Egypt, new dimensions, new frontiers

H.E. Dr. Youssef Boutros Ghali, Minister of Economy and Foreign Trade

Interview with:

H. E. Dr. Youssef Boutros-Ghali
Minister of Economy and Foreign Trade

Cairo, May 16th, 2000

8, Adly street, CAIRO - EGYPT
Tel: (202) 391 00 08
        (202) 391 68 02
Fax: (202) 390 30 29

Last year you benchmarked GDP growth at six percent, and according to World Bank figures you experience six percent growth in 1999, so you were right on the mark. What is your prediction for the coming year? Can you tell us a little about Egypt's major economic indicators, as well as a general overview of the Egyptian economy over the past year?

We achieved the growth rates that we desired last year, but this year we are concentrating on making sure that our macro variables are properly aligned. Therefore the growth rate needs to be re-calibrated, in a sense, and we are looking at a growth rate of between 5 and 6%. The idea behind this is to ensure that the Egyptian economy is in a good state in order to ensure higher growth rates in the future. We are aiming at between seven and eight percent growth in the coming four or five years. For this to happen the macro variables have to be correctly aligned in relation to one another.

This year we anticipate a slight slowdown, in order to take stock and establish to parameters which will ensure higher growth in the future.

One of the items on your agenda at the moment is the liquidity issue, is it not?

Yes, this is part of the re-alignment of the various macro-variables. In previous years the Government has overspent and accumulated some arrears. Because we are following a strict monetary programme which is very anti-inflationary, these Government arrears have led to a credit squeeze in the private sector. We are now clearing these arrears in order to restore credit growth to the private sector without effecting the proper monetary balances that we have set ourselves. This is the reason why growth will be between five and six percent, as opposed to the solid six anticipated.

The other tool is going to be the privatisation of state entities, and we are all looking very closely at Egypt Telecom and the Electricity Authority going though the privatisation process. What are the upcoming privatisation plans of the Government now?

There are a number of companies which are set to undergo privatisation, but I cannot give you the full details of these; the Minister of Public Enterprise is in a better position to do that. The general areas where there is most action on the privatisation front are: Electricity, Telecommunications and Petroleum / Natural Gas distribution, as well as the usual public enterprises and possibly one more cement company. Essentially all companies which are still partly owned by the Government are being investigated in this respect. We are completing the sale of joint venture banks, Misr America International Bank has gone to the National Bank of Kuwait already, and the Misr Iran Bank is undergoing privatisation at the moment. There are a few more joint venture banks which will follow too.

Would you say then, that public opinion is ready for privatisation?

Yes, there is no problem in this respect with joint venture banks, and we are taking advantage of this climate in order to leave us in a situation with only one public sector bank.

The issuing of a Eurobond may go a long way to stabilising the Egyptian currency, do you expect this to be done in the near future?

The objective of the Eurobond is not stability, it is meant to establish a sovereign benchmark in capital markets. We have foreign reserves which are ample so we do not need a bond to get foreign exchange. We need it to establish a foreign benchmark, which will allow the private sector to borrow in the capital markets and ensure proper pricing. If there is an Egyptian benchmark it will save the private sector close to 75 to 100 basis points. The amounts that we are talking about does not represent a major addition to Egyptian foreign reserves.

A lot of the business people with whom we have been speaking have suggested that the Egyptian Pound is over-valued. Devaluation has been discussed as a means of stimulating exports. What is your opinion on this?

Our exchange rate is determined by the interaction of supply and demand. During the last year certain misalignments between macro variables such as public spending have given the impression that the exchange rate was misaligned and overvalued. As these factors come back into line, you will see the pressure on the exchange market will decline. Therefore, if the market believed that the currency used to be overvalued, this can evidently no longer be the case as the pressures are subsiding. We are confident that as the market evolves and grows with increasing speed, the exchange rate will set itself. We do not intend to interfere, and I believe that it is presently at the right level.

Egypt now has a imbalance of trade, and is ranked quite low on the list of exporting nations. In 1999 exports were about $14.4bn. What are you doing to increase this? I understand you have a new export development strategy?

We are looking towards developing a new institutional infrastructure that will promote an export-orientated economy. We are not looking for individual deals at the moment - this will come later. We are looking for an infrastructure.

Phase one of the new strategy, which will take place this year and possibly part of the next, is centred around developing institutions such as an Exporters Association which can speak on behalf of exporters and be a pressure group within Egyptian society. We also have to further develop our regulatory authorities as part of the second phase, such as the General Authority for Import and Export Controls. For example, a recent Presidential Decree gave this body complete responsibility for ensuring the quality of imports, where as in the past this was the responsibility of seven different ministries. This should facilitate operations at Egyptian ports, and therefore reduce the cost of imports and exports. This is one of the major aims of these institutional reforms.

The third element is establishing an infrastructure for marketing. We need to increase the Egyptian presence in international markets, and in order to do this we have two plans.

First of all, we are intensifying preferential and free trade agreements with partner countries. There is an agreement being concluded at the moment with the European Union, and we are pushing very hard for a similar one with the Americans; we are presently lobbying Congress to give the US administration fast-track authority. We are also looking to streamline our trade agreements with other Arab countries. We are part of the Greater Arab Free Trade Area, and this agreement is functioning, but it needs to be made more efficient. We are going to have a core agreement with four of our partners here, and we are also pushing for greater effectiveness in COMESA, as all of these facilitate an increased presence abroad.

Secondly, we will be hiring marketing firms, both in Europe and the USA, in the commodities that represent the bulk of our exports at the moment and in which we have undeniable advantages over the competition, namely: textiles, garments, leather goods, chemical products, agro-industrial products and agricultural goods such as horticultural produce.

We are also trying to get the European Union to loosen up there restrictions on imported agricultural produce. They get very nervous about this because they know that our produce is both better and cheaper!
COMESA is receiving a lot of press coverage at the moment, but entrepreneurs still seem reluctant to invest in these markets. Do you think that reduced tariffs and trade barriers will change this?

Yes, these reductions of trade barriers have already encouraged a lot of investment in these countries. The problem is that the investment is not evenly spread over all the countries, since they are not all equally developed. Our trade with Kenya has increased by four hundred percent for example, for both imports and exports. We import a great deal of tea and fish produce from them, and export consumer durables and food products such as rice and oranges, but not all countries are uniformly applying the articles of the COMESA agreement. Therefore we are trying to set up a special infrastructure with certain countries. Trading with African nations is different from trading with other countries, and requires different payment and guarantee mechanisms, for example. Understanding the way that they consume and the way that they pay requires a little work, but we are well on the way now.

Looking at the US market, could you tell us a little about EGYPT INC.?

EGYPT INC. is a plan to move uniformly over the entire US market spectrum, both in attracting investment and promoting trade with the US. It is driven by our commercial offices in the US with expertise brought in from America, and hopefully it will give a very strong push to our presence in the US.

Still looking at co-operation with the United States, some countries such as Jordan have developed QIZ (Qualified Industrial Zones) in order to spur investment. Is Egypt going to looking at establishing QIZ areas in the near future?

We have investigated the potential of this type of scheme, but our economy is too sophisticated for QIZs, and furthermore the sectors that we are hoping to break into are not really helped by these zones. These schemes address only tariffs, not quotas, and our main thrust in the US is related to quotas. We are considering it, but free trade agreements take precedence because we believe that this is the best long-term solution for the relationship between Egypt and the US.

There is a big drive towards e-commerce at the moment - for which sectors are you hoping to attract foreign investors here in Egypt?

There is huge potential for software and programming development here. We have contacted a lot of large foreign software companies such as Microsoft, Cisco, Sun and so on, to introduce the minor training requirements that are still to be met by our vast pool of skilled labour, so we can start servicing software and meeting their data entry needs from Egypt. We are also trying to attract investment in the semiconductor industry. We believe that we have the same resources as, for example, the Philippines, and we are going to make an effort to attract this kind of business.

You have been a minister for some time now, as the Minister of the Economy and Foreign Trade, what has been your biggest challenge and how have you overcome it.

My biggest challenge at the moment is developing exports, not so much by way of quantity, but developing an export orientated culture within the Egyptian economy to ensure that exports have an unambiguous, uncontested priority over any other activity in Egypt. This is a cultural challenge of some magnitude.

What are your predicted export figures for the coming years?

I have not set targets as of yet, as we are still in the first phase, which is looking at structural issues. After this we need to look at different industries one by one to see what they can export, in what quantities, and to whom. When we have done this, I will then be able to make accurate predictions.

We have heard that there was a vote to form a Global Government, and you were voted to be the Minister of the Economy. If you were Minister for the Global Economy, what would be the first thing you would do?

There is one overriding challenge to the global system, and this is the proper integration of developing nations into the global economy. As long as these countries are not properly integrated, the potential for global growth will remain unstable.

We need to increase the basis of stakeholders in the global economy and make sure that developing countries are properly integrated. This requires more than just pious words, of which there is no shortage, but concrete changes in the institutions that govern economic relations between countries. I am talking here about serious changes in the IMF and WTO. The WTO has a serious problem because it has not yet converged towards proper rules of governance. It is the only organisation that deals with financial matters where the voting is on the basis of one country, one vote. In the IMF and the World Bank voting is proportional, and fifteen countries can give you a majority of 85%. In the WTO Fiji has the same weight as the US. In many respects this is good, and it provides something of a blueprint for how international relations should work. But of course it is impractical. We have to find a middle ground where everyone has a say, but every time there is a minor change it does not have to be negotiated between every single country.

I am not claiming to have a solution, but addressing the problem openly and sensibly is half the battle. Recent events in Seattle has shown that the process can be sunk, but in my opinion if Seattle had lasted another week an agreement could have been reached. The real question is whether or not it could have been enforced. This would have taken years, mostly because the decisions were taken in the old fashioned way where twenty countries make a decision, and expect all the others to simply agree and accept it. Unless we address this issue, which is one of fundamental relationships between developed and developing nations, we are not going to be able to include developing nations in the world economy, and we need to do this to ensure stability.

I am not talking about the typically mentioned developing countries such as Egypt and Brazil, the Philippines and Malaysia. I am talking about the CIS countries, Russia and China. It used to be generally accepted that the rightful place of these countries was on the margins of the world economy, but they can do significant damage if they are left loose and unsupported, whereas if they are integrated properly it can be to everybody's advantage.

Finally, what would be your advice to Forbes readers who are considering investing in Egypt, and why should they choose Egypt as opposed to other emerging markets?

Egypt is to foreign investors now what North America was to European investors in the late 18th century - virgin territory, full of potential, acting as the doorway to a whole continent. Egypt is this doorway to the last unexploited regions of the earth at the beginning of the 21st Century, namely the Middle East, North Africa and the African continent. We represent the doorway to all three regions.

We have the infrastructure and the proper principles of Governance that will allow investors to participate in the decision-making, not only in relation to their investments, but for the economy at large. I cannot think of any other nation that has the untapped potential that Egypt has. We are the natural candidate to be the driving force in this part of the world.

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© World INvestment NEws, 2000.
This is the electronic edition of the special country report on Egypt published in Forbes Global Magazine.
August 7th 2000 Issue.
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