Official statements encouraging investment, conferences, and weekly trips abroad cannot hide the fact that Egypt is borrowing more from the World Bank, the African Development Bank, and Arab countries due to the failure of government policy to attract local and foreign investment.
External debt remains at safe levels—no more than 20 percent of GDP (compare with Greece at 12 times that figure). Nevertheless, current policy lapses are worrying and may bring more borrowing in the future and poorer economic development than hoped.
Despite the hopes and promises of early 2015, the year ends on a low point for many reasons. The primary one is the government's attachment to the investment law issued last March, which has only brought more complications and bureaucracy. Now an object of ridicule among investors, the law set the investment climate years back. And still the government holds to the law for no clear reason other than fear of admitting a mistake.
Secondly, there is the state’s schizophrenic attitude toward investors. On one hand, it invites them to meetings with senior officials, urges them to donate to charitable projects, issues a new law every year encouraging financial settlements, and arranges for them to accompany the president on trips abroad.
On the other hand, it imposes ill-defined fees and fines, lets state agencies tax at will, refuses to close long-pending investigations and lawsuits, and punishes those who stray from the official line. Instead of this pathological relationship with the investment community, all that’s really needed are clear laws, defined regulations and specific taxes.
Another problem is the total disregard for small and medium enterprises (SMEs), though they’re the only way to provide jobs for the youth, open up investment fields for small producers, and unleash productive and creative energies.
Associations for small investors no longer have a presence; no support is extended to the Social Fund, there’s not one new law designed to resolve the problems of small investors, and no government support policy. Even the initiative to provide financing for the sector, launched last week by the Central Bank, will have no impact if it’s not matched by an integrated government policy to promote SMEs.
Finally, the state’s attention has been channeled into just one area: national megaprojects. We know little about them—nothing about feasibility studies, legal regulation, published information, or sources of funding, and there is no societal debate of their merits. but if they aren’t based on sound studies and funding, they could consume national savings or increase debt, commit the country to unknown obligations, or end in international arbitration. The people have a right to known the ins and outs of mega projects, but instead a gag order is placed on the Dabaa nuclear reactor project, as if it’s a terrorism trial.
Corruption in local authorities and red tape are not enough to explain this year’s severe deterioration in the investment climate and investors’ confidence. The real crisis is economic mismanagement, the lack of clear vision, and a dearth of transparency.
Questions raised months ago remain unanswered: is the state looking toward private sector growth or a reconstituted public sector? Is the goal integration in the global economy or more self-sufficiency? Is the state relying on market mechanisms or intervening to supply goods and services and control prices? Is it leaning toward a realistic currency price or trying to set the price of the pound? Does it want investment to grow through new enterprises or is it satisfied with revenue from fines and settlements? Does the state have a holistic vision for improving public services, controlling prices, and creating jobs, or just empty talk about social justice?
Investors large and small have raised all these questions, and the uncertainty only makes them more circumspect.
If this dithering continues in the New Year, it will make us more reliant on international loans and grants and squander the opportunity for economic development. Egypt must find its way—and fast—to a balanced, fair, sustainable policy to foster investment, distribute its proceeds, and unleash society’s energies in new fields.
Happy New Year to all.
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 Monday, 28 December.
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