Economic policy

An overhaul of economic policy – Egypt – Al-Ahram Weekly

This week, Prime Minister Mustafa Madbouli told a press conference that the government was seeking to re-engage the private sector in the economy, aiming to increase its share to 65% from 30% in the fiscal year. 2020-21.

The firm also hopes to attract $10 billion in new investment in each of the next four years by offering stakes in state-owned assets in everything from renewable energy projects to real estate in new towns, desalination and telecommunications projects and projects in education. sector. Madbouli revealed that assets worth $9 billion had already been identified and projects worth another $15 billion were being assessed.

The drive to attract private sector participation is aimed at stimulating growth, creating jobs and boosting competitiveness, and is necessary, according to the government, to offset the impact of the war in Ukraine on the Egyptian economy. Madbouli estimated that the crisis has already cost Egypt LE 130 billion in direct losses due to higher commodity prices and higher interest rates, and LE 335 billion in indirect losses due to additional spending on items such as salaries and pensions, social safety nets and taxes. breaks. He also revealed that a document will be released by the end of this month detailing the sectors the state plans to exit from, and those in which it will continue to be a major player.

The head of the Egyptian Federation of Investors Associations, Muharram Hilal, said there was plenty of room for the private sector to increase investment and help the economy grow, although he understood why the State’s share in the economy had increased in recent years.

According to Madbouli, government intervention in the economy in the years immediately preceding 2014 was necessary because unemployment had reached 13.2%, GDP growth was lagging at 2.2%, the budget deficit was to 13% and net international reserves had fallen. at $13.6 billion.

Hani Berzi, head of the Export Council for Food Industries, believes that the state should stay away from sectors in which private companies have a proven track record and that state entry into activities such as cement, steel and construction has compromised the private sector. sector’s ability to contribute to economic growth.

He also believes the state should exit loss-making sectors such as aviation and railways, arguing that state involvement results in an unjustifiable drain on public funds coupled with poor service.

Banking expert Amr Bahaa agrees. For the private sector to once again play an active role in the economy, he says the government will need to remove the policies that put it off in the first place and restore a level playing field for investors. It will also have to overhaul legal procedures and simplify the tax system. The tax rate doesn’t matter, he argues, as long as the rules are clear.

Mohamed Abed, an economics professor at Alexandria University, warns that the government must carefully examine the assets it has, lest it sell the birthright of future generations. He also thinks the Egyptian Wealth Fund should play a bigger role in the transparent management and investment of public assets. What is important, he says, is that the government performs its regulatory functions without favoring anyone.

Incentives announced by Madbouli to encourage the private sector include a streamlined process for allocating land for industrial purposes under which land is granted in usufruct and priced based on the cost of infrastructure. Investors will also see a reduction in licensing bureaucracy, and additional incentives for green projects, projects in the health sector and investments in new towns will be offered.

Madbouli’s announcements coincided with a visit by an American delegation of green technology companies organized by the American Chamber of Commerce in Cairo. During his meeting with the delegation, the Prime Minister highlighted Egypt’s interest in attracting investment in the growing green energy sector. Such projects, according to the government’s new plans, would be granted a so-called “golden license” that would bypass cumbersome bureaucratic procedures.

In its bid to boost job opportunities and economic growth, the government also plans to establish 300 factories in cooperation with the private sector, creating 700,000 new jobs. According to a cabinet statement, Madbouli told the US delegation that GDP growth is expected to reach 4.5%, down one point from the figure indicated in the 2022-23 draft budget presented to parliament this week. last.

Abed warns that the full impact of the Ukraine crisis has yet to be felt. According to Madbouli, the Ukraine crisis could cost the global economy $12.5 trillion by 2024, wiping out many of the gains made over the past 15 years, and global debt is at its highest level in 50 years and inflation has reached unprecedented levels.

To help Egypt’s economy overcome adverse conditions, Madbouli said the government would offer support to export industries to increase foreign sales by $100 billion within five years and encourage $20 billion in substitution. imported inputs. Egypt’s total imports were around $75 billion in 2020.

Berzi supports specific incentives for export industries rather than tax breaks for the entire industrial sector, pointing out that “we’ve tried tax breaks before and they haven’t worked.”

Banking expert Bahaa, however, wants to see support for all industries that depend on local components, including spinning, weaving and textiles, and fertilizers, and argues that small and medium-sized enterprises need to be developed as as feeder industries for large manufacturers. He would also like industrialists to set up projects in different parts of the country rather than everything being centered in Cairo.

Madbouli also said that Egypt expects to conclude a loan agreement with the International Monetary Fund within a few months, without specifying the amount, and that the government is aiming for a budget deficit of 6.2% for Egypt. current exercise.

According to the prime minister, most of Egypt’s debt – 91.2% – is medium to long-term, and only 8.8% is short-term debt. Egypt’s external debt had reached $145 billion by the end of 2021, and the government is targeting a reduction in total public debt to 75% of GDP from the current 85.8% by 2026.

*A version of this article appeared in the May 19, 2022 edition of Al-Ahram Weekly.

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