1/Q: Since the Government started its reform program, Egypt has already achieved major goals. Steady economic improvement, low inflation, manageable debt, and the government is predicting a boom next year. How would you evaluate the economic situation of the country today?
I would say that it is good in itself and very good compared to other emerging market economies. We have an economy that is financially in balance in the sense that the budget deficit a little under 1% of GDP. Inflation is around 4%, the current account is in deficit but that deficit is to be expected from an emerging market economy. It is around 2.5% to 3% of GDP. The balance of payments has just turned into a small deficit. Facing all of this, I have external net international reserves in the central bank of the order of $20 billion, which means about 16 to 18 months of imports. This is more than enough to finance both the current account deficit and the balance of payments deficit. The balance of payments’ deficit is in the order of $400 million to $500 million. The growth rate that was registered for last year was around 5.7%. We are planning for this year a growth rate of about 6%. We are basically in good hands.
2/Q: Still, some say that the stock market is low, foreign investors are not showing enough enthusiasm…What are the priorities/strategies of your ministry so as to reach Egypt’s targets and overcome the main obstacles?
In the Ministry of Economy I have to work on three dimensions. The first is to support the export drive that is going to sustain growth in the coming decade. The part of it that falls under my responsibility is export finance. So, they are trying to develop the financing elements of exports, pre-shipment, post-shipment. That is as far as exports are concerned. The second dimension deals with investment and savings. These are a direct responsibility of the ministry. We are promoting foreign investment in Egypt. We are making data available, we are selling Egypt, we are making sure that people know about our achievements. As far as savings are concerned, I am pushing all the financial institutions to increase their productivity. That includes the banking system, the insurance sector and the stock exchange. In the banking system we are developing a properly organized inter-bank marketing in foreign exchange, domestic currency.....etc, to put the institutions that increase the efficiency of the banking system. We are also introducing new instruments including money-market instruments and regular securities instruments like asset-backed securities, mortgage-backed securities, develop the consumer lending aspect of banking and so forth. We are also working on legislation that will improve the infrastructure of the banking system and its relationship with the Central Bank. We are developing legislation that will further guarantee the independence of the Central Bank in drafting monetary policy. Furthermore, we are working on legislation that will improve the monitoring of the Central Bank on bank ownership since we have opened up bank ownership. There are no limits on the ownership of foreigners or anyone else for public sector banks and joint venture banks. So, we are bringing our legislation for the supervision of bank ownership up to standards with the rest of the world, i.e. the same as in the EEC and the U.S. This will essentially bring the Central Bank supervision of bank ownership regulation at par with the rest of the world.
As far as insurance companies are concerned, we have reformed the legislation and eliminated ceilings on foreign ownership. It is up to 100%. We have a queue of foreign insurance companies that want to come into Egypt. We have contracted withMorgan Stanley and Merrill Linch to value the four public sector insurance companies. I have asked that AM Best rate the four public sector insurance companies and two private sector companies have asked for international rating of their activities. Hopefully, we will be able to let foreign investors into the market soon. As soon as they submit proper request I do not think that they will be refused.
We are also developing all sorts of non-financial and non-banking financial institutions such as factoring companies, leasing companies. We have a number of leasing companies but we are trying to organize them so that they will increase their efficiency. We are also developing consumer loans companies. We are hopefully going to develop the mortgage loans so as to make mortgage lending easy. We are developing the legislation and the institutional infrastructure that governs the private pension funds. We are working with the Ministry of Social Affairs towards reforming the social security system.
The third dimension is the dimension of improving not only the level of growth but also the quality of growth. We are concerned with having good quality growth in addition to high growth. Good quality growth in Egypt means involving small and micro enterprises. 90% of non-agricultural labor is in enterprises of less than 15 people. These are micro enterprises. We are developing the schemes to make financing more easily available to these kinds of enterprises and to make technical assistance more easily available to them. In addition, it will make all the necessary services, both financial and non-financial, available to these enterprises so that investing into these bodies becomes more easy. Investment in these enterprises is typically labor intensive. It is fairly low in cost and fairly low in mobilizing grass roots growth in the Egyptian economy.
In the Stock Exchange we have contracted with Sullivan & Cromwell to help us re-draft our securities legislation. There was one generation of reforms that took place in 1992. Now, we are ready for a second generation of reforms. We are introducing laws that will cover the central depository, the central registry, settlements and clearing. We have contracted with an international company to give us trading engine in the Stock Exchange at par with any stock exchange in the world. So, we will be trading with the software that is available anywhere in the world and with an integrated software that does trading, clearing and settlement on the one side and surveillance on the other side. So, it is an integrated package that does all of that simultaneously. We have upgraded the Stock Exchange. We are introducing new instruments. We are also developing a bond market. So, all of this is happening internally and increasing inter-mediation capacity of the financial institutions of Egypt.
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3/Q: Concerning the privatization of the largest state owned banks, the Big 4, what are the main steps taken in that direction?
We started the evaluation of one of them and we are doing it with local companies first, the central audit agencies. Once we finish that we are going to move to international investment banks to give us a proper evaluation of these institutions.
- You opened the annual conference of Arab Bankers Federation last week. Have any important steps been taken in upgrading the Egyptian Banking system?
Most joint venture banks have been sold. I hope that in the near future we would sell the public sector banks’ shares in two of the remaining ones. There are three or four remaining. I think that the upgrading is going to happen through competition. The pressure of competition will push everyone to upgrade their efforts.
4/Q: Egypt and the USA agreed on a Partnership for Economic Growth
& Development. According to your opinion, how will this affect both the Egyptian and the American economies?
As for the American economy, we are too small as a trading partner to have any tangible impact on them. We rank 30th. In Egypt, the opening towards the USA and especially in terms of trade and the expansion of the investment flows from the USA should push Egypt and give it a greater capacity to grow. In Egypt, I have access to a very large market. I should have access to a very large pool of investors. If I manage to attract both of them here, it should have a very substantial effect on the Egyptian economy.
5/Q: Still talking about the privatization, do you agree with me if I tell you that most of the interesting state owned companies have been sold?
Yes. We are moving to a second tier of companies that are interesting but they are more challenging. There are utilities that are very interesting but have not yet hit the market like the phone company, water purification facilities and electricity. All of them have seen privatization come in. For example, in electricity, we have just signed the first BOT plant that is going to be set up by the private sector. So, all new electricity plants are going to be private. But, we are talking about the old electricity facilities and existing plants that have not yet seen the market. Another domain is the other utilities like airports. These are interesting companies that are going to become privatized eventually.
6/Q: What are the sectors of the economy that most need foreign investments today?
All sectors can use foreign investment. Any sector can attract foreign investment and it is a bonus for the sector as well as for the country. Any sector that can produce will produce better and produce more if there is foreign investment. It will also produce more for exports.
7/Q: There are more and more American investors who show deep interest in investing in Egypt. What would you tell them to invest here?
I would tell them to invest in all those sectors that have a readymade market across the Mediterranean in Europe like agriculture, horticultural products, agro-industries, chemicals, fertilizers, cement, manufactured products, light consumer goods, consumer durables and textiles. In all of these sectors the market is right in front of us.
8/Q: Our global economy is tied to international turmoil. How do you see the Egyptian market in this global economy?
We have managed to survive the international turmoil without major disruptions. This is due to the fact that the foreign presence in our market was relatively small. It was also due to the very strong financial fundamentals of the Egyptian economy. We had reserves. We did not have any short-term debt. We do not have any net foreign debt. We are a net creditor to the world, which is a very rare occurrence in emerging markets. It was also due to the fact that in a sense we have been underestimated all this time and this has served us. When the foreigners came to exit the market like they did in almost all emerging markets for a period, we did not feel it because of the strong fundamentals and because of the small foreign presence we had.
9/Q: Keeping in mind that Forbes magazine reaches more than 4 million readers, what will be your final message to them?
Egypt is one of the last great undiscovered emerging markets. We are undiscovered because we have not been very clever at selling the Egyptian story. The opportunities for development and investment in Egypt are immense, not only because the local market is very large but also because the export potential of Egypt is huge. We have entered a free trade agreement with most of the Arab countries. We have entered into a free trade area with East and South Africa. We are discussing a free trade agreement with Europe. So, basing any industry here affords you immediately in the Arab world a market of
250 million people and $600 billion of GDP combined together. Europe is another story. In Africa there is another $300 billion of GDP. So, Egypt is the staging ground for the southern Mediterranean and African continent of about one trillion dollars of combined GDP. This is a huge market and we have the labor, the resources, the place. And it is a very pleasant place to live in. |
EGYPT
