The business and financial community awaits the Egyptian government’s economic plans to be revealed during the Sharm El-Sheikh summit to be held at the end of 2014 or early 2015. The plans are expected to involve procedures correcting Egypt’s economic path amid the government’s efforts to restore international and local market in the economy.
Egypt’s economy has struggled through years of stalled tourism flow, a decrease in local and foreign investments, and foreign companies’ suspending oil production. The downturn has thrust the country into the worst energy crisis it has faced in years.
Businessmen believe the government should reveal its plans to solve the energy crisis first through a timetable illustrating the future of the crisis and provide a number of solutions. The businessmen are also looking for a government deadline for ending the crisis before promoting new projects or offering new investment opportunities.
Additionally, businessmen encourage the government, while taking the above action, to improve the business environment by facilitating market entry procedures through “incorporation, operating licences, allocating land, and providing energy”.
They also requested that market exits be facilitated through “liquidation or bankruptcy” by reviewing all economic legislation to ensure the state’s rights, protect bona fide investors, and respect government contracts. These outlines would also limit fines resulting from international arbitration that the state budget cannot currently afford.
Al-Zorba requested that the government immediately review all economic legislation in order to facilitate market entry procedures and speed up exit procedures. The government should also expedite litigation procedures for investment disputes that arise between the government and the private sector.
During the economic summit, convened by Saudi King Abdullah bin Abdul-Aziz, the government plans to announce the amount of hard currency required for the Egyptian economy for its economic reform programme. T his would include the necessary investments that must be pumped into various sectors.
Economic policies remain deflationary and government must stimulate the economy: Galal Al-Zorba
Galal Al-Zorba, former president of the Federation of Industries, said the government’s economic policies have been deflationary. This comes at a time the economy needs a stimulus overcoming the challenges of a deepening budget deficit and inflated debt.
Al-Zorba added that “unemployment is growing, it is unforgiving while growth rates remain weak.”
He added that the government must stimulate all economic sectors and that the number of national projects currently proposed by the government, including the Suez Canal Project, are not sufficient.
“The Egyptian administration needs to speed up the processes finding solutions to the energy crisis, otherwise, Egypt will not move forward,” Al-Zorba said.
He emphasised that the economic summit, to be hosted by Egypt and set to involve development partners, will prove a good opportunity to announce plans on how to handle the energy crisis.
King Abdullah bin Abdul-Aziz had called for a conference to bring together friends of Egypt for donors “to help it overcome its economic difficulties”. He added: “All those who are able and capable but reluctant today meet this obligation, by the grace of God, have no place among us tomorrow if befallen by adversity and crises.”
Al-Zorba said: “The government should leave the private sector to invest in new and renewable energy sector by providing land and facilitating market entry procedures.”
He added that whilst the tourism sector continues to suffer, the government should help the sector’s companies become active once again by providing them with financing and restructuring their debts. These companies have incurred severe losses as a result of the state of lawlessness that have affected the sector and harmed the flow of tourists, he said.
“The tourism sector is one of the main pillars of Egypt’s economy but has been negatively affected by the state of political and economic unrest,” Al-Zorba said. He stressed the need to solve security and political problems in the short-term in parallel with economic reform.
“Agricultural manufacturing without exports is a solution that the government has to examine,” Al-Zorba said, who believes that Egypt has a promising opportunity to plant imported grains. He added that global grain companies post revenues even higher than that of weapon manufacturing companies.
Al-Zorba believes that the conference will prove an excellent opportunity for Egypt to rectify its political, social, and economic image in the finance and business community and with development partners. This will ease the flow of investments to various sectors and contribute to increasing growth rates and job opportunities, eventually boosting employment rates.
Although Al-Zorba described government policies as deflationary, he agrees with the majority of the policies and he believes that it was necessary to cut energy subsidies to ease the burden on the state budget. However, he also believes that these reforms must be accompanied by a range of social policies in order to protect the citizens from inflation.
“A speedy revival of confidence of the economy will accelerate the flow of foreign direct investment, which has plunged since the ouster of former president Hosni Mubarak,” Al-Zorba said, citing Central Bank of Egypt data. “Egypt used to attract $8bn per year in foreign direct investment.”
An economic road map to attract foreign capital to Egypt: Hussein Sabour
Hussein Sabour, the president of the Egyptian Businessmen Association, said Egypt’s economic woes are not new and began with the end of former President Hosni Mubarak’s rule.
“The Friends of Egypt Summit or Donors Conference, whatever the name is, grants the government the opportunity to announce its economic road map,” said Sabour. “This will allow for billions of dollars, Arab capital that has migrated out of Egypt to markets in East Asia and Europe due to a decline in risks, to be reclaimed.”
Sabour added: “There is no doubt that recent times were very harsh on the economy, but to be honest, this preceded the Muslim Brotherhood’s rule.”
Since the ouster of former president Hosni Mubarak in 25 January Revolution, the economy has suffered greatly due to a lack of political stability, the absence of tourists and foreign investors, and ongoing unrest.
Sabour said: “We now have a range of stalled projects, and some have been affected by poor economic conditions, especially construction and tourism companies among others…we do not expect the economy to repair itself in the same period in which it was harmed, but at least the business community will have the desire and the enthusiasm to foster a speedy economic recovery, reopen stalled factories, and supply Arab and international investments.”
Sabour praised the King Abdullah bin Abdul-Aziz for his call to hold a conference to assist Egypt’s economy. He also praised the role of the Arab League, which announced through Secretary General Nabil El-Araby its readiness to help prepare the summit.
King Abdullah made the call to convene the conference on the day Egyptian President Abdel Fattah Al-Sisi won the presidential elections. Several Egyptian officials have confirmed that Saudi Arabia and the United Arab Emirates have been preparing for this summit for roughly four months.
Additionally, a number of countries, such as Kuwait, Bahrain, Jordan, and Oman, have expressed their readiness to participate and held meetings to agree on the kind of support they can provide.
Sabour said: “The test is in how well thought out the economic road map is…on the political side, we are largely confidence, but, from an economic point of view there are still a lot of question marks.”
He stressed that a lack of security and political stability are the reasons behind the flight of foreign investors and the damaged local confidence that have prevented Al-Sisi’s roadmap for the future from being fully executed.
In light of worsening unemployment and deteriorating living conditions, more than 40% of Egypt’s total 87 million population lives on less than $2 per day.
An atmosphere of optimism prevails in the business sector, Sabour said, as he called on banks to help the business sector thrive once again, saying: “All we are asking is that banks help to finance new projects and reduce the bureaucracy so that we can catch up on what we missed.”
Economic “state of crisis” and solutions to energy crisis, restoration of international market confidence form challenges: Alaa Arafa
Alaa Arafa, a businessman in Egypt’s retail sector, said the Egyptian economy continues to suffer and is currently in a “state of crisis”. Arafa added that the economy must be stimulated in order to overcome the obstacles, and argued against the imposition of any new taxes on the business sector at present. He explained that these measures should be delayed until a minimum amount of economic recovery is achieved.
Public finances in Egypt have been hit hard due to a drop in tourism revenues, a weakening currency, and the exodus of foreign investors ushered in by the ouster of Hosni Mubarak in 2011. However, Arafa believes the solution lies in the government’s move toward developing urgent solutions to the energy crisis that is severely weakening the country.
“The donor conference, which was called for by the King of Saudi Arabia and of which the exact timing is yet to be announced, requires that the government exert a great deal of effort to revive confidence in the Egyptian economy and restore the confidence of international markets,” Arafa said. “These markets must be reassured that investment contracts will be protected, that they can enter and exit markets quickly, and that economic policy will stabilise.”
He added that although restoring this confidence represents a significant challenge, the current Egyptian government is capable of doing so.
According to government sources, Saudi Arabia and the UAE are coordinating with the various countries participating in the conference. The two countries are also working with international institutions including the International Monetary Fund (IMF), World Bank, African Development Bank, European Bank for Reconstruction and Development, and the Islamic Development Bank.
The UAE government has held several sessions with the IMF to discuss the possibility of its contributing to the conference by providing a loan to Egypt.
To attract more investments to Egypt, Arafa said: “We have to reassure the Egyptian investor before the foreign investor and work to create an investable climate. It is imperative that the government focus on problems of energy, industry, investment, and inflation.”
Arafa added that “foreign direct investment is still generally weak”, and according to government data, “foreign direct investment increased to $1.25bn between July and September 2013 from $1.16bn during the corresponding period in 2012. The figure for the 2013/2014 fiscal year (FY) amounted to $3bn, almost $1bn less than FY 2012/2013.”
Egypt requires $100bn infrastructure investment, energy crisis forms investment opportunity: Ahmed El-Sewedy
Ahmed El-Sewedy, head of Elsewedy Electric, said that Egypt is a strong country, and it is unnecessary for a country to be rich.
El-Sewedy said: “It will suffice just to organise and create a level-playing field for investors that protects citizens and the states rights’ in addition to guaranteeing the rights of the investor.”
El-Sewedy added: “Egypt requires investments worth nearly $100bn in the infrastructure sector for constructing and paving roads and building of water plants, power plants and sewage systems”.
There is no development, no employment, and no investment without energy, he said, adding: “[Since] the state does not have funds to invest, it must create a level-playing field for the private sector to produce energy.”
El-Sewedy further added that the government “must also review all economic legislation, especially legislation that facilitates market access measures, incorporation, licence issuing, and energy provision measures. This also includes expediting procedures to exit the market, whether this takes place in an optional manner through liquidation or compulsory through bankruptcy so long as it does not negatively affect any investor or freeze their funds.”
Egypt suffers from declining foreign direct investment due to the magnitude of debts and weak currency. However, billions of dollars poured into the country from the Gulf states have led to limited economic improvement.
El-Sewedy called on the government to quickly announce an energy tariff for its purchase of new and renewable energy that the private sector will produce. The government has allowed the private sector to invest in new and renewable energy within efforts to solve the energy crisis that has slammed Egypt since 2011.