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Egypt’s Trade and Industry Minister: Debt now above 100 percent of GDP | ASHARQ AL-AWSAT English Archive 2005 -2017
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Mounir Fakhry Abdel Nour (Asharq Al-Awsat)

Mounir Fakhry Abdel Nour (Asharq Al-Awsat)

Mounir Fakhry Abdel Nour (Asharq Al-Awsat)

Cairo, Asharq Al-Awsat—Mounir Fakhry Abdel Nour is one the 20 ministers who survived Egypt’s cabinet reshuffle in March, which saw Hazem El-Beblawi replaced by Ibrahim Mahlab as premier. As Egypt’s Minister for Trade, Industry and Investment, he has a tough job on his hands as the country struggles to recover from the economic chaos which has accompanied the instability since the January 2011 revolution.

Since the departure of longtime dictator Hosni Mubarak, Egypt has experienced a major security vacuum and a turbulent and unpredictable political atmosphere that predictably spooked many investors and prompted tourists—a major source of hard currency—to stay away. A major exodus of foreign money led to a number of negative consequences for the country’s finances, among them the dramatic shrinkage of hard currency reserves, which at one point were not enough to cover three months’ food imports.

To reassure foreign investors, Egypt’s previous interim government announced—on the same day it resigned—a new draft investment law which seeks to protect the interests of foreign investors who have entered into contractual agreements with Egypt’s government. Since the overthrow of Mubarak there have been a number of high-profile cases where a third party has challenged a contract between the government and another investor, with at least 11 rulings issued ordering the state to reverse deals signed during Mubarak’s rule—leaving some of the companies involved at risk of renationalization. Before Mursi’s ouster, a number of Gulf businessmen cited a lack of guarantees that their money would be safe in Egypt as a reason for cutting back on their investments. With Mursi’s departure, Gulf money has returned, and many see the new law as being issued with Gulf investors particularly in mind.

As Trade, Industry and Investment Minister in both cabinets, Abdel Nour is one of the architects of the new draft law. Asharq Al-Awsat spoke with him at his office in Downtown Cairo, just off Tahrir Square, the epicenter of the 18-day uprising against Mubarak, to discuss the new draft law, as well as the current fuel crisis and the performance of Egypt’s economy since the fateful days of early 2011.

Asharq Al-Awsat: What was the reason behind issuing the new investment law preventing third parties from challenging government contracts?

Mounir Fakhry Abdel Nour: Many Egyptian, Arab, and foreign investors have complained about this issue and the legal environment surrounding it, which puts any investment or contract with the state at risk of annulment, reconsideration, and the like. It has become a major obstacle for attracting investment, and has made our efforts to promote investment in Egypt more difficult. It had to be solved. In addition to the court rulings, the demands placed on the Egyptian economy became too heavy for it to bear. All of this while reparations cases were being conducted at various international arbitration bodies. We had to get out of this dilemma as soon as possible.

Q: The law seems short, does it not?

Although the law is just two short articles, there is a delicate balance between the need to emphasize the state’s status along with its ability to enforce contracts and meet its obligations under those contracts on the one hand, and its ability to enforce the law, generally speaking, on the other. That’s from one angle. From another angle, there must also be a mechanism to ensure public, political and judicial oversight of these contracts in order to protect public funds. This was a delicate balance. It was hard to produce the law in its current form: simple, easy, and concise.

Q: I believe it was your ministry that proposed this law?

The proposal came from this ministry and, more specifically, this office. I would like to point out that during the previous ministry . . . of Dr. [Hazem] Beblawi, there was an attempt to deal with this problem within the context of a comprehensive review of the Investment Incentives Law. A legal article was also proposed pertaining to this matter. But in reality this article lifted limitations on state contracts and restricted the right to appeal to the two parties in the contract. The most recent law, towards which we have made progress, widens the issue. In addition to the two parties in the contract, it grants the right to challenge the contract to those who have rights in rem or in personam to the underlying asset. This is to be expected. If the government sold a piece of land owned by an individual, for instance, it is in turn selling property which belongs to others. In this case, the affected parties must be allowed to intervene and challenge the validity of the contract. This is only natural. Private property, of course, must be protected. Outside those two cases [the two parties of the contract and those with rights in rem or in personam to the asset in question], anyone who wishes to challenge contracts on the basis of  . . . [illegal] decisions or invalidity of the contracts must take legal action through the available mechanisms, according to the law’s provisions. This means that he must resort to the attorney general, and therefore to criminal courts, which are entrusted with the prosecution of crimes related to abuse of public funds, corruption, and the like. If the courts find one or both of the parties guilty of wrongdoing, the prosecution has the right to demand the nullification of the contracts in question.

Q: There are those who say that insulating the two parties of the contract from outside intervention may open the door for the government to act without accountability?

Whoever says such things hasn’t read the law. Or it may be that they are criticizing the draft article which was part of the amendment proposed to the Investment Incentives Law. This draft article was not passed and was returned to the new government for its consideration. Therefore this charge is unsubstantiated. Anyone who reads and gives thought to the issued law will find that monitoring of public funds, spending behavior and contracts are guaranteed for all—but through judicial channels and legal procedures regulated by the law.

Q: In your former position as a member of parliament, and later in your position as a minister in several governments up until this point, were there examples of contracts subjected to annulment which then caused losses to the involved parties, whether the government or investors?

There were decades in which final verdicts were handed down without any recourse available to annul the contract or recoup assets that had been sold to the state. You knew that the final ruling would be enforced under any circumstances. This law does not deal with the final and irreversible verdicts issued in this regard. Rather, it deals with the current issues in the courts and what might change in the future . . .

Q: Can the new law be applied retroactively?

Yes, all contracts concluded in the past will be subject to the law. It also applies to cases filed in court in which no final verdict has been issued.

Q: The local media has suggested that members of the former Mubarak regime will benefit from this law. Is that true?

Where is the link? First, the law concerns contracts entered into by the state, its institutions, nationalized companies, and so on, regardless of whether they are investment contracts, real estate contracts, or otherwise. The politicization of this issue is misplaced. The law is a measure intended to restore investor confidence and restore the confidence of citizens in the state’s ability to enforce signed contracts, execute the law, and fulfill its obligations. The politicization of this issue, in fact, is misplaced. I think politics should be separated from trade, economic and investment affairs. I’m shocked by these voices of dissent that pay no attention to the consequences the state will face should verdicts be issued. It will be a verdict on Egypt, saddling it with commitments to recompense well-intentioned investors, like the Indian investor who invested in the Shebin El-Kom Textile Company. Where is the corruption here? I think that this is irrelevant political backlash.

Q: Steps are currently being taken to facilitate investment in Egypt. At the same time, there is a problem in the energy sector. How can this equation be solved?

There is a serious energy crisis in Egypt, to the extent that it has become a constraint on industrial and economic development in general. In the medium term, it will be solved by increasing investments in petroleum and oil. You know that there are oil and gas reserves in Egypt, but [we] must boost investments in research and exploration of these reserves to develop the oil and gas fields that currently exist. If this happens, we are confident that within three years the problem will be solved.

As for the longer term, I believe that new and renewable energy sources, especially solar and wind, are also going to be important sources of energy for Egypt. As you know, the government is determined to develop nuclear power sources. However, it takes at least 6 to 7 years to establish a peaceful nuclear reactor and begin to take advantage of the power generated from it. But we need to solve the problem now. There are resources such as solid waste and coal that can and must be developed, and leveraged, to solve the problem. As you know, there is considerable debate in this field. There are those who object to the use of coal because of its negative effects on the environment. On the other hand, it is well known and established that modern technologies can reduce these effects. They have been used in countries that are committed to preserving the environment, including Germany, Italy, Japan, and also the United States. Generally, I think that Egypt needs to diversify its energy sources. Reliance on a single source is insecure. Good sense demands a multiplicity of sources. Egypt relies on oil and gas for 96 percent of its energy needs; on hydro-power for 3 percent of its needs, which is generated by the Aswan Dam and used in producing electricity; and on coal, which is used in iron and steel manufacturing . . . This distribution is not secure. It is imperative that the other resources I mentioned be developed: new and renewable energy sources, nuclear energy, waste, and coal.

Q: Are there plans to import more oil and gas from abroad?

Yes, of course. During the coming months we need to bridge the gap between domestic production, what we get from the Arab [Gulf] countries, and what we should import from abroad.

Q: This conversation is coupled with talk about plans to cut energy subsidies. How much truth is there in this?

Energy subsidies have created many problems. The first is that subsidies strain the general budget. We can’t bear it for much longer. The second problem is that this large expense does not achieve its stated goal which is to help low-income citizens. In fact, based on the current way aid and subsidies are distributed, it doesn’t reach those who deserve it, but instead seeps into the pockets of the well-off.

Q: Some cite the following example: the owner of a 500,000-pound vehicle pays the same subsidized price for fuel as the owner of an 80,000-pound vehicle. How is that?

The problem is not only related to equality; it is much larger. The owner of the 500,000-pound vehicle is actually benefiting from the subsidy, whereas someone who doesn’t have a car at all doesn’t get his share of the subsidy. The situation currently is that the well-off have access to subsidies, while the needy don’t get any of the benefits, because they don’t own a car in the first place. The same is true of prices of electricity, gas and others. Under the current system of disbursing these subsidies, the rich benefit more than the poor because the more the rich spend the more they reap the benefits of subsidies. This is where the problem lies. In addition to the subsidies not reaching the targeted groups, they have also become a hindrance to the development of new and renewable energy sources—which are expensive. There is no incentive to develop these sources in light of current expenditure on traditional sources, whether for home consumption or industrial or agricultural production.

Q: Egypt is one of the largest importers of wheat. What can you tell us about the government’s plans in this direction, especially when wheat consumption has reached about 9 million tons?

Firstly . . . [we] are very safe in terms of wheat reserves in the country . . . Domestic production this year is estimated to reach a record 4 million tons. This record was achieved by offering farmers a price which encourages agriculture production and supply, especially when the payment is direct, in cash, and without delay.

Q: When talking about wheat, bread subsidies are also usually mentioned . . .

We will not touch [scrap or reduce] bread subsidies, and there are no plans to do so.

Q: But there is talk that electricity prices will rise?

They must rise for the highest [income] brackets. We cannot continue supporting the rich and well-off. This is contrary to the most basic principles of social justice. As I said before, we want to direct these subsidies and support at the disadvantaged. It should achieve its goal.

Q: Some reports say that Egypt’s total debt has reached 1.7 trillion Egyptian pounds. Is this true?

I think that this number is exaggerated to some extent. It could be 1.6 trillion pounds, or whatever it is. All I want to say is that this debt is a burden on the public treasury and a burden on public budgeting because maintaining a debt is very expensive. It must be reduced. I am not setting an absolute number, but at the least its percentage of GDP should be reduced.

Q: What is the current ratio of debt to GDP?

Total public and private debt (external, internal, and other) is between 100 percent and 101 percent. So we must strive to reduce [this] . . . and this will come through . . . growth. Thus, we have a challenge: We must increase investments in order to stimulate growth and reduce the ratio of public debt to GDP. This brings us back to the beginning of our conversation, about investment incentives and creating the right climate for investment. It was in this context that the contracts law, around which we began our conversation, was issued. Our goal is to restore the trust of Egyptian, Arab and foreign investors.

Q: What other mechanisms are there to attract investors?

There will be several main themes, and incentives are not at the top of the list. The first is the restoration of security and stability on the ground. Second, respect for the general rule of law which is to be applied to everyone without discrimination; or put another way, the establishment a state of law and respecting its sovereignty. Third, creating the right climate to attract investors, based on facilitating investment, making it easier to work in Egypt, and promoting trade, investment, agriculture and industrial production . . [and] the removal of all bureaucratic obstacles and redundancies within the administrative structure. Fourth is granting incentives to the investors. These incentives start by providing the necessary infrastructure to direct economic activity, including lands attached to industrial or agricultural land, lands that are suitable for agricultural reclamation or communication infrastructure. This will allow access to participation in trade and finance for all who desire it. This is the first step. After that, appropriate pricing must be defined for this infrastructure in addition to other facilitating procedures.

Q: Political relations with Egypt have deteriorated with a number of countries following former president Mohamed Mursi’s ouster—Turkey, Qatar and the US among them. Has this had an impact on the relationship with investors from those countries?

No, not at all; investment affairs and political affairs are completely separated. Turkish investments still come to Egypt. A group called Life Group is seeking to establish an industrial complex for a paper factory in Suez. We met with them just week ago. The Egyptian market is open for all. We are trying not to conflate political and investment affairs. Regarding the United States, the Coca-Cola Company has an investment plan of 500 million US dollars in Egypt for the next three years . . . Regarding Qatari investments, they have also been unaffected as real estate projects in Egypt are in full swing.

Q: Conversely, has there been an increase in investments from some other countries after Mursi’s ouster?

Of course. We have Saudi, Emirati and Kuwaiti investments. The private sectors in these countries support Egypt just as their governments do. We are therefore trying to solve the problems facing Saudi, Kuwaiti and Emirati investors as much as possible and as quickly as possible, in order to create a climate which promotes their continued investment in Egypt.

Q: How do you see the evolution of the security situation in Egypt, and is there any indication for improvement in the tourism sector?

The security situation has greatly improved. It is clear that the ability of those political forces hiding behind religion [i.e. groups such as the Muslim Brotherhood] to attract the masses has dramatically declined. The proof is that the demonstrations that have taken place [since the January 25 revolution] every week after Friday prayers have greatly reduced in number. Their spread has declined as well. I believe that the upcoming presidential elections taking place at the end of May will return security and stability to the country. Tourism, investments and the economic situation: this is all one package, and it will improve with the return of security and stability. We are in a much better position than we were six months ago. I think that during the next three months the situation will improve even more and things will return to normal.

Q: Has being a member of an interim government affected your job as a minister?

This government will be held accountable for any delay in implementing reform procedures, in all areas—economic, legislative or security. Egypt is in a race against time. We must count every minute that passes, and we must never put off until tomorrow what can be done today.

Q: What is the difference between working in Hazem El-Beblawi’s government and Ibrahim Mahlab’s?

It is clear that the pace of work in Ibrahim Mahlab’s government is faster than that of Beblawi’s government. A prime minister’s style influences the pace of work and its culture. The difference between Dr. Beblawi and Ibrahim Mahlab is very clear. On one hand, Dr. Beblawi is a professor of economics and a thinker. He is also a philosopher and a sage. He thinks for a long time before making a decision and weighs different possibilities before signing off on anything. Ibrahim Mahlab, on the other hand, is a practical man; he is an entrepreneur and a truly effective man. The difference between them is clear: Mahlab gets deeply interested in topics and never leaves an issue without making a decision. Each one has his advantages.

This is an abridged version of an interview originally conducted in Arabic.