Q and A with Abla Abdellatif, Executive Director of the Egyptian Center for Economic Studies (ECES)

Photo: VENNGAGE

It is by far one of the most difficult times the world has gone through. The COVID-19 pandemic is continuing to disrupt our lives more than we ever imagined, and for an unknown amount of time. In Egypt- and everywhere in the world- there are growing fears about the economic cost of the pandemic in light of the inevitable lockdowns and slowdown of economic activity. Business Forward speaks to Abla Abdellatif, PhD, Executive Director of the Egyptian Center for Economic Studies (ECES), who via a Zoom-recorded interview took us on a tour across the different sectors of the Egyptian economy, and how it is generally coping with the crisis and what opportunities are on the horizon.

Answers have been edited for brevity and clarity.

Video by Moustafa Daly

Recently there has been news of Egypt’s economic growth rate for 2020 to be valued at 2%, making it the only country in the MENA region to record a positive growth rate. What has contributed to that?

There is a misconception around this piece of information, simply because our fiscal year is not a calendar year. It starts in July, so we were hit by the crisis only in the last quarter of the fiscal year, but we have been growing normally from the beginning of the fiscal year. We are hit just like everybody else, and the macroeconomic indicators will soon reflect this reality.

What is helping the Egyptian economy survive the crisis?

The rest of the world is locked down and so we are paralyzed in what we can do. What Egypt and every other country is trying to do – and this is something that I strongly believe in- is try to improve the life of people to survive this crisis, and try to let the local investments float. If something is driving the economy right now, it is the stimulus package that is offered by the government.

For companies to keep their workers they need to be able to continue to operate because demand for labor is what we call derived demand; it is derived from demand for the product. So if the company is producing products that cannot be sold, or it cannot complete its production process, or does not have the liquidity requested in order to get the needed inputs, then they will have to release some workers, and will have to cut wages. This is already happening in the private sector. If the company is looking at their reserves and trying to survive the lockdown, they can do it for only 2 or 3 months. This is why governments need to be in to support the companies. So, the period of lockdown in any country in the world relies on the 3 months period that businesses will be able to withstand, and it could be shorter if governments do not support their businesses.

So, should Egypt be heading to lifting the lockdown?

We never really had a full lockdown; we had decided to take the approach of a partial lockdown.

Everybody was locked down and started to open now. They are doing it after their curve has turned down. Our curve is still going up and fast, so we did not reach our peak. People’s health comes first. This is unnegotiable.

When looking at health, you are looking at two things that must go in parallel; one is to have the facilities prepared for receiving new people who are sick, so you are adding to the hospitals that are ready for seclusion of patients and all the medical requirements. The second thing is the prevention and control of the spread of the virus. There is a recent ECES study that examines the number of people infected by COVID-19, and predicts that if the same trend continues, the medical facilities and equipment such as the ventilators are not going to be enough. Egypt is working on preparing facilities but not doing enough on preventing the expansion through the curfew. So, in continuing with the half lockdown, we need to be doing it right.

There is currently news about a potential IMF loan of $5 billion to ease funding gaps for Egypt; will this loan call for a new set of austerity measures as the 2016 loan?

The IMF is being approached by all countries in the world in order to have loans under these difficult circumstances, and Egypt is approaching them under the same conditions. It is not meant to be conditional upon austerity. My understanding is that the loan is going to be conditional upon institutional reform and improvement in the ease of doing business, and this is something good.

How have different sectors been affected by the crisis and which have potential to play a major role in the recovery?

The recent ECES reports “Views on Crisis” looked at a number of sectors analyzing the impact of the health crisis on those individual sectors, looking into the full crisis cycle.

You completely lost tourism. Tourism drives with it a lot of other industries but is itself a luxury industry. You travel to see the world when you are comfortable. When you are coming out of a global recession like this one, your first priority is not going to come and visit the Pyramids or the Eiffel Tower.  Tourism is not going to come back before a couple of years.

We lost at least half of labor remittances, especially with the Gulf countries having issues of their own and letting workers go. These workers will be coming back unemployed and this is very serious.

We are going to have a slowdown and decrease in the revenues from the Suez Canal.

On the other hand, we fully brought back the construction sector. We also have the pharmaceutical industry functioning well, and in that we have a big opportunity in the production of sanitizers because alcohol is locally produced as a by-product of the sugar industry.

It is the country’s productive sectors – manufacturing and agriculture- that can lead and should lead.

In manufacturing there are some industries that are trying to operate, especially that some of them can gradually go back to exporting as China is back in business and we import a lot of our inputs from China. The manufacturing industries can be divided into three groups; industries that benefited from the crisis at least by the first look; industries that have been going to the shade because there is no more demand for them; and industries that are struggling in-between.

Industries that have been doing well are the food industries because there is a big demand for them. The ones that are in the shade are all the ones related to luxury goods like cars and furniture; products that nobody will buy now unless they really have to.

The ones in-between are for example the ready-made garments industry, and there will be a complete change in everything that is offered there due to new consumer needs and preferences.

Within each industry you are going to find the luxury and basics. It is the basics that are going to expand.

ICT is a key sector that has been holding on reasonably well because of the efforts that were done from the beginning of the 90s when we started to have a ministry for communication, and further developed in the last 4 years with all the investments that took place. As far as communication is concerned, the sector is meeting the demand now. However, if we have to go for distance education again for the next school year – and it’s a very high possibility- there must be some serious investments in communications now to handle it. Information technology is another level. It is about artificial intelligence, data collection and data analytics, and that is a sector we need to invest in to enhance preparedness for the future.

What’s the way forward for Egypt in the post-corona world?

“The export sector is a key driver as this will be Egypt’s only source of foreign exchange in the coming phase,” advises Abla Abdel latif, Executive Director of the Egyptian Center for Economic Studies.

The export sector is a key driver as this will be Egypt’s only source of foreign exchange in the coming phase. So, you have to work on agricultural exports, and on manufacturing exports. Agricultural exports are no brainer because the required resources are mostly local; and it looks like in the world there are going to be (export) restrictions on certain products to be able to meet the internal demand first. If you are on the exporting side, there is going to be a demand for you.

There are also migrating investments in the entire world leaving China. Now is the time to attract them quickly with a new package of incentives. It is an opportunity to address the issue of land allocation, as well as the issue of the price of gasoline that you can now afford to reduce with the drop in energy prices.

The good thing about the crisis as horrible as it is, is that it allowed for a certain cutting of bureaucracy; allowed for the adoption of certain exceptional measures (such as easing the procedure of importing industrial components for example). The exceptional measures need to be the normal. We cannot afford to be inefficient.

We have a local market that is big because we are a 100 million people, but its reality is that it is a small market, because those people are not rich. We need to develop our local market because one of the things related to the new normal in the entire world is that there is going to be localization of industries.

All this requires consistency in policies, complete solutions, larger investments in education and health, investments in vocational training, investments in the core – the people are the core.

 

 

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Abla Abdel Latif, PhD is currently the Chair of the Presidential Advisory Council for Economic Development; and the Executive Director and Director of Research of The Egyptian Center for Economic Studies (ECES).

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