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in person who says you can’t run government as a business? minister of foreign trade and investment rachid mohamed rachid is bringing three decades of private sector experience to his post, taking on the twin challenge of modernizing industry and expanding foreign trade. he’s not advocating simply a change in policy, he wants to change the thinking. by cam mcgrath by his own admission, rachid mohamed rachid was an unusual choice for the job. by tapping the prominent alexandrian businessman for the newly merged foreign trade and industry portfolios last july, the nazif government was sending a clear message that it wanted a new model of thinking for its economic policies. the former chairman of unilever egypt feels business was traditionally under-represented in the cabinet. the influx of fresh blood is helping to give the government “more clarity of direction” vis-à-vis the private sector. after all, he points out, the business mindset is not something one simply abandons upon taking office. “you don’t leave your background. the way you deal with issues, team building and building a consensus... is very much influenced by your business background.” the minister confidently asserts that it’s time to outsource some of the roles traditionally filled by the public sector. “basically, what we’re doing now as a government is withdrawing from certain areas,” he says. “we want the business community to take the lead in setting the agenda of economic development, industrial organization and export promotion.” his ministry, meanwhile, will focus instead on the legislative framework, bilateral trade agreements and customs reforms that allow the private sector to operate. just eight months since taking office, rachid has left his mark – enforcing international industrial standards, lowering protective trade barriers that discourage competition and securing a new agreement that gives select egyptian goods unprecedented access to us markets. the onus is now on the business community, which rachid sees as a vital component to egypt’s industrial growth and economic development. “we can only create the environment, help get the tools and encourage [private enterprise], but somebody has to take the lead,” he says, adding that local business organizations will play a central role in the changes ahead. while egypt’s past year has been characterized by change, last november’s us presidential elections may usher in more of the same. egyptians are now waiting to see what george w. bush has in store for the region in his second term. “the biggest question mark in the minds of the people in egypt when it comes to the us administration is not really related to egypt,” says rachid. “it is more related to what will happen in iraq and the palestinian-israeli situation.” people are more concerned with issues beyond their borders, he argues, because they are confident in egypt’s historic ties with the us. “we’re talking about a strategic relationship [that goes] back 25-30 years. i don’t think people are thinking there is really any sense of threat or lack of commitment from either side to continue this relationship.” nor have post-9/11 realities dampened egypt’s resolve to maintain strong economic ties with the us. europe is on egypt’s doorstep and the asian market is experiencing exponential growth, but trade policy remains firmly geared towards the american market. “at the end of the day, we’re talking about the biggest market in the world, which is the us,” says rachid. “so it’s very important that we have a strong and forward-looking relationship with the us both trade-wise and investment-wise.” a strong egyptian pound, however, could put the brakes on exports. the us dollar has fallen 8 percent against the pound since december, making products manufactured in egypt more expensive for american consumers. it might also tempt local exporters to look to other markets. the change in the value of the currency “might make other markets more attractive for the short term,” he admits, but exporters need to see the bigger picture. “nobody looks at the dollar as a value. the value is more the attraction of the american market, which i think will continue to push up those numbers in the coming few months.” pop qiz “there are no secrets,” he insists. the clinton administration offered the qiz model to egypt in 1996, but the egyptian business community showed no interest at the time. “unless the business community was interested and willing to be part of the arrangement there was no reason for the government to start engaging itself. in the mid-1990s, the business community was not interested. now [it is].” according to rachid, the initiation to launch qiz negotiations came from the local business sector nearly two years ago after industrialists realized egypt’s textile sector, which accounts for 11 percent of manufacturing gdp and employs approximately one million workers, was facing a critical deadline. the multi-fiber agreement (mfa), which imposed quotas on textile exports that served to protect egypt’s share of the us market, was due to expire on january 1, 2005, opening the floodgates of cheaper asian products. following the success of jordan, which saw its textile industry jump from a paltry $26 million before signing the qiz agreement in 1998 to some $1 billion seven years later, local factory owners decided they wanted in. rachid admits the negotiations were tough. after all, jordan was initially granted just one qiz. egypt was seeking 10. but patience, alexandrian tenacity and three decades of business savvy helped rachid seal the deal. the us granted egypt an initial seven qizs in three geographic districts: cairo, alexandria and port said. reaction to the trilateral agreement has been mixed. some praised it, others condemned it. opposition newspapers accused the government of bypassing due parliamentary procedure to prevent detractors from blocking it, an allegation rachid flatly denies. “i was in parliament for over three hours and i stood there with different parties – members of the opposition and independent parties, and the national democratic party,” he says. “at the end of the session, there was a clear acceptance by the majority of the parliament.” in any case, rachid maintains, the qiz agreement did not require parliamentary approval because company participation is optional and the egyptian side does not have to give up anything to reap its benefits. “nowhere in this arrangement is there any sort of obligation on the egyptian part,” he stresses. egypt’s peace treaty with israel, signed in 1979, provides an outline for economic cooperation between the two countries. despite this, bilateral trade barely exceeded $42 million in 2003. israel’s policies in the region – particularly since the outbreak of the palestinian intifada in september 2000 – have made dealings with the israeli government extremely unpopular with the egyptian masses. regardless of the popular sentiment, rachid says the government can neither stop people from importing from israel, nor hide the origin of these products. “there is no law in egypt that forbids importing products from israel and there is nothing in egypt that would stop somebody from asking me to give him a certificate-of-origin proving that a product is of israeli origin.” that’s just the type of statement that infuriates the egyptian public, but rachid says people need to see the bigger picture. “i understand the emotion of the people, but from a commercial trade point of view, i think our agreement... is bringing stability and benefits to the region,” says rachid. “the [point of the qiz agreement] was to get the business community the best trade agreement i could. this is not about religion; this is about what i could get for egypt.” somewhat unexpectedly, many egyptians see the logic in the minister’s words. some have publicly complained – at times even taking to the streets – because their factories were not included in the qiz agreement. rachid says a concerted effort is now under way to expand the agreement, as was done in jordan, which now has 13 qizs. “we have the right to apply for new zones and we’re hoping new zones will be added in the next phase of the process,” he says. eyes on the prize “i’m sure there was nothing personal,” asserts rachid. “it was more really the position of the us and egypt vis-à-vis an fta discussion. we were both not ready to get into that discussion. i think that has changed completely for both sides.” yet not everybody is convinced the time is right. a report issued last november by the us house of representatives’ ways & means committee said egypt was far from ready. it cited a number of obstacles, including what it deemed as inadequate protection of intellectual property and import barriers on frozen chicken. frozen chicken a stumbling block to an fta? rachid writes it off
as an example of the power that lobby groups wield. “there
are people interested in exporting and they are, of course, bringing
their case to members of us congress [as is the case] here in egypt.
this is the nature of the game.” in hindsight, rachid is convinced that the qiz was the right decision. even if the us grants egypt an fta tomorrow, it will not take effect overnight. ftas are gradually phased in over a period of up to 10 years. egypt needed a working model in the interim, he says. the qiz will give egyptian industries a competitive advantage “until we get the full benefit of an fta. but, in the very long term, we don’t need both agreements.” size matters after all, only industry giants are capable of the economies-of-scale that egyptian products need to be globally competitive. “i want to make sure that the big companies are labeled as good companies and we should support them. we need them. they’ll be the ones carrying the flag. they are the ibms, the boeings and the microsofts that you need for egypt.” but size is relative. rachid points out that egypt’s handful of “big” companies, with annual turnover exceeding $100 million, are considered “small” companies by us standards. in this age of global integration, the two are now battling for the same markets. “i need some strong and big companies to compete.” that’s not to say he’s giving up on smes. support is needed across the spectrum, he argues, emphasizing that “smes are going to be the big companies of tomorrow.” but making these companies competitive will require solving the same problems that afflict big companies, namely inadequate marketing, low production capacity and product quality issues. “the specification of products is a big issue,” says rachid. “almost 80 percent of all problems [revolve around] specification standards.” the ministry’s strategy is to align egyptian standards with international ones so that products can have open access to global markets. but adopting world standards should not be limited to manufactured goods, he says, they should be applied to inspection procedures, customs policies and ipr issues. looking to the future, rachid sees room to grow. his ministry is laying the groundwork for egyptian industry to become more competitive in both the domestic and international markets. but to get there his ministry still has a long list of problems to solve. it’s an ambitious task, but he’s certain of one thing: “by the time we finish it, someone will find other problems.” giving investors a clear picture ministers love to paint rosy pictures of investment in egypt. minister of investment mahmoud mohieldin doesn’t. sure, he’s happy to discuss the challenges to investment and what’s being done to address them, but he’s more interested in giving investors the clarity and transparency they crave. by rehab el-bakry “to quote investors, their concern is clarity. they want to come to a place knowing that they’re going to go through a set of particular procedures [that will] take a specific amount of time,” he says firmly. “you really shouldn’t have any surprises, [not even] good surprises.” with this spirit in mind, mohieldin is the first to point out that – when it comes to investment – egypt has had problems over the past few years. but the government is aware of them and is working on solutions to create an environment to increase investment. although mohieldin, 40, has only been a minister for a little over six months, he says he has a firm plan to boost investment in egypt, both foreign and domestic, as well as revive the privatization program. “as a minister, your job is to strike a delicate balance between the private sector, what remains in the public hands, the interest of the public at large and the interest of the government and policy makers,” he says. “you have to address the concerns of all these agencies [while] ensuring, that as you cater to the needs of a particular group, you don’t endanger the interests or the welfare of others.” he says his extensive experience in consulting to both the private sector and members of government, as well as his involvement with policy formulation through the national democratic party (ndp), helps him strike this balance. while he does recognize how important the private sector is to the egyptian economy, he says he has a responsibility to protect the interest of the general public. having said this, mohieldin is the first to point out that right now, the egyptian government has prioritized economic reform as the key to competing in the world economy and creating jobs. he says this means the egyptian government must work on promoting egypt as an investment destination and dealing with the issues that have previously kept investors away. pros and cons in an attempt to illustrate this awareness, mohieldin is more than happy to list the challenges faced by domestic and foreign investors. but, he’s just as anxious to point out what the current government is doing to address them. he says the biggest complaint by businessmen has been tariffs and customs on products. “we have dealt with the issue of tariffs, reducing the average rate from more than 14 percent to less than 9 percent,” he says. “we are aware that the customs reforms still need further work and the minister of finance is still working on improving the administration work, expediting the process of evaluation and clearance of products and raw material from customs.” “the second issue of concern was taxes and by that i don’t just mean tax rates, which we’re dealing with through the introduction of major reduction through the proposed tax law, but also the tax administration.” he says the proposed law also simplifies the process of reporting taxable income and handling of paperwork. but more importantly, it minimizes the discretionary power of the taxman and minimizes the dealings of investors with the tax department. the current system give the employees of the tax department the discretion to assess taxable revenues of companies without any clear guidelines of how these assessments are reached. mohieldin says the new law will virtually eliminate this process with the revenue figures filed by companies accepted in good faith as being accurate. the third issue mohieldin identified pertains specifically to his portfolio. dealing with the investment authority has long been a nightmare for investors due to the delays in registering companies and getting approvals. he says that the waiting period involved in registering companies has been virtually eliminated with clear steps being put in place to remove any confusion over the processes and approvals required. he says that the process will be cut from several months to around one month. “the investment authority [general authority for investment & free zones] would disagree, claiming they can do it within two weeks, but i think that we’re being led into a race with other countries to see who can register faster and that’s not the point. the point is that we want to give investors clarity through a set of procedures that will take a certain number of days. it’s not about how long they will take but they just want no surprises of any kind. it’s all about the clear procedures and when you will be able to get the license.” mohieldin says the registration of a company is simply the entry of the company into the egyptian market. while this should be simple, so should the ability of the company to exit from the market. “as a company, you should have a safe and smart exit from the market [because] it’s your right. to me, it’s more important to develop this aspect of the registration process rather than getting into a competition of who does it faster.” but not all concerns have yet been addressed. mohieldin says there are still issues pertaining to local authorities and their level of cooperation with the investors. “i believe we need to do further work in this area because some of the local governments didn’t catch the reform movement yet,” the minister told business monthly. “there are also a few issues relating to the accessibility and registration of land, an issue being tackled by a team lead by the pm himself.” while mohieldin is aware that bureaucracy is one of the biggest challenges for investors, he points out that addressing that issue is inherent in all the measures currently being taken by the government. “so we’re not in denial or ignorance of the problems but at the same time, we’re seeing very positive actions to deal with the problems,” points out mohieldin. “even acknowledging there are problems and, more importantly, having an action plan to deal with them, is an achievement in itself.” the privatization bug the privatization program was first initiated in 1991 as part
of egypt’s economic restructuring program, but slowly fell
into a coma as the government sold off its most prized assets and
was left with undesired and loss-making companies. for mohieldin,
however, privatization is not simply an ideology, but rather a necessary,
if bitter, medicine for the egyptian economy to grow. “i’m
going to pursue privatization very aggressively. you’re not
just going to see a few flagships. any company that has a buyer
around the corner, i am going to prepare the company, approach him
and sell it.” mohieldin says that buyers are not going to knock on his door, so he has to be willing to knock on theirs. at the same time, he says that if a company doesn’t have a buyer he will work with the company and the holding company that manages it to shape it up and adopt better corporate governance. his approach has paid off. companies privatized over the past six months yielded more than £e 800 million in revenue and he says he’s just getting warmed up. “the number of companies we are preparing for privatization and their relative size in the market is very significant. but i don’t like to use the word privatization because in arabic it has a negative connotation. i prefer to look at it as ‘asset management’ involving the selling, restructuring for sale and the introduction of corporate governance to egypt’s assets.” while he knows the decision to sell public companies may not be very popular with the general public, he says egypt can no longer afford to hold on to companies that are losing thousands of dollars a day. “there are companies losing some $40,000 a day. we can’t afford that,” he told business monthly, adding that no sector will be considered off limits for privatization. legal frameworks “we’re introducing some amendments to the investment law in order to make it compatible with the new tax law,” he says. this will [also create] a convergence between corporate law no. 159 of 1981 and holding company law no. 8 of 1997, because it makes no sense that companies that report to the same investment authority be treated differently.” at the same time, the passing of the antitrust and regulation of competition law last january had the minister breathing a sigh of relief. “i think it’s a good start because it establishes a competition commission and educates [the public] about the meaning of antitrust, anti-competition, as well as [illegal] horizontal and vertical agreements.” he recognizes that the legislation differs from us antitrust laws, which include information disclosure requirements. however, he notes, the current cabinet will work on addressing this through a decree that establishes a national council for information disclosure and transparency. while egypt has a history of false starts when it comes to policies that encourage investment, mohieldin says he has every confidence that this time things will be different because, thus far, the cabinet has taken decisions that indicate its firm commitment to reform. he argues that once you go down this road, it’s next to impossible to turn back. “right now, we have reformers in the cabinet who are reforming. so we have the right message and the right messenger. previously, we had one or the other. that’s why this time is going to be very different.” |
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