Sweeping reform plans revitalise private sector

EGYPT's sweeping economic reform plan, initiated in 1986, is breathing new life into the private sector.

Working with the International Monetary Fund (IMF), which is backing a substantial debt relief and financial package, the government is committed to removing most of its economic controls.

This means privatising large parts of the economy, creating free market mechanisms and cutting away the layers of bureaucracy that have stifled trade and investment.

This liberalisation programme includes the de-regulation of foreign trade; the de-regulation of prices to ensure competition; allowing free access to foreign exchange; setting anti-inflationary monetary and fiscal policies; legislating to liberalise, privatise and modernise the economy; reforming the taxation system and introducing a sales tax; and ending government borrowing from the central bank.

The government is planning for the privatisation of at least 85 public sector companies over the next four years.

This will be carried out in three stages, with 25 to be privatised as a first step, followed by a second batch of 25, and the rest in the third phase.

The reforms will allow managers more freedom to decide levels of pay and bonuses, and the right to determine the numbers of staff employed.

The Hongkong Trade Development Council (HKTDC) report on market prospects and the investment environment in Egypt notes that: ''Tangible progress has been achieved in the area of price liberalisation; prices of most manufactured goods are being de-controlled; de-regulation in agriculture is well advanced.

''Energy prices have increased several times and are targeted to reach international levels over the next few years.

''All this is providing Egyptian producers [with] the much needed incentive to lift production in response to price signals.'' Monetary measures introduced in 1991, with the agreement of the IMF, are intended to loosen the economy in a variety of ways.

These include removing controls on interest rates, floating the Egyptian pound, and setting strict credit ceilings on lending by banks and other financial institutions.

Management of the money supply is done through treasury bill auctions, designed to absorb excess liquidity and to serve as a benchmark for market-based interest rates.

Ceilings on deposit and lending rates have been abolished.

''[These changes] should, in time, lead to reduced inflation, internationally competitive exchange rates and a more efficient allocation of credit,'' says the HKTDC report.

The previous three-tiered foreign exchange rate system has been abolished, and replaced with a unified one.

Greater confidence in the new exchange system, together with the interest rate reform, has resulted in more attractive rates for savings in Egyptian pounds and allowed the currency to stabilise against the US dollar.

The earlier habit of the hoarding of foreign currency has also diminished significantly, due primarily to this new-found confidence in the foreign exchange system.

The chief benefit of this change is that businesses no longer encounter difficulties in obtaining foreign currency.

However, at times when high demand for foreign currency exceeds supply, banks may resort to a rationing system.

Major customers who are prepared to pay above published rates are usually able to obtain exchange funds through brokered arrangements.