2022 Yearender: Economic signals to the private sector

Ahmed Abdel-Hafez, Saturday 31 Dec 2022

The war in Ukraine has underlined the urgency of greater private sector participation in the economy.

The Economic Conference
The Economic Conference, held in October, was meant to address the challenges facing the private sector the government will remain involved in infrastructure projects


Economic experts and international financial institutions have been stressing the need for greater private sector participation in Egypt’s economy to ease the pressure on public finances and promote job growth to cement the gains realised from the economic reforms launched in 2016.  

A “less heavy footprint of the public sector in the economy, especially in business and commerce, to clear room for the growth of the private sector and to relieve entrepreneurs from the unwinnable matchup of competing with the public sector” is necessary, David Lipton, first deputy managing director of the International Monetary Fund (IMF), said in May 2018 when an IMF mission was conducting its third review for the $12 billion loan programme it granted Egypt in 2016.

Fast forward four years and in spring 2022 the government pledged it would make more room for the private sector. This time however, it was more urgent as Prime Minister Mustafa Madbouli said the war in Ukraine was posing the “worst crisis since the 1920s” for Egypt’s economy.

 Madbouli said increasing private sector investments in the economy to 65 per cent in three years, and up from a current share of 30 per cent, was targeted. He said the government intends to attract $10 billion in investments over the coming four years through policy incentives, improving the business environment, better communication with the private sector, and offering a variety of state assets to private investors.

Egypt received $5.9 billion in foreign direct investments in 2020. Although this was around 35 per cent lower than the $9 billion received in 2019, the country was still the largest recipient in Africa, according to the UN Conference on Trade and Development’s (UNCTAD) 2021 World Investment Report.

The government is aware that the global crises caused by the Covid-19 pandemic and the war in Ukraine will linger on, increasing the suffering of the developing and poorer nations, Moetaz Mahmoud, chairman of the Industrial Committee of the House of Representatives, the lower house of Egypt’s parliament, told Al-Ahram Weekly.

For this reason, it has been developing the role of the private sector in the economy and studying the obstacles that it may be facing. This is also one of the reasons it has embarked on structural, monetary, and administrative reforms. However, pressure on the general budget due to the need to finance subsidies and social protection, coupled with the global crisis, has pushed the government to look for short-term plans to support the economy amid the current international challenges, Mahmoud said.

Amr El Samadony, a member of the Egyptian Chamber of International Transport and Logistics, said that for the past three years the government has been supporting the private sector and expanding its participation in the economy with a view to improving growth rates. The move has been part of its economic reform programme and has included the establishment of Egypt’s Sovereign Fund (ESF).

The trend has been accelerating since early 2022 with the increasing pressures on global trade due to the Ukraine war, he said, adding that the ESF was founded to accelerate partnerships with the private sector and facilitate the sales of state-owned companies through fair evaluation processes with the participation of international consultants.

Mahmoud said that the government has resorted to quick solutions because the plan to improve the investment climate needs long-term reforms, including issuing a unified law for industry that requires years-long reviews of industry-related legislation, some of which dates back to the 1960s. 

It also requires the development of an industrial map containing accurate and updated data and the scientific monitoring of natural materials and industrial capabilities, he added. 

The government has ordered the expansion of the golden license scheme to industrialists in order to facilitate initial procedures. It also directed the cabinet’s Information and Decision Support Centre (IDSC) to conduct a dialogue on the State Ownership Policy Document (SOPD).

This is meant to introduce the private sector into government plans for investments in each sector and its plans to exit from fields such as food, packaging, and the nutritional supplements industries, as well as Nile and marine fisheries, according to a statement on 30 November.

Following the dialogue on the document, a set of recommendations emerged, including the holding of the Economic Conference in Cairo at the end of November. The conference issued 170 recommendations that President Abdel-Fattah Al-Sisi said should be closely followed up.

Mohamed Anwar, a member of the Chamber of Food Industries at the Federation of Egyptian Industries, believes these moves have constituted the beginning of the gradual exit of the state from sectors that it ventured into in exceptional circumstances. He added that the period from 2011 to 2014 had seen a fragile economy, currency instability, and plummeting direct and indirect investments. Political instability had also pushed local and foreign investors away from Egypt.

This had led the government to intervene directly in the economy to produce and make available some commodities and services in order to bridge the gap in investments from which the private sector had pulled out or had not expanded as required to meet the increasing demand resulting from rapid population growth, Anwar noted.

The state had directed many of its investments to the commodities and services sector and at the same time had launched projects to improve the infrastructure and generate the job opportunities that the private sector had been expected to create, he said.

Expert discussions on the State Ownership Policy Document were the cornerstone of government plans to approach the domestic and foreign private sectors at a speedier pace, Anwar said.

In early December, Madbouli said the final draft of the document was approved, and it will now be submitted for ratification to the president. He said that the document lays out a framework for the relationship between the state and the private sector in the economy as a whole.

One question now is whether the document will be a strategic document intended to guide policy decisions or whether it will be translated into legislation. El Samadony said he would prefer to see the document translated into legislation as this would be binding on future governments and would encourage investments as such legislation would protect investors’ rights.

Anwar said that converting the document into law would express the goals of the state for the years to come and set out a clear legislative framework for foreign investors who wish to venture into the Egyptian market. Such investors had the right to be fully aware of the laws they would be subject to, he added.

The partnerships and offerings in state-owned companies that the state will implement as part of its policies to encourage the private sector should be legislatively sound in order to attract more investments from regional and international markets, Anwar stressed.

Mahmoud, however, said that the issue was not so much to do with the form the document will take as much as it is about the will of the government to implement its goals. He believes it is important to avoid the mistakes of previous governments and to evaluate assets fairly in order to attract the private sector.

To avoid problems that occurred following the 25 January 2011 Revolution, when lawsuits were filed to reverse some sales and acquisitions, negatively affecting some foreign investors’ confidence in the stability of the Egyptian market, there should also be legislative immunity, Mahmoud said.

El Samadony added that the State Ownership Policy Document is not a magic wand that can attract investments and encourage the participation of the private sector. It clarifies some 50 per cent of the legal issues that may face investors, but even if the state remains in strategic sectors and those that need large amounts of capital to meet production requirements, there will remain the issue of the efficiency of the administrative bodies charged with making decisions, he said.

It will be important for monitoring and other entities to issue licences and operations orders in a way that minimises bureaucratic burdens, since these represent the remaining half of problems stymying the expansion of the participation of the private sector, El Samadony noted.

*A version of this article appears in print in the 22 December, 2022 edition of Al-Ahram Weekly

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