Growing exports have become inevitable for the next stage with the aim of increasing the nation’s foreign-exchange earnings and the state’s revenues as well as enabling the pursuit of reforms to the national economy.
Egyptian exports as a percentage of GDP do not exceed 13 per cent, while the exports of goods to GDP of countries such as Morocco, Vietnam, and Mexico stand at 35, 106, and 40 per cent, respectively. Egypt remains a laggard in export performance, ranking 129 out of 139 countries in 2020. This does not bode well for it to achieve its goal of $100 billion in exports in the next five years.
The war in Ukraine presents a grave danger to Egypt, since the food security crisis poses an existential threat to our nation. Russia and Ukraine are global players in the grain markets, and the Ukraine war increased the world price of wheat by an additional 44 per cent and the price of sunflower oil by almost 32 per cent overnight, both having a direct impact on prices in Egypt.
Egypt is the largest importer of wheat and among the top 10 importers of sunflower oil in the world, with 85 per cent of its wheat and 73 per cent of its sunflower oil coming from Russia and Ukraine. However, the improvement in the economic situation in Egypt during the recent years of construction gives rise to a measure of optimism, as the country enjoys a financial basis that is much stronger than it was ten years ago and prior to the 25 January Revolution.
The 2016 macroeconomic reforms undertaken with the support of the International Monetary Fund (IMF) led to tangible improvements in the economy. The country’s foreign-exchange reserves amount to nearly $40 billion, equivalent to six months of imports of goods and services. With the IMF additional agreement in June 2020 regarding a reserve arrangement of $5.2 billion to offset the negative economic impacts of the Covid-19 pandemic, Egypt witnessed GDP growth of 3.6 per cent in 2020, in contrast to the economic downturn that swept the countries of the Middle East and North Africa (MENA) region and other countries in the world.
However, the long-term solution lies in increasing the productivity of the economy and its competitiveness. There is a need to modernise the industrial and agricultural sectors, expand arable land, and boost regional and international trade. All of these require a business environment that enables competitiveness in conjunction with advanced technology and infrastructure. Significant progress in modernising infrastructure has been achieved. What Egypt requires today is a leap in export growth.
Egypt must begin by identifying the obstacles to export development and make profound changes in the structure of its export policy in order to achieve its goals. It needs to understand in advance that imports and exports are two sides of the same coin. Facilitating imports is critical to increasing exports, and hampering imports is detrimental to exports, as many exporters have recently complained.
One of the prerequisites is a coherent set of policies to stimulate exports. To this end, inter-agency coordination and consultations with the private sector, particularly prior to the issuance of regulations or fees and charges that affect both exporters and importers, are necessary in order to make the country’s polices consistent and align them in order to achieve the $100 billion export target.
The shaky trust between the government and the private sector affects consent to a clear roadmap targeting an increase in exports. Moreover, many of the government’s stimulus policies for the private sector have had severe shortcomings, undermining these incentives. For example, export support funding and temporary admissions are given with the right hand, only to be retrieved again with the left through a reluctance to pay back dues, requests for complex documentation, higher fees and charges on imports and exports, unpredictable changes in policies, and complex export and import procedures.
Streamlining export and import procedures to attract new exporters and help expand existing ones should be an integral part of Egypt’s long-awaited export strategy.
This gap in trust between the government and the private sector has appeared in the latter’s reluctance to pump in new investment and the general slowdown of the private sector in exporting. A report issued in 2020 by the International Finance Corporation of the World Bank entitled Creating Markets in Egypt showed a decrease in private investment, where the number of exporting companies does not exceed nine per cent of manufacturing companies.
Industry and the private sector in Egypt appear to be satisfied with the relative attractiveness of the domestic market, avoiding the hurdles of export and import procedures. This needs to be promptly reviewed.
Egypt, like its counterparts, must compensate for long border inspections with two new measures: more efficient and effective market surveillance and the introduction of risk management. This has become a systematic necessity for countries that want to take their rightful place in the multilateral trading system.
These two measures will speed up and improve the level of customs control, which is necessary for both imports and exports. It is time to realise that increasing the state’s revenues does not mean raising tariffs or banning imports, forcing exporters to abandon exports due to cumbersome and costly procedures, but on the contrary means facilitating and supporting their way to export.
This can only be achieved by striking the right balance between maintaining government revenues and securing borders and the safety of citizens, on the one hand, and facilitating trade, on the other.
What Egypt needs most are long-term goals with consistent and continuous policies and regulations, as its focus too often has lain in the use of short-term policies to confront imminent problems. Any change in government is often followed by an update of policies and strategies that are not necessarily more appropriate but are different and often contradictory to the preceding ones.
In addition, there is a fundamental need for the government to gradually step back from being a major operator of business and commit itself to its role as a provider of a regulatory framework, the issuer of regulations, and the enforcer of their application when they are breached.
While government intervention has been necessary to take proactive steps in the economy over the past few years, whether for security purposes or to make a leap in the development and modernisation of infrastructure, it is time to unleash the power of the private sector to make a leap in exports to achieve the $100 billion target.
The writer is a former adviser to the minister of trade and industry and chief trade negotiator.
*A version of this article appears in print in the 7 April, 2022 edition of Al-Ahram Weekly.