Towards the fruit of reform
Egypt has been delaying tough economic reforms since the 1970s, making the current price exceptionally high. But the worst will soon be over as the reforms start reaping their benefits, minister of planning Hala al-Said tells Karima Abdel-Ghani
Before joining the cabinet in February, Hala al-Said, then a professor of economics at Cairo University, had often been asked what she would do if she were a minister. She always refused to answer, because she believes it is often too easy for armchair theorists to have views that they would be hard-pressed to implement were they in government.
Now a minister herself, al-Said told the Weekly that her vision, supported by the government’s overall political will, was that Egypt needed to develop its production base, especially since some service sectors had been negatively impacted by political and security conditions.
Egypt needs to develop sectors such as industry and agriculture, she said, making use of its young and energetic population.
One of your main targets is to address unemployment, which stands at more than 13.4 per cent. What has been achieved thus far?
The government has a comprehensive vision for economic reform, and recent indicators prove we are on the correct path. The economic reforms began by freeing the exchange rate so it reflects the true value of the pound in order not to always be effectively subsidising imported goods. Before floating the pound last year, almost 70 per cent of production inputs consisted of imported materials, but this began to drop gradually after freeing the exchange rate. The reforms have also resulted in increasing the foreign currency reserves to more than US$36 billion for the first time since 2011.
Growth rates rose to 4.1 per cent by the end of 2016/2017, 0.1 per cent more than predicted, and even shot up to 4.9 per cent in the last quarter of 2016/2017, which makes us optimistic about the future. It is also encouraging that many economic sectors achieved varying degrees of growth. Growth this year was driven by a ten per cent increase in exports, a 14 per cent drop in imports, and a 26 per cent cut in the trade deficit.
I believe we are past the hardest part of the economic reforms. These should result in providing appropriate employment for the people, especially university graduates, because employment is the only true social protection for families. The unemployment rate has dropped to 12 per cent, confirming that reform and increasing growth will contribute to creating jobs for young people.
You have talked before about creating more than 800,000 jobs. Where are these jobs and why can’t people find them?
As I have previously said, all economic sectors recorded growth this year, and there is a strong link between higher growth rates and more job opportunities. If we look at sectors with high growth rates such as tourism, construction, communications, oil and minerals, transportation, and real estate, we find there are more than 800,000 real jobs being created.
But we still have high unemployment rates, and we want to create more jobs through increasing investments, expanding basic infrastructure projects and production, and most importantly through training graduates, especially in entrepreneurship. Reforming the education system and linking it to the job market will also help provide needed specialisations in industry sectors, because sometimes there are job openings but there is no one to fill them.
When will people begin to feel the worst is behind them?
There is no doubt that people want to feel the benefits of sustained development quickly, which is what the government is trying to achieve. We must be very aware that all reform steps have a price to pay in the short term, but rewards in the medium and longer terms. We must be honest with ourselves in saying that postponing reform and the absence of a long-term vision will not improve the lives of people in the long run. Addressing problems through good planning and gradual economic reform is inevitable in order for people to feel tangible improvements. As I noted earlier, the economic indicators are positive and encouraging. This does not mean we have achieved all our economic goals, but we are on the right track despite the challenges.
Is there a timeline for when the current economic hardship will end?
People will begin to gradually feel the results of the economic reform. The road to reform is not easy, but it will lead to more investment, employment and domestic production, which will reflect positively on people’s lives. Economic reform that includes fewer subsidies on oil and electricity will mean the government is able to give greater help to lower-income families in the form of social protections that includes monetary, housing and health benefits. I believe 2018/2019 will be when people really taste the fruit of the reforms, as long as the economy continues to thrive.
Many believe that the government’s policy of reducing subsidies benefits the rich at the expense of the poor in compliance with IMF conditions. What is your response?
Subsidies on basic goods such as bread have not been cancelled, and there are still subsides on electricity, gas and other petroleum products. The government is working diligently to reform the subsidies system so that the needy benefit more from it, because flaws in the system waste resources. We should not forget that LE75 billion has been redirected from subsidies to social protections for the poor. We are not ending the subsidies, but are reforming the system. In fact, the president has raised subsidies for ration cards to LE50 for basic commodities.
In-kind subsidies have failed in countries that have tried them, so why do we insist on using this system instead of cash subsidies?
There are no good or bad subsidies. The question is whether they are efficient, achieve social justice, and are compatible with social and economic conditions. We have studied experiences around the globe and adopted what is appropriate for Egypt. We can combine both kinds of subsidies if this achieves social justice. What is important is to reform the subsidies system and set up an accurate and complete database of those benefitting from them in order to guarantee transparency.
The side effects of economic reform have been difficult, and steps by the government have not alleviated the pressure. Are there more measures for social protection in the pipeline?
We have not reached economic stability because the reform process is still ongoing and requires more time. Social-protection policies are flexible and are being continuously updated to buffer the impact of the reforms on the poor. Already Takaful and Karama scheme pensions have risen by LE100, and the programmes have expanded to include new categories of people. More food subsidies have been introduced, and there have been greater tax exemptions for those who are the most hurt by the reforms.
Does the government have a database to guarantee that the subsidies reach those who need them the most?
There is a national database which several ministries use, along with the Administrative Control Authority that facilitates beneficiaries receiving government services. However, the absence of a comprehensive database categorised by economic class makes targeting the poor more difficult, leading to delayed assistance, fraudulent claims, and people receiving the same assistance multiple times.
Why does reform of state revenues focus on raising taxes and not on boosting production and industry?
There are several paths for reform, including tax reform, so that the state can meet its obligations and finance services like healthcare and education. The reforms have occurred simultaneously with the adoption of a new investment law, freeing the exchange rate, and overhauling infrastructure to encourage production and expand projects. If production had not increased, then exports would not have gone up by ten per cent in the last quarter of 2016/2017.
We have lacked good planning for years now. How can we overcome this problem to design comprehensive plans not subject to changes in political leadership?
Before joining the cabinet, I participated in preparing Egypt’s 2030 Vision together with experts from other fields. Today, as a minister, I coordinate with other ministries to comply with this plan and achieve its goals. The state is very invested in this plan, and it is the vision of the state and the people. The best guarantee of its success is a general sense of ownership and the belief that it benefits the people. We want the man on the street to be clear about this Vision and to believe in its importance for current and future generations. This can be done via an awareness-raising campaign in educational and media outlets explaining the strategy’s themes, objectives and programmes so it becomes the people’s vision and not an elitist or government one.
What is new in terms of sustainable development?
Egypt needs a progressive vision to modernise the economy based on three components, firstly technology, innovation and knowledge as the basic components of the economy. We must focus on these new ideas to reach the business community and ordinary citizens. Many research centres produce studies and innovations that must be shared with the industrial sector.
Secondly, there is the need to focus on small and medium projects as the engines of the economy. The ministry has adopted an inclusive approach to producing the most commodities and services by partnering with larger workforces. This will ensure a fair distribution of jobs and development revenues, so the fruits of development can directly reach the largest number of producers and beneficiaries in these projects. It will be done by funding small and medium enterprises, and we have already raised funding by the Central Bank of Egypt to LE5 million for such projects.
Thirdly, there is the need for a transitioning from a services-based economy to one based on industry. The industrial and agriculture sectors have been neglected. Although services are important, they are not sustainable and are impacted by domestic, regional and international political and economic variables. We need industry and agriculture to achieve sustainable development.
There have been criticisms of the government’s investing heavily in national projects that do not have quick returns either in raising production or GDP. What is your view?
Reviving the economy during a recession requires intervention by the state through mega-projects to absorb excess unemployment, provide jobs, and encourage companies to be productive. The national road network project covering 3,400 km, land reclamation, and the cultivation of four million feddans are all part of this, as is the complete overhaul and addition of new power plants to meet infrastructure needs for investment, industry, and agriculture processing. The new administrative capital, the largest administrative and housing project in the country on an area of 700 square km, will be home to more than six million people and create a new urban community that is larger than a small country in terms of investments and population.
You have said 60 per cent of public investment by the government goes on infrastructure. Will you be taking steps to improve the investment structure in Egypt?
These investments provide a work environment that attracts foreign and domestic investment, especially in small, medium and micro projects, which in turn increase economic growth rates by increasing GDP and jobs. They also directly improve the lives of citizens. For this year we have budgeted LE72.2 billion for transportation, LE53.8 billion for urban development, LE33.3 billion for agriculture, and LE91 billion for the electricity sector.
Many countries have made education a priority in their plans for development. What are Egypt’s priorities?
I believe education is the crux of economic development. The budget for education this year is LE16.7 billion, which is 12 per cent higher than last year. The Egypt 2030 Vision outlines several pressing educational goals, including quality and global certification, which requires technology infrastructure and improving educational institutions and administrations. There is a need to provide education for everyone without discrimination, increase opportunities, and improve classes, universities, specialisations, and colleges in compliance with a competitive labour market. There is also a need to avoid traditional specialisations depending on the nature of each governorate.
We are in dire need of graduates who can meet the needs of the labour market, which will translate into more skills, more job opportunities, and the greater likelihood of promotion. This requires updating university admissions, and this is underway. Meanwhile, marketing university research is currently negligible because of inadequate ties between universities and industry. There is a plan to link educational institutions with industry, and there must be collaboration with the private sector as a key partner in raising educational standards in Egypt.
What are the government’s plans for restructuring the state administrative apparatus?
Reforming the administrative apparatus is just as important as other aspects of the Egypt Vision 2030. We cannot achieve economic reform and sustainable development without administrative reform. We have briefed the president on our plans and urged the government to implement them soon so people will feel a real improvement in government services and operations.
The prime minister is now chairman of the Supreme Committee for Administrative Reform, which has several subcommittees for institutional development, legislative reform, human resources, training, promotion and community outreach so the government’s plans can be translated into programmes on the ground. The ministry is focusing on government services and creating a national database to improve the delivery of these to citizens. This will be done through constant training and the professional development of the government apparatus after raising the budget for training by 200 per cent in the current plan. There will also be cooperation between the banks and the government for extra resources to train older and newer employees, as well as restructuring ministries to improve efficiency. The administrative reforms also include developing and improving skills at administrative agencies for all employees, irrespective of age or position.
The new administrative capital is another opportunity to boost administrative and institutional reform. The ministry has formed a committee to oversee employee affairs for those moving to the new capital in order to facilitate the transition and ensure all services and facilities are available.
How will inflation be addressed?
Inflation negatively impacts lives because of rising living costs. The government is intervening with several measures, including more outlets selling commodities at reasonable prices, better market monitoring, bolstering the role of consumer protection associations, and raising interest rates. These steps aim to cap inflation, but what will lead to real improvements in prices are increased production and exports and decreasing imports to close the gap between supply and demand on the Egyptian market.
What has been done to create a fund to manage state assets?
The ministry is currently looking into several models of managing untapped state assets, and we will inform the cabinet soon which is the best one. This will allow us to immediately begin benefiting from these untapped resources.
When will the government make greater use of Egypt’s natural resources and mineral wealth?
The ministry of petroleum and mineral resources has proposed several projects for mining oil, gas and minerals, especially gold. This sector recorded a nine per cent increase in the last quarter, compared to negative growth of -7.1 per cent in the same quarter of 2015/2016.
What is the best way to close the gap between exports and production?
Improving the quality of new small and medium-sized projects would increase exports and decrease imports. The government’s approach is to assist small and medium enterprises through financial and procedural facilitation. The Central Bank has also raised the ceiling of loans to LE5 million, which will helps entrepreneurs to launch such projects quickly.
Your father was Helmi al-Said, a minister of power under former president Gamal Abdel-Nasser. Have you abandoned that period’s socialist ideas?
There were always different political views at home when I was growing up. My maternal grandfather was a Wafdist minister of supplies, Morsi Farahat in prime minister Nahhas Pasha’s cabinet, and he had very different views from my father. This trained me to understand that each political phase has its own circumstances, and we cannot judge it without having lived through it. If those who embraced the socialist ideas of the Nasser period were here today, they would change their minds about what should be done because each political phase has its own particularities.
ahram weekly
