Egypt needs an “economic revolution” to recover from damage caused by political instability as it seeks to attract billions of dollars in foreign investment and repair its state finances, planning minister Ashraf al-Arabi said.
The Arab world’s most populous nation has struggled since a popular uprising toppled veteran autocrat Hosni Mubarak in 2011. Last year, then army chief Abdel Fattah al-Sisi toppled elected president Mohamed Morsi of the Muslim Brotherhood after mass protests against his rule.
The ensuing security crackdown on the Brotherhood, pro-Morsi street protests and attacks by Islamist militants based in the Sinai Peninsula have hammered tourism, a pillar of the economy, and kept most foreign investors away.
To compensate for those losses and eventually compete globally, Egypt must overhaul an economy which has been dominated by the state for decades and show investors it is committed to safeguarding their money, Arabi said.
“I totally agree that in Egypt we need to have an economic revolution, and a socio-economic revolution, an administrative revolution just to cope with the political revolution that we achieved in June last year,” he told Reuters in an interview for the Reuters Middle East Investment Summit.
“The laws need to be revisited – the investment laws, the business laws. It is extremely important to understand that global competitiveness is a very challenging environment nowadays everywhere in the world. If we look at competitiveness indicators Egypt unfortunately is moving down in the rankings.”
Arabi said a new investment law, currently in draft form, would tackle issues including land use, the energy sector and infrastructure. “I believe we will have a very advanced law that tackles all the problems we are facing nowadays in Egypt.”
Authorities are working hard to make it easier for the private sector to operate in Egypt, Arabi said; a stifling bureaucracy and legal disputes have discouraged investment. In April, the cabinet approved a law preventing third parties from challenging contracts between the government and investors.
Before Mubarak’s exit, new foreign direct investment in Egypt was about $8 billion a year. It subsequently tumbled to some $3 billion, before recovering to $6 billion in the last fiscal year, which ended in June.
The economic growth rate over the last three years was around 2 percent.
“It is very important to have a growth rate at least three times the growth rate of the population. Nowadays we have a population growth rate in Egypt of more than 2.5 percent.”
Egypt aims for economic growth of at least 4 percent in the coming year and hopes to boost this gradually to at least 7 percent on average for the next decade, said Arabi.
“To do so we need at least, for the coming fiscal year, 500 billion Egyptian pounds ($70 billion) total investments,” he said in his office at the sprawling planning ministry in Cairo.
Arabi and other ministers appear to be taking a more realistic view of the economy than past officials, and so is Sisi, who was elected president this year and has since taken the politically bold step of raising fuel prices.
Previous governments tended to paint a rosy picture of Egypt’s circumstances; an overwhelming population of 85 million lives on a small area of land amid high unemployment, widespread poverty, corruption and red tape.
Gulf Arab allies Saudi Arabia and the United Arab Emirates, which fiercely oppose the Muslim Brotherhood, showered Egypt with billions of dollars in aid after Sisi ousted the group. Arabi said it was now time to push for Gulf investments in Egypt, not more aid or donated petroleum products.
If foreign investment does increase, one question asked by companies is likely to be: who will handle the cash?
Asked if it was important to assure investors that ventures would not be dominated by Egypt’s powerful military, Arabi said:
“I believe this is the wrong message that is repeatedly delivered. As I mentioned many times, the scope and the size of the investments that Egypt needs is extremely huge.”
He added, “Again, it’s much above the capability of the military and the private sector and the public sector and even the foreign investors. That is why we need them all together.”
Arabi said Egypt was scrambling to sign deals with companies before holding an economic summit in the resort town of Sharm el-Sheikh next February to attract investment.
“Energy – I believe this is the top priority for us, for the country. Housing. Infrastructure. Agriculture. Manufacturing. Of course tourism,” said Arabi, adding that a committee including Saudi Arabia and the UAE was reviewing investment opportunities.
He said Egypt was focused on pushing through the new investment law before the conference, so that the event would effectively be a signing ceremony for investment deals.
Some economists think a successful conference might enable the government to push through reforms needed to reach agreement on a loan package with the International Monetary Fund. Since 2011, the country has considered such a loan and even held talks with the IMF, but political sensitivities have blocked a deal.
Arabi, who took part in past negotiations with the IMF, expressed serious doubt that Egypt’s current government at least would pursue that path. Parliamentary elections are expected sometime in coming months.
“It’s better to leave this to the coming government. What is really more important is to start and to accelerate the reform plan, the economic reform plan that we started,” Arabi said.
“I believe what this government has already done is much more than what the IMF requested from us before. It is very important to have a national and homegrown economic reform programme and to implement this reform programme.”