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REAPING THE BENEFITS
This has been a turnaround year
for Egypt, exceptional in terms of economic growth and foreign direct
investment. After several years of reform, we’re starting
to reap the benefits. Our growth rate of 6.7 percent is unprecedented
in recent history. Likewise, we have succeeded in attracting a record-breaking
$6.1 billion of FDI. These achievements should be recognized, not
only as signs of fresh confidence from the marketplace, but as underscoring
the validity of our reform path and the necessity of keeping on
track.
One of the most notable transactions was the third mobile license
competition, won by Etisalat (UAE), whose bid of approximately LE
17 billion was almost double what was expected. Another landmark
was the privatization of Bank of Alexandria, one of Egypt’s
three big public sector banks, sold at $1.6 billion to Sanpaolo
IMI Group (Italy). This was the largest privatization in years.
Another major deal was the Emaar Real Estate (Dubai) purchase on
the North Coast, with an investment commitment of close to $4 billion.
This year also saw the largest ever Egyptian private sector acquisition,
the $500 million purchase of Amoun Pharmaceuticals. The buyer was
an American consortium, principally composed of Capital International
Private Equity Fund, a $1.3 trillion investment Group; City Group
Venture Capital Investment; and Concord International.
These transactions show significant diversification, both in the
varied sources of funding – Europe, the Gulf, America –
and the economic sectors they involve. They’re all equity
investments, representing medium- to long-term commitments, as opposed
to stock market investments. We’re obviously doing something
right to elicit such confidence. It’s a result of sound reform
policies and a commitment to implementation. If we can maintain
a consistent 7-8 percent annual growth rate, the coming years could
see meaningful change in Egypt. By that, I mean that average citizens
will see real benefits.
It’s important to stand back and recognize our achievements,
and to dare to be even more ambitious in developing opportunities
that will translate into jobs and economic growth. But we must also
acknowledge that the effects of current growth will take time to
trickle down to the average citizen, who is already under tremendous
pressure to make a living. We need specific programs and policies
benefiting average citizens that will make them participants in
reform.
Consider the implementation of the new fiscal policy this year,
another milestone. In the past, there was big resistance to markedly
lowering tax rates to corporations and individuals. There was a
fear that by reducing taxes we would increase the budget deficit.
I wasn’t alone in predicting the opposite, a significant increase
in revenues and a broadening of the tax base, which proved to be
the case. And this is just the beginning; citizens will continue
to respond favorably, the culture of tax filing will change, and
people will regain trust and offer support to government.
Another policy that would have a great impact is giving people title.
An ECES study (in cooperation with the Hernando de Soto Institute
of Liberty & Democracy) estimated the total value of Egypt’s
unlicensed property at in excess of $200 billion. But so long as
it is unregistered, it’s dead, useless capital.
Around 90 percent of Egypt’s housing is extra-legal, largely
because of the cost and difficulty of registering property. Both
issues have been somewhat addressed by recent laws. Establishing
a lower, flat fee for registered title is a big step in the right
direction, but it’s not enough. Facilitating property registration
and mortgage loan finance should be part of a comprehensive program
that encourages people to put their ownership capital to productive
use.
By giving average citizens titles, the government would be providing
a fresh start, home security and a capital asset. But the real value
lies in transforming these assets into live capital, as loan collateral
to improve or build homes and most importantly start new businesses.
A fully functioning housing market is the key to a dynamic market
economy.
When people participate and benefit from the reform process, they
become supporters instead of critics. When the public accepts reform,
things move faster. People and government working side by side equals
political stability, which in turn attracts more investors, and
enables market growth.
For reform to succeed, we must meet the short-term goals that help
satisfy urgent needs. At the same time, they must be balanced against
our long-term objectives, so that future generations inherit an
ever better Egypt.
With that in mind, I hope that 2007 will see more bold reform, with
a special emphasis on the ordinary citizen, and a fairer distribution
of income. This should come alongside integrated policies to regulate
resource consumption and conservation – water, land and energy.
Egypt is full of possibilities for development, and it’s our
responsibility to wisely choose the kind that can endure.
TAHER HELMY
President, AmCham Egypt
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