Economy
From The Report: Egypt 2014
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With the elections over, Egypt’s economy is showing signs of an incipient recovery. After three years of stagnation the IMF anticipates GDP growth will reach 3.5% by 2015, although much of this may be making up for lost time. The new government has outlined an ambitious vision for the future development of the country, and taken the first steps towards solving a structural fiscal deficit. However, Egypt’s economy remains in a fragile state, and the reform that is essential to its long-term recovery is a challenging prospect for any government. The magnitude of this task is readily discernible in the nation’s balance sheet. While a process of fiscal reform had reduced Egypt’s budget deficit to 6.8% by the 2007/08 fiscal year, the political unrest that began in 2011 reversed the contraction, and by 2012/13 the nation was running a deficit of 13.7%. Egypt’s improving political situation, however, has brought with it a new sense of optimism about the economy. The potential for economic recovery over the coming year is real, but much depends on the new government’s ability to cement the putative stability achieved in 2014 and carry out its process of wholesale economic reform.

This chapter contains interviews with Hany Kadry Dimian, Minister of Finance; Anis Aclimandos, Chairman, American Chamber of Commerce in Egypt; Hassan Fahmy, Chairman, General Authority for Investment and Free Zones; and Ahmed Heikal, Chairman and Founder, Qalaa Holdings.

Articles from this Chapter

Overview

Expected structural reforms should help to improve the fiscal position, while GDP growth is forecast to rise
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With elections over, Egypt’s economy is showing signs of an incipient recovery. After three years of stagnation the IMF anticipates GDP growth will reach 3.5% by 2015, although much of this may be making up for lost time. The new government has outlined an ambitious vision for the future development of the country, and taken the first steps towards solving a structural fiscal deficit. Further challenges remain, and a balance must be struck between the need for immediate relief on a strained fiscus…

Analysis

Inward flow: External aid from donors and international organisations continues
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Given Egypt’s structural fiscal deficit, and the time required to carry out the necessary reforms to resolve it (see analysis), the nation has been compelled to seek external assistance in order to meet its budgetary commitments. A long-term financing arrangement offered by the IMF in the wake of the 2011 revolution has been the subject of heated political debate over recent years, and remains on the drawing board. Regional Partners However, the nation has been granted a considerable degree of…

Interview

Tapping the market: OBG talks to Hany Kadry Dimian, Minister of Finance
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Interview:Hany Kadry What do you see as the most important priority for stimulating higher levels of growth? HANY DIMIAN: The most important priority is restoring confidence, which depends on political stability, as well as a credible economic strategy for the medium term. There must be a drive to implement structural reforms that target energy, roads, education, health and housing, all while enhancing partnerships with the private sector. Egypt can attain real annual growth of between 6%…

Interview

OBG talks to Anis Aclimandos, Chairman, American Chamber of Commerce in Egypt
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Interview:Anis Aclimandos How can bilateral trade with the US be increased, and what are Egypt’s competitive advantages? ANIS ACLIMANDOS: When looking for products with the greatest potential for boosting US-bound exports, it is crucial to identify items that are already imported into the US and to try to make our export prices more competitive. This strategy makes more sense than others, as a market has already been identified for these goods. If you sell them at better prices than what…

Analysis

Reforms to lower structural fiscal deficit
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Prior to the 2011 revolution, Egypt was making steady progress in reducing persistent fiscal deficits, thanks to sustained efforts by reformist governments. One of the most enduring legacies of that period is a much-improved tax system, which replaced a bloated and inefficient process with a more streamlined and wider-based structure. Simplified tax procedures and lower rates resulted in steadily growing tax revenue, and these are largely credited with the reduction of the fiscal deficit from 10.4%…

Analysis

Aiding the development of the nation’s SMEs
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Although estimates vary, sources such as the OECD and Egypt’s General Authority for Investment and Free Zones (GAFI), the Ministry of Investment’s promotion agency, assert that small and medium-sized enterprises (SMEs) account for between 80% and 90% of total businesses, and between 75% and 80% of employment. However, the development of SMEs has been hindered by structural challenges, including the burden of regulatory compliance, limited resources for training and human capital development,…

Analysis

Currency control: Halting the decline in foreign currency reserves
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Two years of political upheaval have increased tensions over the country’s financial health and left the economy in an uncertain situation. After tourists and many foreign investors departed following the 2011 revolution, foreign currency reserves declined. Egypt’s average monthly current account deficit stands at between $400m and $500m. With over $20bn spent since the collapse of the regime of Hosni Mubarak on defending the value of the country’s currency, declining reserves mean authorities…

Interview

OBG talks to Hassan Fahmy, Chairman, General Authority for Investment and Free Zones (GAFI)
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Interview:Hassan Fahmy Have the free zones been attracting investment? HASSAN FAHMY: The free zones have had great success in attracting investment, with 1114 projects – 892 public and 222 private – currently being developed. This translates to capital of $10.8bn and investment costs of $22.5bn. In total, the free zones have attracted $2.2bn in foreign direct investment, accounting for $10.3bn worth of exports and 200,000 new jobs. At present, free zone performance is primarily constrained…

Interview

OBG talks to Ahmed Heikal, Chairman and Founder, Qalaa Holdings
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Interview:Ahmed Heikal How challenging is it for Egyptian companies to raise capital domestically? ? AHMED HEIKAL: Investment holding companies usually trade at a discount, particularly in emerging markets, which makes it somewhat of a challenge to raise capital. In Egypt, this was aggravated by the unstable political environment prior to the presidential elections. As the country moves forward, the picture will become more defined, and with this the job of raising capital will become progressively…

Analysis

Necessary reforms: Significant subsidy cuts to reduce the budget deficit
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Speaking to local press in April 2014, former petroleum minister Osama Kamal summed up the government’s dilemma regarding subsidy reform, “There is no nice time to cut subsidies, but the government has to.” Successive governments have learnt the hard way the costs associated with tampering with Egypt’s unwieldy subsidy system. Anwar Sadat’s attempts in 1977 to reduce state subsidisation on fuel, bread and 25 other consumer goods resulted in the sacking of presidential guest houses across…