Transcript The Welfare Effects of a Large Depreciation: The Case of Egypt

Egypt’s Economic Reforms:
Achievements and Challenges
Mustapha K. Nabli
The World Bank
Presentation for Cairo Investment Forum
9-10 December 2006
Recent Performance:
Strong Investment and Growth Revival
• Higher growth rate: from 3% p.a. in 2003-04 to around 7%
now
• Surge in foreign private capital flows both portfolio and FDI
(almost 6% of GDP in 2005-06)
• Domestic investment has shown signs of dynamism
• Higher exports: rise by 37% in FY2005-06, which shows
enhanced competitiveness
• Some indications that this is having an impact on
employment, including a reduction in unemployment (Ragui
study)
There is no doubt that the external
environment has contributed to these results
The most important impact stems form the recent expansion
especially in the GCC in relation to the regional oil boom: a
number of links are producing a positive impact on the
Egyptian economy ---these effects are significant but much
weaker than in previous booms
• Higher remittances: 14% of GDP in 1979, 3% today
• Significant increase in tourism activity
• Foreign investment flows: FDI 7% of GDP in 1979, 4% in
2005
• Official aid: 19% of GDP in 1975, 2% today
• Indirectly: encouraging reforms
But reforms must have contributed
significantly
•
•
On macro-economic management :
– 2003-04 exchange rate correction
• eliminated parallel market
• Cumulative 26% trade-weighted nominal depreciation
in 2000-05, much of it concentrated in 2003.
Significant structural reforms
– The tax rates and administration reforms
– Tariff reduction and customs reform (inspections,
clearance processes, faster processing using IT)
– Business environment reforms: registration and licensing
and establishment of a one-stop-shop,
– Financial sector reforms
– Privatization of SOEs, including in the banking sector;
infrastructure concessions
Evidence of this impact from Investment
Climate Assessments by the World Bank
Investment climate surveys have shown a significant
improvement in perceptions in 2006 compared to 2004 in a
number of areas where these perceptions were highly
negative and considered as major impediments to investment:
(same 738 firms surveyed in 2004 and 2006)
• Enormous improvement on perceptions on tax rates and tax
administration
• Significant improvements on perceptions about:
– customs administration and trade regulations
– Business licensing and regulation permits
– Legal resolution of disputes
– Access to finance and to land
Sustaining and reinforcing growth requires a
virtuous cycle which leads to
• Higher rates of private investment
– Domestic as well as foreign: the overall private investment
to GDP ratio remains relatively low in Egypt
• productivity increases
– Vibrant firms that innovate & respond quickly and flexibly
to changing markets
– The investment climate surveys shows little improvement
in the productivity of firms over the last few years
Which requires deepening the reform program
A number of areas are shown by the Investment Climate Surveys to
require more attention to a number of areas on which the
government is working already:
• Improving access to finance and the effectiveness of the
financial sector to intermediate resources, especially to
SMEs and services firms
• Reducing barriers to entry, enhancing competition
• reducing regulatory uncertainty especially for services firms
• Dealing with informal practices of competition
• Developing workforce quality skills
• Combating corruption
• Ensuring that the benefits of the reforms benefit the smaller
firms as much as the larger ones
… and requires also enhancing its credibility
-- Making sure that the direction and momentum of reforms
are well understood and are maintained
– Making sure that announced policies are implemented and
no reversals take place
– Making sure the benefits of growth are broadly shared:
creating jobs, reducing poverty, more generally spreading
benefits to the large population
– Ensuring that these benefits from the reforms are known
by the public
Then the virtuous circle of better policies—better results—
better expectations---better policies and so on continues
to be operating for the benefit of the Egyptian people.