Interview: Anis Aclimandos
What impact will the float of the Egyptian pound have on investment attractiveness?
ANIS ACLIMANDOS: The flotation is an important step in attracting foreign direct investment (FDI) because it eliminates the parallel rate for Egypt’s currency, and it increases transparency for foreign investors. The pound’s decrease in value to its market rate makes investing cheaper for those with foreign currency. Also, domestic manufacturing will now be able to more easily compete with traditional centres of low-cost manufacturing, as long as their base materials can be sourced at the local level.
The currency value alone will not drive investment, however, as there are a number of other important factors to consider when investing in a country. Egypt’s advantages include having a large local market, a significant labour force and geographic proximity to global trade routes. While we have seen a number of decisions made recently that will benefit the Egyptian economy in the medium and long term, the country continues to need improvements in bureaucratic and regulatory efficiency, and it must become easier for foreign companies to repatriate their profits and get through the regulatory barriers to set up their businesses. It can be a challenge for companies to get permits or to deal with multiple regulatory authorities. Thus, continued work towards greater centralisation and efficiency will have a significant benefit for businesses.
How big is Egypt’s informal economy, and what impact does it have on formal operators?
ACLIMANDOS: By its nature it can be difficult to quantify the informal economy, but depending on the sector, in Egypt it can reach upward of 60-70% of market share. This is a good thing, in that it indicates significant opportunity and economic activity that remains unaccounted for, but it also presents a significant challenge. There are a number of reasons why businesses operate informally, but chief among them is the high cost and difficulty of complying with regulations. If it is too difficult or costly for a business to register and operate in the formal economy, then it will not. The key to formalsation – so that the benefits from this economic activity are more widespread – is to make it more advantageous for the business to operate this way. We can create increased opportunities for credit and facilitate an environment where regulations work for business growth. Education can then play a role in greater accessibility by creating awareness of business best practices and opportunities.
In what ways can business growth and FDI in areas like Upper Egypt be encouraged?
ACLIMANDOS: The government has recognised the need for increased focus on Upper Egypt and is working to increase the opportunities available in the area. FDI can play a role, but to attract FDI there needs to be some additional incentives. The free zones are offering a number of new advantages for foreign businesses in Egypt, and they could create additional job opportunities in Upper Egypt if implemented in the area. There are opportunities for manufacturing and industry in Upper Egypt, but transportation and infrastructure remain a primary issue given the core business focus, and the population in and around Cairo and Alexandria.
One of the most overlooked challenges for business in Upper Egypt, and in Egypt generally, is population health and nutrition. This issue receives little attention, but from an economic perspective the labour force would be far more efficient, productive and focused if they were healthy and receiving proper nutrition. Progress in this area would have a knock-on effect in education and then in many other areas of the economy, so it should be an area of focus for Egypt’s long-term economic development.
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