A Steering Committee for the Upper

On 24 September 2016, the Egyptian Gazette published Prime Minister's Decree No. 2540 for the Year 2016 regarding the establishment of a steering committee, headed by the Minister of Planning, Monitoring, and Administrative Reform and with membership of the Ministers of Local Development, International Cooperation, Trade and Industry, and Finance. The Steering Committee will be in charge of the “Upper Egypt Local Development Program” (the “Program”) planned to be financed through a World Bank loan amounting to $500 million. The Decree stated that the main objectives of the said committee are to set the general policies of the Program, supervise the progress of its activities and actions, undertake the needed decisions to support implementation activities, and overcome any obstacles that might face the Program. The committee shall meet at least once a month, and must present a monthly report on the progress of the Program to the Prime Minister. It has the authority to include whoever it deems of experience and competence in issues pertaining to fields relevant to the Program.[1]    

Main Program Features

The “Upper Egypt Local Development Program” aims at enhancing the capacities of local administration in selected governorates to provide basic services to citizens and to investors. It also aims at increasing private sector investments in the area through enhancing the business environment and supporting basic infrastructure needed for the growth of different productive sectors. This is targeted to be achieved through the development of a number of industries that are based on the comparative advantages of Upper Egypt Governorates, such as food industries, animal and agricultural production, and furniture.[2] The Program will be implemented in two governorates, Sohag and Qena, which have been selected given several criteria including population size, poverty rates, geographical proximity, economic capacities, ability to reach basic services, and readiness.[3] It is worth noting that the Board of Executive Directors of the World Bank has agreed, in its meeting on 29 September 2016, to provide Egypt with a loan amounting to $500 million to contribute to financing the said Program (whose total financing is worth $977 million). The loan’s repayment period is 34.5 years, including a grace period of 4.5 years.[4] The loan will be provided to the two implementing entities of the Program, which are the Ministries of Trade and Industry and Local Development, through the financing tool known as “Program-for-Results”. This tool relies on disbursing the loan in tranches based on the level of success in meeting the performance criteria and pre-determined results. It is to be noted that the decision to establish the said steering committee comes prior to the Parliament’s approval of the World Bank loan. Acquiring the said loan will remain subject to Parliamentary approval as per Article No. (127) of the Egyptian Constitution, which states that "the executive power may not obtain a loan or funding or engage in a project that is not listed in the approved State budget which entails expenditure from the State treasury within a subsequent period, except with the approval of the House of Representatives".

Conclusion

Upper Egypt suffers from dire economic conditions compared to the rest of the country. Recent data issued by the Central Agency for Public Mobilization & Statistics ("CAPMAS") indicate that the overall poverty rate has reached 27.8% in 2015 (those who cannot meet their basic needs for food and non-food commodities). This rate has reached 57% for residents in rural Upper Egypt, as compared to 19.7% of residents in rural Lower Egypt. Moreover, poverty rate has reached 27.4% of residents in urban Upper Egypt, as compared to 9.7% of residents in urban Lower Egypt and 15% in residents of other urban areas. Poverty rate has scored highest in the governorates of Assiut and Sohag recording 66% of total residents, followed by Qena governorate scoring 58% of total residents. The same statistics stipulate that the average annual income per family has reached EGP 43.1 thousand in urban Upper Egypt, as compared to EGP 57.8 thousand in urban governorates and EGP 56 thousand in frontier governorates, whereas average annual income per family in rural Upper Egypt is EGP 33.3 thousand as compared to EGP 41.6 thousand in rural lower Egypt.[5] In light of the above, setting programs that focus in particular on the development of Upper Egypt and unleashing its potentials and local comparative advantages is a critical matter; that has been lagging for years. The region has long been suffering from insufficient public expenditure allocations despite possessing enabling comparative advantages such as low cost labour, vast land, and available raw materials. For example, the 2016/2017 State Budget has allocated only EGP 200 million for the “Supporting Upper Egypt Program”.[6] Furthermore, Upper Egypt is considered a non-attractive area for private local investments, as well as for Foreign Direct Investment. This comes as a result of the poor quality of infrastructure and utilities, especially in industrial zones established in the said area.[7] Moreover, Upper Egypt suffers from other factors that make it repelling for investments, including difficulty of obtaining licenses and financing, coupled with difficulty of transporting and marketing what’s produced there. In addition, increased poverty rates in Upper Egypt makes the area a non-consuming market to many basic and non-basic products, thereby non-attractive for the establishment of projects. Despite the above, which illustrates the importance of the “Upper Egypt Local Development Program”, several other factors must be considered, including the feasibility of relying on foreign financing for long term and comprehensive developmental programs. Foreign borrowing poses incremental financial burdens on the State Budget, hence on the level of external debt. This is a matter that must be thoroughly considered, given the current size of Egypt’s external debt which reached $53.4 billion (in March 2016), constituting 16.5% of GDP. Despite the fact that external debt is still in its safe limits as per international standards, its increase by 14% over the last two years makes it necessary to set a strategy for foreign borrowing in the upcoming period that is based on urging priorities and repayment ability. Although the development objectives of the Program are important, yet still they have a non-investment nature, thereby repayment mechanisms of the World Bank loan as well as financial burdens on the State Budget must be clarified. On the other hand, the Program will be implemented in two out of Upper Egypt’s ten governorates. This requires finding other financing tools that are more sustainable and do not incur burdens on the State Budget in order to implement development programs in Upper Egypt. This shows the importance of working hard and fast to enhance the investment climate in Egypt as a whole, and in Upper Egypt in particular with the objective of making it an attractive area for both local and foreign investments. Presidential Decree No. 158 for 2016[8] determines some industrial zones which the government is entitled to allocate to investors for free (all located in Upper Egypt, namely in the governorates of Minya, Assiut, Sohag, Qena, Aswan, and New Valley). The said Decree could be considered an initial step towards incentivizing private investments in Upper Egypt.[9] However, it must be complemented by a comprehensive strategy for attracting private investments to Upper Egypt. The strategy should include mechanisms to support the establishment of SMEs in the region, ones that are dependent on local materials and factors of production. Furthermore, the strategy should work on solving insolvency issues, facilitating licensing procedures, and incentivizing the provision of banking and non-banking finance needed for the establishment of businesses in Upper Egypt.   [1] Prime Minister's Decree No. 2540/2016 on the establishment of a steering committee for the upper Egypt local development program, Official Gazette, Issue No. 38 (bis), 24 September 2016. [2] Program Information Document, issued on 6 June 2016, available through this link (Arabic). [3] Press Release issued by Ministry of International Cooperation on 2 August 2016, available through this link. [4] Press Release issued by Ministry of the World Bank on 29 September 2016, available through this link. [5] CAPMAS research on “Income, Expenditure, and Consumption in 2015”, available through this link (Arabic). [6] Financial Statement of the 2016/2017 State Budget, available through this link (Arabic). [7] Data show that Upper Egypt has 38 industrial zones, with total investments of EGP 60 billion. [8] Official Gazette, Issue No. 13 (bis), 5 April 2016. [9] This decision has been commented on in ELU’s issue of 3^rd week of April 2016.