Shaping the New Egypt

The strategic relationship between Egypt and the United States has always been of great importance to the Egyptian government. The relationship has had its share of ups and downs, yet the core strong fundamentals have remained strong. I would like to share an exciting story happening in Egypt. A story of reform, a story of a society and a country being transformed and being reshaped to conquer its future…The story has two parts the economic development part and the social justice part. I will start by filling you in on the economic side, which you might be partially aware of and I will end with the social side, which I doubt you know much about and which is equally if not more important and in my view more exciting…so I am actually keeping the best for last.. After three years of economic stagnation which brought unemployment to an unprecedented high of 13.5% and brought poverty levels to unacceptable levels exceeding 25% of the population… Egypt is back in business. The Egypt Economic Development Conference (EEDC), during which contracts worth millions were signed and pledged- last March marked a strong vote of confidence in the country’s economic policies reflecting global political support to the country’s road map and confirming investors’ interest in the available opportunities in Egypt. The EEDC is just a milestone, it is not the end of the story; it is a step in the journey of upcoming reforms. Let me share with you some hard facts and numbers that are quite revealing. Considering the setbacks happening in the region; Egypt remained the best performing capital market in the world in 2014. The country’s returns exceeded 30% above the record highs of 2008 before the global financial crisis hit.

• Egypt’s GDP growth reached 6.8% in the third quarter of 2014, the highest since 2008. This coming June 30, 2015, we are expecting a total GDP growth exceeding 4%. That is twice the level seen exactly a year ago.
• Both Fitch and Moody have published positive assessments and upgraded Egypt’s rating.
• The number of newly established companies reached 6,364 this fiscal year up from 5,300 a year earlier.
• 43% of investors’ disputes were resolved with the contract reconciliation modality and 60% of the cases in the dispute settlement committee were also resolved.
• We have started settling dues to foreign oil and gas companies.
• Egyptian nationals alone have helped raise more than eight billion dollars, in eight days to finance one of the largest projects in our recent history. It is worth noting that 40% of the financing of ‘The Suez Canal Project’ came from outside the formal financial sector. Work on the project is on schedule and the grand opening is scheduled to take place on August 6^th.
• Tourism is up 6.9% from a year ago.
• Reserves are up 34%, the highest since 2011 and CBE is working towards a unified exchange rate and our banks continue to have solid performance.
• We have adopted and implemented an aggressive subsidy reform program. The program addresses wasteful electricity and fuel subsidy. For the first time, Egypt has a well-defined and detailed five-year subsidy reduction program. The plan is to cut down universal electricity subsidy by 20% every year, subsidizing the lower two quintiles at the expense of the highest consumers in the highest quintiles who cover for their cost. The same applies to natural gas and high octane gasoline.
• We have announced an energy mix strategy; where clean green energy is gradually introduced. We introduced the feed in tariffs and the power purchase agreements. Thus, we are currently opening the door widely and encouraging the private sector to invest in electricity generation and distribution. In fact since EEDC, the contracts signed represent a 30% increase to the total capacity of the grid.
• During May 2015, Egypt issued a five-year tender to lease a second LNG import terminal. It was presented to eight international companies and the government has struck a number of deals in the last few months in response to high demand on energy.
• Egypt is constructing 250,000 new housing units every year, building 3,000 km of roads and started developing and cultivating one million fedans. The country is a big construction site, where thousands of jobs are being created and mega projects are being implemented.
• More importantly than projects, we are revisiting our laws and making necessary legislative reforms to create the proper enabling business environment.
• New and improved tax laws, investment regulations, labor and social insurance laws are underway, however, more importantly is law enforcement.

But is it a story of economic growth? No. Egypt, its president, its government and its people share a vision and a dream of a prosperous, equitable, inclusive society for ALL Egyptians. We believe that an economically stable Egypt, happens only in a socially inclusive Egypt; where regional disparities, sectorial disparities and inequalities are addressed. Safety and security must prevail and all Egyptians must take an active part in the process. Between 2004 and 2008 we have witnessed growth, yet; learned the hard way that it was not enough. This time around we need to grow differently. It is the quality of the growth that matters. We need a development model that brings sustainability and generates jobs. A model that is inclusive of youth from different parts of the country. Thus, this government has a two pronged mission; combating and conquering terrorism and radicalism in the country and the region and with the same might building the future by complementing the building blocks of the political system. With the upcoming parliamentary elections this coming fall and at the same time making the necessary socio-economic reforms to unleash Egypt’s potential. The January and June revolutions were about social justice. This meant equal opportunities and equal access to goods and services, all while addressing inequalities. Thus, this government has been working on developing a comprehensive social policy program; where social protection of the poor and vulnerable is at its core. This commitment stems from the new constitution. At the Ministry of Social Solidarity, we began by improving our targeting schemes, in order to identify eligibility. Bearing in mind, that universal subsidies are always captured by the rich and powerful; and that we can’t afford them anymore. We currently have detailed and updated poverty maps, up to the village and satellite village level. We worked on those maps, using the latest World Bank mapping tools. We mixed that with proxy means - testing a formula using household income expenditure surveys, to ensure proper targeting. For the first time, the Ministry of Social Solidarity launched the largest data center, with the aim of developing a unified national registry for targeting purposes. The Ministry of Social Solidarity, alone has 44 million files of social insurance and pensions, 47,000 NGOs and two million recipients of cash transfers. Thus, linking all those services and all beneficiaries is an essential element to manage subsidies. So what about inequalities and disparity? In Upper Egypt, we have only 25% of the population, but we found out that 68% of Egypt’s poor reside there. This reflects an alarming disparity and marginalization. Thus, this region is where we started. We have increased the value of the already existing cash transfers by 50%; reaching a million and a half families. However, we also launched a new and improved targeting program known as: ‘Dignity and Solidarity’, within the poorest 19 districts in Egypt, most of which are found in the south. Dignity for the elderly poor and disabled, provides them with a monthly transfer and provides solidarity for supporting poor women, with a maximum of three children. This is a conditional cash transfer, where women commit to keep their kids at school with an attendance rate of not less than 80% and commit to regular check-ups and provision of primary preventive health care. It is an investment in human resources, an investment in the future! A third conditionality which is under way, is related to skills development and employment. In this arena, we are guided by the international best practices in Latin America programs such as Bolsa Familia, Prospera of Mexico and Chile Solidario in Chile. Since the initiation of the program in March 2015, we have registered 139,000 and we are currently targeting 500,000 within the upcoming six months. Those families receive free health care, which is provided for primary, secondary and tertiary care in state facilities. At this point we have covered five governorates. With regards to food subsidies and universal bread subsidies - where almost 50 million Egyptians are included; the focus is on increasing efficiency, quality and access. Effective savings in wheat consumption reached 20%. Social justice however; is not just about protection; instead, it entails promotion. For that reason, a new Ministry was created in order to upgrade the living conditions of people living in unplanned settlements. Another Ministry was initiated to target vocational training. Recognizing that our workforce requires constant training to be at par with market demands. An important aspect of social protection is financial inclusion of the poor and access to finance. Egypt’s poor have a financing gap of 85%. We have one of the lowest bank penetration rates in the world. It currently stands at about 7%.  For that reason, we have issued the long awaited ‘microfinance law’; to encourage private sector companies, to avail financial services to the poor and provide financing to micro enterprises. The newly applied law, regulated financing through NGOs and allows its expansion. It also protects consumers and insures transparency, while controlling abusive practices by lending sharks. Supporting the growth of SMEs, facilitating their entry and exit to the market, and supporting their formalization are all key factors in creating jobs for the poor. Considering the technological revolution within the mobile payments and transfers aided with the support of 100 million mobile users; prospects for financial inclusion of the poor are greater. Financial inclusion helps income generation for the poor especially women who are the sole providers for one third of Egyptian households. These women’s participation in the formal labor force is limited to only 24%. Thus, we have launched a huge labor intensive program, within the 15 poorest governorates focused on rehabilitation and maintenance. The program also focuses on the pavement of roads and stoning the river banks. These projects alone generate 600,000 temporary jobs. Those numbers are verified by WB and EU, whom are the donors of those programs. It is now an established fact, that inclusion of the poor and investment in human development leads to sustainable economic growth and prosperity; let alone peace, stability and a democratic society. Is the story that rosy? Of course not. We have a huge bureaucracy to train. We have institutions to modernize and we have an education system to reform. We have a fight against a regressive culture, which wishes to exclude women from economic and political participation. Yet, who said change is easy? However, I strongly believe that we have what it takes to make it. We will make it, it takes a leader and we have a freely elected one with an overwhelming majority. It takes vision and determination and I have shared that with you. It takes people with aspiration and boy our demographics are fantastic! With 88 million inhabitants; half of which are below the age of 25 years. It takes hard work and this is what this government has been doing and what it will continue doing. Finally, it takes friends and partners especially those in the United States to be part of this movement. Thus, ladies and gentlemen join the Egyptian journey of change, be a part of something big, because big potential awaits Egypt. There is something for everyone! If you are in the education business we have 18 million schools students. If you are in the transportation business; Cairo alone has 20 million inhabitants during the day and 16 million at night, that means four million commuting back and forth on a daily basis… If you are in the event planning business; 980,000 Egyptians get married yearly. If you are in the funeral home business; 600,000 Egyptians pass away yearly. Finally, if it is the soap business that you are in, then simply ask P&G how much money they make from selling soap alone to Egyptian consumers. With the market size and a young population like that of Egypt the opportunities are endless!  There isn’t a single government that could do it alone and -by the way -we don’t plan to. It is the private sector ladies and gentlemen along with NGOs whom will be the major players. Thus, I advise you to not wait for ideal circumstances. They will simply never come and nothing is more expensive than a missed opportunity. All successful partnerships are made of a combination, irritation and cooperation. For Egypt the time is now, the door is wide open and the first comers get the oyster while the second ones gets the shell. Finally, when I hear Secretary Kerry and others say that if “Egypt is okay; the region is okay,” I always beg to differ. Instead I say, “If the region is not okay, then you can count on Egypt for improvement and stability.”   Ghada Waly is Egypt’s Minister of Social Solidarity.