rough patch,’ amenable to the same fixes used by the government of late, which have only exacerbated the crisis.

I am not talking about the disruption in the currency market that has recently grabbed headlines. That’s only a symptom, an expression of more profound problems in the management of the economy: low levels of investment, export, and employment combined with high levels of foreign and domestic debt and, most important, a lack of clarity and direction in state economic policy.

For ordinary citizens, sharp price increases especially for food, deteriorating public services, and scarce jobs are the real economic indicators, far more significant than growth rates, reserves, and public debt figures.

Of course, we could blame the sluggish global economy, international conspiracies, or regional conditions.

But none of that explains the swiftness of the economic decline in recent months. Or we could bring in new ministers or new governments whenever there are signs of incompetence or the media demands immediate change.

But the seriousness of the present situation requires us to pause, take stock, and build a consensus around certain urgent priorities, instead of looking for a scapegoat or appeasing the media’s thirst for a new victim. And here is what I propose:

In the short term, the government must make up its mind and be transparent about several unresolved issues that cause concern for the investment community.

In particular, it must clarify whether there will be additional taxes and fees coming in the short and medium term, the future of energy pricing, the terms of the anticipated deal with the World Bank, and its plans in dealing with the exchange rate crisis.

While some of these decisions may be difficult and socially costly, doubt is more damaging than certainty because it stokes fears of the worst and paralyzes investment and production.

Moreover, members of the government must agree on a common stance—conflicting statements by officials erode the credibility of government policy. But on the issue of foreign exchange, any statements or projections should only be issued by the Central Bank because every rumor or rash statement has a negative impact.

Also in the short term, there is no choice but to admit and correct several recent missteps instead of stubbornly moving ahead.

There’s no longer any question that the investment law issued around the Sharm al-Sheikh conference last March was a major error that further complicated the investment climate, opened the door to corruption and abuses in land allocation, and made promises to investors that could not be kept.

Lawyers, economists, and business experts all agree that it took us back decades. So why hasn't been repealed? The same goes for the policy of promoting investment internationally without showing adequate or even similar attention to domestic small and medium enterprises, old industrial zones, and local investors’ associations that represent tens of thousands of small producers.

In the longer term, the feasibility of national megaprojects should be reexamined, especially in light of conflicting official statements about their cost, economic impact, funding sources, and implementation.

No one hates the idea of a new capital for Egypt or the prospect of millions of new feddans of agricultural land. But priorities must be reassessed in light of resource scarcity, urgent requirements in social spending, and the need to upgrade existing infrastructure.

There must be a social dialogue around these projects to determine what can be implemented now and what should be postponed or even shelved.

Social justice must also return to center stage. Although much neglected recently, for the past four years it has been a repeated, clear demand of the Egyptian people.

Having been a preoccupation of the entire state, it now falls solely to the Ministry of Social Solidarity and the Ministry of Supply, which pursue social justice with the tools available to them—namely pensions and social insurance combined with supply cards and food subsidies.

This is not enough to meet expectations. There must be a shift to a comprehensive understanding of social protection that gives citizens opportunities for job training, adequate education, healthcare, and the chance to compete and advance; social welfare measures come after that to protect the most vulnerable, those who cannot work and compete.

Past governments have made great efforts in this field, but completing the course laid years ago requires a political decision.

Finally, in both the short and long terms, decision-making circles, whether in the presidential palace or the Cabinet, must be expanded to allow more dialogue.

I don’t mean only the inclusion of Egyptian experts here and abroad who can make valuable contributions. More importantly, dialogue must be institutionalized.

Economic policy cannot be drafted solely by a group of people close to the president, regardless of their competence. It must be hammered out in a dialogue between the state and industry federations, chambers of commerce, investors’ associations, professional federations, labor unions, parties, and civil society.

All of these entities represent social forces and interests that must be heeded and included in decision-making.
Otherwise, they’re just spectators, reduced to awaiting the next surprise from the state. Sound economic policy requires their involvement and support and balancing the interests they represent.

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 Tuesday, 20 October.

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