I am sorry to say that despite officials’ nods to the importance of investment and the need to increase it and improve its climate, Egypt today does not have a clear investment policy or even an overall economic vision, as evidenced by the continued execution of plans and programs that have proved unsuccessful over the past two years.
The result is persistent poor rates of investment, productivity, employment, and export. Investors have refrained from increasing their involvement in Egypt even though the low price of the pound offers opportunities to establish new enterprises or acquire existing assets and businesses. In my view, several factors explain this disarray in investment policy.
The first is the absence of a clearly articulated economic policy, demonstrated by inconsistencies in the government program presented to parliament in late March, the draft budget submitted this week, and sectoral policies adopted by various ministries. These do not make it clear whether the state is pursuing an expansionary policy or austerity, relying on private or public sector investment, prioritising social justice or higher growth, or aiming to attract multinational corporations or encourage national small and medium enterprises.
Moreover, government officials make contradictory statements on vital issues, like the sale of shares in state-owned companies, anticipated tax policies, deficit funding, and legislative reforms. This ambiguity in economic policy damages and hinders economic development because while investors, large and small alike, can adjust to defined rules and absorb known costs, they cannot plan for the future amid uncertainty.
Second, the state, including engineering divisions of the armed forces, is playing a greater economic role absent of any defined rules and adequate transparency. Though in principle, I’m not opposed to state intervention, especially when it plays a developmental role or provides goods and services that the private sector cannot provide or that must be protected from exploitation, today the state intervenes in matters large and small, crowding out the private sector even in areas where the latter enjoys relative stability or where productive capacity outstrips current demand.
This suggests worryingly that the state is motivated by a desire to control rather than by specific economic and social policies. Intervention of this type may further hamper existing capacities, erode competitiveness, and threaten the closure of factories and the future of workers.
Third, current policies are leading to increased foreign and domestic debt, which carries risks of inflation and places a heavy burden on future generations. According to the draft budget submitted to the parliament, public debt will reach LE3.1 trillion, or the equivalent of what the national economy produces in one year. The government is targeting a deficit of LE318.5 billion, or 9.8 percent of GDP, to be funded by additional loans. Foreign debt, too, although within safe levels according to international standards, at 16.5 percent of GDP, has increased in just two years by 14 percent, and this is without including the anticipated debt for the Dabaa nuclear plant and spending for projects this year. This should sound the alarm.
Fourth, megaprojects continue apace. Some, like development of the Suez Gulf region, may be urgent and beneficial, while others, like the new administrative capital, are not pressing. But the details of most are vague and there is little transparency on their funding sources, ownership model, and economic and social benefits.
Meanwhile, society is urgently in need of investment in education and health, the development of existing cities and informal areas, and improved public services needed by citizens, such as public transportation, sanitation, and irrigation. The state is channeling its attention and limited resources into new megaprojects that may have some long-term benefit, but are not an urgent priority now.
Fifth, the hardships of investors, especially small investors who are not the focus of state and media attention, are ignored, from red tape to extortion, threats, and exploitation by local authorities and dozens of government bodies that hinder economic activity, interfere in matters that don’t concern them, and waste the energies and efforts of those seeking to work and produce.
Talking again about amending the investment law, which was corrupted by amendments introduced in March 2015, is futile as long as the state continues to ignore investors’ real problems, primarily an unstable currency market, prolonged litigation, unclear investment rules for various activities, and the difficulty of obtaining land.
We’re facing a difficult, dangerous economic situation. The only thing keeping the economy afloat—producing and providing resources and revenue—is the informal economy that has flourished in recent years, but in the long term it cannot achieve fair, sustainable economic development.
It’s time for the state to reconsider priorities and open the door to dialogue and cooperation with the private sector, investors’ associations, parties, trade unions, syndicates, universities, and other social forces. And it must learn to manage their conflicting interests to begin to pull out of the present predicament.
*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, 27 June.