Al-Sisi’s risky economic gamble: Egypt’s challenge lies in its present reality, not its potentiality

Newspaper Title: Daily News

Newspaper Number:

Monday - 6 April 2015

The Egyptian government recently held a very successful Economic Summit. Although the conference was mentored by an Arab country and managed by an international agency, the credit for its success still goes to the Egyptian government for its open-mindedness in this respect. Nevertheless, in my opinion, attracting foreign direct investment (FDI) has never been a problem for Egypt. The country’s abundant resources, along with its large population, have always placed Egypt high up on foreign investors’ shortlist of countries. Our challenge has always been about designing and regulating investment projects to optimise their benefits. We have failed, to this moment, in resolving these problem areas.

Egypt has been, and will continue to be, a nation with great potential for investors. The challenge lies with the actual reality on the ground – government bureaucracy, widespread corruption, time-consuming legal procedures and low employment productivity. These challenges constitute the major hindrances facing investors who are willing to bear them, probably due to the good return on investment that Egypt offers. However, as I learnt from a former prime minister of Egypt (a man with a solid economic background), investors can live with obstacles so long as these are well-defined in advance. Our real challenge lies in the government’s tendency to change its mind concerning business opportunity regulations, often even after it has signed agreements with investors.

The biggest surprise of the economic conference was President Al-Sisi’s announcement concerning plans for building a new capital city, whose first phase of execution is expected to cost $45bn. Shouldn’t this type of huge investment project – that will change Egypt’s demographics – have been subjected to debate among a number of experts prior to its adoption? Does this project really merit being accorded priority over thousands of other projects that cost only a fraction of the amount? By deciding to assume this initiative, is the government setting a good example of transparency? The amount mentioned above would, literally, suffice to give half of the entire population (including children and newborns) one thousand dollars each to start-up new businesses.

A few months ago, when President Al-Sisi announced the New Suez Canal Axis project, I asked a number of bankers and economists whether other financing options, better than the high interest investment certificate option, exist. I learnt that there are plenty of less expensive financing packages, but that the president preferred the certificate option. Did the president consult these experts prior to making his decision? One of the main challenges that Egypt is facing is that it has a determined president who is strongly convinced that mega-projects, especially if completed within a reduced timeframe, will revive the national economy.

The Saudi investor who bought the famous Egyptian retail chain “Omar Effendi” was eventually thrown out of his business, when a lawsuit raised against him by an Egyptian citizen concluded in the chain being handed over to the Egyptian government. During this painful and costly process, the Egyptian government declined the Saudi investor’s offer to return the chain to the government in exchange for retrieving only the amount of his initial investment (he was prepared to bear all the expenses already injected into the project). The Saudi businessman subsequently won the case in international arbitration, receiving compensation that exceeded, by far, the initial offer he had made to the government.

The Egyptian government has always treated FDI as if it were a groom seeking the hand of the government’s pretty daughter. The father-of-the-bridekeeps making unrealistic demands, even after the marriage contract is completed. In this lengthy bureaucratic marriage process, the government forgets that the bride is aging and the wealthy groom is leaving; the father of the bride continues, regardless, to multiply his improbable claims.

The government’s allocation of huge annual budgets to attempting to increase the number of tourists visiting Egypt is based on the same philosophy it uses to bring Foreign Direct Investment to the country. Tour operators and tourists who are considering visiting Egypt can easily obtain up-to-date information about the country simply by ‘googling’ us. Spending more money on promoting our country’s amenities will not make it more attractive. On the other hand, re-allocating these millions of dollars to resolving issues that really annoy tourists in Egypt will persuade millions of hesitant first-time tourists to visit us, and encourage those who have had bad experiences in the country to return.

Furthermore, assigning the development of mega projects to the military does not benefit anyone, including the military itself. Some of our business sectors may be suffering from various deficiencies, but we will only succeed in overcoming these deficiencies by expanding the businesses and applying improved regulations. Curtailing private business activity and allowing the military to compete with the private sector will create a sense of bitterness in the business sector. Additionally, by assigning it the task of boosting the Egyptian economy, we are definitely overburdeningthe military, both physically and mentally.

Should government officials ever chance to read this article, they will say, ‘this is nonsense; we are not involved in corruption and we only want what is best for our country’. While this is true, it is not enough! I recently watched an interview with an Egyptian water expert who elaborated on the drawbacks of the preliminary agreement on the Nile River that is not beneficial to Egypt. The expert, who identified himself as a supporter of the president and who had worked in the president’s election campaign, was requesting that the government hold technical debates prior to signing critical agreements.

President Al-Sisi previously stated that he would revive the Egyptian economy within the span of two years, after which every citizen would personally feel the effects of the improved economic conditions. The president is certainly doing his utmost, but he is doing so purely from his own individual perspective. In the absence of parliament, he should at least engage with experts whose policies differ to his. We are approaching the end of the president’s first year in office, and the international aid we are receiving has probably been wasted on repairing the damage triggered by political Islamists.

This leads us to understand the mechanism of how Egypt operates; we act first, then we think, hide our mistakes instead of learning from them. Solving the problems of a few selected companies will not automatically benefit the rest. If we want to boost our economy, we need to engage the entire society in generating ideas to optimize our resources – not to surprise it with launching projects that will cost us billions, without having at least conducted some technical debates on their validity. We need to consider how to better manage our existing projects/resources/challenges before we adopt new ones and beg for the money to finance them. I have always been a strong believer in the saying, “There’s no such thing as a free lunch”, yet I had not realised that the funding we received from the Arab Gulf countries during the recent economic conference would have to be paid back so soon by our involvement in the war in Yemen.