Egypt’s economic reform program, which began in 2016, was undoubtedly difficult for the Egyptian population to bear. However, economic indicators such as 5.6% GDP growth last year, decreasing unemployment and inflation suggest that the reforms are paying off and have created a more sustainable, resilient Egyptian economy. With a population of nearly 100 million and as a highly strategic country located between Europe, Asia and Africa, the country’s economic success comes as good news for global traders and investors. Here, Gehan Saleh, Economic Advisor to the Prime Minister and a professor of financial economics and international business, explains Egypt’s economic situation today in frank terms, as well as the unique advantages that foreign investors can find in the country
What advantages does Egypt present for investors today?
There are huge opportunities. When you think about the Egyptian market, one of the main advantages is its size. According to the Global Competitiveness Report, the Egyptian market is the 24th largest in the world. Within our region especially, our market size is significant. When thinking about the opportunities in a large market, you have to look at inefficiencies. If everything was perfect, opportunities would be harder to come by. Egypt’s full potential is far from being fulfilled. Besides market opportunities, we have worked very hard to provide the infrastructure to host investors. Countries need to have the capacity to absorb foreign investment. The first part of being able to do that is the hard work – establishing good infrastructure and macroeconomic indicators – which we have really focused on over the last five years and have done successfully. The second part is the soft work, which involves legislation and removing obstacles to create an attractive investment climate. We have also been working on that simultaneously. Right now, we are in the phase in which we’re showing the whole world what we have done to prepare the Egyptian economy to host foreign investors. You can look at some indicators – we have the second-fastest growth rate after East Asian countries, unemployment dropped to 8.1 % in the first quarter of 2019, the lowest in 20 years, inflation is stabilizing, land purchases are very transparent now, and the utilities are in place. We totally understand that investors come for the opportunity, they come to make a profit, and that’s what we want for them. We want the investors to benefit as much as possible in Egypt because their presence also benefits the Egyptian economy and its people. We know that the whole world is open, so investors will go to the countries that are the most competitive. Competitiveness requires so many indicators, which we are tirelessly working to continue improving. We know our weaknesses and are tackling them on the macro level, and also by creating tailor-made packages for serious investors to address any specific problems they may have. We also know our strengths, which are many, and are working to capitalize on them.
In which economic areas do you see the most investment potential for German investors?
Besides the macro-economic indicators, Egypt’s competitiveness comes from two main factors. The first is location. We have a superior location in the middle of the world. We are a gateway between Asia, Europe and Africa. We are on the Mediterranean and the Red Sea, and we have the Suez Canal. The second is our human resources. We have a young and well-educated population. When you combine the human resources and the location, you can simply see that we definitely have excellent advantages as a logistics and trade hub. For example, think of Africa. Most African counties are landlocked, so through Egypt, we can take their exports to Europe. That provides cheaper goods and services for European countries, as well. That’s a win-win-win, for Africa, Egypt and the European Union. So thinking about investments from Germany to Egypt, I would say that some of the best opportunities lie in logistics – logistics centers, logistics areas, and providing retail services because we are both a big national market and we can also facilitate trade in the Gulf area, among African countries, the European Union, and even trade from the Indian Ocean through the Red Sea.
Egypt has undergone major economic challenges and reforms in recent years. Why do you believe that now is the time to invest in Egypt?
Let’s look at inflation after the decision to float the Egyptian pound. Before we floated the currency in 2016, the Egyptian pound had been stabilized for a long period of time and there was pressure on the foreign reserves coming to the country, especially after the Egyptian Revolution of 2011 and 2013. That immense pressure triggered us to float the currency, but it meant the burden was going to shift to the Egyptian people because instead of needing eight pounds to purchase one dollar, it would now cost 16 pounds. Inflation was the obvious consequence, which occurred in consumer goods and was also injected into the cost of production because of the fact that industries often rely on imported technology or resources. Overall, floating the currency was a huge challenge in the short term but will provide stability in the long term. While floating the currency was a problem for Egyptians because everything seemed to get more expensive, it became a great opportunity for foreigners. For tourists, it gets cheaper to visit if you carrying foreign currency, and exports become more competitive, as does investment. If you have $1 billion that used to equal 8 billion Egyptian pounds, but now it’s worth 16 billion pounds, you can do a lot more. Once you float your currency, you are going to be in a position where the currency’s value begins to appreciate. Investors who invest before the appreciation also reap the benefit once the currency becomes strong again. Unemployment is another challenge for the Egyptian economy because this means that we have fewer jobs, especially for our young people. But again, that’s a good opportunity for foreigners, who are going to have access to lower labor costs and more abundant human resources. Another challenge is the scarcity of capital. Interest rates are high in Egypt because of capital scarcity, which is a challenge as it increases the cost of investment. However, these higher interest rates can be another opportunity for foreigners because that means that there is a higher rate of return on their capital. All of these are challenges for Egyptians, but opportunities for foreigners. We are working hard on these challenges. Of course, Egyptians have suffered, but with the economic reform, we are doing great in terms of the various indicators that point to sustainable growth. Now, the currency is appreciating, unemployment is declining and interest rates, as prices stabilize, are also declining a bit.
What is the social significance of the revival of the Egyptian economy?
The ultimate goal of our government and the economic reform is to bring a better way of life to Egyptian citizens. Yet, it’s very well known that economic reforms have side effects. They can harm certain parts of the economy. It’s like when you take a pill for your headache but it causes a stomachache. Knowing that, we have had to work on the social aspects of the economic reforms and work for social protection. Social indicators have been improving over the last two years, but still, we are working intensively on softening the consequences of the economic reform in social terms. We have government programs, and there are also initiatives for social protection involving the World Bank, the United Nations and other international institutions. But those programs are not forever; resources are limited. So, we are working on job creation projects to ensure that those people are to sustain themselves. They shouldn’t have to rely on social protection forever. That’s why, when you undertake a reform, you have to understand and handle the consequences and ensure it will create jobs. This is not the first economic reform program that Egypt has done. Form the ‘90s to now, there have been around three.
Why has this economic reform been more successful than the others?
There are three parts to economic reforms: financial, monetary and structural change in the economy. Egypt’s first two economic reforms worked well in the financial sector, sometimes in the monetary sense, but they stopped too early and didn’t continue to make the structural changes required. We insist that this time we will make those structural changes. We did the financial, monetary and simultaneously we are working on the structure. We have analyzed the economy. We don’t have an economic minister, but we have the Economic Committee which is led by the Prime Minister and involves the Minister of Industry and Trade, the Minister of Planning, the Central Bank Governor, Minister of finance, Minster of Public enterprise and Mister of Tourism. The Economic Committee studies the economy and the economic reform programs and identified and classified the most important sectors leading growth in Egypt. We found that in order to support the growth, we have to rely on the most value-added sectors: industry, exports, investments, logistics and the internal supply chain. There are other important sectors of the economy, but we are directing investment into sectors like industrialization. We are trying to bring multinational corporations to bring their plants to Egypt, and that has been happening with success. Look at Mercedes’ return to the country as an example. The macroeconomic indicators show that there is room for them to make a profit and carry out their industry here. This type of investment has a value-added component because it trickles down to Egyptian society, raises income for people and makes the standard of living higher. And not only are we producing and exporting valuable products competitively, people are also learning from the technology and know-how of these companies. We are very much interested in technology transfer and to be a center for R&D for companies like Mercedes or Bosch. We visited the latter’s R&D center in Stuttgart. We want Egypt to be a hub for know-how, research and development.
What about Egypt’s chairmanship of the African Union and the opportunities it could provide when it comes to reviving the country’s regional leadership?
The regional leadership is a huge point. We don’t want to just say Egypt is doing well; we want to say the whole region is doing well. There are so many opportunities for Africa and Egypt to boost engagement in production, trade, development, education, healthcare and even sports. We are hosted the 2019 Africa Cup of Nations and I think the opening ceremony was one-of-a-kind for Egypt and the whole continent, we are also organizing two important conferences before the end of the year. One of them is about investing in Africa. We believe we can both benefit the African countries and benefit from them. We do complement each other, and we say this from experience and expertise. We shouldn’t just look at the short-term exports and imports between African countries, but look to facilitating global trade. For example, some African countries have a huge supply of meat, for example, while we have a shortage. But maybe those countries are lacking the technology or know-how about meat processing. At the same time, there is a high demand for meat processing in Europe. So, for instance, a European company could make an investment in meat processing that uses the raw material from African countries, the location of Egypt as a hub for trade and the processing according to EU standards. Egypt also has trade agreements with the European Union and Africa, so we can access Europe, through Egypt, for African products. Again, it’s a win-win-win situation for all parties involved. But the cooperation with Africa goes beyond imports and exports; it’s also for overall development. We are helping Africa with education, healthcare, real estate and infrastructure construction. Energy is another factor. Now we are capable of exporting energy so now we can help countries like Sudan get a more reliable energy supply. It’s not only an economic question, but a matter of solidarity. It’s for the welfare of the African people altogether. At the end of the day, we are all human.