Q How would you assess the state of the Egyptian economy?
A The economy has recovered; it has turned the corner. The growth rate has gone up from 3.5% to 6%. Growth was 3.2% in 2004, it went up to 5.2% in 2005 and we are anticipating 6% for 2006. We are anticipating 6.7% to 6.9% for 2007.
There is a large push coming from investment and from consumer spending. There is an equally large push coming from gas discoveries coming on stream. These were made over the last three or four years and now they are beginning to produce.
The budget deficit is still large, at 6% to 8% of gross domestic product (GDP). We are just coming out of five years of stagnation, and therefore revenues started to stagnate while expenditure did not. The tax and customs reform has increased tax and custom revenues and over the next three years, I expect the budget deficit will decline. I am anticipating the budget deficit will fall to between 2% and 3% of GDP by 2010 or 2011.
Inflation is down. It has been as high as 17% but is now in the order of 3.2%. The average for the year is 3.7%.
The balance of payments and current accounts are in surplus. Exports are growing by an average of 30% per year, so employment in that sector is growing by the same amount.
The exchange rate is stable. It has tendencies to appreciate but, fortunately, it has not done so to any great extent. It has protected the trade sector.
Q What is the motor for the economy and what are the growth sectors?
A Confidence [is the motor]. Investor spending confidence, tax and customs reform have restored confidence in the investor community. They started investing and consumer spending followed. This was followed by foreign direct investment, which has increased from $400m in 2003 to $6bn today.
The country’s resources were under-utilised, ill managed and not doing well. Once you start managing it slightly better and utilising your resources slightly more efficiently, the economy responds very quickly.
Manufacturing, construction, petrochemicals and the service sector, plus tourism are the growth sectors, driven by increased consumption, increased exports and increased investment.
Q Does Egypt benefit from the petro-dollar price hike?
A No, we are not harmed by it and we are not benefiting from it. We pretty much break even. We import as much as we export, more or less. The rise in prices cancels itself out.
Q To what extent do Gulf investors contribute to the economy?
A They contribute mostly to real estate, for the moment. They get into large real estate development projects, developing hundreds of millions of metres into cities, hotels and malls.
Q To what extent is the new government responsible for the new reform and liberalisation of the economy?
A It is entirely the responsibility of the new government, despite the fact that some of us have been around for a while, like myself. The drive has come from the new government. It has achieved a critical mass of reformers in the cabinet. I used to be alone as the reformer in the cabinet, so I didn’t have the critical mass necessary to push through reforms. Now we do. There is a dominance of reformers in the cabinet, and whatever reform is required is pushed through.
Q Do you have plans to borrow in the international capital markets?
AWe do not need the money. We may [borrow] if it proves profitable. We have a surplus in the balance of payments, so we don’t need foreign currency. We will borrow if it proves to be cheaper than borrowing locally. So far, it is not the case, if you factor in exchange rate movements.
Q How well do you think the international rating and investment banking community understands the Egyptian turn-around?
A They do. Invariably, the rating agencies understand it a bit late. So if it is ready in January, they will figure it out by December. There is always a delay, either because they are wilfully late out of caution or just because these things are so much to take in and it takes time to absorb.
The clever investor is the one who senses the wind earlier than the rating agency and comes in before we become the flavour of the month. Increasingly, we have large international investors coming to snoop around and ask for investment opportunities, and asking what can be done and where can they put their money.
