Interview: Tarek Tawfik
How has the private sector adjusted to the economic reforms undertaken in 2016?
TAREK TAWFIK: These long-awaited reforms have been instrumental in setting a new trajectory for the country. They came as a sudden shock, particularly during the currency devaluation, but those companies that adjusted their business models have really benefitted. Those that continued to operate in the traditional manner by focusing on importation have struggled, but this was not a sustainable model over the long term. The environment has become more conducive to serious players rather than opportunistic investment.
Nevertheless, we are awaiting further reform. The initial round addressed the country’s macroeconomic stability, and this was an essential first step. The impact of this is reflected in the higher level of foreign currency reserves, an improved credit rating, falling unemployment and subsiding inflation, while the budget deficit is returning to its previous levels. All of these were necessary to encourage new foreign direct investment (FDI), as well as to increase investment from companies that are already here. The second wave of reforms, which we are working on now with the government, is focused on sectoral and administrative reforms that will streamline governance and make the environment more business-friendly and transparent.
How can firms be encouraged to increase the production of goods and services for export?
TAWFIK: Businesses take advantage of market opportunities where they can competitively meet demand. Prior to the reforms, it was not competitive to invest in local supply chains, due in large part to the artificially strong pound. Now firms are moving their manufacturing facilities to Egypt and localising their supply chains. Egypt is perceived as a regional hub, and the improved business climate has added to the existing advantages in terms of its geography, its labour force and the size of the local market. We have also seen significant investments in the road network and other infrastructure, which will reduce logistical costs.
Even so, we should differentiate between those players that are expanding operations, relocating their facilities and reinvesting across the board, and newcomers who have invested in certain sectors but remain hesitant while they await the results of reform. Perception is important to investors, and now that the questions about stability and security have been answered, we will begin to see new FDI. Looking at these reforms and the interest in investment, one feels that Egypt’s trajectory is headed in the right direction.
What can be done to increase financial inclusion and foster the formalisation of the economy?
TAWFIK: Increasing financial inclusion is the first step in streamlining governance and “unclogging the arteries” of the country. The government’s initial public offering programme is a strong signal of willingness to break government monopolies, which will increase healthy competition in the market, as will greater formalisation. Informality should not be understood as evidence of corruption, but rather as a sign that hard-working people are unable to operate within the bureaucracy. This is a huge opportunity to capitalise on, because it is partly through the strength of the informal sector that the economy has been so resilient under pressure.
Simplifying regulation, sectoral reforms and the digitalisation of government services should facilitate integration into the formal economy. These informal companies usually pay various fees and kickbacks to get by, so taxes will not necessarily be an added cost. Informality seems to be driven by avoiding bureaucracy, not taxes. The upcoming the small and medium-sized enterprise law will further integration and make it easier to operate as a small business. The introduction of new technologies in banking and the digitalisation of public services is also driving efficiency and will likewise be an important part of fostering financial inclusion.
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