Ziad Bahaa-Eldin, an attorney-at-law, is a former deputy prime minister and minister of cooperation and former chairman of the Egyptian Financial Supervisory Authority, as well as former chairman of the Egyptian General Authority for Investment and Free Zones.

He was also a senior legal adviser and board member of the Central Bank of Egypt (CBE) and a member of the board of directors of the National Bank of Egypt, in addition to being the founder and member of the board of directors of the Ahmed Bahaa-Eldin Cultural Foundation, which promotes education, training, and creative thinking among young people in Upper Egypt.

With more than three decades of hands-on political and economic expertise at his fingertips, Bahaa-Eldin spoke to Al-Ahram Weekly about economic policymaking and political dialogue.

How has the war in Ukraine changed the global landscape politically and economically?

The war in Ukraine is exceptional compared to other armed conflicts that the world has seen over the last few decades. Although there was already tension between Russia and Ukraine, and although Russia had taken military action in areas around Ukraine, the Russian decision to invade Ukraine in February was nevertheless a surprise. We expected Russia to take some measures such as sanctions, or a limited military intervention, but an all-out invasion was unexpected.

I don’t think we expected the US or Europe to support Ukraine to the extent that they have or for the Ukrainian resistance itself to be so effective. When Russia invaded Ukraine, I don’t think anyone expected this level of the drawing out of Russian resources, and as a result it has become a much more prolonged conflict and a much deeper one than was expected when Russia invaded.

A third element that was also unexpected was the initial European position in facing up to the Russian invasion. Europe had not been active collectively for a long time with respect to international issues, but this was an occasion when Europe showed a lot of unity, especially in the initial phases of the invasion. Maybe this is now beginning to change, but certainly in the first few months this European unity was another unexpected element.

From an economic point of view, the impact of the invasion on the world economy was devastating. Ukraine is a major exporter of grains, wheat in particular, as well as of vegetable oils, machines, and semi-manufactured products, and therefore the exit of Ukraine as an exporter from world markets was very much felt.

Another impact, especially for a country like Egypt, was the disappearance of Ukrainian tourism. And a third direct economic impact was Ukrainian migration. Suddenly, Ukraine turned into a country whose population was fleeing, adding to the pressure on Europe in terms of unemployment and the welfare requirements of millions of people.

The indirect consequences, [which are much more important], are that the invasion has put the world into a state of insecurity, instability, and unpredictability to a level that we have not seen since the Cold War. This is very much what has been determining the psychology of the world from a geopolitical point of view.

What will the lasting effects of the war be?

It will mean that fundamentally Europe will remain a much more unified continent than it was before the war, even with differences now emerging, especially with respect to energy policy and the importation of gas from Russia. It will certainly encourage the production of alternative energy. The dependence on Russian gas is something that the world will try to move on from, and this will also apply to other things, not only with respect to energy, but certainly also with respect to wheat production.

For example, Egypt has plans to increase its production of wheat, and there are other plans being introduced around the world. The most profound change, [because of Covid-19 as well as the war in Ukraine], will be the tendency of the multinational companies to diversify their production around the world so as not to be dependent again on one location.

What are the lessons for Egypt from the war?

One of the lessons is to be less dependent, especially for wheat and oil, on one or two countries, whether by upping local production, or simply by having a system in place that can import from a wider range of countries. This is already happening, and it’s a lesson that has already been learnt. The same thing is true of tourism. The number of tourists visiting Egypt this year seems to be better than during the last three years, so we are managing to attract more tourists without a reliance on Russia and Ukraine.

The lesson that we should learn is related to the industrial countries wanting to diversify their production around the world. This is an opportunity for Egypt to attract industries, especially from Europe, that are either becoming very expensive because of the price of energy and inflation, or in which European companies need to diversify more and have production locations in more than one region. I think the opportunity for Egypt to attract European industry is enormous; it is at a level we have not seen before, but unfortunately I do not see us working strategically to benefit from it. I fear that if we do not capitalise on this opportunity very quickly, it might be taken by other countries in the region.

What steps would you suggest to capitalise on this opportunity?

The first step is to find out, to research, and to identify which industries are ready to cross the Mediterranean and move southwards. We are still talking about attracting investment in general and not targeting anything in particular. The second step is to form the kind of task force that is needed to go and talk to these companies in their homelands and make a case for Egypt to become an alternative location of production. Once the appetite is in place, we need to get ready with the right package of incentives to show them that we are genuinely offering something exciting for them.

What are the industries that Egypt has the potential to attract?

In today’s world, we have to rely on professional, top-notch research and expertise to be able to identify these. My guess is as good as that of any other observer: automobile parts are probably a good fit for Egypt, as well as some of the heavy industries that are migrating from Europe and some data centres and data-storage and back-office operations. We need real expertise, people who spend their life doing this type of research, to tell us very specifically what Egypt can do, what industries to try to attract, and the countries to go to talk to with what kind of incentive packages.

The Egyptian economy is currently in crisis. How do we put it back on track?

There is no doubt that the war in Ukraine has impacted us very badly, but it’s very important to recognise that some of our policies needed to be corrected even before the war broke out. What I am referring to is our failure to attract enough private investment over the last five years. In 2016, we made an agreement with the International Monetary Fund (IMF), and we devalued the currency dramatically. When you devalue the currency, you are creating the conditions for attracting investment. But if you do not do what is necessary to attract investment, you will end up paying the price twice. You pay the price of the devaluation, which brings inflation, and you pay the price again because you will not bring in the investment that could have been brought in by reform and a structural adjustment programme.

The result has been that a few years after the IMF agreement and even without the Ukraine war we had not attracted enough investment and our currency was suffering. When you have a programme with the IMF, which I personally think is necessary, and when you devalue the currency to reach a realistic price, the only way to avoid falling into the same trap after two or three years is to do everything necessary to attract private investment. If we do not encourage private investment to grow in the next few years, we will fall into the same position again sometime in the future.

Why is an agreement with the IMF necessary?

Because when you reach a point where the currency is in this state of speculation, you need to realistically price it by floatation. But floatation itself does not get you out of trouble; if there is no conviction that the price is credible, you will continue to chase the price all the time, which is what is happening now. The price of the dollar on the black market has gone way above its economic value because there is no conviction that we are at a credible point.

What happens when you have a package from the IMF that includes certain measures to do with monetary policy, fiscal policy, structural adjustment, and with increasing the role of the private sector and of other organisations is that you create an environment of credibility that allows investors and ordinary people alike to say that we seem to be at the right point. Without this protective environment, it will be very difficult to convince people at home and abroad that there is a credible track for the future.

We have to rely on an agreement with the IMF because we need international support. That international support will not come without the credibility and comprehensiveness of an IMF programme.

The government has taken steps to encourage investment. Are they enough?

There has been a lot of effort put in recently [to attract investment] such as the State Ownership Policy Document, the Economic Conference, the proposed reduction in income tax, the proposed golden licence, and the re-composition of the higher committee for investment. There has been a lot of effort, but I fear that this is not enough because sometimes we make efforts in addressing the wrong problems.

When the government says it is reducing income tax in certain fields, or reducing the minimum capital requirements for companies, these are not the problems that investors are worried about, so it’s a pity to put efforts into measures that are not effective. What investors are looking for is a stable currency, a stable overall environment where the rules do not change, and clarity about the role of the state in the economy. The only way to do this [respond to investors’ priorities] is to engage more with the private sector.

This year the state has said it plans to allow greater room for the private sector and has launched discussion around the State Ownership Policy Document. What criteria determine whether the government should stay in a certain sector or quit it?

I do not advocate a dramatic exit of the state from economic activity. I do not think this is realistic or feasible or the right policy. In a country like Egypt, the state must continue to play a role in the economy in strategic industries, [such as] military production or certain forms of technology. There are also social projects that might be not very profitable or only profitable over a long period of time and that do not attract investors and yet are needed by the poor. There are also sectors where the state plays the role of a catalyst and where the private sector needs the state to start something in order to allow others to come in, for example infrastructure.

We need the state to continue to be a player in the economy, but we also need to determine which sectors it should be in. More importantly, we need clarity; the moment we tell the private sector this is our policy, and we will abide by it and not change it for the next number of years, everybody will be happy.

How do you evaluate the sale of stakes in high-profile Egyptian state-owned companies to Gulf investors?

We have to be consistent. If we are advocating investment, we have to welcome all private-sector investment. The fact that there is some investment coming out of the Gulf should not be a cause for alarm. Unfortunately, the sale of some of these companies happened at a time when their value was much lower than it was two or three years ago. If we had had a programme five years ago whereby the private sector was encouraged to buy assets, we would have been able to sell assets at a much better price, rather than now have to sell them under pressure because of the currency crisis.

We should not be so dramatic about the sale of some assets. Our reaction instead should be to encourage new ones to replace them. When you sell an asset to a foreign investor, this is a great incentive to do it again. [We should be focusing on] what we are doing to encourage the recreation of similar assets, so that we will continue to grow and sell more assets each year.

How do you view progress on the National Dialogue?

Any opportunity to open political discussion should not be missed. Irrespective of our assessment of the outcome, participation and engagement are important. The people willing to engage in the dialogue are doing the right thing, whether they are individuals or represent parties or institutions, because as long as the dialogue is there, we have to continue to be ready to engage with it.

However, I worry that it is taking too long and that the pace seems to have slowed down in the past few weeks. This pace must be maintained, not only for the outcomes that will be produced, but also because it is extremely important to keep public opinion hopeful that the dialogue will lead to something. If the public loses faith and thinks that this will not yield results, it loses a lot of the benefits. I hope the dialogue will come back at a much more convincing pace so that we keep public opinion engaged.

On the economic front, there is some overlap between this dialogue and what started in the Economic Conference in October. The conference results should be pursued and continued as a trajectory to resolve short-term problems and deal with the issues we are suffering from now, with more emphasis being placed on issues such as attracting foreign investment and stabilising the currency. But the National Dialogue on the economy should be more concerned with trying to set out a longer-term vision for what kind of economy Egypt should have.

On politics, the engagement itself is sometimes the outcome rather than any concrete results. To be able to create an environment of trust and dialogue and the exchange and acceptance of ideas between the government and civil society and the opposition — that process in itself is really the gain.

How do you evaluate the social-support programmes that the government has launched in recent years?

Some of the policies and programmes launched by the state over the last six or seven years have been groundbreaking. The ones that I commend particularly with no hesitation are the Takaful and Karama programmes and the medical programmes, especially the 100 Million Health programme that tackles issues such as diabetes and Hepatitis C. In the same category there is the Haya Karima (Decent Life) initiative, except that this happened a bit late, and I hope we have the resources to complete it. But as an idea, it is very good. I would also include, although I have not yet felt an impact, the Universal Health Insurance system.

These five things, if implemented correctly, could change the face of Egypt and of poverty in Egypt. I think they should be given the utmost priority. Takaful and Karama are already functioning very well. If the Decent Life initiative and the Universal Health Insurance work in the same way, they will be breakthrough contributions to the social map of Egypt. I hope to see a greater focus of resources on these programmes because they are very much worth it.

To what extent are you worried about the size of Egypt’s debt?

Debt is a problem for Egypt, there is no doubt about it. Both domestic and international debt are a serious constraint on growth. Domestically held debt can fortunately eventually be paid off by inflation, but international debt is a different matter. The government’s response is that compared to GDP the size of the debt is not more striking than that of other countries of similar size, but my concern is the pace at which the international debt has grown over the past five years. This acceleration is alarming because if it is not checked now, it will become [a problem] sooner or later.

However, reducing the debt is a very modest option. What is much more important is to grow the economy, because debt has no significance except as a percentage of the economy. You can spend the next 100 years trying to spend less, but this will achieve nothing. Let us focus on growing the economy, and then the debt will shrink relative to the size of the economy. We must give all our attention to private-sector investment and growing the economy.

How has the war in Ukraine affected Egypt’s foreign relations?

A country like Egypt has to be flexible and has to have options and open channels in different directions. Overall, and not only with respect to the Ukrainian crisis, if we consider how Egypt has placed itself on the international scene over the past seven to eight years, I think we have done extremely well by being able to open channels in various directions and by always having options, so that when one channel is closed, there is always another one that is open.

Continuing to pursue a policy of international relations that is flexible and adaptable and open to different directions has been the best policy so far, and I hope it continues in the future.

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