Monday, September 8, 2008

Egyptian government's economic reform policies

A report issued by the European Union last week praised the Egyptian government's economic reform policies and the country's improved business climate as it attracts domestic and foreign investments. However, experts believed that being ranked first was not enough for Egyptians to rest on their laurels, since the economy still has many problems that urgently need to be addressed.

The report on the implementation of the Euro-Mediterranean Charter for Enterprise was prepared by the EU and the Organisation for Economic Cooperation and Development (OECD), in collaboration with the Egyptian Ministry of Trade and Industry. It incorporated a comparative assessment of nine states from the southern Mediterranean, namely Egypt, Tunisia, Israel, Palestine as represented by the Palestinian Authority, Algeria, Syria, Morocco, Jordan and Lebanon.

Egypt ranked first in all aspects of the evaluation, except those relating to the educational system as linked with the labour market and the efficiency of business organisations. In this category, Egypt came second.

Moreover, the report lauded the positive role played by the Ministry of Trade and Industry through its supervisory body of export and import support funds, increasing Egypt's ability to access global markets. It also praised the role of the industry modernisation centre, the industrial development authority and network technology centres, which help increase the market competitiveness of industrial products. The report also referred to efforts to modernise credit quality, and the qualifications system.

In October 2004 the nine surveyed countries endorsed the Euro-Mediterranean Charter for Enterprise. The charter contains 10 principals of good governance in support of the development of the private sector and this builds an umbrella for enterprise policy. The charter also aims at forming the basis for an exchange of experience and good practices between the EU and its Mediterranean partners.

By endorsing the charter the Mediterranean countries committed themselves to using it as a tool to implement microeconomic reforms and to boost the competitiveness of their enterprises with the aim of attracting higher levels of foreign direct investment.

The regional progress report on the implementation of the Euro-Mediterranean Charter for Enterprise offers a summary of recent developments, examples of good practices, a comparative analysis of strengths and weaknesses in the region, and recommendations for the future. The report is scheduled to be presented to the ministerial meeting on industrial cooperation, set to take place in Nice on 9 November 2008.

Being the first among nine countries according to the EU report for 2008, is undoubtedly good news for Egypt. However, experts viewed the impression the report paints more analytically. Some agreed with the report, and themselves had many positive remarks on the Egyptian economy. Others were more sceptical about the economy's efficiency and the concrete results of the government's recently implemented reform policies. But all agreed that being ranked first in the evaluation is not enough since much remains to be done before a comprehensive reform is complete.

Hamdi Abdel-Azim, professor of economics and former president of Al-Sadat Academy for Administrative Sciences, told Al-Ahram Weekly that the report results reflect an improvement in the implementation of government policies. He also believed that industrial policies have become more user- friendly, encouraging more investors to set up new projects. Financing a project is no more a problem, since banks are making such funding, while public subscription in the stock market is now a reality.

Another positive factor Abdel-Azim pointed out is that Egyptian products have more access to markets than those of the other surveyed states, since Egypt enjoys numerous trade cooperation agreements such as the COMESA agreement with the African countries, the EU partnership and the Arab Free Trade Area.

However, Abdel-Azim criticised some clearly negative aspects in the Egyptian economy, such as the weakness of the role played by business organisations, which he said only care about providing services for members and holding conferences and seminars. "Business organisations do not represent a lobby against the government to be considered when taking decisions," he said.

Abdel-Azim also explained that there are some issues which the report ignores, such as the fact that local production quality needs to be improved, international environmental regulations should be applied properly by industrial projects, labour needs to be well trained, and the latest technological methodologies have yet to be fully applied.

American University in Cairo economics professor Doha Abdelhamid for her part believes the report's results do not mean that the Egyptian economy's performance is good, since the report is based on information provided by each country. Official figures provided to the EU reflect the official economy and exclude the informal economy, which represents between 40 and 80 per cent of the Egyptian economy. The sheer size of the informal sector in itself shows that industrial policies are inadequate, because it proves investors are escaping formal registration, said Abdelhamid.

She went on to say that the report is concerned with evaluating industrial policies as applied to the enterprise sector -- and not the whole of the Egyptian economy as such. "The report contradicts with reality. Ranking first in having access to markets should in theory translate into an increase in total exports, which is not the case for Egypt," said Abdelhamid. She added that ranking first in facilitation of procedures for investors seeking to establish new projects should be also expressed in the flow of foreign direct investments into Egypt. This flow currently stands at $2 billion, which remains a modest figure if compared to other countries.

"The report ignores many negative issues affecting Egypt's economic performance, first among which are bureaucracy, corruption, a lack of local products' competitiveness, a high inflation rates, escalating unemployment and weak public services," Abdelhamid added.

Al-Ahram Weekly -4/10 September 2008