“The Egyptian economy is able to overcome the current crisis” Pioneers Holding’s Managing Director Mohsen Adel

Laws on taxes and investment disputes need to be amended

Industrial development & small-sized projects are quick solutions to boost exports

Central Bank’s flexible policies aim at encouraging investments

A sound monetary policy must be adopted to prevent low-income citizens 

By Mahmoud Hammad

The Middle East Observer interviewed Pioneers Holding’s Managing Director and Deputy Chairman of Egyptian Association for Finance and Investment Studies Mohsen Adel to discuss a number of economic issues and decisions.

He stressed on the Egyptian economy’s ability to overcome the current crisis through the help of youth and the state’s wise policies. The Central Bank works toward improving investment environment and sustaining trust in the national market. Yet, such efforts must be accompanied with flexible and precautionary measures to achieve social justice and comprehensive economic reform.         

How do you see the Egyptian economy and its recovery over the coming period? 

The only way through which the Egyptian economy can overcome the current crisis is to stop ignoring it and start facing the challenges. Problems have become now possible to overcome, future vision is now clearer and determination to reform will drive us out of this crisis.

Economic development requires a radical transformation of laws to create a better investment environment and restructure related ideas, same as the GCC countries did. They are now working on setting up the world’s largest sovereign wealth fund, as part of their efforts to rely on investments, instead of oil, as their main revenue source.

I think the most important Egyptian laws that should be amended are those on taxes, investment disputes and bankruptcy. Moreover, there is a need for a small-sized projects authority that would be responsible for settling licenses and lands’ problems, and another one to license industrial lands.

I expect the Egyptian economy to stop floundering soon, which could be basically attributed to the state’s political, economic and problem solving abilities. Such would help achieve social justice and the most ideal model of growth by employing the youth.

What do you think of the foreign currency crisis? How should we solve it? 

This crisis could be traced back to the economy’s failure to develop its own foreign currency resources, especially after the drop in tourism and importing revenues. Moreover, foreign direct investments records weak growth rates, as well as the state’s need to import basic food commodities because of the poor production capacity and dependence on imported raw materials which undermines domestic industries, sometimes to packaging only.

In order to eliminate these problems, a sustainable industrial development is required. It would be achieved under an economic reconstruction whose implementation can go on for years to replace imports with national products and boost exports.

The signs related to achieving this are clear now in a strategy that targets developing and funding small and medium -sized projects and comprehensive industrial- agricultural complexes, under the 1.5m feddan reclamation project.

What do you have to say about the Central Bank’s decision to devalue the Egyptian pound?

The CBE’s latest decision, including the 14.5 per cent devaluation of pound, is the beginning toward a real economic reform. This will definitely increase the investors’ trust in Egypt’s market. But, it has to be followed by complementary reforms in the rest of economic sectors to remove hindrances blocking exports and investments.

I believe the bank’s decision to adopt flexible policies mainly aims at boosting confidence in the national investment atmosphere, especially that the latest steps were taken to narrow the gap between official and parallel exchange values- which exceeded 2.5 pounds.

But, the devaluation decision was followed by increase in prices, what do you think of that?

Products and commodities offered in markets now were imported nearly 2 months ago with dollars mostly bought at black market. Thus, the inflation shock had already hit them.

Moreover, the state’s supervisory role on markets is necessary to prevent exploitation of the decision.

The society’s low and medium classes will be the most influenced by this decision, consequently this necessitates precautionary measures. The government should, thus, be ready to face any potential resulting inflation or higher prices. Moreover, it should announce a set of supporting decisions to these classes to help them put up with any outcomes.

Are the CBE’s efforts sufficient for the economy’s recovery? 

No, for there must be sound investment and monetary policies to support the affected low-income citizens. Default in balance of payments, resulting from trade balance deficit, and reconsideration of exporting policy and Egyptian products’ competitiveness need to be reformed.

What does the Egyptian Stock Market (EGX) lack?  

EGX’s current situation shows it needs to restructure a number of its operating systems, while working at the same time on widen the money market laws’ range to cover all executive measures.

It is also essential for EGX to take in all required technical and legal changes. Substantial developments should kickoff right away through establishing self-organised institutions for each monetary activity, which is the exact model applied in USA.

Based on this idea, there will be an institution designed for every single activity, like brokerage, profile and fund management, direct investment, and investors’ relations.

While the Egyptian Financial Supervisory Authority (EFSA) will be monitoring these institutions, they will in turn be responsible for licensing, supervising and regulating work. They will also comprise executives in the field, seeing they are the most qualified to carry out such tasks. Moreover, these bodies will help improve EGX and EFSA monitoring the market.