CAIRO, 5 December 2003 — Government red-tape, a defunct currency float and complicated customs tariffs are deterring investment in Egypt that experts say is needed to spur growth and employ the rising labor force and jobless.
Without accelerating change, they said Egypt would miss out on rising foreign investment flows as the world economy recovers, leaving growth short of the six percent a year needed to outpace population growth and raise living standards.
In the meantime, growth is likely to languish around three or four percent, short of levels needed to employ the 800,000 or so people officials have said enter the job market annually.
The Arab world’s most populous country announced this week sweeping management changes at the central bank, raising some hopes that market forces may soon determine Egypt’s pound rate. The government also boasts a raft of new economic reforms.
But experts, some speaking in Cairo at a two-day investment conference, said Egypt had promised much in the past but failed to deliver, undermining investor confidence.
Highlighting Egypt’s lackluster performance, Fitch Ratings this week revised down the outlook for its long-term local currency rating of BBB to negative from stable but the long-term foreign currency of BB+ — sub-investment grade — was unchanged at stable.
“It’s just drifting in the wrong direction... The growth rates that we are forecasting are not sufficient to address the unemployment issue, that is something that will continue to haunt them,” Fitch’s James McCormack told Reuters from London.
He said growth could rise to four percent in the next two years but hefty domestic debt looked set to climb as the state tries to clean up bad bank debts and meet a rising subsidy bill. Subsidies are sensitive for a government with few democratic credentials. And some fear there are still divisions over reforms, reflected in the January pound flotation which some officials now admit is “managed” rather than genuinely free.
“I think there is a reform element within the (ruling) party and the government that is serious about floating the exchange rate, but the old guard is reluctant to let go of the controls,” said Taher Gargour, London-based analyst at HSBC.
A new governor for the central bank may offer encouragement, but most analysts say change is not guaranteed because key policy decisions come from higher up the political ladder.
World Bank country director Mahmood Ayub told the Cairo conference that Egypt had to ensure a flexible exchange rate and streamline tortuous bureaucracy that deterred entrepreneurs. “There are also too many customs trade bands — 28 altogether — which complicates procedures and can lead to corruption,” Ayub said.
From 1998-2000, he said Egypt secured just $1.5 billion-$2 billion a year in foreign direct investment out of $200 billion heading into developing states, but this had since tumbled to some $500 million a year, partly as total global flows dropped.
Egypt is pushing ahead with reforms. A new banking law to strengthen banks has been passed. A tax law slashing a range of rates will soon go to parliament, as will amendments to the investment law aiming to create a “one-stop shop” for investors with a 30-day deadline for project approval.