2014 Perspectives: Ahmed Ghoneim on the Economy

Professor of Economics at Cairo University Ahmed Ghoneim talks about the state of the economy in 2014 and what to expect in 2015

By Ahmed Goher

  How would you sum up the state of the Egyptian economy in 2014?   It is definitely better compared to the last three years. That's it in a nutshell. But there are still huge challenges that have yet to be addressed in terms of the budget deficit and unemployment; however, macroeconomic indicators have improved.   The main problem is that there is a lack of vision of how the Egyptian economy should function. Still, we may see such a vision materialize during the March conference (which will address the state of Egypt’s economy). In terms of the largest impact on shaping Egypt's economic conditions, how would you rank the prominence of the following actors in 2014? (Government, military, private sector, consumers and international donors, be they countries or institutions) The government is the major player in the sense of issuing new laws concerning taxes, tackling the budget deficit, acting as a guarantor in the Suez Canal project. So, yes, it's mostly the government that has a huge impact either when it is trying to enhance the business environment or when tackling the budget deficit. The private sector has been adopting a wait and see approach and international donors also played no major role (with the exception of the Arab Gulf states). The military's role has definitely increased but it is mostly limited to subcontracting in construction. So, if I were to rank the actors in 2014, it would go as follows:

1. Government
2. Military
3. Private sector
4. International donors

  What were the major economic highlights in Egypt for 2014? There were two major highlights: subsidy reforms and the Suez Canal project. When it came to subsidy reform, I was expecting more economic and political turbulence. However, it went relatively smooth and the inflationary repercussions were not as severe as we expected them to be. There are many reasons for this. I think the government had a role, although a little bit late, to control prices. The second thing is the kind of expectations that were there. In other words, the situation did worsen after the reforms, but not as bad as it could have and this kind of made everything a lot better. There was also media awareness in the mix. The media was able to show that the reforms are necessary. They delivered the message that the government is not just trying to annoy us, it's actually doing what it must.   What economic development or trend will impact or affect the average citizen the most - how and why?   The Suez Canal project should have an impact, but I think they should look for other means to finance it. Reducing the budget deficit by undergoing subsidy reform was a good step but then they increased expenses by giving out the Suez Canal bonds. Other methods of finance should have been followed and maybe they will revise this decision, which would have an impact.   The other thing is that tax reforms should also affect average citizens, especially reforms of the overall tax system.   Austerity will continue, but it is incremental. It is a gradual process and so I believe citizens will be able to cope, especially if the government strengthens the social safety net. In terms of the largest impact on shaping Egypt's economic conditions, how would you rank the prominence of the following actors in 2015? (Government, military, private sector, consumers and international donors, be they countries or institutions.) How do you explain the difference (or similarity) between the 2014 and 2015 rankings?   The major goal is to stabilize macro-economic indicators and pursue slight improvements. The economy is currently on life support. You don't want it to get up and run but to just stabilize. So things will largely remain as they are. With the political situation we can't envision a bigger role for the private sector. It is rational enough not to embark on new things. Things can backfire. So, by default, the government will remain the major player until the political situation stabilizes. What is your outlook on the Egyptian economy for 2015? In general, are conditions improving? Are they worsening? Why? What are the country's most promising sectors? We are still not "om ael donya ad el donya." This takes time. What I hope for is that the budget deficit stabilizes without major inflationary effects. This is the most you can hope for under such constraints and during such a period.   Is there any economic advice you would give to Egypt? I would tell the government to rationalize the social safety net and start implementing the rule of law. Not just by drafting new laws but by actually implementing and enforcing the good ones. As for consumers, they are learning. Rationalizing prices is a good signal. You know increases in prices can regulate the bad consumption behavior we suffer from. It's a matter of learning by doing.