Egypt Hopes Summit Will Attract Investors To Its Lively Market
Reforms send output up, inflation and deficit down
CAIRO — More than 1,500 top business executives from around the world have descended on Cairo, and for Egypt, the timing couldn't be better.
The regional economic summit here is a chance for the most populous Arab nation to show off its economic makeover to potential investors.
The country's economy is growing at a 4.5 percent annual clip. Inflation has fallen to 7 percent from 20 percent in 1991. The government budget deficit has been slashed to just 1.3 percent of the nation's economic output, down from nearly 20 percent five years ago. And after stalling for years, the government has sprinted ahead in privatizing its bloated public sector, leading to a boom in the country's once-dormant stock market.
Summit attendees "will be very impressed with what they see in Egypt," says one Western economist. "The last six to eight months have seen significant improvements, and all indications show that the government's reform policies will continue and that business and investment will respond."
Egypt still faces major challenges, however. Unemployment remains as high as 20 percent. The government wants economic growth to reach 7 or 8 percent a year by 2000, so as to employ the 500,000 people entering the country's labor force each year.
With half of Egypt's 61 million people still illiterate, the government also needs to better educate people to help them find jobs, economists say. Per capita income was just $710 in 1994.
And it is unclear how prosperous Egypt can become without greater political stability in the region.
The Nov. 12-14 meeting is the third Middle East/North Africa economic summit since Israel signed a peace treaty with the Palestine Liberation Organization three years ago. Though the summit is intended to promote economic cooperation between Middle Eastern countries, questions abound over whether this year's conference will achieve its goal. Relations between Israel and its Arab neighbors have deteriorated since the conservative government of Benjamin Netanyahu took office in Jerusalem last spring.
A stalled peace process could keep some businesspeople from investing in Egypt and the region. "The barriers to growth in the Middle East are barriers - the actual border lines that are covered with chicken wires and weapons," says Paul Sullivan, an economist at American University in Cairo. "Get rid of the barriers and you will most likely find development in this part of the world."
For now, the Egyptian government may be hoping that its impressive economic reforms alone will lure foreign investors.
Leading the changes is Prime Minister Kamal Al-Ganzouri, who sped up reforms after he took office in January. Since then, besides privatizing its public sector at an impressive rate of one company a week, the Egyptian government has abolished capital-gains taxes, lifted controls on the cotton industry, and cut tariffs on a wide range of goods.
The International Monetary Fund, after years of delay, finally signed an agreement with Egypt last month that led the Paris Club of creditor nations to write off $4 billion of Egyptian debt.
"The new prime minister sees very clearly that the success of his administration is going to be judged by its economic reform," says Khalid Ikram, resident representative for the World Bank in Cairo.
Still, the Egyptian government has some major obstacles to overcome to gain investor confidence. Excessive red tape hinders entrepreneurial start-ups in Egypt, economists say. The legal system is so slow that it takes an average of seven years to settle a commercial dispute. And analysts say corruption, with government officials seeking under-the-table payment for their services, remains a hindrance.
No one expects the economic summit to bring a sudden rush of investment. Yet officials hope it will help the country gain the attention of foreign businesspeople so in the months ahead they'll return to invest.
"This conference will bridge the gap between the perceptions and the realities of Egypt's economy," predicts Youssef Boutros Ghali, minister of state for economic affairs. "We have very impressive realities, but too often the perceptions haven't kept up with them."