Driven by the current financial shortfall, the Egyptian government has begun discussions regarding prospective public-private partnerships (PPP). According to officials, PPP are intended to catalyse infrastructure development, of which the country is in desperate need.
The Ministry of Finance launched the MENA Project Finance and PPP two day conference yesterday, under the patronage of Prime Minister Hesham Qandil, delineating the government’s short, medium, and long-term economic outlook.
“This conference summarises, in a simple manner, the Egyptian government’s social and economic philosophy,” said Minister of Planning and International Cooperation, Ashraf El-Arabi.
The Egyptian government’s new approach to bolstering infrastructure development and attracting more investments is premised on the concept of partnership between the private and public sector. “For a period of time, we relied excessively on the public sector, and for another period we reversed to private sector without setting the proper rules and regulations,” El-Arabi said. He added that relying solely on either and ignoring the other is bound to backfire, asserting that “only the collaboration between the two sectors could guarantee the achievement of economic growth as well as social justice.”
“The government may possess the capital, but it might not be the best manager for such capital,” noted Minister of Finance Momtaz El-Saeed.
He added that the exhausted state coffers cannot afford the state budget’s expenses; “it can only cover from 65 to 70 per cent of the budget’s expenses.”
The private sector has many advantages as opposed to the public sector; it is more flexible, swifter and more technologically innovative, said Minister of Investment Ossama Saleh.
A PPP is a contract between a public sector authority and a private sector party, where the latter provides a public service or carries out a project, assuming financial, technical, and operational risk. “The private sector is much more efficient than the public sector if regulated properly,” said Atter Hannoura, Director of PPP Central Unit at the Ministry of Finance.
Two main technical aspects should be addressed before carrying out any project under the PPP system, Atter explained. The first aspect of any pre-feasibility plan is called public sector vomparator, which measures the cost of the service provided by the private sector to ensure it doesn’t exceed a certain benchmark set by the public sector. It also involves reviewing the cost of construction, operation as well as the quantification of financial risk. The second technical aspect defines the structure of the project itself, what Atter dubbed as ‘risk allocation’ or the bankability of the project.
“Up to 15 projects are currently under PPP pre-feasibility studies,” Atter stated. These projects include infrastructure development projects including the Safaga Industrial Port, Rod El-Farag corridor, Shoubra-Banha highway, Ain Shams-10th Ramadan railway. The government is also planning projects in the fields of education such as the Nile schools as well as other medical projects.
Saleh referred to what he labelled a “tranquil transition to democracy” as a pre-condition for the success of the government’s plans. Egypt faces onerous challenges including the budget deficit, balance-of-payment deficits, and rising unemployment. “The government needs to employ its full potential in order to meet these challenges,” Saleh said. However, he noted that the government has no “magic stick” to solve all problems all at once.
El-Saeed disclosed that the government plans to increase investment to reach EGP 276 billion to achieve a growth rate of four to 4.5 percent during the 2012/2013 fiscal year. He added that, in the long-term, the government targets a seven to 7.5 percent growth rate in order to create the 750,000 jobs the country is in need of annually. In the same respect, El-Arabi referred to the utmost importance of boosting direct investments, asserting the correlation between investment rate and growth rate. “The current investment rate stands between 15 and 16 per cent, which is very low,” El-Arabi clarified, adding that the government aspires to boost this ratio to 65 per cent.