Re-Engineering Egypt’s Economy

Newspaper Title: http://www.wsj.com/

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Sunday - 27 September 2015

Over the past two years, the Egyptian people resolved to regain control of our destiny as a nation and began a process of political, social and economic renewal. Politically, the parliamentary elections coming in October and November represent an important milestone that will demonstrate Egypt’s immense progress.

On the economic front, Egypt is overcoming past uncertainty and turmoil by devising and implementing far-reaching policies, programs and projects. The chief objectives are to ensure long-term sustainability by correcting the country’s previous fiscal imbalances—produced by a misallocation of funds, an unsustainable energy subsidy and poor revenue streams—to create a dynamic, competitive and private-sector-led platform for growth, and to restore confidence in the investment climate.

What the government is planning entails nothing less than the re-engineering of Egypt’s entire economic apparatus. An economy that has for too long underused its natural and human resources is being restructured so that it can reach its full potential. At the same time, lessons learned from Egypt’s last economic boom, during the mid-2000s, are being applied to ensure the political durability of the economic reforms. We aim to balance the objective of lowering government deficits against our commitment to promote social justice. This means to ensure that growth this time around will benefit all Egyptians, and not just a few.

While it is still in its early days, the economy’s initial response to the government’s policy initiatives has been promising. Growth is estimated to have reached 4.2% in our last fiscal year, which ended in June, following several years of annual growth hovering at only 2%. We are aiming for 5% growth during the current fiscal year, driven by rising foreign direct investment, and the implementation of various new energy, infrastructure and agricultural reclamation projects. These include turning more than 1.5 million acres of barren western desert into arable land, and the startup of the Suez Canal development project.

This maritime project will further unlock the massive trade and economic potential of the Suez Canal by transforming 76,000 sq. kilometers (29,343 sq. miles) into a global industrial corridor featuring four world-class ports as well as agriculture, manufacturing and innovative energy-generation hubs, potentially generating up to one million new jobs.

Thanks to significant policy changes, such as implementing energy-subsidy reforms and broadening the tax base, the budgetary allocation in fiscal 2015 for health and education exceeded energy subsidies for the first time in many years. Meanwhile, after we amended or introduced a number of laws to strengthen the domestic business environment and reinforce the rule of law, nearly 300 disputes with foreign investors have been resolved and the remaining cases are under way.

Over the past year and several months, we have delivered much of what we committed to do, against long odds. There was considerable pressure on the government to adopt a populist economic approach, and many fears that reducing government deficits would nip a budding economic recovery before it has a chance to flourish. But we were willing to make the tough decisions and to forge ahead with the long-overdue and contentious reforms that prior governments had known were necessary but did not carry out.

I do not discount the political and structural challenges with which we have been wrestling and that still lie ahead. And I look forward to the contributions that Parliament will soon make in rebuilding Egypt, crafting new laws to foster the country’s path toward development and greater shared prosperity, and monitoring the government’s performance and representing the interest of the people.

As we look to the immediate horizon, the main reform on the agenda concerns the proposed amendments to the General Sales Tax. The planned reform will move Egypt toward a value-added tax regime that will—alongside a simplified tax regime for small and medium-size enterprises—raise revenues and bolster investment incentives by boosting growth, creating jobs and improving firms’ cash flow.

Transition is never easy. Creating a new model of economic growth inevitably generates resistance from some groups. Nonetheless, detours do not deter us from our determination to continue with the reforms. We have set the stage for economic recovery and achieved a good momentum, but we know that it is essential to deepen the reform effort. If we do not do so, we risk losing the credibility and confidence that we have earned to date—and we will cheat the Egyptians of the brighter future that they deserve.

Mr. El Sisi is the president of the Arab Republic of Egypt.