Studies: What Financial Times got wrong about Egypt’s New Administrative Capital?

CAIRO – 8 June 2021: A number of Egyptian studies were issued to respond to a Financial Times article that “included false information and misconceptions about Egypt’s New Administrative Capital city.”

The studies said that the article has ignored the actual status of the economic situation in Egypt, and provided in accurate speculations about it.

In the below lines, Egypt Today will highlight how the studies refuted, in details, the article’s claims:

The British newspaper claimed that President Abdel al-Sisi insists to inaugurate the New Administrative City, known in the media as “The New Republic,” even at the time observers consider the project to be of less importance to the Egyptian people, and that other priorities will be affected by the project’s expenses.

-      For their part, the studies highlighted that the New Administrative City aims to achieve a boom in providing services to citizens, who need the establishment of lots of new cities to accommodate the overpopulation, with the population rate expected to hit 160 million by the year 2050.  

-      The studies also referred to a study by the World Bank in 2014, which indicated that about L.E. 47 billion is wasted annually in Cairo metropolitan areas due to traffic congestion.

-      Some claimed that the construction of the new administrative capital caused an increase in the public debt to the gross domestic product, while the fact is that the total public debt (internal and external) to GDP decreased in 2015 to 85 percent compared to previous year. It only increase in the years 2016 and 2017 to reach 103 percent in 2017, caused by the decision to liberalize the exchange rate; however, it declined in 2019 to reach 84.2 percent, the period during which the establishment of the New Capital Administrative City began. The debt rose again in 2020 due to governmental borrowing to confront COVID pandemic, which is a move made by most countries around the world.

The Financial Times claimed that the Egyptian real estate and construction sector includes temporary laborers, meaning that once the construction works end, these laborers will be left with no jobs.  

-      The studies said that: it is inaccurate to predict that the progress of real estate and construction works will stop

amid the speculations of the increase in population, by 60 million over the next 30 years.

-      This means that the Egyptian market needs one million housing units annually, which needs new roads, huge infrastructure projects. Understanding the situation, the claims of Egypt having temporary employment is proved baseless, according to the studies.

-      The studies further noted that such construction projects have contributed to reducing the unemployment rate in Egypt from 15.13 percent in 2013 to 13.10 percent in 2020.

The British paper claimed that the Egyptian army’s role is expanding in the state and the economy to the extent that scares the foreign investors, and makes the private sector more cowardice. So people are afraid to start a project, while the army inaugurates a similar one, which weakens their project.

-      According to Egyptian Minister of Planning Hala el-Saeed, the world is now adopting flexible economic policies, and ruling out traditional theories, whether supporting capitalism or against it. So every country seeks to achieve economic progress by adopting what suits it from these theories, and develop its own model that meets its interests, circumstances and goals.

-      In Egypt, the army’s presence in the economy began in the aftermath of a period of economic and political instability that Egypt has encountered following the January 25th Revolution. At that time, the private sector was afraid to invest amid an atmosphere of uncertainity and economic distortions resulting from the failure to evaluate the local currency in its real value. However, there was an urgent need to implement construction and development projects, and the intervention of the army was to mitigate the repercussions, along with the state’s efforts and national projects.  

-      The studies elaborated saying that the role of the army, the Ministry of Housing and the New Urban Communities Authority is to supervise, control and sometimes plan the residential units, while the implementation phase is carried out by companies now owned by the army, meaning that the private sector contributes by a larger role in the real estate investment.

-      The studies further questioned saying: “Is it possible that the armed forces be able to implement a new city on an area of 170 acres, or about 6.5 square kilometers, while it is not the only city that Egypt implemented after June Revolution. The volume of the work in this sector is enormous, which means that no single institution in the state can carry out that work alone.

-      As for the contribution of both the public sector and the private sector to these projects, according to a research report prepared by (Oxford Group Business) entitled “Egypt 2020,” the private sector investments in the field of construction and building for the fiscal year 2018/2019 accounted for 3.90 percent of the total construction contribution to the GDP, with investments amounted to EGP 289 billion, compared to L.E. 1.31 billion investments by the public sector.

Financial Times also claimed that Egypt’s sources of economic growth are concentrated in the extractive industries sectors (oil and gas), and real estate.

-      In 2014, challenges to oil and gas sector were in investors reluctancy in taking part in the sector’s projects, while a number of factories halted their work for the lack of gas, as no petroleum agreements were signed during the period from 2010 until December 2013. However, the economic reform program and policies Egypt adopted to encourage investments and restore security have contributed in securing many petroleum and natural gas agreements, which helped carry out exploration works that enabled Egypt to achieve self-sufficiency and provide the local market with its needs.

-      The studies also pointed that the contribution of the construction and real estate sector in the economic growth is “normal” given the need of the Egyptian market, and the continuous population increase, especially with the presence of the slum crisis that spread before the January 25th Revolution in 2011.  

-      Egypt has developed the second phase of the economic and structural reform program, which aims to encourage investment in three sectors, namely:

1-  Technology-intensive manufacturing industries.

2-  Agriculture sector.

3-  Communications and information technology sector.

-      The structural reform program also includes a package of policies that mainly affect the productivity levels through seven main items, including:

1-  Reform of the structure of the economy.

2-  Trade liberalization

3-  Reform of the vocational training system.

4-  Developing capital markets.

5-  Reform of the labor market.

6-  Developing the educational sector.

7-  Deepening local products.

Another claim by the UK paper said that high debt rates is threatening the Egyptian economy.

-      The novel Coronavirus pandemic has prompted many countries around the world to increase its borrowings from domestic and external sources to implement economic stimulus packages, especially with the decline in the revenues and suspension of the commodity sectors.

-      The studies further highlighted the importance to compare Egypt’s debt status with global debts amid COVID crisis.

-      The International Monetary Fund expected that the global public debt would jump to 100 percent of the GDP for the first time ever, driven by governmental emergency spending to mitigate the effects of the Corona epidemic.

-      Egypt has exerted huge efforts to achieve fiscal discipline, and control the public debt; however, the COVID crisis has led to a decline in: revenues of the tourism and travel; exports; revenues from traffic fees in the Suez Canal and remittances of Egyptian workers abroad in light of the decline in international prices of oil and its products.

-      Therefore, Egypt resorted to withdrawing from the cash reserve, which declined from $5.45 billion USD in February 2020 to USD 36 billion by the end of May 2020. Egypt received emergency financing from the International Monetary Fund (IMF) of $8.2 billion in 11 May 2020.

-      On June 26, 2020, the IMF Fund approved a 12-month stand-by agreement that allows Egypt to obtain 2.5 billion US dollars, aiming to maintain macroeconomic stability while giving priority to protecting the necessary social and health spending and avoid excessive public debt accumulation.

-      The European Bank for Reconstruction and Development agreed to provide financing to the Commercial International Bank in the amount of $100 million, with the aim of re-lending it to the private sector projects in Egypt.

-      The European Bank for Reconstruction and Development had also loaned the National Bank of Kuwait in Egypt and the National Bank of Egypt with a value of $100 million each in June 2020.

-      Egypt is still far from dangerous levels of external debt, as Standard & Poor's maintained Egypt's credit rating at "B" with a stable outlook, despite the disruptions caused by "Covid-19" in tourism and exports, expecting that Egypt will meet its next payments thanks to a good cash reserve.

Facts Financial Times ignored about Egypt’s economy that?

-      Egypt is making unremitting efforts to encourage local and foreign investment, including, for example, the issuance of Law No. 15 of 2017, to facilitate the granting of industrial licenses, and the initiative made by the Central Bank of Egypt to finance small, medium and micro enterprises.

-      Egypt is the fifth most signatory of bilateral investment agreements in the world (100 agreements) providing an additional layer of protection and safeguards for a wide range of foreign investors.

-      Egypt witnessed an increase in foreign direct investment in manufacturing as a share of the total investment in Egypt since 2013.

-      Egypt has undertaken comprehensive reforms to the investment climate by simplifying its infrastructure institutionalization by renewing the institutional framework for investment promotion.

-      The Egyptian Investment Law provides a full range of investment guarantees and standards for protection required to provide a safe system for investors by law.

-      The General Authority for Investment and Free Zones in Egypt has a strong focus on pre-foundation services.

-      The amended Public-Private Partnership Law in Egypt led to simplify PPP contracts, in particular by reducing the time to issue bidding for PPP projects, and the introduction of new mechanisms for contracting with private sector.

-      Egypt is the only economy in the Middle East and North Africa region that explicitly refers to corruption cases in the Investment Law.

-      The Egyptian National Anti-Corruption Strategy 2019-2022 refers to corruption as a threat to the country's attractiveness to international investors. The strategy further requires the government to cooperate and coordinate with all relevant stakeholders, including the private sector and civil society.