OBG talks to Hassan Malek, Founder and Chairman, Egyptian Business Development Association (EBDA)

Interview: Hassan Malek

What should the incoming government’s top priorities be for economic growth and development?

HASSAN MALEK: First and foremost, any development should start with economic reform and tackling the budget deficit, which is very high right now. It is also important to continue working with international institutions such as the World Bank, International Finance Corporation and International Monetary Fund and make sure that it uses the loans for new development projects in conjunction with lowering the budget deficit. Second, Egypt must streamline the political reform process and make sure it completes its transition quickly and peacefully. Finally, to facilitate growth, restoring security will help attract some much-needed foreign investment.

How can the private sector spur job creation?

MALEK: The private sector has the capacity to play a large role in job creation provided investors are assured that the political, economic and security situation are improving. The potential of the Egyptian market is evident, with its population of about 90m people; but the government needs to ensure a stable political system and clear legislation. By developing the skills of the youth population, Egypt holds enormous possibilities.

The private sector also needs political reassurance that the government will honour its previous contracts for all the projects that were signed before the revolution. The private sector wants to see comprehensive reform in the current laws, which limit investment. The procedures for establishing a new company, for instance, are far too complicated and should be made easier. We at EBDA believe the new government should conclude these outstanding issues regarding contractual obligations with old investors, and we have been involved in discussions with parliament to resolve this.

What is the future of government subsidies?

MALEK: Before the revolution, subsidies were used inefficiently to support the existing regime and not the individuals who desperately needed them. Energy-intensive industries, such as cement and ceramics, took advantage of these subsidies for export uses. The issue must be handled by a gradual reduction, as the budget for subsidies during the next fiscal year will rise 25% to LE120bn ($20.08bn), which is not sustainable.

What are the greatest obstacles facing Egypt’s renewed growth over the medium term?

MALEK: Egypt’s budget deficit and unemployment are its biggest challenges. The government should focus on completing its political transition, strengthening the institutions and ridding them of administrative corruption. Today, there are 6m government employees and a culture of corruption has long been imbedded in the system. The issue needs to be tackled and should be considered a major priority by the next president.

In what ways can small and medium-sized enterprises (SMEs) raise funds?

MALEK: EBDA has consulted with many different entities, such as the Social Fund for Development (SFD), on the best way to support Egyptian SMEs. Access to financing has been a main challenge for the growth of SMEs in Egypt. However, here are drawbacks of only providing financing without giving small entrepreneurs with the crucial non-financial services like logistics, training and feasibility studies in preparation for their business. These are integral elements in giving Egypt’s small businesses the tools they need to grow.

Has the Nile Stock Exchange (NILEX) been successful in encouraging growth among SMEs?

MALEK: The NILEX has not been able to play a big role in supporting SMEs, and under current law there is no association or entity allowed to finance SMEs except the SFD. Until now we have not developed the model of SME clusters to act as a supply chain for the big firms in Egypt. This model has been very successful in India and Malaysia, and Egypt needs to work quickly to create and implement a similar system in its own market.