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Stimulating the private sector

New policies are needed to stimulate the private sector in Egypt, allowing it to present new business initiatives endorsed with specific deliverables

Mohamed Nosseir , Friday 17 Jan 2020

“We only buy used cars below their fair market price so that we can then resell them for either a modest profit or a huge one,” declared one Cairo car dealer, underscoring the dynamics of the Egyptian market for used vehicles. In Egypt apparently, trade, which revolves around profit and loss, is often driven by a magnified profit approach – at least for a segment of the business community. 

Many large Egyptian enterprises have been spoiled for decades by engaging in business opportunities that are profitably secured prior to the creation of a single business transaction. This business model naturally qualifies them to acquire adequate bank loans and empowers them to manipulate their industries. Yet, this flawed business structure advances only a few enterprises at the expense of the wider economy and inhibits new investors from entering the market. 

Meanwhile, the government tends to apply a very static economic policy that might appear to be fair but that in reality does not stimulate well-performing business enterprises to excel or allow newcomers’ innovations to be valued. Applying this same policy to all enterprises equally has led to the wasting of our resources on businesses and entities that are draining our economy.  

The government therefore needs to reshape its industrial policy, providing tailor-made goals to advance distinctive industries and allowing the private sector to present business initiatives that are endorsed with specific deliverables. The government should work on only incentivising industries that add value to our economy or export-oriented firms. The policies needed to boost the textile industry might be completely different from those required to advance processed food manufacturing, for example.

The bureaucracy also constitutes a significant obstacle to all enterprises in Egypt, and we should privilege proficient firms by allowing them to bypass our harsh bureaucracy. For instance, companies that have been paying taxes steadily and have not been accused of any major business wrongdoings should be subjected to fewer bureaucratic checkups. Meanwhile, the government needs to ensure fair competition among all enterprises by providing accurate and transparent market information.

Many people nowadays are obsessed with the retail business, which is a very low-risk business that is of little added value to our economy. The loose regulations applied to this business have prompted many investors to move from manufacturing into retailing. Obliging Egyptian retailers to apply e-finance to all their transactions would give the government a higher tax revenue.

Egyptian banks also apply a rating score to companies that is determined by their ability to pay their debts on time. Importers who are familiar with the market dynamics can easily obtain a bank loan, make a decent profit, and pay back their loans. While this is a successful formula from a banking perspective, it adds nothing to our economy and drains our hard currency reserves. Meanwhile, when a producer who employs thousands of workers defaults on his debts due to a market slowdown, he is subjected to harsh banking measures. 

Moreover, prior to earning any revenue, new manufacturers are often burdened with many unforeseen expenses (such as purchasing land and machinery, paying for utilities and insurance, etc.). The government could incentivise these investors by providing land and utilities to be paid for after a grace period interest-free – and even forgive these government liabilities in case of project failure. 

Most of our industries are not very competitive, but we tend to be “greedy” nevertheless in attempting to tap into each one. For example, it is now too late to manufacture an Egyptian passenger vehicle, as numerous other nations surpass us in this. We must give up on less-promising industries and place our resources and energy in industries that offer us better returns on investment. 

Egypt has a competitive edge in the international call-centre industry, but a recurring weak point is the scarcity of young employees with a good command of foreign languages. The government could incentivise this industry by offering free premises and tax exemptions to academic centres that provide language courses. 

An enterprise that is able to run a marathon should not perform in the same track that is crowded with crawling firms! Egypt’s true economic challenges revolve around people, policy and productivity. The government needs to apply suitable economic policies that will maximise our productivity and be managed by people who know how to better engage and stimulate the private sector.

The writer is a liberal politician. 

*A version of this article appears in print in the 16 January 2020 edition of Al-Ahram Weekly 

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