Of cabinets past

Egypt's recent cabinet reshuffle is an attempt to harness the expertise of the private sector to relaunch the economy.

03 April 2016

Egypt's recent cabinet reshuffle is an attempt to harness the expertise of the private sector to relaunch the economy, reports Niveen Wahish
Two things characterise Egypt's recent cabinet reshuffle as far as the economic portfolio is concerned: more members of the private sector have been brought in to head government ministries, a reminder of the Ahmed Nazif government in 2004, and the Ministry of the Public Sector, defunct since 2004, has been brought back to life.

In 2004, that ministry was under the umbrella of the then newly created Ministry of Investment.

A PROACTIVE ECONOMIC GROUP: Today's new cabinet includes former members of the private sector in the ministries of finance, investment, tourism and aviation. The current minister of trade, who has not been changed, is also from a private-sector background.

While it is too early to judge the new ministers' performance, political economist Amr Adly suggests that the changes appear to be an attempt to move away from the pattern of crisis management to form an economic group that is proactive and could develop a clearer plan to relaunch the economy.

The results of the Egypt Economic Development Conference (EEDC), held last March to boost growth and investment, have so far been disappointing. "There is a need to pick up the threads from the EEDC," Adly told Al-Ahram Weekly.

While there are domestic reasons for the disappointments, global economic conditions have also played a role. Global growth stood at around three per cent in 2015. It is projected to improve to 3.4 per cent in 2016 and 3.6 per cent in 2017.

Recruiting members of the private sector to key government ministries could mean bringing in a new vision for management of the economy, Adly said, adding that it is also an attempt to "extend hands to the private sector". This is more likely to adopt policies to the liking of the domestic and foreign private sector.

Adly also sees the Ministry of Finance as acting more like the Ministry of the Economy, and playing more of the kind of role associated with former minister of finance Youssef Boutros Ghali. "In reality, he performed the role of minister of the economy and not simply minister of finance," Adly added.

Three new deputies have been appointed to the Ministry of Finance to oversee the treasury, taxation and finance.

VISION IS IMPORTANT: The change in ministers is not an end in itself. What is more important is the vision they bring with them," Fayez Ezzedine, chairman and CEO of the Canadian Chamber of Commerce, told the Weekly.

He said that what investors need is a policy line that does not change with changes in individuals or governments. "Investors have problems with changes that happen overnight. They need to make calculations, and this means that parameters cannot change haphazardly," Ezzedine said. He added that the target now is the achievement of the 2030 Vision for Egypt, necessitating the appointment of individuals who can realise it.

Ezzedine stressed that a more business-friendly environment is needed, whether or not there is a private-sector individual at the helm of the concerned ministries. "It does not matter what their background is. What matters is the vision they bring to the post."

While the government's intention is to extend a hand to the private sector, it may have a hard job delivering this message, especially after this week's squabble between the Central Bank of Egypt (CBE) governor, Tarek Amer, and tycoon Naguib Sawiris. Sawiris claims that the CBE governor is misusing his authority to meddle in the private sector by limiting the tenure of bank chairmen and interfering in delaying approvals for acquisitions.

The new government is reminiscent of the 2004 Nazif government in its need to attract investment, Adly said. In order to relaunch the economy there is a need to restructure government finances and cut the budget deficit, yet in the light of the economic slowdown the only way to do this is to attract investments to spur growth and create employment.

This should mostly take place through acquisitions and brownfield projects, Adly said, as was the case in the Nazif era. At that time foreign investors were encouraged to buy shares in privatised firms on the stock market and to enter the Egyptian market in brownfield and acquisition investments.

A NEW MINISTRY: This may be the reason behind the recent reactivation of the formerly defunct Ministry of the Public Sector, naming Ashraf Al-Sharkawy as minister. Al-Sharkawy headed the Egyptian Financial Supervisory Authority during the turbulent times that followed the 25 January Revolution. Previously he was senior advisor to the chairman of the Egyptian Capital Markets Authority. The portfolio of the ministry includes eight state holding companies with 125 subsidiaries.

Further privatisation would kill more than one bird with one stone, attract capital and less the financial burdens on the government. However, Adly said that with the reservoir of companies that can be privatised now dry, the government will have to tap the public utilities.

Public utilities are a huge burden and have suffered much deterioration, he pointed out. Adly added that some sort of partnership with the private sector is bound to happen in this area to limit the budget deficit. However, Adly warned that there must be effective regulators and the empowerment of consumer protection agencies to ensure the quality of the services and fair pricing.

There are already intentions to privatise government stakes in the banking sector. CBE Governor Amer announced this week that a 20 per cent stake in the Banque du Caire will be offered on the stock market this year, and the United Bank will be offered to a strategic investor. A stake in the Arab African International Bank is also set to be offered.

A return to privatisation appears to be a quick way to encourage investment and spur growth," Ahmed Al-Borai, a former minister of manpower and immigration, told the Weekly. He pointed out that while he had previously been a firm opponent of privatisation, times change. "Public-sector companies need investment, and the government is unable to find it," he said.

Al-Borai acknowledged that the economic and financial conditions in Egypt are difficult. That being the case, he said, "We cannot achieve social justice without growth."

But he warned that growth without social justice is not acceptable. Egypt had a seven per cent growth rate back in 2007, yet hospitals were not treating the sick properly, schools were not offering proper education, and there was widespread unemployment, he pointed out.

We do not want to repeat those mistakes, as that would threaten another revolution caused by social disparities," he said.

Al-Borai said he would accept partnerships between the private and public sector that kept their eye on social justice. "If they increase unemployment, whether among new graduates or because of early retirement schemes, that is not acceptable," he said. Meanwhile Al-Sharkawy was quoted this week as saying that his ministry's task will be to restructure and rehabilitate the companies in his portfolio and not to privatise.

HOPE FOR THE PUBLIC SECTOR: The reinstatement of the Public Sector Ministry was seen by Salwa Al-Antary, former head of the National Bank of Egypt's Research Department, as part of an intention to pay greater attention to reforming public-sector projects and companies. In a column in the daily Al-Ahram she pointed out that these companies, while operating at a quarter of their capacity, still contribute 34 per cent of GDP.

For her, these public-sector entities are the "backbone" of the state, upon which it has to lean in difficult times. She wants to revive the sector to guarantee the availability of goods instead of depending on imports. Restructuring public-sector projects would cut the trade deficit, increase tax revenues and increase employment, she said. But it would need capable management.

We want a public sector capable of competing with the private sector and not burdened with a social role. The latter should be dealt with through the budget through subsidy policies and transfers."

To revamp public-sector projects, Al-Antary said profits must be reinvested. Some minority shareholding should also be offered for public subscription. She also suggested moving public-sector entities, now mostly located in residential areas, to different locations and use the difference in the price of land to recapitalise the companies.

Government efforts, Adly estimates, will have a 15 per cent effect on how economic performance improves and the rest will depend on global circumstances. Egypt is a small economy in a big world, he said, whose overall economic performance is not that great and eventually something will have to give.

Egypt's economy has been battered by five years of slowdown since the 2011 Revolution. GDP growth has averaged around two per cent. It picked up to around four per cent in 2014-2015 and is expected to slow down to 3.8 per cent in the current fiscal year, according to World Bank estimates.

Amr Al-Garhy, the new minister of finance, previously oversaw corporate finance and investment review functions at the leading Egypt-based regional private equity firm Qalaa Holdings. He was also vice-chairman and managing director of the state-owned National Investment Bank, where he oversaw the privatisation of the Bank of Alexandria and the marketing of Egyptian government bonds on international markets, experiences which should come in handy given the planned privatisation of further bank stakes.

The new minister of investment, Dalia Khorshid, was previously vice-president and group treasurer at the Netherlands-based Orascom Construction, where she had worked since 2005. Before that she was with CitiBank.

The new tourism minister, Mohamed Yehia Rashed, worked at the Egyptian tourism unit of the Kuwaiti conglomerate Kharafi Group from 2009. Before that he worked for Marriott International for 33 years in several parts of the world.

© Al Ahram Weekly 2016

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