The Egypt Economic Development Conference (EEDC) was held from 13 to 15 March 2015 and achieved results that surpassed all expectations, not only from an economic perspective but also from a political one.
From a historical perspective, the conference could be described as similar, in importance, to that of the Bretton Woods Conference and the United Nations Conference on Trade and Development (UNCTAD).
Among the conference results were the international community’s political support for Egypt’s leadership, the country’s security and stability, the reformist mindset of the government, restoration of the confidence of foreign and domestic investors and, finally, recognition from international organisations, including the International Monetary Fund (IMF), of the sound policies that Egypt says it will pursue in future.
Before convening the conference some ministers expected the potential investments to come to around $12 billion, but what was achieved on the ground surpassed all expectations. The total finalised investments and aid packages in fact reached $60 billion, and the total investments will reach $175 billion if all the promised plans turn into actual projects.
The minister of planning has said that Egypt needs $60 billion in investment over the coming five years. The conference will provide three times what the minister has asked for over a shorter period.
If we put the political support voiced in speeches made by the attendees aside and evaluate the strategic economic achievements of the conference, it is clear that electricity sector investments are a major strategic outcome. Giving due attention to this sector was a far-sighted decision by the government.
Total investments expected in this sector are $37.85 billion, made up of $10.5 billion from Siemens, $12 billion from British Petroleum, $15 billion from Masdar and ACWA Power, and $350 million from Dana Gas.
While the electricity sector is the motorcade that pulls all other sectors behind it, another sector that attracted huge investment was construction, particularly the decision to build a new capital at a total cost of $45 billion.
Nearly $83 billion in investments in electricity and construction are expected to be contributed to the public budget, sending important signals for the future. The first message is that reducing the burden on government resources will achieve two goals at the same time: narrowing the budget deficit and enabling the government to direct more resources to basic services such as health and education. The second message is the free-market mindset of the government in directing private investments towards activities that serve the public policy of the state.
It was noted that the industrial sector did not receive much attention at the conference, despite it being the most important sector in the economy in terms of job creation, technology transfer and value-added generation.
It is high time that we thought more about industrialisation, and the EEDC was a historic opportunity for the government to play the role of the capitalist state by injecting more money into the public sector and underutilised production capacities.
INVESTMENT INCENTIVES: The conference emphasised incentives for foreign and domestic investors. Egypt is aware of the value of an open economy and competitive marketplace, and therefore it considers competition to be a part-and-parcel component of its economic development.
In this regard, the government has established a solid basis for integrating with the global economy by observing the rules of the world trading system as managed by the World Trade Organisation (WTO).
In order to help create a competitive environment, the government has established the Anti-Dumping, Subsidy and Safeguarding Agency to protect the national economy from the injurious effects of unfair practices in international trade. The main goal of the agency is to protect the Egyptian economy from underpriced and subsidised imports, or a sudden increase in imports in a manner that could cause serious damage to domestic industry.
The government believes that the agency has a crucial role to play to protect the national economy and secure fair competition between domestic industry and foreign imports. The agency is to operate independent of government, in order to raise its capacity to deal with the expansion of the Egyptian economy, manage diversified industrial activities and protect current and future investments.
The government has also established the Egyptian Competition Authority (ECA) to protect competition and prevent monopolistic practices. The main goal of the ECA is to guarantee that economic activities are undertaken in a manner that does not prevent, restrict or harm competition. The government has also established the Economic Courts to supervise legislation regulating business activities and ensure the rights of all interested parties.
Egypt is almost virgin territory for investment, a country at an early stage of development, and any step forward will be accompanied by many returns on investment. The literature on investment tell us that the returns on investment in a developing country like Egypt are likely to be much higher than those realised in a developed country.
Investing in the industrial sector in Egypt is very promising. The Egyptian market has nearly 90 million consumers, and Egyptian trade relations extend to markets with consumers exceeding a billion consumers. Egypt is a member of the Common Market of Eastern and Sothern Africa (COMESA) and the Greater Arab Free Trade Area (GAFTA), both of which allow Egyptian products to access the markets of other member countries, with custom duties at reduced levels or completely absent.
Egypt is fully committed to encouraging exports through the existing private-public institutions that are dedicated to facilitating export measures and finding solutions for problems facing exporters by coordinating with executive agencies to overcome them. These institutions include the Export Promotion Fund, a governmental agency, and the Export Councils, representing the private sector. The latter represent all production and export activities in Egypt.
Egypt has a strong financial sector that is the backbone of the economy during hard times. It is worth noting that the financial sector was one of the strongest in the world at the time of the world financial crisis, managing to deal with the crisis that swept the globe in 2008. It was also able to absorb the shocks the Egyptian economy faced after the 25 January Revolution.
Egypt is a part of the international economic system in which foreign direct investment (FDI) is a major catalyst for development, provided that domestic policies establish a transparent, broad and effective investment environment and build the institutional and human resources needed to implement investment policies in a manner that maximises the benefits of FDI.
COMMITMENT TO REFORM: Both the government of Egypt and Egyptian society at large are reform-minded. The government is fully aware of the bureaucracy, corrupt administration, complicated investment legislation and slowness of judicial procedures that constitute the main stumbling blocks to both investment and economic development.
It is serious about overcoming these problems by overhauling the state’s administrative apparatus to lighten bureaucracy and establish a national committee to combat corruption. As for the complexity of legislation, the government has established a Higher Committee for Legislation Reform to refine legislation in order to overcome bottlenecks in economic activities.
Egypt has become a reform-minded country in which the president, the government and the man in the street speak the same language, being that all of us are committed to taking this country ahead. This can only come about through productive work. Therefore, the government is doing everything possible to facilitate the business environment at all levels.
Egypt is aware that the investment climate was marred after the 25 January Revolution due to lawsuits concerning a number of privatised companies. But these cases did not and will not affect the new investment framework and environment we seek to establish.
Furthermore, Egypt is aware that predictability is a crucial factor in making investment decisions, and therefore it has taken brave decisions concerning electricity subsidies and made it clear that within the coming five years subsidies on electricity will be gradually reduced until their total removal by the end of this period.
Electricity is a major component for any industry and can affect costs when preparing feasibility studies. Today, it has become clear to all investors that no subsidies on electricity will be available in five years’ time, allowing him to make his calculations accordingly. Furthermore, the government has made it clear that the amended investment law will not introduce tax incentives. This way of thinking sends a clear message to investors about the future, enabling them to make their decisions accordingly.
The Egyptian package for attracting foreign direct investment is different from previous attempts in this regard. Egypt seeks to eliminate price distortions by reducing or even eliminating subsidies, achieve a high level of transparency and predictability, emphasise the rule of law and refine the investment law to reflect the interests of all stakeholders.
Egypt is serious about combating corruption, developing its human capital and encouraging small and medium enterprises (SMEs), along with formalising its informal sector and creating a link between SMEs and larger industries.
The commitments reached during the recent conference will not be realised overnight, and the government should realise that comprehensive development is the ultimate goal in order not to repeat the mistakes of the past. The conference should be considered a historic opportunity that we should fully seize in order to achieve a great leap forward.
The writer is an international trade expert and general manager of anti-dumping at the Egyptian Ministry of Industry, Trade and Small and Medium Enterprises.
FRENCH VERSION
