A Talk with Egypt's Prime Minister

Ahmed Nazif says the country has taken significant steps toward political and economic reform, despite change stalling in the past

Since his appointment as Prime Minister of Egypt in July, 2004, Ahmed Nazif has been on a tear. Determined to double Egypt's economic growth to the 6% to 8% range, he's slashing taxes and customs duties, reviving the country's moribund privatization program, and stumping hard to attract foreign investment.

The articulate 52-year-old Nazif, who holds a PhD in engineering from Canada's McGill University, has a good shot at achieving his ambitious goals. After years of stalling on reform, President Hosni Mubarak, who's 76 and on the verge of running for another term, has been persuaded that strong economic growth offers the best chance of preserving stability and burnishing his legacy. A sound economy would give Egypt, the Arab world's most populous country, great influence in the region.

Nazif sat down with BusinessWeek Editor-in-Chief Stephen J. Adler and other senior editors for a wide-ranging, 90-minute conversation on economic reform, investment opportunities in Egypt, political liberalization, and U.S.-Egyptian relations. Here are edited excerpts of their conversation:

Q: Tell us how you have approached economic reform since your appointment.


Egypt is transforming its economic space through a series of programs in terms of taxation, customs reform, financial-sector reform, and investment. We have introduced a bill to Parliament that should become law in a couple of weeks that will bring down corporate taxes from 42% to 20%. It's also reducing personal income tax from a maximum 32% to a maximum 20%, and we removed tax exemptions.

The philosophy before was to encourage investment through tax vacations. That didn't work. The basic philosophy now is that you come and you pay less taxes -- but you pay taxes. That system seems to work for investors. They want clarity. We focused on having a simpler, straightforward system that everyone can understand.

Q: In what areas are you trying to attract investment?


The opportunities for investment in tourism, for example, are literally endless. Our goal is to double our income from tourism in the next five years. And it's attainable -- last year it grew by over 30%.

Another area is oil and gas. Egypt has found recently a lot of natural-gas reserves, and this is creating a lot of investment opportunities. Our privatization program, which had stalled for a while, is now back on track. We're opening up new areas -- banking, for example. And we're deregulating many areas. We completed the deregulation of the telecom sector. We're doing the same with the transport sector now.

Q: Are you pleased with the results of your economic program so far?


In the nine months from July to March, the response has exceeded our expectations. Inflation is coming down faster than we thought. When we started, it was about 14%. The last figure we had was 6.5%. Our currency has stabilized. Our foreign reserves have increased. Even the job offerings are starting to be there.

Our challenges, of course, for the future remain a lot. Unemployment will not be solved in a day or two. But we're very optimistic about the future.

Q: Lots of countries want to attract investment. What's Egypt's edge?


That's my favorite question. Why Egypt? First of all, the location. We're at the crossroads of three continents. We're at the gateway of all East-West trade. Not just trade -- I'm an IT person, [and] the optical-fiber cables also pass through our land. So we have all the traffic, whether it's virtual or real, coming through.

The second most important criteria is the human-resource base. Egypt always has been and will always be an exporter of talent. We have the largest number of university graduates in the Middle East and Africa. The large technology providers are using Egyptian engineers out of their bases in Cairo to install networks as far as Afghanistan, Pakistan, Iraq, Algeria -- even in Eastern Europe -- because it's cost effective. And it also applies to the oil and energy sector, food industry, and other sectors as well.

The third factor is the market. We have a deep, diversified market with 72 million people. We're the largest country in the region in terms of population.

And fourth, the abundance of infrastructure and resources. We have one of the best energy grids in the developing world, one of the best telecommunication networks. We have strong natural-gas resources. And we have a fun city -- we've got entertainment, tourism, culture, history.

Q: How are you trying to solve your unemployment problem?


We need to generate about 650,000 new jobs a year. We're trying to focus on investment that would create more jobs. Tourism is a good example of that.

We have a strong system for small and medium enterprises, especially in the micro-credit area. Last year, this [program] generated close to 100,000 jobs by offering about 20,000 small loans.

Q: What kind of resistance do your reforms face?


There's resistance to change always. It has been an easy way out of unemployment to hire people for the government. We have a lot of people who are underworked. They're not overpaid, but they're underworked. These people will resist any change in regulations. The Minister of Finance has literally thousands of people on his hands who have been made redundant.

For the ordinary person in the street, jobs are the first priority, prices and affordability is the second, government services is the third. There are indicators that the market is working. There's a very strong indication at the retail level that things are improving. Small merchants are just selling more.

These are all positive things that are starting to be felt in the street. Prices have come down. So [people] are starting to feel the change in some way. That helps, and I think that's important if we want to get backing for some of the things that aren't so popular that we have to do.

Q: Recently, Egypt's Parliament voted to amend the constitution to allow more than one candidate to stand in presidential elections. Critics say the reform is too limited.


The political-reform process in Egypt is more in the news today, but it started about 30 years ago. We started moving out of the single party system…in the 1970s. Then we moved more and more towards other areas of deepening democracy, especially freedom of media and freedom of speech. And so the process was incremental.

The recent developments were in the areas that were not touched yet -- the presidential election. There, we're amending our constitution based on an initiative by the President to have multiparty candidate elections…. We will have to conduct the elections in September. We have parliamentary elections, which are scheduled every five years, in November.

So we're in a hot year politically. That doesn't make our job very easy. As a government of the ruling party, we don't want to do too much to upset the popularity of the government.

Having said that, I think we came across as up-front, honest, and willing to tell people even the things that they don't want to hear. And that gave us credibility. I think that's key to what this government has been trying to do to change some of the mindsets in this country.

Q: You have been quoted as saying you don't think any really significant political change will happen until the presidential election after this one -- the 2011 election.


This is my personal opinion. It takes time. The opposition parties will, of course, have a chance to field candidates. The problem is: Can they field credible candidates? So to be pragmatic about it, if President Hosni Mubarak decides to run, I think it will be very difficult to challenge him.

I'm a little bit discontented because [this is] a bold initiative by the President, and mostly what [we're] getting is skepticism -- that this is a farce, that this is not a true thing. Why don't you give [the initiative] the benefit of the doubt? Why don't you look at the facts as they are?

Q: What about the role of Gamal Mubarak, Hosni Mubarak's son, who's also active in the ruling party? Will he succeed his father?


Why is that the big issue? Is it really forbidden for a son of a President to be active politically? You should focus on the process, not on the people. Gamal is a young, ambitious person. He has his views. He's active politically. He has said very clearly he's not running [for the presidency.]

Q: Do you want to add anything on the state of Egyptian-American relations?


One of the reasons we're here is to advance our relationship. There are so many opportunities for this to happen. That's why we're here to talk to the U.S. government, Congress, and to the business community. What we're coming with is how to change this relationship to a more proactive one in the near future.

Edited by Patricia O'Connell, Rose Brady

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