Reforms unlock gate

PUBLISHED : Sunday, 23 July, 1995, 12:00am
UPDATED : Sunday, 23 July, 1995, 12:00am

WHEN a high-powered Egyptian Government delegation visited Hong Kong last year to learn about free enterprise, the ministers were decidedly impressed.

They admired the speed with which companies could set up shop; specifically, the hackneyed local adage that an enterprise could be established in a morning, operational by lunch and profitable by dinner.

The Egyptians are currently attempting to implement a massive privatisation programme of 314 public enterprises while at the same time wrestling with a monolithic bureaucracy of 5.3 million civil servants.

Whether Egypt is ready to embrace Hong Kong's famed (though sometimes mythical) laissez-faire system remains to be seen.

But there is no doubt that President Hosni Mubarak is determined to introduce drastic economic reforms during his third six-year term in office, which lasts until the end of 1998.

One item at the top of his agenda is to attract foreign investment. To do this, he is introducing a streamlined legislation which is more encouraging to foreigners than previous laws.

The older system necessitated an Egyptian partner and hefty (by Hong Kong terms) corporate taxes and profit-sharing obligations.

Apart from the Hong Kong Egyptian Bank (a HSBC subsidiary), only two Hong Kong companies are known by the Trade Development Council to have invested in Egypt - an electrical appliance manufacturer and a textiles firm.

With the advent of user-friendly laws, the climate for foreign investors is brighter.

Recent fact-finding visits by groups of businessmen from Hong Kong and China are expected to increase the Far East's presence in Egypt.

Textile entrepreneurs are being wooed by the world's finest cotton, the promise of tax breaks, free trade zones, proximity to European markets and a surplus of export quotas.

Another bonus is cheap land and labour. Egypt is still in the 'developing' stage and overseas investment is crucial to growth.

Egypt has been eternally weighed down by foreign debt of US$35 billion (HK$270 billion) and dependent on aid (worth $4 billion a year). This total is virtually equivalent to the combined earnings from tourism and the Suez Canal.

President Mubarak hopes to awake a creaking economy by luring foreign investors through deregulation.

Those are also a condition of International Monetary Fund and World Bank loans.

In addition, there is the additional pressure from aid donors, notably the United States.

But the outside world is impatient. President Mubarak is facing increasing criticism that reforms are not happening quickly enough.

For his part, the workaholic former Air Force commander insists that progress is going ahead 'slowly but surely'.

'I am cautious by nature,' he said in a recent interview. 'We are weighing very carefully every step. Those sitting in Europe and the US cannot understand the reality we face.

'If you want a paved road from here to Hurghada (on the Red Sea) in the flat areas, I can do it very quickly. But when I get to the hills I have to change pace. If I mess that up, the whole road is useless.' His attention is now turning from the minefield of Middle Eastern politics to bringing Egypt into the economic reality of the 1990s. He appears to have kudos to spare.

As his youngest minister, IMF negotiator and chief structural reformist, Youssef Boutros Ghali, wryly observed recently: 'Reform in Egypt needs a long period of foreplay. But we are still in the safe zone.'