Egypt on mission to revive its economy
WITH bad news dominating many of the headlines from the Middle East, it has been easy to miss the ongoing transformation of the Egyptian economy. The Egyptian government is trying to correct this perception by inviting a range of high-level officials from both the public and private sectors to Sharm el-Sheik for the Egypt Economic Development Conference, beginning March 13.
The discussions are sure to shed light on the ongoing revival of one of the largest economies in the region.
The numbers are encouraging. After another rough patch, the economy is picking up. Growth accelerated to more than 5 percent in this fiscal year’s first half to December 2014. Investment is gradually recovering. The budget deficit is targeted to fall to 10.5 percent of gross domestic product under the 2014/15 budget – from 12.5 percent in the previous year – and to 8 percent for 2016/2017.
Moreover, disorderly currency pressures have eased, allowing the central bank to cut interest rates. All this contributed to the International Monetary Fund’s recent assessment that “the measures implemented so far, along with some recovery in confidence, are starting to produce a turnaround”.
Policy response
As important as these indicators are, their implications pale in comparison to the emerging scope of Egypt’s comprehensive economic policy response. The aim is not just to stabilise the economy.
It is also to unlock the country’s significant untapped potential, which, despite Egypt’s considerable human and physical assets, has been repeatedly held back by political factors and bureaucratic inertia from delivering prosperity. To this end, immediate measures to stabilise the economy are being accompanied by three pillars of durable economic reform:
Enhancing actual and potential growth and job creation, including a new investment law to reduce inefficiencies, increase investor protection and provide targeted incentives; and a subsidy reform to better target support for the more vulnerable segments of society.
Encouraging sector-focused programmes by emphasising critical economic and social areas such as education, health, housing, energy, infrastructure and information technology.
Creating a macro-economic framework that targets sustained high inclusive growth, whose benefits are shared widely by the population, with particular emphasis on protecting the most vulnerable.
Such a comprehensive policy approach,
and
communications which has been lacking in the country’s recent history, is critical to Egypt’s longerterm economic well-being. It is also a necessary (though not sufficient) condition for a more inclusive nation – in economic, political or social terms.
This time, Egypt is also benefiting from the substantial support of its partners, notably Saudi Arabia, the United Arab Emirates (UAE) and Kuwait.
New approach
The Egyptian authorities are not alone in their efforts to reform economic policy to ensure superior outcomes. And they are not the only ones seeking to place greater emphasis on engaging youth, a critical element of any inclusive approach to reform, and a paramount necessity (especially in the aftermath of the 2011 revolution).
Donors also are adapting their approach. The UAE, in particular, has adopted an innovative on-the-ground approach in both urban and rural areas. This model supplements financial and technical assistance with close involvement with the Egyptian government and businesses in projects that construct homes and health clinics, establish schools, provide public transportation, improve sanitation services and build roads.
Given these promising developments, at least four transitions will be critical to Egypt’s success in building a more prosperous economy:
Improving policy implementation to ensure that the design of programmes in- cludes responsive execution that adjusts in a timely fashion to developments in an increasingly volatile global economy.
Moving economic development away from relying just on state-led growth to a more inclusive model that supplements important national projects with public-private partnerships and private sector activities (particularly small and medium-sized businesses and start-ups).
Restructuring domestic institutions to ensure they are more transparent, efficient, accountable and inclusive.
Broadening external support for Egypt’s domestic reforms from a few partners to a wider range of donors (including regional and multilateral institutions).
These transitions are critical if Egypt is to overcome decades of chronic economic underperformance, reduce its excessive vulnerability to the vagaries of an increasingly volatile global economy, and meet the legitimate aspirations of the January 2011 revolution.
The benefits of a successful Egyptian economic transformation would have notable spillover effects that extend well beyond the country’s borders. A dynamic and growing Egypt constitutes an integral part of a more secure and stable Middle East. – Bloomberg
IF ANYONE had suggested in 2007 that the head of a staid British insurance company could win the top job at a freewheeling global investment bank, they would have been laughed out of the pub. Investment banking, though, is trying to shed its casino image.
The firms that own investment banks have been nudged by regulators to concentrate on areas of finance that are more mundane – and, increasingly, more profitable. So yesterday’s news that Credit Suisse is hiring Tidjane Thiam from Prudential to replace Brady Dougan as chief executive is a welcome affirmation that banking is becoming more boring. (No offence to Thiam.)
Here’s a synopsis that I might have used if I were the recruitment consultant pitching Thiam, who fled the Ivory Coast in 1999 when a military coup deposed the government he was working for, to the Swiss bank’s board:
For sure, the insurance industry has not been through the wringer the way the banking sector has in recent years, so the comparison is almost bound to flatter Thiam. But under his stewardship, Prudential has also trounced its European insurance peers; including dividends, investors have made twice as much from Prudential shares as they could have made on a basket of 39 insurance stocks (including Prudential).
Dougan, meantime, has presided over a fairly terrible time for Credit Suisse shareholders. Among its European peers, only UBS has fared worse during his tenure.
The leadership switch comes as banks ranging from JPMorgan Chase to Royal Bank of Scotland to HSBC acknowledge that the current regulatory regime makes some of their sprawling businesses unprofitable.
Key
Thiam’s experience in Asia – Prudential, Britain’s biggest insurer by market capitalisation, generates half of its revenue there – could be key in this respect. Asia’s market seems on track to expand even as opportunities elsewhere in the world shrink.
HSBC, for example, makes 78 percent of its profit in Asia. Credit Suisse could try to do the same, particularly by selling its wealth-management products to the region’s increasingly affluent middle classes.
There is one caveat Credit Suisse might bear in mind. In 2010, Thiam made an audacious $35.5 billion (R427.78bn) bid for AIA Group, the third-biggest insurer in the Asia-Pacific region, calling it a “once in a lifetime” opportunity. With the support of his board, Thiam had decided not to share his plans with Prudential’s regulator, the Financial Services Authority, who instead learned about the proposed deal from media reports.
Three years later, Thiam was publicly censured for the secrecy, which he said was prompted by concerns about the transaction leaking to the press, and his firm was fined £30 million (R545.36m), the fifth biggest levy in the Financial Services Authority’s history.
Ruffling regulators is the last thing any financial firm should do in the current political climate, so Credit Suisse would be wise to curb any inclination on Thiam’s part to repeat his adventure.
Yesterday’s 7.5 percent pop in Credit Suisse’s share price suggests investors approve of a leader who will not be beholden to the legacy of past expansions.
The more banking can echo insurance in providing stable, boring financial services, the better.