Daily News Egypt held a seminar at the Alexandria Business Association (ABA), titled “Challenges of the Egyptian economy in light of the recent reform steps”.
The seminar discussed the impacts of the recent decisions made within the context of Egypt’s economic reform programme and provided a full concept for all legislation relating to investment, which are required to improve the business climate in Egypt.
Several ABA officials and business leaders in Alexandria participated in the seminar, and stressed that the Egyptian economy’s ability to be a competitive player on the global scale is being reassessed. They expect 2017 to be a difficult year to endure.
ABA was established in 1988 by business leaders in Egypt with the aim of becoming one of the biggest business associations in the country. Members are selected carefully based on terms and conditions to ensure and maintain its neutrality. The association currently has over 300 members, representing more than 700 companies.
Marwan Al-Sammak, chairperson of the ABA, said that the soundness of the business climate and competitiveness obviates any laws for investment, citing the example of developed countries that have a handful of active regulatory laws which they abide by.
He added that the problem of attracting investment in Egypt is not due to the country’s laws themselves, but its ability, or lack thereof, to apply them. “Some businessmen resort to illegal measures to get their jobs done,” he noted.
Al-Sammak said that before penning a new investment law, the government should first consider the targets of such a law and the industries it will aim to develop, pointing out that the competitiveness of the Egyptian economy is being re-evaluated.
He added that the flotation of the Egyptian pound was a necessary decision that would correct the path of Egypt’s currency exchange market, restore confidence in the economy, and bring currency exchange back to the banking system, as well as direct hard cash to the import of essential goods.
Moreover, he noted that raising the interest rate in conjunction with the flotation aimed to absorb the liquidity available on the market, in addition to preventing citizens from buying the greenback for saving. “The government also began reducing interest rates after having absorbed the impact of the flotation,” he said.
Al-Sammak added that 2017 will be a difficult year for the business sector. He said companies that will not be able to endure the coming period would likely fall hard, noting that some major companies are now struggling to survive amid constant fear that they will have to halt their businesses altogether.
He pointed out that the recent economic decisions have had negative impacts, most prominently on the purchasing power of citizens, which has shaken their confidence in the economy.
Furthermore, Al-Sammak said that despite boosting the volume of Egyptian exports, their value has been depleted and channelled to support imports. He added that limiting the currency exchange to banks restored transactions occurring within the banking system, while the industry itself has yet to benefit from restrictions on imports. He noted that developing the industry will require a long-term scheme that puts the quality of Egyptian products into consideration.
He criticised the term “non-performing factories”, pointing out that the private sector is based on competition. “If any company is unable to continue, the government should facilitate its exit and liquidation of its activities,” he claimed.
He also said that floating the national currency requires re-evaluating companies’ assets as some may have doubled to reflect their real value.
Al-Sammak said that the ABA is a non-governmental and non-profit organisation that seeks to become the largest business association in Egypt. “It develops and serves its members through supporting the role of Alexandria and its economic activities,” he noted. “ABA also utilises the available potential to contribute in attracting investments and improving the business climate.” He said that the association’s role is not limited to developing Alexandria, but rather the entire Egyptian business climate.
He added that its vision is focused on the development role, education, and training, noting that it took part in the rehabilitation of ashwa’yat (informal housing areas) in Gheit El Enab through building a technical training centre. He also pointed out that the project aims to secure an influx of trained labour, which he highlighted as one of the major problems facing factories in Alexandria.
Mohamed Sabry, a member of the ABA board of directors, said that the countries that unlocked comprehensive development, including China, have all set specific targets for the development of industries they aimed to develop in each area separately, while giving governors the authority to make targeted decisions to push the development process forward and solve problems that relate to investors.
He added that businessmen recently met with Minister of Industry and Trade Tarek Kabil to explain that Egypt does not have a real industry with the focus limited to feed-in industries.
Sabry noted that the dairy industry imports 90% of production inputs, such as packaging materials, stressing that he called for the minister to enlist specific strategies for the industry.
The ABA has praised and expressed support for the Central Bank of Egypt’s (CBE) decision to float the national currency. “The US dollar had become a commodity,” the association announced. “Regular citizens used to store and trade hard cash, causing trouble for the industrial and commercial sector.”
ABA secretary general Hisham Abou ElEla said that the Egyptian industry needs integration, support, and deepening, as well as improved standards, which are an obstacle for Egypt to become a global competitor in terms of exports.
He added that the ABA aims to impose international standards on Egyptian products to improve their competitiveness with their foreign counterparts.
Moreover, he noted that the business community is currently facing several problems, including the inaccurate estimation of taxes and the freezing of assets before a final ruling is issued.
Mohamed Hanno, public service and advocacy activities director at the ABA, said that the association has adopted several important files in the recent period, including amending legislations, such as the Value-Added Tax Law, the new Customs Law, Importers Registry Law, and the new Investment Law.
He explained that, in order to advocate for solutions, his unit relies on the studies it conducts on the challenges facing the business community.
He noted that exemptions, which are stipulated by the new Investment Law, are not a central incentive for attracting investment, while the provision of land, a pricing policy, and obtaining licences are of more importance to the business community and investors.
Moreover, he said that tax exemption for foreign companies does not benefit companies that pay taxes in their home country if they are exempted in Egypt, citing an agreement to prevent double taxation. He also noted that some investors commit fraud to receive tax exemptions through establishing new companies, if the exemption periods of their old companies run out.
Hanno said that the problems of bureaucracy, centralisation, government procedures, and corruption cannot be solved, even through the one-stop shop. “This will only be a window for government bureaucracy,” he stressed.
He added that the draft food safety law is still on hold for the same reason: disagreement between ministries and the multiplicity of its stakeholders.
Hanno said that the pharmaceutical shortage problem is one of the most important files adopted by the ABA, as it addressed the prime minister to intervene and solve the problem, as production costs and imports of medicine have increased by 50-100%. This occurred while price tags remained unchanged, which pushes investors away from investing, manufacturing, or importing.
The ABA suggested a number of procedures to solve the current shortage, including penning an urgent policy to subsidise the prices of vital medications, such as blood, cancer, and insulin drugs; sign agreements with international companies similar to the agreement used to bring down the price of hepatitis C medication; and work to modify the health insurance coverage programme to ease the burden on the most vulnerable segments of society.
The association also called on the government to waive the value-added tax on pharmaceutical inputs to reduce the cost.
Mohamed Abdel Mohsen, head of the Importing Committee at the ABA, said that free trade agreements stress the ineligibility of the Egyptian Customs Authority to waive any bills unless proven false and provided otherwise.
He added that the past few years saw discussions take place over four draft laws to amend the current one, while the ABA finalised discussions on the latest draft, which is due to be presented to the parliament within the current session.
He noted that the ABA demanded harsher financial sanctions on violators. “Current fines do not consider the value of the currency,” he said.
Moreover, Abdel Mohsen said that the sugar shortage crisis is the result of problems that relate to regulation. He explained that Egypt consumes 3.2m tonnes, while it produced 2.6m tonnes. The remaining 600,000 tonnes are imported. “Yet, local factories began exporting to benefit from the high global price,” he added. “This created a severe shortage in the domestic market, especially with the rising exchange rate and the difficulty of importing the needed quantities.”
He announced that the ABA has prepared a note to the Egyptian Tax Authority (ETA) requesting to recognise merchants’ bills based on the price of the US dollar on the unofficial market in the pre-flotation period, adding that the ETA evaluated the greenback at only EGP 10.
ABA vice president Mohamed Moharram said that companies tied to existing contracts at specific prices or services and construction projects incurred huge losses following the flotation, as the counter parties, whether governmental or private sector, refuse to amend their contracts.
He added that the ABA contributes to implementing an integrated system to transform ashwa’yat into developed areas, through cooperation between the government and civil society in the Northern Military Region, including the Gheit El Enab project, which is located on an area of 13 feddans.
He noted that development projects in the area will not be confined to urban development, but rather overall development through the establishment of an integrated training centre, a hospital, and a mosque.
He explained that the ABA secured funding worth EGP 20m to implement the training complex centre.
“The centre has already begun operating,” he said. “Three training courses are underway.” Moreover, he pointed out that trainees receive a monthly salary throughout the course period to ensure their attendance, followed by a practical training at factories, and have the potential to obtain a permanent position.
He explained that the centre aims to qualify 70-100 trainees per month, with a focus on the labour most needed in Alexandria.
Magdy Moussa, head of the ABA’s small- and medium-sized enterprises (SME) unit, said that the association is currently preparing a study on the impact of the recent economic decisions on micro enterprises.
“Under the ABA’s plan to expand in lending, we will also borrow, which eventually increases costs,” he said.
He pointed out that the devaluation of the currency impacts the project’s clients.
Moreover, he noted that microfinance institutions are facing challenges regarding spreading the culture of such projects in Egypt, which requires exerting more effort to develop products to provide added value to customers that would outweigh the interest rate.
He pointed out that the project penned a strategy for the coming period based on three main axes that divide the market into segments and target specific ones through new financing schemes, in addition to linking between clients and rehabilitating them.
The head of the association said that the ABA aims to double the size of microfinance clients in the coming period, especially among youth, noting that 50% of the ABA loans portfolio is incurring losses.