Bold economic reforms pay major dividends

After some turbulent years following the Arab Spring in 2011, Egypt’s economy has bounced back and is now primed and ready to reach new heights. Politically and economically stable, the North African nation is pushing ahead with a reform agenda and visionary plan for the future that includes hundreds of billions of dollars worth of projects across the board – from brand new cities to the game-changing Suez Canal Economic Zone, which has already attracted some of the world’s largest companies.

Last April, the Egyptian people voted to keep incumbent president Abdel Fatah El-Sisi in power, allowing him to continue with the IMF backed economic reform program that has put the economy on the road to recovery and laid the foundation for strong and sustained growth that will improve living standards for all Egyptians. With the economic reforms and recovery luring many foreign investors to enter the increasingly dynamic and diversified Egyptian economy, foreign direct investment is expected to grow significantly over the coming years.

At the peak of the crisis in 2013-2014, Egypt’s growth was hovering at under 3 percent, foreign reserves had dropped to as little as $15 billion and unemployment had jumped to almost 14 percent. Since November 2016, and with the help of a $12 billion IMF loan, Egypt has taken bold measures –such as the devaluation of its currency, removing limits on foreign currency transfers, lifting hard currency restrictions for importers, cutting fuel subsidies and raising value-added tax – that have truly paid dividends.

“This country could have been led to disaster if we hadn’t made these bold economic reforms. If we look at the numbers today, in the last quarter, unemployment was at 8.9 percent, down from almost 14 percent. The foreign currency reserves are now about 44 billion U.S. dollars,” says Egypt’s Prime Minister, Dr. Mostafa Kamal Madbouly.

“For economic growth this year, we are targeting 5.6 percent and for the next year we’ll be working very hard to reach 6 percent. I think this is quite outstanding. I’ve seen a lot of reports showing that Egypt was among the top five growing countries in the world. So, in terms of the economy, things are moving on and we are very determined to continue our economic reform program in the coming years.”

The real impact on society

At the beginning of the implementation of the reform program, President El-Sisi had asked the Egyptian people to be patient, as the impact of these tough measures was going to take time to trickle down to a societal level. But thanks to a very strong social program that has run alongside the reform agenda, Egyptians, particularly at the lower echelons of society in Upper Egypt, are now feeling the impact.

As a result of the economic reforms and social program – such as the introduction of food subsidies, Takaful financial aid, and a social housing program targeting 200,000 Egyptian families – the poverty rate in Upper Egypt has fallen for the first time, according to the prime minister.

“These social initiatives and programs are moving ahead and with the new government, our target now is to really focus on the country’s human resources. We have more than 65 percent of the population below 40 years old, this is a real challenge. The most important thing if you would like to make real positive contributions is to focus on health issues and education.”

One of the highlight initiatives in the health sector is the program to eradicate hepatitis C in Egypt, which has one of the highest rates of the disease in the world. The program aims to screen 60 million Egyptians for hepatitis C and treat those who test positive free of charge.

Another important society-based initiative is the enhancement of the role of women and young people in the government and economy. For the first time in the nation’s history, a quarter of the cabinet is made up by women who currently occupy eight ministerial posts, while the prime minister also points out that the prominence of women in business is also rising.

“We are now showing the tendency on relying more on women and youth, because we do believe they have their major contribution to make for the country,” he says.

Creating a conducive environment for investment

As the government has pushed on with its economic reform agenda, it has also implemented measures to make the country more conducive to foreign direct investment (FDI) and private sector participation.

In the fiscal year 2017-18, FDI rose by 14.5 percent to $7.9 billion, compared to the previous period. But to ensure the success of the Vision 2030 plan – which envisions a competitive, balanced and diversified economy, dependent on innovation and knowledge – and the completion of the plethora of planned mega projects, Egypt will have to secure much higher levels of foreign investment in the coming years.

While measures such as the new investment law, the cutting of red tape and financial incentives are crucial to attracting more foreign investors (see more on page three), the prime minister also points out the importance of overhauling the deeprooted mindset in the lower tiers of government that still adhere to the traditional modus operandi.

“Some in the lower tiers of government are still looking back to the historical eras, always looking at any new measures with suspicion and fear to implement them on the ground,” says Dr. Madbouly.

“So it’s our target in the coming period as a government to open more doors, make it more conducive and flexible for the private sector, whether from inside or outside the country, to play their planned and major role in the contribution to the growth of the economy.”

Over the past four years, the government has helped to steer the country in the right direction – implementing reforms and laying down the plans for major infrastructure and other development projects that will ultimately allow the private sector to take the driving seat on the road to Vision 2030 and beyond. The government has also set out a plan to support the creation of a thriving SME sector, which includes programs such as expanding micro-financing for women in rural areas to create 100,000 jobs and the Central Bank of Egypt’s SME-financing initiative that has compelled banks to expand their SME lending to 20 percent of their portfolios. Through all of the SME-focused initiatives, the government wants to raise the SME sector’s share of GDP by 25 percent.

“Even if you look at the new fiscal budget that we’re introducing to the parliament, the contribution of the private sector in the overall budget and investment is almost around 78 percent. The whole role of the government is about 20 percent maximum, which will continue in terms of infrastructure and paving the way for  private sector contribution,” explains the prime minister.

The most important thing right now, Dr. Madbouly believes, is implementing new initiatives to subsidize exporting and the contribution of the private sector to improving the country’s negative trade balance, which stood at $3.87 billion in December 2018.

“We are now working very hard with the Ministry of Investment to really overcome any kind of problems facing the investors, whether from the local or the international market,” he adds.

Mega projects create 4 million jobs

As part of the economic recovery, the El-Sisi government has launched thousands of projects costing tens of billions of dollars to overhaul Egypt’s poor infrastructure. Unlike the shorter-term fiscal problems, infrastructure is a decades-old issue that needed to be addressed.

Some of the highlight projects that have been launched under El- Sisi’s government include: the $8.2 billion extension of the Suez Canal; the creation of the 285-squaremile Suez Canal Economic Zone (SCZone) set to become a hub for logistics, manufacturing, ICT and petrochemicals; a $45-billion New Administrative Capital; a national roads projects; two new international airports; modernization and extension of ports along the SCZone; as well as several power projects to meet growing electricity demand, including the world’s largest solar park. It is safe to say that there are very few countries in the world witnessing development on this scale.

“According to our calculation, these mega projects have managed to generate around 4 million new job opportunities. We have dramatically and substantially improved the infrastructure, roads, water, sanitation, gas and electricity. We’ve also managed to lower the deficit of housing and other services. We have paved the way for horizontal expansion on desert land,” the prime minister proudly explains.

“This was another challenge that Egypt has faced in the last three or four decades. Targets have been achieved by these mega projects. We now have a good base for the contribution of the private sector, which can make use of all these facilities that we have introduced to boost the economy. This is our belief: that without these kinds of programs, the Egyptian economy wouldn’t have survived.”