Revitalizing Egypt’s Private Sector: Key to Economic Stability

Dina Abdel Fattah

Egypt’s economic outlook is brightening. Recent data from both domestic and international sources point to positive trends. A significant boost is coming in the form of foreign currency, with an expected inflow of $60 billion by 2024, which is expected to help stabilize the economy.

The perception of Egypt’s economy by global financial institutions has shifted. Major institutions are getting more positive and improving their outlook. This upbeat attitude appears reasonable. Indicators from both government and private companies reveal a decrease in Egypt’s foreign asset imbalance, which is a major worry for the banking sector and central bank. This points to a more solid financial picture for the country.

Positive indicators

Egypt’s economic indicators are showing positive signs. The banking sector’s deficit has shrunk significantly, dropping from $22 billion to $4.2 billion by the end of February. Similarly, the Central Bank’s foreign asset deficit has also decreased to just $1.4 billion, down from $8.7 billion. Inflation is also on a downward trend, falling to 31.8% at the end of April, a 2% decrease from the previous month. The state budget deficit is also expected to improve this year, with projections of a decline to 5.5%. These positive developments suggest a strengthening Egyptian economy.

Adding to these positive economic trends, Egypt’s Central Bank’s foreign exchange reserves are at a four-year high, reaching $41.1 billion. This financial strength is expected to continue growing, with projections reaching $49.7 billion by the end of 2024 and $53.3 billion by 2025.

Rosy economic picture

Combining the previous points, Egypt’s economic picture is becoming increasingly rosy. These indicators are fueling talk of an Egyptian “Nile Tiger” – a rapidly developing economy – with some reports even suggesting it could be among the world’s top 10 fastest-growing economies.

While the economic data looks promising, the key question remains: will these positive indicators translate into improved job opportunities, living conditions, and stability for the squeezed Egyptian middle class?

With a surge of foreign currency inflows, fueled by major investment projects like Ras Al Hekma and increased borrowing from the IMF, EU, and other lenders, many concerns remain unanswered. Has this foreign exchange influx addressed the underlying challenges faced by Egyptian industries?

Utilizing FX inflows

How these funds will be utilized. Will they simply be used for debt repayment and short-term crisis relief, or is there a long-term national plan in place? Ideally, these funds would be managed strategically to address underlying problems, create alternative opportunities, and promote sustainable growth. This would require a well-defined plan with experts who can optimize the use of these resources to achieve a fundamental and lasting improvement in Egypt’s economy.

Economic army

Recent crises have shown that a robust domestic private sector is vital for Egypt’s economic resilience. This “economic army,” as some call it, controls the land, technology, and resources needed to defend the economy during challenging times. By prioritizing investment and empowering the local private sector, Egypt can build a stronger foundation for long-term economic stability and protect itself from external pressures

Egypt’s economic well-being hinges not only on its military strength but also on a robust domestic private sector which plays a critical role. Recent economic hardships have highlighted the importance of possessing internal sources of strength that can generate foreign currency independent of external borrowing or aid.

Therefore, revitalizing the Egyptian private sector is paramount. This sector has suffered significant decline in recent times, both in size and effectiveness. The government, it seems, has overlooked the crucial role the private sector plays in safeguarding the nation’s economic stability. It’s time to prioritize its rescue and empower it to function as the true defender of the country.

The term “formal” private sector is crucial here, considering the vast (and possibly growing) informal sector that makes up an estimated 70% of the market. This large, unregulated segment of economy, often overlooked, is a double-edged sword. It weakens the formal segment through unfair competition, hinders tax collection, and fuels black markets and monopolies.

The “economic army,” Egypt’s vital private sector, desperately needs immediate support. Open communication and solutions are crucial for resolving their struggles with banks, taxes, and insurance. The focus shouldn’t be on shutting down businesses or punishing owners. Instead, prioritizing solutions that keep factories running and projects afloat will help the private sector weather the storm and contribute to the country’s economic recovery

Correction revolution

A “correction revolution” is urgently needed to address the relationship between the government and the private sector in Egypt. Unfortunately, a widespread perception exists, even within the highest levels of authority, that portrays private businesses as corrupt entities enriching themselves unfairly. This perception hinders productive collaboration. A new approach is essential, one that fosters trust and recognizes the private sector’s vital role as the “economic army” driving Egypt’s economic well-being

Policymakers who see the private sector as crisis profiteers may be startled by the actual cost of shutting a business down. Do they realize how long it takes to set up a production plant and put it into operation replacing a failed one?

The recent difficulties highlight the importance of acting quickly to address the situation before it resurfaces. More hardships are not unlikely in light of the fresh FX inflows, the majority of which is new debt, given that the economy is unable to meet its basic needs, relying on imports, and a local industry that is on the verge of extinction because its owners are drowning in crushing financial problems with no escape.

We are in urgent need of solutions to benefit from the temporary economic stability provided by the recent FX inflows. These solutions include the following:

Private manufacturers need more attention

First, provide all facilities to the private sector, particularly the industrial sector, in order to restore its health, and explore all options for avoiding project failure or bankruptcy. I am aware that many of them have already discontinued operations or are about to do so as a result of the preceding period’s poor economic conditions. They suffered significant losses as a result of rising raw material, tax, and service prices, as well as contractual obligations to boost wages in response to inflation.

Troubled export sector

All of these variables together have a detrimental influence on the private sector. Set aside the exporters who have trouble finishing their procedures and receive their money from the state to help keep the business functioning. I shall address this export issue individually, as it is an essential component of the private sector system necessary for a sustainable FX influx of foreign exchange.

Good intentions and pronouncements won’t solve the problems facing Egypt’s private sector. What’s needed are concrete actions – a rescue plan, even if it comes at a cost. Reviving existing factories, regardless of their past struggles, is crucial. A thriving private sector, acting as a true “economic army,” strengthens national security in multiple ways. It provides jobs, fosters economic stability, protects investments, and safeguards the well-being of citizens. In essence, a robust domestic private sector becomes a pillar of national security itself.

Eliminating informal economy

The second crucial solution is to launch all-out attacks on the informal sector, which produces turmoil and distorts the image of respectable investment that follows all laws and regulations, abides by rules, and meets all standards.

The next confrontation should be with the informal sector, which must be eliminated as quickly as possible.

I am aware that the struggle against it would be difficult, as they are the market mafia, money launderers, and poison merchants; they are also makers of counterfeit items that are destructive to the state.

The informal sector serves as a route to monopolies, smuggling, and the spread of lethal commodities. They represent the black market that benefits from crises and calamities. Despite making billions of pounds in earnings, they are not required to pay taxes, insurance, or service bills.

These entities are a disgrace to the private sector. These are the true crooked folks who profit in all times and crises.

Current policies seem focused on quick fixes, neglecting the long-term needs of Egyptian citizens. True stability requires empowering Egyptians to create wealth, not just rely on borrowed funds.

Written by Dina Abdel Fattah

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