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Last month, I attended the AmCham Petroleum Committee’s workshop on energy subsidies and it was a major eye-opener. The committee’s findings are so crucial to our future that I wish to highlight them briefly here. But first I must say that AmCham Egypt has consistently done its share to formulate and analyze Egypt’s economic challenges from a practitioner’s point of view. With 20 different committees covering a variety of sectors, each comprised of men and women with hands-on experience in their fields, we can and do make a positive impact. This represents a significant time investment by busy individuals, and the petroleum workshop brought home once again the value of our members’ generosity and dedication.

From the work of our committees and the Business Studies department to Business Monthly magazine’s reporting, we have impressive resources. Our combined expertise enables us to present insightful suggestions to government, many of which have been well received by policymakers. Consequently, AmCham’s contributions to Egypt’s economic and business environment should be a source of pride. We may be active internationally, networking with the American business community and administration, but our progress on the domestic front is of the greatest importance.

Last year, AmCham held a conference on financial services uniting several work groups, including the capital market, insurance, banking and real estate committees, which tackled the relevant policies head-on. This year, the tax and customs committee, including professionals from the top auditing and law firms in the country, made specific recommendations based on an article-by-article analysis.

Mock tax returns for virtual cases were devised to compute the tax benefit or loss in various income brackets for both private and corporate tax payers. The prime minister, minister of finance, key members of the cabinet, parliament and the NDP all had a chance to review the findings.

The Petroleum Committee workshop on subsidies is also likely to assist policy makers. Among the many things I learned, one stands out: with the recent doubling of oil prices, Egypt’s energy subsidies could reach £E 40 billion this year, as compared to less than £E 1 billion in 1995. Add our national annual food subsidies of £E 12 billion and miscellaneous subsidies (including transportation) of another £E 3-4 billion and you have a huge – and unsustainable – budget drain. The reasons for this exponential increase must be understood if it is to be contained. That’s what the Petroleum Committee set out to do, while beginning to establish the parameters for the coherent energy policy Egypt sorely needs. With the price of oil expected to rise in the coming years to approximately $80 per barrel, our subsidy costs will skyrocket unless we formulate and implement a comprehensive new energy strategy.

In 2003, it was clear that the Gulf of Suez oil reserves that fed local industry for 30 years were starting to dry up. But domestic consumption grew from around 16 million tons of gas and oil products annually in the early 1980s, to 44 million tons as of 2003. Energy consumption has grown so dramatically that we risk losing the net benefit from our export of oil products. Meanwhile, government subsidies make the cost of these products to the public unrealistically low. Fuel prices in countries such as Jordan, Tunisia, Morocco and Sudan are many times higher than in Egypt. Even Saudi Arabia charges more for fuel than Egypt. Subsidies may assist people in lower income brackets, but the benefits are not equitably spread. Energy subsides create distortions in the economy, so that investors are basing their business plans on unrealistic costs. A phasing approach to bring prices into line will clearly have to be implemented, as well as considering other subsidy methods such as cash transfers, a system successfully employed in other countries.

Increased consumption isn’t the only reason for burgeoning subsidies. The devaluation of the pound and the recent oil price hikes are also responsible; but on the bright side, they’ve sounded a necessary wake-up call. We need to be more efficient in our energy use. Cheap energy is fueling too many unproductive industrial activities, and faulty distribution systems result in additional waste. The public, accustomed to paying low prices, is not energy conscious, and awareness-raising is a priority. Likewise, alternative sources of energy must be more actively promoted on a governmental level. Egypt has natural gas resources in abundance, so that conversion from gasoline to natural gas is a viable alternative. Solar and wind energy may demand relatively large initial investments, but Egypt’s climate, as well as the long-term benefits to both the environment and our energy budget, provide powerful incentives.

I’m confident that we have the means to handle our energy concerns. But implementing a plan will take more of the courageous and forward-thinking policy measures from government such as those we’ve recently seen.

TAHER S. HELMY
President, AmCham Egypt

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