Transcript Presentation by Dr. Mahy Hassan Abd Ellatif Deputy Assistant Minister for International Cooperation The Egyptian Ministry of Foreign Affairs ESCWA Preparatory Meeting on FFD Doha, Qatar 29-30 April , 2008

Presentation by
Dr. Mahy Hassan Abd Ellatif
Deputy Assistant
Minister for International
Cooperation
The Egyptian Ministry of
Foreign Affairs
ESCWA
Preparatory Meeting on
FFD
Doha, Qatar
29-30 April , 2008
I. Mobilizing domestic financial resources
for development


In line with the agreed concept that countries have
the primary responsibility for their own development,
the need to ensure an enabling domestic
environment, including good governance and sound
macro-economic policies, was deemed vital by the
Monterrey Consensus {for mobilizing domestic
resources, encouraging the private sector as well as
international investment} .
However, it is important in this respect to point out
two main principles, the first is that any endeavor in
this regard has to be in line with national
development priorities. The second is that there is no
"one size fits all" approach as circumstances vary
from one country to another.


Moreover, we have to fully recognize the nexus
between creating an enabling domestic environment
and creating a supportive international environment
that complements the efforts of developing
countries. It is equally important to note that good
governance at the national level, requires good
governance at the international level.
Developments in the global economy have significant
bearing on the internal economic environment.
International economic imbalances, coupled with the
financial strain emanating from the low dollar, pose a
substantial threat to the stability of international
financial markets, with projections of a possible
outbreak of another financial crisis leading to a
setback in world economic growth. This comes at a
time, when many developing countries, especially in
Africa, remain off track in achieving the MDGs, and
lack the basic capacities to mobilize domestic
resources.

{There are several areas where international
assistance is needed to build national capacities of
developing countries such as:
• Building and developing institutional
infrastructure.
• Enhancing the role of national development banks
in mobilizing domestic resources, in addressing
market failure, and in improving the business
climate by supporting small and medium sized
enterprises (SMEs). Strengthening domestic
financial markets, and encouraging lending in
local currencies.
• Achieving a more efficient and diversified taxing
and revenue system.
• Combating corruption, planning social security
programs, and setting up effective domestic
financial markets.
• Enhancing the "policy space" of developing
countries to provide the requisite margin for
national decision making vis-à-vis international
commitments}.

Since Monterrey, developing countries, including
Egypt, exerted extensive efforts to create a more
enabling internal business environment through
reforming and upgrading the institutional capacity of
national financial, monetary, and regulatory
frameworks.


Significant strides have also been undertaken in the
areas of good governance, human rights, and
combating corruption. {Recent reports from the UN
and the BWIs indicate significant progress as well as
in macro-economic policies in some developing
countries.}
On its part, Egypt is currently drafting a
"Transparency Code for Egyptian Companies" that
will provide businesses with a foundation for good
governance that corresponds with both the national
environment and with the country's legal framework


Other steps have been undertaken to provide access
to long-term funding for SMEs. In October 2007,
Egypt launched a new stock exchange initiative
aiming to give SMEs a fresh platform to raise capital.
{The new Bourse, the Nile Stock Exchange (NILEX),
eases some of the disclosure rules and lowers the
paid-in capital requirement for SMEs.}
Egypt calls for a more coordinated dialogue among
stakeholders that leads to the development of
national microfinance industries. {Permanent access
to financial services for poor and low-income
households will be ensured only through the
development and gradual integration of the
microfinance sector into the formal financial sector}.
II. Mobilizing international resources for
development: foreign direct investment and
other private flows:

The Monterrey Consensus, highlighted the
importance of private international capital flows
particularly foreign direct investment (FDI), along
with international financial stability, as vital
complements to national development efforts .


Recent years have witnessed a surge in the volume
of foreign investment, especially FDI, flowing into
developing countries. Even though this increase
might reflect an improvement in the investment
environment, it is important to note here that the
bulk of these investments have flowed into a limited
number of developing countries, and have targeted a
limited number of sectors, mainly extractive
industries and primary commodities. This indicates
the lack of productive capacity of developing
countries and the urgent need for intensifying
diversification efforts supported by donors and
international organizations.
In recent years, Egypt embarked upon a series of
economic reforms aiming to attract investment
{through creating a healthier investment climate.}
Reforms included fiscal, asset management reform,
and simplification of business procedures.
Fiscal Reform:
- Introducing new personal and corporate tax code
which led to reducing tax rates by fifty percent.
- Streamlining tax procedures and automating budget
process.
- Reforming customs system and enhancing budget
transparency.

Asset Management Reform:
The Ministry of Investment adopted a rigorous
Asset Management Program in 2004, which led to the
revitalization of the privatization program as follows:
- Sale of assets and shareholdings in public enterprises
has been invigorated due to new measures to
improve transparency in the privatization process.

- Companies that remain in the public sector's portfolio
have undergone a series of reforms, e.g activating
the role of general assemblies of holding companies
and other public companies.

-
Simplification of Business Procedures:
The General Authority for Investment (GAFI)
initiated a reform program involving:
Reduction of incorporation time for 3 days maximum.
Reduction of Minimum paid in capital for LLC.
(EGP200).
Reduction of incorporation fees.
Reduction of Publication fees.
Tax card issuance in 48 hours.
- Unification of bank certificate form to be issued in 1
day.
- Acquiring the legal accountability for all corporations
after registering in the commercial registry.
- Ensuring Name Uniqueness of the corporation.
- Opening social insurance files within 48 hours.
- Sales Tax registration within 2 hours.
- Reduction of registration fees of real estate and
automation of registration as both affect licensing
procedures and cost.
-
-The right to establish investment zones authorized to
give licenses (2007 amendments to Investment Law
8/1997) which reduces procedures, no. of respective
entities involved, time and cost.
- Reduction of registration fees of real estate (EGP 2000
maximum).
- Automation to save time and reduce procedures.
- Relaxation of rules governing foreign ownership
- The first Credit Bureau was established in Sept. 2005
and started Oct. 2007.
- New resolutions were issued by GAFI and CMA to
maximize the effect of laws including provisions for
protecting investors (ie. Inspection rules/new
listing rules & takeover regulations).
- Application of corporate governance rules and
issuance of CG Code/ establishment of IOD for CG
certification.
- Abolishment of stamp tax on checks.
- Reduction of taxes on advertisements.
- Reduction of corporate taxes by 50% (from 40% to
-
-
-
20%).
Payment of any type of tax at any tax office (reduces
the no. of payments).
Establishment of Large Tax Payers Center.
Reduction of time and procedures by automation of
ports and the General Organization for Import and
Export Control (GOIEC).
Draft law for Special Economic Courts.
GAFI resolution concerning voluntary liquidation.
- On-going project for reforming bankruptcy rules in the
Law of Commerce.
- Training courses for judges working on bankruptcy
issues.
- Opening of IDA outlet at Alex. OSS. (operating
licenses & land allocation).
- Agreement between ABA and IFC to construct a DB
Index.
- Reduction of fees of dispute settlement run by GAFI.
- Co-operation agreement between GAFI and IFC to
streamline business regulatory start-up process at
Alex OSS (land assignment/ project
approval/industrial registration/operating license)
- Appointment of Mackenzie to assist in promotion
strategy development.
- Twinning scheme with the German Investment
Promotion Agency.
- Anti-Trust Law passed.
- Consumer Protection Authority established following
the CP Law.

In light of such reforms, Egypt is ranked first among
the best reformers in the world, according to the
World Bank's annual report "Doing Business" based
on 5 out of 10 indicators of business regulation,
including the necessary time and cost to meet
government requirements in business start-up,
operation, trade, taxation and closure. Moreover,
Egypt occupied top position in Africa according to the
World Investment Report of 2007 published by
UNCTAD. Egypt has as well joined the OECD
Investment Committee.

Actually, there is work in progress in the field of
investment focusing on enhancing "Greenfield"
investment which rose from twenty percent of total
FDI to nearly fifty percent in the past three years.
Egypt is actively seeking this type of FDI as indicated
by the openness of investment law NO. 8, under
GAFI's administrative authority. The Law allows one
hundred percent foreign ownership and permits
foreign investment in sixteen distinct sectors. As an
amendment to the same Law a new mode of
investment was introduced i.e. the “investment
zones” to promote industrial and services clusters.
Furthermore, the Law does not impose any
restrictions on the repatriation of profits.

It is worth mentioning that FDI flows to Egypt have
almost tripled from around $3,9 billion in the F.Y.
2005 to more than $ 11,053 in the F.Y. 2007,
investments were mainly in new projects as well as
in expansions of already established projects in
different sectors such as industry, tourism, services,
IT and construction. Reflecting FDI structural change
in Egypt, non-oil investment rose to represent sixty
percent of total investment from twenty percent
three years ago.
III. International trade as an
engine for development:


The Monterrey Consensus, emphasized the
significance of working towards a universal, open,
non-discriminatory and equitable multilateral trading
system, along with meaningful trade liberalization,
addressing the marginalization of LDCs in
international trade and ensuring that world trade
supports development to the benefit of all countries.
Between 1995 and 2005, the volume of world trade
in goods and services has doubled to 11 trillion
dollars, and the share of developing countries has
reached 36% in 2005, while their share of world
imports has reached about 33%, an indication of the
important role they play in stimulating global growth.


In 2005 as well, trade between developing countries
has increased, where 46% of their exports went to
other developing countries, compared with only 40%
in 1995. {We have to note, however, that most of
these exchanges were between a limited number of
countries.}
{The objectives of the Doha round, within the
framework of the WTO, include addressing
imbalances in the multilateral trading system and
enhancing developing countries' access to
international markets with a view to promoting
implementation of poverty eradication programs. }


Egypt, through active participation in the Doha
Round negotiations, aims to promote an effective
multilateral trading system, to promote the interests
of developing countries, by supporting the
elimination of tariff barriers to exports of agricultural
goods, and promoting the "aid for trade" initiative.
Indicators of Egypt's economic performance have
reflected positive results where trade balance and
balance of services and foreign investments showed
a sustained upward trend. In 2006-2007 Surplus in
the balance of services reached 11,4 billion dollars
(up to 8.9% of GDP), through the increase in the
proceeds of the Suez Canal, of tourism revenues, of
net private remittances of Egyptian workers abroad,
and the decline of service payments. In addition, GDP
rose from 417,5 billion L.E in 2002 to 731,2 in 2007
indicating real economic growth of 7,1 % in the same
year compared to 3,2% in 2002.

In line with the Ministerial Declaration of Doha in
2001, which encouraged foreign trade agreements as
a means to support development and reduce poverty
in developing countries, Egypt has signed several
trade agreements as the COMESA, the Greater Arab
Free Trade Agreement (GAFTA), the Aghadir
Agreement (Jordan, Tunisia, Morocco), the OUIZ
Protocol, the Partnership Agreement with the EU, and
the Free Trade Zone Agreement with Turkey, in
addition to many bilateral agreements with Arab
countries. In January 2007, Egypt signed an
agreement establishing a free trade zone with the
EFTA countries (Iceland, Norway, Switzerland and
Lichtenstein) as an important step to activate the
Barcelona process and to establish the EuroMediterranean zone.
IV. Increasing international financial and
technical cooperation for development


:
ODA was regarded by the Monterrey Consensus as
the largest source of external financing and as
critical to the achievement of the MDGs. Developed
countries, were urged to make concrete efforts
towards the target of 0.7% of GNP as ODA to
developing countries and 0.15 to 0.20% to the LDCs
{as reconfirmed in the Third UN Conference on
LDCs.}
It was equally highlighted that effective partnerships
among donors and recipients should be based on the
principle of national leadership and ownership of
development plans.


Within the above context, some developed countries
have fared better than others, {but as a whole they
increased their assistance from around 0.22% of GNP
in 2000 to 0.33% in 2005, 38% of which went to
Africa.} The year 2006, however, witnessed a decline
of ODA by 0.3%.
It is worth noting that between 2004 and 2005 debt
relief initiatives accounted for almost 70% of the
increase in ODA. Accordingly, this increase does not
mean an increase in the financial flows to the
developing countries. {Estimates are that developing
countries need around 150 billion dollars to be able
achieve the Millennium Development Goals (MDGs).}

At national level, total disbursements of ODA in 2005
reached 2,2 billion dollars and the biggest amount of
total ODA was used to finance joint investment
projects. The amounts used for that purpose rose
from 36% in 2001 to 65% in 2005, while the
percentage used to finance technical cooperation
decreased from 43% in 2001 to 22% in 2005, in the
same year, 11% of ODA went in support of the
balance of payments.
V. External debt:


Recognizing the fact that external debt is a real
challenge to development efforts undertaken by the
developing countries, the Monterrey Consensus
aimed at creating a partnership between the North
and the South, thereby stressing the responsibility of
the developed countries to assist the developing ones
in making their debts more sustainable.
However, there are indications that current
international initiatives in this regard, namely the
Heavily Indebted Poor Countries Initiative (HIPC)
and the Multilateral Debt Relief Initiative (MDRI), are
slow in achieving progress and are not sufficiently
inclusive to enable the LDCs, particularly in Africa, to
achieve the MDGs.


Needless to say that middle income countries {-a
significant number of which are heavily indebted and
in which 41% of the world’s poor live- could not
benefit from the above initiatives. We also note here
that this group of countries do not have access to
concessional loans provided by the donor
community.} Subsequently, we see merit in
addressing this gap in the system, while at the same
time, we welcome new initiatives by the international
community to deal with the debt problem in a more
comprehensive manner.
Within the above context, it is important to note that
new initiatives have to take into account the fact
that the underlying problem, in current initiatives in
the area of debt, is a reflection of a clear "democratic
deficit" in the existing international governance
structure.


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It is equally important to indicate that there is an
urgent need to enhance the accuracy, transparency
and accountability of credit and risk evaluation by
private rating agencies.
We also emphasize the need to revisit excessive
conditionality {to loans provided to developing
countries,} as it limits the "policy space" that these
countries need to address poverty-reduction related
issues.
We further underscore the need to implement what
was agreed upon in Monterrey that donor countries
should take steps to ensure that resources provided
for debt relief do not detract from ODA resources
available for developing countries.


We emphasize as well, the need to enhance technical
assistance to developing countries with a view to
strengthening their capacities in achieving sound
debt management.
Egypt has started, since the 90 s of last century, to
vigorously address its external debt problem. It
succeeded to reach an agreement with the Paris
Club, while at the same time implementing a
restructuring and reform program with the IMF and
the World Bank, which led to a significant reduction
of debt from 50 billion of dollars in 1991 to 29,9 in
2007.
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Innovative approaches could be widely used to deal with
the external debt problem, such as debt-swap and debt
conversion programs,{ which include the transformation of
external debt into development projects. Debt Swap is a
tool to confront the decrease in ODA, an ideal application
to the eighth millennium objective, and one of the means
to face budget deficit.}
Egypt was particularly able to achieve notable success by
adopting this approach through concluding agreements
with the countries concerned (France, Italy, Germany,
Switzerland).
This could be an emerging issue that deserves reference to
within the context of efforts aimed at enhancing the
implementation of the Monterrey Consensus.
VI. Addressing systemic issues: enhancing the coherence
and consistency of the international monetary, financial,
and trading systems in support of development:
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
The Monterrey Consensus stipulated that in order to
complement national development efforts there is an
urgent need to enhance coherence, governance, and
consistency of the international monetary, financial,
and trading systems.
To that end, it is vital to further enhance efforts
aiming at reforming global economic governance and
the international financial architecture with a view to
achieving greater transparency and enhancing the
effective participation of developing countries in
international economic decision-making and normsetting.

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Within the above context, we impress upon the need
for a comprehensive package that genuinely
addresses the concerns of all developing countries
rather than ad-hoc transitional arrangements.
Since Monterrey, efforts by developing countries to
achieve the MDGs have been adversely affected by
the global imbalances such as the rise of
commodities prices, including the skyrocketing oil
prices, the U.S. balance of payments deficit and the
low dollar. These imbalances need to be addressed in
an orderly fashion through enhanced, coherence,
coordination, and cooperation in global financial, and
trading mechanisms, as well as exploring regulatory
remedies.

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The United Nations is in a position to play a pivotal
role in contributing to the efforts aimed at reforming
the international economic, monetary and financial
system, due to its universal membership, and the
Doha Review Conference is an opportunity to
operationalize these efforts.
Finally, since Monterrey, developments have shown
that there is a need to strengthen the existing followup mechanisms of the financing for development
process, and we are still looking into the different
proposals that have been put forward in this context.
Challenges and lessons learned from Egypt's
development Process
As a developing country Egypt is affected by
developments in the global economy that we have
referred to earlier, other challenges are as follows:

Inflation: inflation rate reached 12.1 % in February
2008.
- For addressing this high inflation rate, the
Government of Egypt (GOE) is adopting new policies
and regulations including increasing the production
of goods and services, and the efficiency of
distribution processes, as well as , promoting the
effective implementation of the monetary policies of
the Central Bank of Egypt.

Unemployment: although the unemployment rate
decreased from 10% in 2004 to 8.9% in 2008, GOE
still has to work harder to maintain higher
employment rates and to provide professional and
technical skills for youth to enable them to meet
market needs.
- GOE allocated an amount of 500 million L.E. to face
such a challenge, there are also several vocational
and technical development programs that are being
implemented with key development partners i.e.
Germany, EU, and USA.

The need to extend social security services to cover
new categories, to reach the most needy and to
restructure the system of subsidies. As for slums and
remote areas, GOE has to provide the necessary
infrastructure and to ensure fair distribution of
health services, housing and job opportunities.
- To this end, GOE plans to extend social security
services to include 1 million deprived families by the
end of 2008, and to duplicate this number through
the coming three years. The plan also includes the
provision of cheap housing opportunities, micro
credits, and financial grants. A ministerial committee
was established to ensure the continuity and fair
distribution of subsidies.

Sustaining the current high growth rate
- To face the dilemma of sustaining the current high
growth rate, GOE is drafting a strategy to maximize
the Private sector’s role in the development process
in order to neutralize the effects of global rapid
changes.

Population growth is an another challenge facing
Egypt. Population has increased from 67.3 million in
2002 (2% growth rate ) to reach 72.7 million in 2007
(1.8% growth rate ).