The revolution of the Egyptian people was a mixture of economic and political protests. Social justice was the primary demand of protestors during the revolution and this was meant to bring down the economic structure of Mubarak and establish a new structure that gives the Egyptian public their economic and social rights. However, in the past 18 months, the state of the Egyptian economy has worsened with an absence of a clear economic vision that might enable the state to break the bottleneck.

The revolution of the Egyptian people was a mixture of economic and political protests. Social justice was the primary demand of protestors during the revolution and this was meant to bring down the economic structure of Mubarak and establish a new structure that gives the Egyptian public their economic and social rights. However, in the past 18 months, the state of the Egyptian economy has worsened with an absence of a clear economic vision that might enable the state to break the bottleneck.

Fakhri al-Fakhri, professor at the Faculty of Economy and Political Science in Cairo University and former IMF deputy CEO revealed the current state of the Egyptian economy and the challenges ahead of President Mohamed Morsi.

Al-Fakhri expressed surprise at the appointment of former irrigation minister, Hisham Kandil, as the country’s new prime minister and revealed that the investment climate in Egypt has become very frustrating, as $10 billion in direct investments have been lost since the revolution.

Professor al-Fakhri, what were the outlines of the Egyptian economy before the January 25 Revolution?

From the late 1970s to the revolution, The Egyptian economy went through many stages. The economic openness after the October 1973 war marked the beginning of a new chapter. An investment law was enacted and Arab and foreign capital was welcomed. In the early 1980s, Mubarak came up with an extended economic conference and then came stage three, with the introduction of the economic restructuring program by the government of Dr. Atef Sidq. The economic philosophy was based on reinforcing the pillars of the economy (goods and services), diversifying the sources of national income and attracting foreign direct investment, which reached $13 billion in 2008.

However, the Egyptian economy was suffering from gross defects, which contributed to the January revolution.  There was management, which put the money of Egyptians in the pockets of a small group of businessmen associated with the former regime, in addition to the inefficient supervising bodies including the parliament and the Central Auditing Organization, which led to an epidemic of financial corruption, drained the money of ordinary people and neglected social dimensions. Forty per cent of Egyptians fell below the poverty line (US $2 a day) and another 25% descended into abject poverty (less than $1 a day).

After the transitional period, political Islam has assumed the executive power in Egypt. Could the Egyptian economy become an Islamic economy?

This is a huge challenge in store for the new president. He belongs to the Islamic Freedom and Justice Party and he must declare to the public his true stance towards the nature of the Egyptian economy, particularly in regards to tourism, the role of women and the financial and banking systems. But until now, he has not.

Generally speaking, it is not useful to colour the economic philosophy with white (liberal), green (Islamic) or red (leftist). Yet, I believe that the three colours can be combined in what might be called a “disciplined free economy”.

However, the delayed identification by the Freedom and Justice Party and the president and the Egyptian economy they envisage, is raising concerns within the business community both at home and abroad. It also suggests that a roadmap is in the making to gradually and intangibly transform the Egyptian economy into an Islamic economy.

How do you rate the government’s current efforts to borrow from the International Monetary Fund?  What are the advantages and disadvantages of such a loan?

First, borrowing from IMF is the most feasible alternative and also the least expensive at the moment. The interest rate of credit facilities for administrative expenses is as low as 1.1% and the loan would be settled within 3-5 years, with a grace period of three years from the signing of the agreement.  Other alternatives, such as issuing treasury bills in Euros or borrowing from banks with an interest of up to 16%, are far more expensive.

Second, the understandings made between the government and IMF are called ‘credit facilities’ and not ‘loans’, meaning that the government, under such an agreement, will get US$ 4.8 billion through several different payments with an interest of 1.1% per each payment withdrawn from IMF rather than per the entire amount. Accordingly, if the economy recovers after the withdrawal of the first or second payment, we may not withdraw the rest and wouldn’t thus incur the interests of the entire amount, like what happened in 1991 when Egypt stopped withdrawing the rest of the amount after restoring the normal growth rates.

Third, Egypt is a founding member of IMF since its inception in 1945; therefore, it may benefit from its unused money, which amounts to US$ 1.6 billion. Furthermore, IMF has 188 member countries and approving this loan would be a guarantee and confidence certificate for the Egyptian economy.

There are no disadvantages; however, we should take some precautions, such as the economic and financial reform program which should be developed by Egyptian experts in agreement with IMF. This program should definitely take low-income people into account and the government of Dr. Hisham Qandil should set implementation mechanisms.

Second, if the government fails to consider the interests of low-income people, popular rejection may arise and may lead to demonstrations that would bring the economy back to zero and even worse than the current situation.

Third, the Egyptian pound exchange rate against the dollar should be taken into account because if the dollar appreciates, the settlement value of the loan will increase, representing a significant burden to the state.

As an economic expert, how did you receive the news of appointing irrigation minister Hisham Kandil as prime minister?

This decision was contrary to all expectations and frustrating to many business circles and to the Egyptian business community as a whole both inside and outside the country.

Many questions marks hung over this appointment since everyone expected that, whoever, the prime minister should possess an economic or financial background or should be familiar with those fields. One may wonder what irrigation has to do with the current economic crisis in Egypt?!

The Muslim Brotherhood has a capitalist approach to economy and social justice was a major demand of the revolution. In your opinion, how could this demand be fulfilled under a capitalist economy?

First, we are still awaiting an identity to be declared for the Egyptian economy, which is a huge challenge facing the president as I mentioned earlier. Second, in order to be able to fulfil such a crucial demand, I believe that we need a disciplined free economy based on three qualities:

1-    Have social dimensions in order to look after low-income Egyptians.

2-    Be a moral, i.e. non-corrupting, economy that observes the teachings of the world’s three great monotheistic religions.

3-    Observe the professional ethics with a good risk management system to protect the country against globalization threats.

However, if the people in charge of our economy failed to attach importance to the social security network and to ensure that the growth gains flow downwards and not to a limited social group, the economy will derail again and will return to its previous condition in the pre revolution era.

From 1970 to 2004, around $70 billion was smuggled from Egypt according to Transparency International, in addition to the money smuggled during the revolution. How can those funds be recovered?

Although there is no reason preventing us from making every effort to recover the smuggled money, we should not be too optimistic and I believe that we can only recover 20-30% given the commissions to be paid to the intermediary agents.  Such procedures will take 5-10 years.