1/Q. Seven years after the Government started its privatization reform, Egypt has already achieved major goals? How would you evaluate the current economic situation in Egypt?
A: As first of all, we started the privatization program in the late eighties, but we started gradually; so this is why it may be difficult to except the specific date to the start of the privatization, but we took our time and we reached well where we are now and you asked me how do I see things. Well, things are obvious because they do speak about themselves. When we started we had an inflation rate which hit 25%, now it is down to less than 4%. When we stated we had a budget deficit, which was 7% or
8%, now it’s less than 1%. When we started there was very hectic system for the Egyptian Pound versus the US Dollar, several rates, black markets, white markets, etc. Now we have a stable rate of exchange between the Egyptian Pound and the US dollar which has been stable for more than 4 years, and we have 20 billion US$ reserve in the Central Bank which is adequate for the country’s imports for 12 months. Foreign direct investments have flown into Egypt, infrastructure is being more updated continuously covering all Egypt, the Government is embarking on several mega projects: south of the country, west of Suez, east of Port Said. The stock exchange is very active with a performance which is acceptable, and above average considering what happened in South East Asia and many parts of the world. So we are managing to reduce the external debt and pay our installments, we are self rising almost without being influenced by the tourism sector which was severely hit last year, the reduction in oil prices, so things are very good.
2/Q. Since 1997, under the new Law on Investment Guarantees and Incentives, Egypt has enjoyed an increasing number of investments. According to you what aspects of the Law should still be changed in order to attract even more investments?
A: Well, the law itself gave the investors complete freedom, and when I say the investors I mean Egyptians private sector and also non Egyptians private sector; but if we are talking the foreign direct investment so we have no restrictions or obstacles facing any foreign investor in Egypt. Our package is really completely free of any restrictions. A foreigner can establish his own company, owned 100% by him, there is no need for a local partner, he can operate in all the fields, he gets automatic approval in fact we do not call it "approval" we call it "registration", because the law made it a right for everyone to invest. Before, in the Law people were requested to just take approval before they start taking the first step. We give the investor residency for 5 years. Obviously those are the guaranties against confiscation and nationalization but we don’t talk about it because it became part of the history.
There is freedom to do with the Egyptian money, things that are done with any other transferable currency, the investor can take his money in and out without any obstacles, no questions, no forms to be filled, nothing at all.
He also has the right to employ expatriate staff for his company, then they enjoy the incentives which are in terms of tax holidays that can go up to 20 years, but in almost all the industrial cities and the new industrial zones, they cover 10 years tax holidays and they import their machinery and equipment for the start up of the project, what the project needs at a reduced stamp of 5%. If you ask what remains to be changed in the Law, I say to you that the investors are never satisfied. They were still under some influences, that when we started the new industrial cities the Investment Law covered both the productive projects and the service projects. Now the service projects are making good profits, so they went out of the Law and the investors are always asking to get back the services, they are asking for the prices of land to be reduced, they may be asking for expediting the juridical system for getting the dispute resolving faster. That’s it, but I think on the side of the Law there is very little to be requested.
- But today October 1998, which sectors do you think still need foreign investments?
We need them in every sector, but if you asked my personal opinion, I think we need them in the manufacturing more than anything else because the manufacturing sector is the sector which is facing the probability of huge competition due to reducing the tariff, and opening up to European countries. Also because we need the foreign investment in the manufacturing, because the multinational companies or international companies are more efficient than us when it comes to marketing and in developing their research, etc. So I wish to see them more in manufacturing.
3/Q. Since Egypt and the USA agreed on a Partnership for Economic Growth and Development, much has been done in terms of economic growth, inflation and environmental issues. According to you, what should be done between those two countries to strengthen even more their relationships?
A: You asked how do I see the economy and I forgot to refer to the rate of growth of 5%, which used to be negative or less than 1% when we started. Now you asked me what should be done to enhance the Partnership between Egypt and the USA. I think we ought to really propagate or publicize the investment environment more than what we are doing now in the States. It is a huge continent and we should really publicize for our environment more and more and increase encounters between Egyptian businessmen and American businessmen.
Because without businessmen getting together, there’s no chance of having a joint venture nor a foreign investment project.
4/Q. The emerging markets favor the implementation of free zones in their soil, in Egypt we find 6 major free zones. How successful were their implementation and what types of investments have come so far?
A: Very successful. They public free zones in Egypt were started about 15 years ago to provide the heaven for activities that could be done off shore and help the economy. So they usually provide the project with space, the projects there can either be warehousing, manufacturing or services. Most projects are in the first two sectors, warehousing and manufacturing; warehousing use the facilities of the free zones and they export their commodities to the Egyptian market and other markets in the area; manufacturing produces goods making use of the cheap labor. So to just give you an idea of the success of the free zones, those 6 free zones; the export of the free zones projects reached, last year 1997, 385 million US $ with an annual increase of 25% compared with
1996.
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When you know that the industrialized products of Egypt are only about
1500, it gives you an idea about the weight of the free zones in the national economy, so we are very pleased with them. We intend to increase them by having more free zone in other governorates which do not have them We are also expanding in the private free zone and this is given the advantages of the free zone operation to any factory wherever it is located by declaring its area as private free zone, versus the public free zone which is pre-determined region and controlled by the General Administration.
5/Q. There are still sectors of the economy which are still public owned. Some have been delayed like the banking sector. So how does this affect the general trends of investments in the country?
A: Some people say that this delays the flow of direct investment, this may be true but in the Egyptian experience the adjustment of the rate of change was very important. Because we did not want to jeopardize the social stability, so we were very careful that changes when they take place do so in a gradual manner in which the society can accept easily. If we go through a sudden change, we run through the risk of either going through a social unrest or maybe hitting a wave of inflation that we cannot control as some other countries. But we feel pleased with what has been taking place so far. From this point of view, we can debate issues a little bit longer than other countries when it comes to privatization with banks. Some people say is it timed now, or do we wait, do we start by what? This is the process of the Egyptian nature, because we do value the stability of the society so we do not really want to expose it to shaking.
6/Q. We were talking about the Egyptian American Partnership, some sectors like Science and Technology are included in this incentive. To what extent American investments would be needed in those 3 sectors?
A: It would be needed tremendously, but when we talk about Science and Technology they must have a client to contract their science and technology, in terms of the contract for know how transfer. So they have to really work amongst the investors. But they have to offer some competitive costs, because Science and Technology could also be obtained from other countries, and sometimes the cost of Science and Technology from the USA may be too high.
- You strike me as a very confident person, actually you seem to be very optimistic regarding your country.
Well, I am optimistic. With all these modern developments who cannot afford not to be very optimistic. If you remember in 1985 or 86, most of the analysts and observers wrote Egypt off, and some people actually said : "Egypt forget it there’s no hope". The indications were then along those lines. So when we undertook the challenge and we did it successfully against all the expectations, people are surprised that we managed to reach where we are now. Yes, I am optimistic and I am seeing results that keep me more optimistic and also a little bit more confidant. Although, I realize that we are in a competition with all the nations or the emerging markets. Quite frankly, we are now beginning to suffer from protectionism of the traditionally free trade countries, namely Europe and the America; when you find that the all mighty American machineries against Egypt, because there’s an increase in the t shares of something like 200 dozens, then you wonder and say "Oh stop it". Otherwise this will jeopardize the American economy or Europe against Egypt for more than few times of potatoes or oranges. Then it appears obscure.
7/Q. To insist on the speak that Egypt is really seeking investments, what’s the advantages that Egypt can offer to foreign investments?
A: First of all, I think we do have stability politically and economically. Politically, by our history of the Government, we are as a country law abiding, we respect our commitments, and we are part of the few worlds that this can be taken as an advantage. Economically, because we are now having a very healthy macro indicators, they are all moving to the more healthier side and we are a growing or a home market, 62 million growing at a rate that is very attractive. Second, the quality of life here in Egypt for expatriates is reasonably good; labor is very cheap, there are no problems with any numbers of workers we want. About the location of Egypt, we are a country with land, water, good weather, gas, and oil; so we appear to have an ideal environment for production for the investors. We may need to get rid of some of the bureaucracy still there and this does not frighten us, because our performance in the last decade shows that we can do it. So quite frankly, we have a lot of advantages so often. Also the incentives, we are one of the few countries, which give tax holidays for ten years. In other countries you go there you get government grant, they even help in the trading and in other countries they even give you the land free. But do the calculation ; over ten years, compare what you get here. I think the package of incentives here in Egypt is really very attractive. It’s a paradise for the investor!
8/Q. Dr. Fawzy, our readers are very much interested in your personal professional experience and your personal background, could you tell us a bit more about it?
A: I got my degree from the University of Cairo, Mechanical Engineering. I joined the staff as teacher, professor, and head of department of Mechanical Engineering. I got my Ph.D. from the University college of London, DK. I worked in consultancy and just the normal university career, but I also worked as a cultural counselor at the Egyptian Embassy in London for 4 years, I was a visited professor at the University college London, and I was also the minister of Industry and Mineral wealth in Egypt from 93 till 96. My hobby is to write some books on archeology of Egypt, read if I have time from work, actually I have published a book.
9/Q. Keeping in mind that we are reaching more than 4 million readers, what will be your last message to the American readers?
A: I think my last message is an investor who is not taking a serious look at Egypt will be missing too much.
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EGYPT
