Although Egypt achieved significant real GDP growth thanks to its economic reform programme, the private sector’s potential to push development needs to be unblocked, according to a recent report released by the European Bank for Reconstruction and Development (EBRD).
The report shed light on Egypt’s major achievements in the past few years under the program, including massive governmental investment, robust domestic consumption and greater export competitiveness, which all boosted the country’s economic performance.
“The government implemented policies to reduce and reprioritise subsidies and contain the wage bill, while increasing expenditure for new social safety nets,” according to the report.
On the other hand, the report noted that the private sector’s contribution to Egypt’s growth remains below potential, adding that the country’s second wave of reforms must include procedures that aim to improve the investment climate to unlock the private sector potential.
In this respect, the report explained that business related regulations and inefficiencies in a number of public services remain a burden on companies in many areas, particularly licensing.
“The regulatory framework for state-owned enterprises should aim to promote more competitive, commercial behaviour and to ensure a level legal playing field. The country’s competition authorities would also benefit from a strengthening of their role and capacity.
The banking sector is reasonably large and stable, but reforms should aim to deepen and diversify the financial sector more broadly to improve capital markets, access to finance for small and medium-sized enterprises (SMEs) and financial inclusion for young people and women.
Lastly, promoting export orientation, better market integration into value chains (also for imports) and making Egypt more attractive to foreign direct investment (FDI) could fuel technological knock-on effects and upgrades, boosting competitiveness,” the report urged.
It also stressed that with the demographic challenges of a growing youth population in the country along with women and people in remote and rural areas, empowerment is substantial to attain long-term equitable growth.
Egypt takes steps on private sector role
Egypt recently launched the State’s Ownership Policy Document that delineates the state’s presence in economic sectors and centres on granting the private sector a greater role to play in the country’s economic activity and raise its share its GDP.
The document identifies the sectors from which the state plans to withdraw, decrease, or increase its presence over the coming three years.
The government has also announced that it would be holding a three-month societal dialogue on the document.
President Abdel-Fattah El-Sisi had asserted that the state seeks to encourage non-state-run companies to participate further in housing, agricultural, energy, transport, and roads projects.
On 13 June, Prime Minister Mostafa Madbouly announced the launch of a digital platform for experts and members of the business community to discuss with the government the State Ownership Policy Document.
Over the next three years, the private sector’s participation in public investments will rise to 65 percent, up from 30 percent currently, PM Madbouly said in a panel discussion with a group of experts and specialists on the document.
Madbouly said that this is part of the state’s plan to maintain a growth of 7 percent or more for the Egyptian economy in the coming period despite global challenges.
The EBRD report also touched upon Egypt’s educational system, which has improved significantly due to fundamental reform and investment.
“Yet, educational outcomes continue to lag. It will be important to pursue these with a renewed focus on skills mismatches and a stronger role for the private sector in setting curricula to get the right mix of skills for the country’s growth ambitions. In addition, reforms to social safety nets should be complemented by a more inclusive overall approach to growth that focuses on economic opportunities, so that people in remote and rural regions are not left behind,” the report explained.
Energy sector reform: Egypt role model
It also touched upon Egypt’s energy sector, saying it is a role model that other economic sectors in the country can follow.
“Sweeping regulatory reforms have enabled the growth of renewable energy sources with strong private-sector participation. This could be a model for other sectors in need of an upgrade, such as waste collection and treatment, water resources and treatment and water-use efficiency. Regulatory reform of some of the biggest emission drivers (transport, buildings and industrial production) could create the right incentives for investment and upgrades to more emissions-efficient technologies, yielding a double dividend of economic growth and productivity growth and lower greenhouse gas (GHG) emissions,” the report explained.
On digital transformation, the report called for making digital tools the biggest cross-cutting catalyst for acceleration and progress across Egypt’s reform agenda.
To this end, the report urged the decision maker to boost competition in the telecoms sector to promote infrastructural expansion and upgrades – mainly 5G and broadband – by moving towards spectrum auctions and moderating the dominance of the state-owned telecom company.
In parallel, the report called on the government to take the lead on promoting the rollout and use of digital technologies through e-services as well as supporting enterprises and households, including through digital skills development.
