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Informal economy wastes billions of pounds: EBA secretary general - Daily News Egypt

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Informal economy wastes billions of pounds: EBA secretary general

Activation of partnerships between private and public sector became necessary

Amr Allouba, secretary general of the Egyptian Businessmen Association (EBA) and chairperson of the board of Engineering Consultants Group (ECG), said that Egypt’s economic situation is critical due to the high budget deficit. It requires immediate actions to amend the economic situation and adjust the investment climate to attract more investors.

Allouba added that the state’s expenses continue to increase without real development in revenues, which is evident in the worsening budget deficit estimated at EGP 300bn, even after cutting the allocations for energy and electricity subsidies. There are still fixed pillars in the state budget, such as the wages of nearly six million employees, estimated at EGP 200bn per year. This requires a review of the structure of state employment.

He continued that the gross public debt has reached EGP 2.37bn by the end of 2015, nearly 100% of GDP. However, there are other economies in which debt reached significant levels and that this functions well regardless, such as Great Britain, whose debt equals four times its GDP.

Allouba pointed out that the government procedures for the issuance of licences are still slow, affecting the investment climate. In addition, there are several exchange rates for the US dollar in the market, and this situation prompts the state to increase government investment to compensate the low foreign direct investment estimated at $6bn annually, while the government had targeted foreign investments of about $10bn.

He continued that the state should adjust the investment climate, noting that investors are waiting for more improvement and a unified exchange rate, which would allow them to set up their investment plans.

He further noted that the government should review the Investment Law, so as to unify the entities that can issue land approvals and project licences, in parallel to a stable tax system.

Allouba said that the loan from the International Monetary Fund (IMF) will help the government in bridging the gap between expenditures and revenues in US dollars, enabling it to manage the dollar crisis and implement the economic reform programme. The programme includes addressing the budget deficit, which is the centrepiece of the ongoing negotiations between the government and the IMF.

He added that the government should implement quick procedures to restore the activity of tourism, being the most important resource of US dollars.

He pointed out that the government should develop the $395bn-strong informal economy, because most of its economic and commercial activities are not registered, which negatively affects the formal economy. If the government managed to organise these informal activities, it would expand its resources rather than depend on foreign loans.

Allouba said that only 8% of real estate in Egypt is registered properly, and 82% of commercial and industrial companies are not registered. The actual real estate growth is estimated at double the registered data, as the value of housing and land ​​in Egypt reached about $347bn. He called on Egyptians to change their culture of documentation, as most buying and selling activities are conducted in a customary manner, wasting state resources.

Allouba pointed out that the integration of the informal economy in the Egyptian economy preserves the right of the poor and provides legal protection for these commercial activities. He noted that the organisation of the informal economy does not mean applying more taxes, but it would facilitate the administrative and financial procedures.

Allouba noted that the licensing procedures of a bakery in Egypt takes two months and requires a lot of money, which prompts the people to operate informally.

In regard to the problem of street vendors, Allouba suggested to establish a strategy to recognise them and provide them with needed facilities. He said that the Egyptian government has to present less expensive contractual formulas which preserve the rights of the poor and encourage them to register their commercial activities and property.

He explained that informal traders deal with suppliers of raw materials without issuing bills or paying taxes.

He added that the government tends to ignore the informal economy, while the parallel economy is more profitable than the formal economy targeted by the labour force.

Allouba suggested a long-term strategy to stop the informal economy through providing technical and scientific facilities.

Regarding the Ministry of Electricity’s decision to handle arbitrations of its agreements with solar and wind energy investors in Egypt rather than abroad, Allouba noted that international financing institutions—such as the International Finance Corporation and the European Bank for Reconstruction and Development—do not accept the local arbitration clause.

On the other hand, Allouba said that the application of the value-added tax (VAT) will add new burdens on investors and citizens. He pointed out that the VAT will create more obstacles for investors and increase prices, rather than provide incentives for investors and ease the pressures faced by ordinary citizens.

He pointed out that the return of the VAT ranges between EGP 20bn and 30bn, while the state budget deficit in the current fiscal year reached EGP 320bn.

Allouba said that tax evasion is estimated at EGP 60bn a year, in addition to about EGP 70-100bn of recoveries and non-cash tax adjustments. If the government created suitable mechanisms to collect taxes and trap tax evaders, it would reduce the budget deficit to less than 10% of the GDP.


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