Presentation by Dr. Mahy Hassan Abd El-latif

1. Presentation by Dr. Mahy Hassan Abd El-latif Deputy Assistant Minister for International Cooperation The Egyptian Ministry of Foreign Affairs ESCWA Preparatory Meeting on FFD Doha, Qatar 29-30 April , 2008

2. I. Mobilizing domestic financial resources for development • In line with the agreed concept that countries have the primary responsibility for their own development, the need to ensure an enabling domestic environment, including good governance and sound macro-economic policies, was deemed vital by the Monterrey Consensus {for mobilizing domestic resources, encouraging the private sector as well as international investment} . • However, it is important in this respect to point out two main principles, the first is that any endeavor in this regard has to be in line with national development priorities. The second is that there is no "one size fits all" approach as circumstances vary from one country to another.

3. Moreover, we have to fully recognize the nexus between creating an enabling domestic environment and creating a supportive international environment that complements the efforts of developing countries. It is equally important to note that good governance at the national level, requires good governance at the international level. • Developments in the global economy have significant bearing on the internal economic environment. International economic imbalances, coupled with the financial strain emanating from the low dollar, pose a substantial threat to the stability of international financial markets, with projections of a possible outbreak of another financial crisis leading to a setback in world economic growth. This comes at a time, when many developing countries, especially in Africa, remain off track in achieving the MDGs, and lack the basic capacities to mobilize domestic resources.

4. {There are several areas where international assistance is needed to build national capacities of developing countries such as: • Building and developing institutional infrastructure. • Enhancing the role of national development banks in mobilizing domestic resources, in addressing market failure, and in improving the business climate by supporting small and medium sized enterprises (SMEs). Strengthening domestic financial markets, and encouraging lending in local currencies. • Achieving a more efficient and diversified taxing and revenue system.

5. Combating corruption, planning social security programs, and setting up effective domestic financial markets. • Enhancing the "policy space" of developing countries to provide the requisite margin for national decision making vis-à-vis international commitments}. • Since Monterrey, developing countries, including Egypt, exerted extensive efforts to create a more enabling internal business environment through reforming and upgrading the institutional capacity of national financial, monetary, and regulatory frameworks.

6. Significant strides have also been undertaken in the areas of good governance, human rights, and combating corruption. {Recent reports from the UN and the BWIs indicate significant progress as well as in macro-economic policies in some developing countries.} • On its part, Egypt is currently drafting a "Transparency Code for Egyptian Companies" that will provide businesses with a foundation for good governance that corresponds with both the national environment and with the country's legal framework

7. Other steps have been undertaken to provide access to long-term funding for SMEs. In October 2007, Egypt launched a new stock exchange initiative aiming to give SMEs a fresh platform to raise capital. {The new Bourse, the Nile Stock Exchange (NILEX), eases some of the disclosure rules and lowers the paid-in capital requirement for SMEs.} • Egypt calls for a more coordinated dialogue among stakeholders that leads to the development of national microfinance industries. {Permanent access to financial services for poor and low-income households will be ensured only through the development and gradual integration of the microfinance sector into the formal financial sector}.

8. II. Mobilizing international resources for development: foreign direct investment and other private flows: • The Monterrey Consensus, highlighted the importance of private international capital flows particularly foreign direct investment (FDI), along with international financial stability, as vital complements to national development efforts .

9. Recent years have witnessed a surge in the volume of foreign investment, especially FDI, flowing into developing countries. Even though this increase might reflect an improvement in the investment environment, it is important to note here that the bulk of these investments have flowed into a limited number of developing countries, and have targeted a limited number of sectors, mainly extractive industries and primary commodities. This indicates the lack of productive capacity of developing countries and the urgent need for intensifying diversification efforts supported by donors and international organizations. • In recent years, Egypt embarked upon a series of economic reforms aiming to attract investment {through creating a healthier investment climate.} Reforms included fiscal, asset management reform, and simplification of business procedures.

10. Fiscal Reform: - Introducing new personal and corporate tax code which led to reducing tax rates by fifty percent. - Streamlining tax procedures and automating budget process. - Reforming customs system and enhancing budget transparency. • Asset Management Reform: The Ministry of Investment adopted a rigorous Asset Management Program in 2004, which led to the revitalization of the privatization program as follows: - Sale of assets and shareholdings in public enterprises has been invigorated due to new measures to improve transparency in the privatization process.

11. - Companies that remain in the public sector's portfolio have undergone a series of reforms, e.g activating the role of general assemblies of holding companies and other public companies. • Simplification of Business Procedures: The General Authority for Investment (GAFI) initiated a reform program involving: - Reduction of incorporation time for 3 days maximum. - Reduction of Minimum paid in capital for LLC. (EGP200). - Reduction of incorporation fees. - Reduction of Publication fees.

12. - Tax card issuance in 48 hours. - Unification of bank certificate form to be issued in 1 day. - Acquiring the legal accountability for all corporations after registering in the commercial registry. - Ensuring Name Uniqueness of the corporation. - Opening social insurance files within 48 hours. - Sales Tax registration within 2 hours. - Reduction of registration fees of real estate and automation of registration as both affect licensing procedures and cost.

13. -The right to establish investment zones authorized to give licenses (2007 amendments to Investment Law 8/1997) which reduces procedures, no. of respective entities involved, time and cost. - Reduction of registration fees of real estate (EGP 2000 maximum). - Automation to save time and reduce procedures. - Relaxation of rules governing foreign ownership - The first Credit Bureau was established in Sept. 2005 and started Oct. 2007.

14. - New resolutions were issued by GAFI and CMA to maximize the effect of laws including provisions for protecting investors (ie. Inspection rules/new listing rules & takeover regulations). - Application of corporate governance rules and issuance of CG Code/ establishment of IOD for CG certification. - Abolishment of stamp tax on checks. - Reduction of taxes on advertisements.

15. - Reduction of corporate taxes by 50% (from 40% to 20%). - Payment of any type of tax at any tax office (reduces the no. of payments). - Establishment of Large Tax Payers Center. - Reduction of time and procedures by automation of ports and the General Organization for Import and Export Control (GOIEC). - Draft law for Special Economic Courts. - GAFI resolution concerning voluntary liquidation.

16. - On-going project for reforming bankruptcy rules in the Law of Commerce. - Training courses for judges working on bankruptcy issues. - Opening of IDA outlet at Alex. OSS. (operating licenses & land allocation). - Agreement between ABA and IFC to construct a DB Index. - Reduction of fees of dispute settlement run by GAFI.

17. - Co-operation agreement between GAFI and IFC to streamline business regulatory start-up process at Alex OSS (land assignment/ project approval/industrial registration/operating license) - Appointment of Mackenzie to assist in promotion strategy development. - Twinning scheme with the German Investment Promotion Agency. - Anti-Trust Law passed. - Consumer Protection Authority established following the CP Law.

18. In light of such reforms, Egypt is ranked first among the best reformers in the world, according to the World Bank's annual report "Doing Business" based on 5 out of 10 indicators of business regulation, including the necessary time and cost to meet government requirements in business start-up, operation, trade, taxation and closure. Moreover, Egypt occupied top position in Africa according to the World Investment Report of 2007 published by UNCTAD. Egypt has as well joined the OECD Investment Committee.

19. Actually, there is work in progress in the field of investment focusing on enhancing "Greenfield" investment which rose from twenty percent of total FDI to nearly fifty percent in the past three years. Egypt is actively seeking this type of FDI as indicated by the openness of investment law NO. 8, under GAFI's administrative authority. The Law allows one hundred percent foreign ownership and permits foreign investment in sixteen distinct sectors. As an amendment to the same Law a new mode of investment was introduced i.e. the “investment zones” to promote industrial and services clusters. Furthermore, the Law does not impose any restrictions on the repatriation of profits.

20. It is worth mentioning that FDI flows to Egypt have almost tripled from around $3,9 billion in the F.Y. 2005 to more than $ 11,053 in the F.Y. 2007, investments were mainly in new projects as well as in expansions of already established projects in different sectors such as industry, tourism, services, IT and construction. Reflecting FDI structural change in Egypt, non-oil investment rose to represent sixty percent of total investment from twenty percent three years ago.

21. III. International trade as an engine for development: • The Monterrey Consensus, emphasized the significance of working towards a universal, open, non-discriminatory and equitable multilateral trading system, along with meaningful trade liberalization, addressing the marginalization of LDCs in international trade and ensuring that world trade supports development to the benefit of all countries. • Between 1995 and 2005, the volume of world trade in goods and services has doubled to 11 trillion dollars, and the share of developing countries has reached 36% in 2005, while their share of world imports has reached about 33%, an indication of the important role they play in stimulating global growth.

22. In 2005 as well, trade between developing countries has increased, where 46% of their exports went to other developing countries, compared with only 40% in 1995. {We have to note, however, that most of these exchanges were between a limited number of countries.} • {The objectives of the Doha round, within the framework of the WTO, include addressing imbalances in the multilateral trading system and enhancing developing countries' access to international markets with a view to promoting implementation of poverty eradication programs. }

23. Egypt, through active participation in the Doha Round negotiations, aims to promote an effective multilateral trading system, to promote the interests of developing countries, by supporting the elimination of tariff barriers to exports of agricultural goods, and promoting the "aid for trade" initiative. • Indicators of Egypt's economic performance have reflected positive results where trade balance and balance of services and foreign investments showed a sustained upward trend. In 2006-2007 Surplus in the balance of services reached 11,4 billion dollars (up to 8.9% of GDP), through the increase in the proceeds of the Suez Canal, of tourism revenues, of net private remittances of Egyptian workers abroad, and the decline of service payments. In addition, GDP rose from 417,5 billion L.E in 2002 to 731,2 in 2007 indicating real economic growth of 7,1 % in the same year compared to 3,2% in 2002.

24. In line with the Ministerial Declaration of Doha in 2001, which encouraged foreign trade agreements as a means to support development and reduce poverty in developing countries, Egypt has signed several trade agreements as the COMESA, the Greater Arab Free Trade Agreement (GAFTA), the Aghadir Agreement (Jordan, Tunisia, Morocco), the OUIZ Protocol, the Partnership Agreement with the EU, and the Free Trade Zone Agreement with Turkey, in addition to many bilateral agreements with Arab countries. In January 2007, Egypt signed an agreement establishing a free trade zone with the EFTA countries (Iceland, Norway, Switzerland and Lichtenstein) as an important step to activate the Barcelona process and to establish the Euro-Mediterranean zone.

25. IV. Increasing international financial and technical cooperation for development: • ODA was regarded by the Monterrey Consensus as the largest source of external financing and as critical to the achievement of the MDGs. Developed countries, were urged to make concrete efforts towards the target of 0.7% of GNP as ODA to developing countries and 0.15 to 0.20% to the LDCs {as reconfirmed in the Third UN Conference on LDCs.} • It was equally highlighted that effective partnerships among donors and recipients should be based on the principle of national leadership and ownership of development plans.

26. Within the above context, some developed countries have fared better than others, {but as a whole they increased their assistance from around 0.22% of GNP in 2000 to 0.33% in 2005, 38% of which went to Africa.} The year 2006, however, witnessed a decline of ODA by 0.3%. • It is worth noting that between 2004 and 2005 debt relief initiatives accounted for almost 70% of the increase in ODA. Accordingly, this increase does not mean an increase in the financial flows to the developing countries. {Estimates are that developing countries need around 150 billion dollars to be able achieve the Millennium Development Goals (MDGs).}

27. At national level, total disbursements of ODA in 2005 reached 2,2 billion dollars and the biggest amount of total ODA was used to finance joint investment projects. The amounts used for that purpose rose from 36% in 2001 to 65% in 2005, while the percentage used to finance technical cooperation decreased from 43% in 2001 to 22% in 2005, in the same year, 11% of ODA went in support of the balance of payments.

28. V. External debt: • Recognizing the fact that external debt is a real challenge to development efforts undertaken by the developing countries, the Monterrey Consensus aimed at creating a partnership between the North and the South, thereby stressing the responsibility of the developed countries to assist the developing ones in making their debts more sustainable. • However, there are indications that current international initiatives in this regard, namely the Heavily Indebted Poor Countries Initiative (HIPC) and the Multilateral Debt Relief Initiative (MDRI), are slow in achieving progress and are not sufficiently inclusive to enable the LDCs, particularly in Africa, to achieve the MDGs.

29. Needless to say that middle income countries {-a significant number of which are heavily indebted and in which 41% of the world’s poor live- could not benefit from the above initiatives. We also note here that this group of countries do not have access to concessional loans provided by the donor community.} Subsequently, we see merit in addressing this gap in the system, while at the same time, we welcome new initiatives by the international community to deal with the debt problem in a more comprehensive manner. • Within the above context, it is important to note that new initiatives have to take into account the fact that the underlying problem, in current initiatives in the area of debt, is a reflection of a clear "democratic deficit" in the existing international governance structure.

30. It is equally important to indicate that there is an urgent need to enhance the accuracy, transparency and accountability of credit and risk evaluation by private rating agencies. • We also emphasize the need to revisit excessive conditionality {to loans provided to developing countries,} as it limits the "policy space" that these countries need to address poverty-reduction related issues. • We further underscore the need to implement what was agreed upon in Monterrey that donor countries should take steps to ensure that resources provided for debt relief do not detract from ODA resources available for developing countries.

31. We emphasize as well, the need to enhance technical assistance to developing countries with a view to strengthening their capacities in achieving sound debt management. • Egypt has started, since the 90 s of last century, to vigorously address its external debt problem. It succeeded to reach an agreement with the Paris Club, while at the same time implementing a restructuring and reform program with the IMF and the World Bank, which led to a significant reduction of debt from 50 billion of dollars in 1991 to 29,9 in 2007.

32. Innovative approaches could be widely used to deal with the external debt problem, such as debt-swap and debt conversion programs,{ which include the transformation of external debt into development projects. Debt Swap is a tool to confront the decrease in ODA, an ideal application to the eighth millennium objective, and one of the means to face budget deficit.} • Egypt was particularly able to achieve notable success by adopting this approach through concluding agreements with the countries concerned (France, Italy, Germany, Switzerland). • This could be an emerging issue that deserves reference to within the context of efforts aimed at enhancing the implementation of the Monterrey Consensus.

33. VI. Addressing systemic issues: enhancing the coherence and consistency of the international monetary, financial, and trading systems in support of development: • The Monterrey Consensus stipulated that in order to complement national development efforts there is an urgent need to enhance coherence, governance, and consistency of the international monetary, financial, and trading systems. • To that end, it is vital to further enhance efforts aiming at reforming global economic governance and the international financial architecture with a view to achieving greater transparency and enhancing the effective participation of developing countries in international economic decision-making and norm-setting.

34. Within the above context, we impress upon the need for a comprehensive package that genuinely addresses the concerns of all developing countries rather than ad-hoc transitional arrangements. • Since Monterrey, efforts by developing countries to achieve the MDGs have been adversely affected by the global imbalances such as the rise of commodities prices, including the skyrocketing oil prices, the U.S. balance of payments deficit and the low dollar. These imbalances need to be addressed in an orderly fashion through enhanced, coherence, coordination, and cooperation in global financial, and trading mechanisms, as well as exploring regulatory remedies.

35. The United Nations is in a position to play a pivotal role in contributing to the efforts aimed at reforming the international economic, monetary and financial system, due to its universal membership, and the Doha Review Conference is an opportunity to operationalize these efforts. • Finally, since Monterrey, developments have shown that there is a need to strengthen the existing follow-up mechanisms of the financing for development process, and we are still looking into the different proposals that have been put forward in this context.

36. Challenges and lessons learned from Egypt's development Process As a developing country Egypt is affected by developments in the global economy that we have referred to earlier, other challenges are as follows: • Inflation: inflation rate reached 12.1 % in February 2008. - For addressing this high inflation rate, the Government of Egypt (GOE) is adopting new policies and regulations including increasing the production of goods and services, and the efficiency of distribution processes, as well as , promoting the effective implementation of the monetary policies of the Central Bank of Egypt.

37. Unemployment: although the unemployment rate decreased from 10% in 2004 to 8.9% in 2008, GOE still has to work harder to maintain higher employment rates and to provide professional and technical skills for youth to enable them to meet market needs. - GOE allocated an amount of 500 million L.E. to face such a challenge, there are also several vocational and technical development programs that are being implemented with key development partners i.e. Germany, EU, and USA.

38. The need to extend social security services to cover new categories, to reach the most needy and to restructure the system of subsidies. As for slums and remote areas, GOE has to provide the necessary infrastructure and to ensure fair distribution of health services, housing and job opportunities. - To this end, GOE plans to extend social security services to include 1 million deprived families by the end of 2008, and to duplicate this number through the coming three years. The plan also includes the provision of cheap housing opportunities, micro credits, and financial grants. A ministerial committee was established to ensure the continuity and fair distribution of subsidies.

39. Sustaining the current high growth rate - To face the dilemma of sustaining the current high growth rate, GOE is drafting a strategy to maximize the Private sector’s role in the development process in order to neutralize the effects of global rapid changes. • Population growth is an another challenge facing Egypt. Population has increased from 67.3 million in 2002 (2% growth rate ) to reach 72.7 million in 2007 (1.8% growth rate ).