Speaking on the record at the Mena Economies conference at Chatham House, Egyptian Finance minister Hany Kadry Dimian extoled the virtues of quality inclusive growth as being key to Egypt’s recovery and future.
The Minister quoted as an example the ongoing Suez Canal project, due for completion in the next eight to nine months, with the first phase to be inaugurated in August 2015. The new improvements have been part of a public and private venture that have created many local jobs. As Dimian highlighted: “This is good for the economy, we are building for the future. The new canal’s crossing time will be four hours instead of the current eleven hours; this flagship project demonstrates what can happen in Egypt when the will is there. In the next five to ten years, we are aiming to be the Singapore of the MENA region.”
Egypt’s economy does appear to be recovering, albeit somewhat slowly, with growth rates up from 1.2% in 2013/2014 to 5.6% in 2014/2015. The Minister identified the sectors he sees as primary drivers of growth as being manufacturing (in particular textiles), construction, housing, telecoms and tourism. “The journey to put the economy back on track will be a rough ride; there are many reforms needed, not all of which have been popular.”
Dimian confirmed that the government in Cairo is committed to lowering the maximum income tax rate to 22.5% percent, down from 30% percent, as well as lowering tax on capital goods to 5% from 10%.
The government is also looking to introduce a VAT system, which will be more equitable and more supportive for businesses and investors. He said a VAT tax will expand the existing tax base to include a broader range of goods and services; it will also feature a list of tax-exempt items and create a flat rate of tax, replacing sales tax rates that range from 5 to 45%. The main benefit of such a VAT system for business will be the ability to newly claim credits against tax incurred on inputs. In addition, exports will be zero-rated.
The International Monetary Fund (IMF) has played a role in assessing the key elements of the project and its application mechanisms in light of different international experiences.
“We are rebuilding confidence in the economy but we particularly want the growth to be inclusive and for Egyptians from all walks of life to benefit from our reforms. For example in terms of housing, we have generated a special mortgage scheme to allow some poorer Egyptians to be able to get into low cost housing. At the moment there are 1.2 million beneficiaries; we are hoping to grow that figure to 3 million in the next 18 months. For me, inclusive growth is quality growth that will help generate stability in the future. This also applies to employment where I want to see more women participating. We need to match opportunities with skill sets. To this end the current constitutional mandate is to increase spending on education over the next three years to 10% of GDP. Unemployment has come down by 1% over the last 12 months but it remains high at 12.5% and in the past nine months Egypt’s Standard & Poor rating has been upgraded.”
He went on: “Our economy has been dogged by a culture of subsidies; we are going to phase out energy incentives, as well as reducing the public sector wage bill, which for many years has crippled government budgets. We are also looking to reform our direct social programmes; phase one is to switch the bread and food subsidies to a points system which will allow the 67 million people enrolled in the programme to choose which commodities they choose to spend their points on. Hopefully, this will help empower them to increasingly take their own decisions rather than being dictated to by the State. This is part of my vision of inclusive, quality growth for all. Our aim is to rebuild the confidence in the economy without being elitist and I believe we are getting there.”
This article, written by Noura Eskender is Exclusive to The Middle East Online …