Egypt, new dimensions, new frontiers

H.E. Dr. Medhat Hassanein, Minister of Finance

Interview with:

H. E. Dr. Muhammad Medhat Abd El-Atti Hassanein
Minister of Finance

Cairo, January 31st, 2000

Lazzoughly Square, Justice & Finance Building,
Tel: (202) 337 07 14
        (202) 311 26 74
Fax: (202) 354 54 33
Since the latest cabinet reshuffle some changes have been introduced in the government and particularly in the economic team. Could you brief us on the new situation which has been created?

During the last year, and specifically on the 11th of October, a new government has been formed. Four ministers, including myself as the Minister of Finance, are considered to integrate the Economic Group. These are Dr. Ahmed El Darsh, who is the Minister of Planning and Economic Cooperation, Dr. Hassan Khedr as the Minister of Trade and Supplies, Dr. Mokhtar Khattab as Minister of Public Enterprise and Dr. Youssef Boutros-Ghali, Minister of Economy and Foriegn Trade. A reorganization of ministries had occurred where international trade is now under the umbrella of the Ministry of Economy and the Ministry of Trade and Supply became responsible for internal trade and supplies. This group did not exist in the previous government, which had a definition that was based on activities and had a committee for every activity or subject. On the other hand, the new governments' goal is to coordinate economic activities.

This coordination of activities happens on three levels. The first level is monetary policy, which looks at exchange rate, interest rate, local liquidity, banking performance and different tools of managing the monetary policy. In order to ensure that the Governor of the Central Bank of Egypt, who is the manager of the monetary policy, is also a member of the economic group, the economic group tries to listen to him and to coordinate monetary policy with other policies. The Minister of Finance is in charge of the fiscal policy that includes government expenditures, revenues and budget deficits, and the Minister of Economy is looking into all the aspects of international trade, insurance sector and capital market sector. In the committee held by the economic group, these three branches are looked at and investigated and coordinated with the other monetary and fiscal policies. The third member of the group is the minister of Public Enterprise who is in charge of managing privatization, which is afterwards discussed in economic committees. The fourth member is the Minister of Planning, who is in charge of planning public investments on all levels and is in charge of government departments and activities, local units, service organizations like universities and economic authorities like the Suez Canal Authority.

In the end, all these aspects are brought to the attention of the economic group which tries to coordinate all policies, in order to harmonize all activities and come up with certain proposals which are then referred to the cabinet, which in turn comes up with decisions regarding certain policies or ways to accomplish them or changes in legislation. In case of major issues concerned with major activities, these are usually brought to the President where we meet along with the Prime Minister to discuss such issues. This is done to speed up the process of decision making.

Looking at fair distribution of income, the government is concerned with the poor. The prime minister mentioned clearly that there are social programs and economic programs, where these programs include for the first time ideas, a plan of action and means of achieving them. We have about sixteen social programs aiming to alleviate poverty and ensure the redistribution of income among the poor. Another major concern is unemployment and we have suggested a number of programs to create jobs in addition to helping the private sector create jobs by removing all obstacles that affect it. We have also met fifteen to twenty times since the cabinet has been elected. These meetings were with different concerned parties including businessmen from different societies. We listen to their different suggestions about taxes, bureaucracy, customs and legislations and try to help them as much as we can, once again with action programs. We consider the private sector investment a major investment component of our national plan whether this private sector belongs to an Egyptian businessman, a foreigner or an Arab. Another concern is the mega projects like Toshka, Port Said and Suez Canal. We have begun these projects and will continue them.

Besides this restructuring in the decision making process, would you name any major economic achievements in the year 1999?

We have only recently been appointed (October 1999), therefore I would say that the major event would be looking into all issues and programs and resolve them. There are a number of major issues that concern us like poverty alleviation. We also had a World Bank mission last December where we are coordinating efforts with the World Bank to prepare studies that would lead to action. One of these studies was on infrastructure and how to expand and finance it without burdening the national budget. We are also working on how to promote exports, as a priority of the new government's agenda. I have been meeting with the minister of economy to put systems like the draw back system and the tax rebate system to encourage exporters to export raw materials and semi-finished goods after they do industrial processing and other activities where they become totally exempted from any taxes. This system seems to be excellent but it has some obstacles that are being removed. And we are also looking into a number of activities that go along the GATT and WTO rules while at the same time encouraging exports.

Since the government initiated its reform process, Egypt has already achieved major goals and now the country is enjoying a period of economic stability. Could you draw a picture of the general economic figures with a special emphasis on those which are under your umbrella?

The Egyptian economy is growing at a real GDP of 5% and the rate of inflation is less than 4%, which is about 3.5%, the balance of payments had a surplus last year but the year 1998/99 will end up with a small deficit because we had extensive imports from south Asia due to the reduction in foreign exchange and prices there. This in turn affected liquidity and exchange rate, but we are now restoring the balance of payment for the year 1999/2000. The net fiscal deficit is still within boundaries at less than 1%. The monetary policy had faced some shortage of liquidity, especially the availability of dollars. This was due to tourist proceeds diminishing as Luxor has its impact on the economy but late figures show that we are returning to the same level that was before the Luxor incident. This was also due to the reduction of oil prices (which is going up again) and the pressure of imported goods from south Asia, which businessmen weren't able to sell in the Egyptian markets. Lastly, there is a shortage of dollars which has attracted speculators and finally resulted in the Egyptian pound fluctuating slightly against the dollar, but this will no longer be a problem.
I am working hard to reform the tax system in my country as I am trying to restore the confidence between the taxpayer and the tax department. There are four activities concerning income tax reform. The first one is looking at tax rates and trying to maintain an equity of tax burden and restore accountability and credibility among the taxpayers. The second component of the reform is tax administration where we are trying to cut short on the amount of bureaucracy involved. The third is the training and human resource development where we are trying to have managerial training besides having technical training. We need to increase the efficiency of our staff by giving them more training and cutting bureaucracy. We are trying to have a friendly customer relationship, which is lacking in tax departments all over the world.

Finally, we would like to have anti-evasion laws because they have to be revised in order to avoid tax evasions. We are also concerned with sales tax and hopefully by the next year we will be able to implement the second and the third phase to make up for all the deficiencies we have under the present system like the duality of taxations, which is to be eliminated under the 2nd and 3rd phases. Customs is my third issue of concern and this includes custom's administrations, tariffs, the law of customs and custom's taxes and the systems under these taxes and obstacles. We are working on that to make the customs a model as good as other models of taxation like the sales tax which is a good model of how a tax department should be, regarding the administration and the relation between the tax payer and the tax authority.

A decree has also been issued regarding the tax treatment of taxi drivers, where we agreed, after several negotiations between their syndication and the tax department, that taxi drivers should pay a certain amount of money before they renew their annual license. This amount varies depending on several factors, such as the car model, either old or new, the marital status and the number of children dependant on the driver. This is an example of a one-stop shop.

You have mentioned earlier that the government has already planned several programs, which it is committed to implement. Could you mention some of the most remarkable programs that you plan to implement during this year?

There has been a long historical problem that has been hanging for the last seven or eight years where a group of businessmen collected money from limited income groups to invest them but could not find any projects to invest in. This problem is known in our country as the acquisition of funds and has affected the average Egyptian citizen. We have announced a program for the solution of this problem and the government is trying to liquidate the assets bought by these businessmen to pay back the funds to the people who did not get their money back. The government, as I mentioned before is also helping to increase employment by job creation and by helping the private sector. Within a year, 650,000 new jobs will be created between the Social Fund for Development projects and the private sector. As I mentioned previously, the major program that we are after is export promotion. We also try to resolve any issues that impede the implementation of the mega projects.

Considered as one of the fastest growing market in the world, Egypt is today a land of opportunities. In your opinion, what are which will require more foreign investment?

Foreign investments can now attract some industries, good manufacturing, assembly lines, textiles, petro-chemicals, infrastructure projects and some agricultural projects, especially in the mega projects. There are also the export promotion activities, the marketing companies and the software industries. Concerning the software industries, we had a very important meeting with president Mubarak where we discussed a very ambitious program to enhance IT activities in our country, which can attract foreign investors.

What are the government's tools to attract foreign investment?

We are trying to remove all constraints and obstacles that might impede the attraction of foreign investment in our country, whether these obstacles are customs, legislations, court settlements, liquidity and stability of foreign exchange.

Our national saving is about 17% per year, while our national investment is about 25% per year, therefore, there is always a gap of 7% to 8% between these two figures and that gap will be financed by foreign direct investment.

What are your ambitions for your country and what would you like your contribution to the development of Egypt to be?

As an Egyptian citizen, I would like to see Egypt as a welfare state where every average Egyptian would get a decent education, transportation, housing and a decent standard of living. I would also like to see a reduction in bureaucracy and a better treatment and welfare of citizens. In addition, my aim as a Minister of Finance is to implement this in my Ministry and to restore confidence between the tax payer and the tax departments, and try to convince the taxpayer that his money will return to him in terms of better services, housing, and quality of life.

Is it not surprising to see a Minister of Finance putting so much stress on social policies. Why is that?

This is because if you want to make a balance between finances and revenues you have to go back to the other side of the story, which are expenditures. My aim is to rationalize the expenditure and investment of the money collected.

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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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