Sunday, 15 March 2015

What the Sisi administration and regional / international officials said at the Egypt Economic Development Conference (Part 2 of a two-part special report)


Today’s edition focuses on who said what yesterday at the Egypt Economic Development Conference and includes the kernel of the project tracker will be building out this week. This installment is part two, covering a rundown of commentary from government officials. Part one, sent a few moments ago, covers the private-sector panels. If you missed part one, check your inbox or head to our website — we should have both installments online before 7am CLT.

One note on content: The five simultaneous sectoral sessions were, unfortunately, not broadcast or livestreamed, so we have no coverage there pending receipt of footage from the organizers. We’ll keep you posted.

We’ll also have later this week a comprehensive set of links to all panel sessions that have been broadcast.


Click here for a recap of President El-Sisi’s opening address, coverage of The Capital Cairo, Egypt’s new capital, and reaction in the international press.


Key Takeaways:

Prime Minister Ibrahim Mahlab’s speech began by detailing Egypt’s ideal position and unique fundamentals, and then delved into the government’s goals, agenda and plan of action in tackling the challenges Egypt faces.

Political Stability: As a focal introduction to his outline of the government plan, PM Mahlab stressed the concerted efforts, milestones achieved, and strides taken in Egypt’s political road map. He cited the constitutional referendum, presidential election, and the upcoming parliamentary elections as key indicators in Egypt’s road to stability.

On strengthening the private sector: Raising the competitiveness of the private sector is of the utmost priority for his government, as it will inject dynamic market forces into the country, allowing for the proliferation of world-class quality of goods and services. Strengthening the private sector, he added, would bring about sustainable development and will play a role in ensuring that returns on investment trickle down to the rest of the society.

On creating an ideal investment climate: The objective of this point is to afford investors the ability to enter and the exit the market with ease, in addition to finding feasible economic and political solutions to endemic institutional problems.

Developing a capable and competitive labor force: Mahlab views that the importance of this policy must be akin to a major national project. As such, a new independent ministry was set up to develop vocational and technical skills.

Administrative and legislative reform: This was managed by the High Administrative Reform Committee and the High Legislative Reform Committee. The prime minister pointed to the many reforms undertaken by these committees in the last six months, key of which has been the new Civil Service Law and the upcoming Local Administrative Law. These reforms also aim to tackle nepotism and corruption, in addition to furthering transparency.

Reforming the economic regime: This will require input and the active participation of the private sector. Among the key policies he identified were: establishing a unified investment law; stable taxation policy; establishing clear guidelines for private land ownership; laws protecting companies against unwarranted litigation; and ending monopolies.

Establishing a unified code and database for the development of economic assets, projects and facilities throughout Egypt in an attempt to absorb the informal economy and standardize and streamline economic activity.

Mega projects: The prime minister listed some of the most important strategic national projects being planned including the New Suez Canal, the Golden Triangle economic and industrial zone in Southern Egypt, North Western Coast Development project, East Oweinat Project, the Damietta Grain Logistical Center project, 22 new industrial cities, 3,800 km in new roads, and the New Capital City project.

Education and youth engagement: The program seeks to develop Egypt’s human capital through education to acclimate youth to the global job market’s standards.

Social welfare: The government will establish a social welfare safety net for the most vulnerable members of society. This will include increasing access to welfare, raising benefits and entitlements for low-income families and individuals, and increasing access to health insurance. Aspects of the safety net also include a new policy on bread distribution and redeveloping slums.

SMEs: The government will take an active role in promoting SMEs as they are expected to be the primary driver of employment in the country. The government plans to do this through a number of programs such as the Ayadi program.

Best Quotes:

“We seek to create the conditions for a free economy that relies on innovation, maximizes returns for our partners and grows sustainably to the benefit of all.”

“We will move in a decisive and single-minded manner in pushing through necessary reforms, despite the major obstacles and challenges.”

Watch for yourself (Arabic, running time: 4:58)

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Key Takeaways:

On the parallel market for FX: Ramez recounted the “brave steps” the CBE has taken to quash the parallel market for foreign exchange, saying “it is no more. Transactions in the parallel market have come to an end. We’re meeting foreign exchange needs; we’re securing import needs; we’re honoring our international commitments.”

On monetary policy: The CBE will continue to manage for price stability while driving growth to support job creation.

Repatriation: Ramez noted that investors in shares, treasuries and bonds will face no restriction on their ability to repatriate funds.

CBE will start pushing financial inclusion: Ramez believes the speed with which funds were deposited by Egyptian citizens not only provided a liquidity boost to the banking system, but served as a “lesson in financial inclusion. It’s on our agenda in the near future.” Financial inclusion is a driver of equitable growth; and to that end the CBE has backed the opening of small retail banking branches in rural areas as well as the mobile payments framework. Next on their agenda is to enhance access to finance and consumer financial literacy.

On the health of the banking system: Thanks in large part to the supervisory role the CBE has played, Egypt’s banking sector remained on solid footing and even thrived despite the challenges that followed 25 January 201.: Between December 2011 and December 2014, total assets in the banking system rose 53%, deposits were up 65%, total net worth of banks rose 62%, and total loans increased 37%.

On the financial soundness of the banking system: Financial soundness has improved in tandem, with overall capital adequacy at 13.1% by year-end 2014, significantly above the target of 10.5% by 2018 as mandated by the Basel accords. Similarly, non-performing loans as a percentage of total lending fell to 8.6% in 2014 from 13.6% in 2010.

Best Quotes:

“We have a zero-tolerance policy for the parallel market. We have crippled it.”

The CBE “has no price target [for the USD] and we will have acceptable volatility  — I repeat, acceptable volatility.”

“As a fully-independent central bank — I always repeat this: As a fully-independent central bank, we are fully committed to making Egypt a stable and prosperous economy for its people and its investors.


Key Takeaways:

Minister El-Araby’s speech elaborated upon the Sustainable Development Strategy (SDS) which aims to guide Egypt in achieving its economic, human development and social justice goals by the target date of 2030.

Economic Development: The economic development pillar of the SDS defines Egypt as being a private sector-based economy, and as such, policies have been geared towards strengthening private sector. The government has already mobilized to enact reforms to the economic regime which have led to an investment growth of 20%.

Legislative and administrative reforms undertaken have focused on cutting down red tape, bridging the gap between investors and lucrative projects and minimizing any hindrances to the investment process.

Promoting and establishing transparency as the dominant culture of governance in Egypt is another major focus of these reforms is to as the. This will entail rooting out corruption and nepotism.

Supporting key sectors, a focal policy of the SDS, has been centered on launching ambitious mega infrastructure projects (the New Suez Canal, the New Capital City project).

Energy policy: The SDS’ policy on energy will seek to maximize the use of both traditional and renewable energy sources. Major reforms to this sector include taking active steps to deregulate the energy industry.

Environmental concerns: The SDS plan will establish mechanisms that integrate the needs of the environment with the country’s economy, in order to allow for sustainable growth.

Human development: Raising Egypt’s Human Development Index is a process that will require extensive reforms in the coming period. The SDS’ plan call for policies and programs to protect and promote jobs in addition to increasing support for local development as it will be a major driver for job creation. This will be achieved through initiatives in collaboration with the private-sector such as the direct investment fund, Ayadi, which will identify promising SME investment opportunities and facilitating access to aid and loans.

The SDS has also set a target of allocating 10% of GNP towards health and education, which have been neglected in previous years. This significant development will see the bar for quality education raised. Further, the healthcare system will be expanded both in terms of coverage and quality.

Social Justice: Under the SDS’ social justice provisions, which aim to promote greater equality by creating an environment of equal opportunity, it is estimated by the Ministry of Planning that Egypt will be among the top 20 countries in the world terms of gender equality. Expansions in the social security pension program, Takafol and Karama, have seen the number of beneficiaries of this program expand from 1.5 mn families to 3 mn. Healthcare insurance under the SDS has also been expanded to cover those who have had limited access to these benefits, such as small farmers.

Best Quotes:

“Ours will be a private sector economy which vibrant, diverse, capable of achieving sustainable growth and will position us to join the ranks of other high-middle income economies.”

“GDP growth has been accelerated to 5.6% in the last six months, with investments in the same period growing 20%.”

“A comprehensive action plan was taken to develop Egypt’s poorest villages and improve citizen’s lives.”

“Access [to quality education and healthcare] will enhance Egypt’s competitiveness in the global marketplace.”


Key Takeaways:

Growth must be inclusive, Dimian said, and a component of tax policy is to secure the resources needed to increase by 3.5% spending on health, education and R&D as a percentage of GDP.

Funding framework: The government will not implement any reform policy without a compensatory “social cushion” and there will be no social program implemented unless the government knows where the program’s funding will come from for the lifetime of the measure.

Silence on fuel price hikes speaks volumes: Dimian noted that reducing “wasteful, unproductive and unfair energy subsidies” is a key element of fiscal reform. Although the benefits of phase one of the energy subsidy cuts were “partially diluted” by rising consumption and devaluation, that was offset by the drop in oil prices. Dimian did not promise additional fuel price hikes for the new budget year.

We’ve probably seen all the tax reforms we’re going to see…: Dimian recapped, with fairly evident satisfaction, recent tax cuts including tax cuts on capital inputs, the imposition of a unified tax rate of 22.5% (down 2.5 ppts) and the apparent elimination of the surtax on incomes above EGP 1 mn. Taxes on property, alcohol and cigarettes are all working as they should.

…except, for course, for the “full VAT,” which the minister promised will “take all the awkward clauses out of the current code” and which will be “fair, clear, and follow international best practices.”

Other legislation in the pipeline: A new tax code and a sukuk law (covering domestic and international issuances).

Phase-out of energy subsidies is funding the increased spending on health and education, where Dimian estimates “we need USD 130 bn between 2014-15 and 2016-17.”

Accelerated depreciation is now optional, rather than mandatory in its first year, as was the case under tax code changes in 2005.

Automatic raises for civil servants will be less sharp in the future, Dimian suggested, saying the new civil service act and “better control on government hiring” will see public sector wage bills grow slower “in a few years … we’ve taken the first step.”

What’s the 4-5 year outlook? GDP growth above 6.5%, GDP per capita will grow to “north of USD 5k,” the budget deficit will fall to 8-8.5%, gross debt will stand at 80-85% of GDP, with inflation in the 6-8% band. Poverty will be on a declining trend and “we will be making good on our constitutional mandate to deliver citizen services that improve the lives of all Egyptians.”

Best Quotes:

“We’re on a mission … and in less than a year, we have proven we can deliver.”

“No investor has ever been allowed to even come close to the Suez Canal zone. Today, it will not only become a hub for the passage of international trade, but a driver of domestic growth and industrial development.”

“It’s their dignity. It is their right. And it is our duty,” he said, referring to the drive to provide citizens with better government services and, for the needy, higher-quality commodities.”

“In a country like Egypt where dividend distribution is exaggerated 70-80% on average, we want businesses to retain capital.” — on the capital gains tax
“We’ve got better controls on government hiring and the civil service act will be a tool to reduce steepness of wage increases in government sectors. It will take a few years, but we’ve taken the first step.”


Watch for yourself (Arabic, running time: 19:54)

Key Takeaways: While attracting tangible investments – those in large real estate and energy projects- is imperative, it is equally important to increase intangible or soft investments, namely those in education. Leading countries of the 21st century will have knowledge-based economies. Consequently, Egypt’s economy need to foster creativity and innovation in order to compete globally.

In order to achieve this goal, Egypt must possess a strong education system that encourages participation in the field of science. Egypt is a young country, with two-thirds of its population is under the age of 30. Egypt’s young people are eager to learn and produce, but must receive government support in order to achieve their goals.

Egypt can enter the modern world. Some may say that this is not possible due to the overwhelming poverty that this country suffers from, however, If one looks at a country like India, and examines its Institute of Technology, one will find that in spite of its poverty its places of higher learning compete with those in Japan, Europe and the United States. Egypt can follow this same path.

The government is aiming to create a knowledge-based society. The government is in the process of establishing a 200 hectare institute of technology in Sixth of October City: The Zewail City of Science and Technology. The Egyptian Armed Forces are expected to complete construction on  Zewail City of Science of Technology before the end of this year.

Best Quote:

“India recognized that the most efficient path to development is providing its youth with superior education that matches that found in the first world. Egypt must follow this same path.”


Watch for yourself (Arabic, running time: 10:37)

Key Takeaways: The finance minister reiterated one of the general themes of the conference in stressing that Egypt’s economic prosperity is critical for the region’s stability. In particular, Al Assaf praised the Egyptian government’s fiscal reform efforts. The minister mentioned in passing the importance of the large number of Egyptian expats to both the Egyptian and Saudi economies and urged Saudi investors to increase their presence in Egypt.

Notably, the finance minister called for an Arab customs union and more collaboration in regional infrastructure projects


Watch for yourself (Arabic, running time: 09:28)

Key Takeaways: Sultan Al Jaber acknowledged that Egypt has gone through a challenging period of instability since 2011, but said the UAE backed Egypt since then. Direct engagement with Egypt came under clear directives from President Khalifa bin Zayed Al Nahyan himself to form a committee to interact with the Egyptian government directly, Al Jaber said.

The Minister of State said the UAE is investing heavily in crucial infrastructure projects in Egypt, chose specific sectors to ensure tangible results are delivered, and hopes to create 900,000 jobs in the process. In this respect, EEDC is just a start, Al Jaber said, and the first day of the conference managed to convey two messages. On the political front, Egypt’s importance on the global stage was underscored by the calibre and number of attendees. On the economic front, Egypt has delivered the message that it is on a path to sustainable growth.

Al Jaber closed his speech by highlighting three points:

  • The EEDC is already a success given the large number of high calibre attendees.
  • The EEDC is just a starting point to build the “New Egypt” but the pace of reforms has to continue.
  • Egypt’s economic development is a cornerstone for a bigger vision of regional economic development, growth, and moderation.

Best Quotes:

“Investors should be aware about the importance of entering emerging markets, like Egypt, early.”


Key Takeaways:
Jin Yong Cai, Senior Vice President and CEO, International Finance Corporation, World Bank Group: Yong Cai stated that although the IFC finances private sector projects, they would also like to help the government with a wide range of issues, such as mitigating currency risks. Additionally, the IFC would like to assist Egypt’s development of its financial services sector. Over the past 3 years, the IFC has invested USD 1 bn dollars in Egypt’s private sector. We plan to do much of the same over the upcoming years.

Abdlatif Al-Hamad, Director General and Chairman, Arab Fund for Economic and Social Development, Kuwait: Over the next four years, the Arab Fund for Economic and Social Development expects to invest USD 2 bn dollars in Egypt, with a particular focus on infrastructure. The Fund plans to provide financial assistance to both the public and private sectors, directing its support to sectors that the Egyptian government deems high-priority.

Ambroise Fayolle, Vice President, European Investment Bank: On Saturday, the EIB signed a  EUR 120 mn loan with the National Bank of Egypt to support Egyptian SMEs. Additionally, EIB signed a co-declaration for future cooperation with the Egyptian government. The Bank plans to  assist Egypt with infrastructure, energy, and waste projects, and has EUR 2 bn worth of projects in the pipeline.

Hafez Ghanem, MENA Vice President, World Bank: The World Bank plans to more than double its support to Egypt. The Bank will provide USD 1 bn each year over the next four years, with an aim to eliminate extreme poverty and to support inclusive economic growth that touches all segments of Egyptian society. This year, the bank invested in a USD 400 mn dollar on a project for social protection and cash transfer payments, in addition to financing a USD 500 mn dollar housing fund.

Aly Abou Sabaa, Vice President, African Development Bank: The AfDB plans to invest USD 500 mn in priority sectors, such as energy and infrastructure, in 2015.

Best Quotes:

“What we have heard over the past couple of days is very encouraging. We have seen a committed government that is willing to walk the talk.” —Aly Abou Sabaa, Vice President, African Development Bank.

“It’s very exciting to see the turnout of this conference. I am very to happy to see that interest in Egypt is very strong.” —Jin Yong Cai, Senior Vice President and CEO of the International Finance Corporation.

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