concerning egypt’s economic future.
activists believe that approval of the loan would signal to investors that the fundamentals of Egypt’s economic policies will remain steady, boosting con-fidence. Other political groups are more concerned with the negative implica-tions of appearing to perpetuate the economic policies of the Mubarak era.
Some have gone even further, accusing the ruling Freedom and Justice Party of succumbing to IMF conditionality and abandoning its core constitu-ency in favor of the business community.30 This debate shows the ways in which politics takes primacy over serious economic issues in Egypt, a fact that has been reflected in the decisionmaking process and delayed serious reforms in areas such as social spending, subsidies, and the public sector, which con-stitute more than 70 percent of the government’s budget.
coordination With the Private Sector
The Egyptian president has been trying to reach out to the corporate busi-ness community.31 Indeed, President Morsi has formed a committee to liaise between his office and representatives of the corporate private sector. The committee includes investors from traditional private sector institutions and members of the Egyptian Business Development Association. According to Hassan Malek, the committee’s spokesperson, it is intended to develop policy ideas that would jump-start the economy and to plan for the future by under-taking strategic studies for long-term economic development.
Part of Morsi’s plan is to encourage the Egyptian private sector to look abroad. During his recent visit to China and Turkey, Morsi was accompanied by a group of corporate businesspeople interested in establishing and explor-ing business opportunities in these countries.32 This development was viewed positively by the business community and negatively by some opposition groups and small and medium enterprises that accused the president of favor-ing the big business community over other stakeholders. These complaints were exacerbated by the lack of transparency concerning how the business-people who accompanied the president were selected.33
Some corporate businesspeople have expressed dissatisfaction with the views on the economy that Morsi presented during these visits. They argue that the president sugarcoated the business environment in Egypt, glossing over the red tape, corruption, and opacity that still exist, not to mention the ongoing unpredictability and insecurity. As a result, they argue that the he is naïve to expect foreign direct investment to improve, regardless of his good-will tour. Before appealing to the outside world, these businesspeople would like to see the government working to improve the business environment in Egypt and creating conditions that would incentivize the Egyptian private sector to inject money into the Egyptian economy.
The Freedom and Justice Party does not share this perspective, instead arguing that uncertainty has been reduced by the dismissal of the Supreme Council of the Armed Forces and the election of Morsi. The ruling party
Ibrahim Saif and Ahmed Ghoneim | 17
claims that these measures have ended the duality that plagued decisionmak-ing in the aftermath of the revolution, and the increase in political predictabil-ity has in turn yielded positive economic effects, such as the Egyptian stock market’s gain of over 20 percent between June and December 2012.
However, recent economic performance has shown that uncertainty is still high. Furthermore, Egyptians’ confidence is deteriorating with the depreca-tion of the Egyptian pound and downgrading of the country’s credit rating.
Promoting Private-Public Partnerships
Postrevolution governments have been trying to explore new schemes through which they can involve the private sector in providing public goods, such as infrastructure. These projects are based on a private-public partnerships law that was approved during the Mubarak era in 2010.34
The current government, headed by Qandil, has proposed that the pri-vate sector invest in infrastructure for utilities, such as electricity and water.
For example, the government has encouraged private investment in power generation to compensate for a deficit that has resulted in regular electricity cuts during peak periods. Private plants participating in this project could sell electricity directly to consumers using the national grid for a reasonable fee.
Egypt has also amended the laws governing private-public partnerships to allow disputes to be resolved through arbitration rather than the Egyptian court system. This reduced some current negative incentives for investors by amending the arbitration laws to guarantee shared executive powers and cre-ate more efficient arbitral proceedings. These amendments also closed a few loopholes that have materialized over the years and encouraged more transpar-ency in the appraisal of the arbitrators’ fees. They also reassured investors that nationalization of key industries—a measure that enjoys support from several political parties—is not an option the government would pursue.
The private-public partnerships law was meant to replace another system of private-public partnerships in which the private sector established and oper-ated some infrastructure projects that, after an agreed-upon period of time, were transferred to the government. This system, known as BOT (Build, Operate, and Transfer) or BOOT (Build, Own, Operate, and Transfer), was widely adopted in Egyptian infrastructure projects during the 1990s.
Interviews with business leaders have revealed that the private sector needs clear legal terms on which to base a transparent process to conduct some of the needed private-public partnership projects.
Financing Small and Medium enterprises
Successive Egyptian governments have long promised to fund small and medium enterprises.35 In March 2011, then prime minister Essam Sharaf announced through his minister of finance, Samir Radwan, that Le Caire
Banque (one of four public banks facing financial difficulties that was acquired by Bank Misr) would be devoted to small and medium enterprises. That project failed to materialize. In October 2012, the National Bank of Egypt announced that it expected to establish the country’s first bank specializing in loans to small and medium enterprises. However, the bank’s development plan has yet to be clarified.
Egypt could see its first bank specializing in loans for small and medium enterprises developing projects in Egypt within six years, according to Tariq Amer, chairperson of the National Bank of Egypt. The new bank would have access to capital amounting to $8.3 billion and would form part of the National Bank of Egypt. This would be a huge step in the right direction, as one of the largest current obstacles to expanding small and medium enter-prises is the lack of available financing. While there are several funds currently operating in Egypt providing loans to these organizations, there continue to be shortages in funding for new startups.
High collateral requirements with a prejudice in favor of real estate and a tendency to disproportionately award loans in greater Cairo—and neglect small and medium enterprises in the rest of the country—also hinder access to financing.