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CONFIDENCE MEASURES The last few months have seen a lot to get excited about. The new government of Ahmed Nazif and its freshly appointed economic team have unveiled a host of reforms that could, if properly implemented, substantially alter the Egyptian business climate. The reforms include a reduction in tariff brackets and rates, restructuring the troublesome banking sector and transforming GAFI, Egypt’s investment regulatory authority, into a tool for investment promotion. The government has also sought to kickstart the privatization process, pledging to open remove its protection of so-called “strategic” sectors like utilities and telecommunications. And, just for good measure, it has tossed in a draft for a new taxation system that could reduce the burden on citizens and corporations. Speaking at a recent AmCham luncheon, PM Nazif astutely noted: “Skeptics do not want to see just a mood change, they want to see action.” Indeed they do. While economists have hailed the measures, they are cautiously optimistic about whether the government can carry them out as envisioned. After all, we’ve seen it all before. Every new government unveils a host of dazzling economic policy changes only to have them fade ingloriously over time. If the new government is committed to changing Egypt’s economic climate as it claims, it will have to demonstrate this resolve. Even sound economic policies will ultimately fail if not backed by disclosure, consistency and transparency. Nazif’s crew must implement the measures that encourage investment, while removing the uncertainties and opacities that lead investors to look elsewhere. Investors, whether Egyptian or foreign, are seeking a stable business environment that permits long-term planning. Nothing scares them more than administrative decrees – even those with good intentions – announced and enforced in the middle of the night. One of many examples that comes to mind is the government’s bait-and-switch with investors it lured into purchasing duty-free shops in the late 1990s. Once the investors had paid up, the government abruptly changed the rules of the game by reducing the window of opportunity to purchase duty-free goods from one month to a mere 24 hours. Investors who saw their shares plummet are still bitter. More recently, the government surprised us all with sudden decisions to float the pound, regulate foreign currency holdings (Decree 506) and overhaul the Byzantine tariff system. While it may be argued that decisions must be implemented quickly to prevent profiteering, the shock value of changes must be weighed against the negative effect it has on the very investors these changes are intended to attract. On the other hand, draft laws weighed down in sleepy parliament sessions for years on end are no use either. The NDP’s draft tax plan, which should encourage investment by reducing taxes, is scheduled to go before the parliament when it reconvenes this month. Citizens and corporations to benefit from its reforms hope it will not meet the same fate as the long overdue Anti-trust and Competition Promotion Law, which has been bogged down since 2001 by conflicting private interests. Everybody is looking forward to positive change, but to restore investor confidence the government will need to balance between moving too fast and moving too slow. The optimism is there, but in order to tap it the government will need to create the stable and transparent legal environment that is conducive to business and investment. CAM McGRATH |
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