Egypt learns to live without Arab help

Press, 18 June 1979, Page 16

Egypt learns to live without Arab help

By a special correspondent in Cairo

“I received a cheque for one million pounds in the morning,” says a British ousinessman whose company had contracted to build factories for the now defunct Arab Organisation »or Industrialisation (A. 0.1. •‘By three in the afternoon «e were told to pack up and go home.”

Tunded by Saudi Arabia, Qatar and the United Arab Emirates, the A. 0.1., a multitn i 1 I i o n dollar arms production organisation, has been the most recent victim 3f Arab anger after the peace treaty between Egypt and Israel. Three British firms, RollsRoyce, Westland Helicopters and British Aerospace, have been affected by the A.0.1.’s dissolution.

The loss of potential business for them is estimated at around S4OOM. About 12.000 workers stand to lose their jobs in existing A. 0.1 factories, although the Egyptian Government has said it will somehow contrive to prevent these factories from closing down.

Ever since the A.0.1.’s dissolution, and even before then, much of the talk in Cairo business circles has been centred on how much damage the Arabs can or cannot inflict on Egypt’s economy. The answer is in theory a lot. Leaving aside the suspension of direct

economic aid, oil-rich Arab countries presently affect Egypt’s economy in three principal ways. They employ nearly two million Egyptians who remit home a much valued $1.6 billion a year. Private investment from these countries is responsible for increased construction activity in Cairo and the free trade zone of Port Said. And Saudi Arabia and Kuwait have about $2 billion on deposit with Egypt's central bank. They could ask for it to be withdrawn. But, for the leader of a country that is therefore still dependent on Arab economic good will, President Sadat continues to say and do as he pleases. Although his attacks on the Saudi Royal family have recently been toned down, President Sadat still refuses to hide his contempt for the Saudi and Kuwaiti decision to oppose the peace treaty. He has told them to do their worst and says he is not scared of the economic sanctions they or anyone else impose on Egypt. Part of President Sadat’s confidence is based on his assumption that the West, mainly the United States, West Germany and Japan, would step in and help Egypt in the event Of a real economic crisis. He has already unveiled his so-

called “Carter plan,” which anticipates about $l5 billion of aid flowing into Egypt during the next five years. The existing level, of Western aid, running at just under $2 billion a year and contributed to principally by the United States, has so far been used to bridge the country’s balance of payments gap and service a non-military foreign debt of $lO billion. Western economists say there is a case for stepping up economic aid to Egypt, apart from purely political reasons, and there are some positive factors that should be taken into account. They include Egypt’s status as a net energy exporter (oil exports last year amounted to nearly $5OO million and the relatively large skilled labour force.

But they say if increased aid is to have a long-term impact, it should be based on an Egyptian promise to first undertake some basic internal refprms, such as checking an unnaturally high inflation rate, thought to be approaching 40 per cent, curbing population growth that amounts to an' extra million children every year and doing away with bureaucratic red tape that puts off foreign private investment.

Some r'forms have already been carried out, for instance investment laws for foreign companies have been streamlined in the last vear, but other vital areas of the economy remain untouched. Stories are legion, for example, about the absence of modern management concepts in either the private or public sector. Foreign banks find that loans extended to Egyptian

businessmen sometimes remain untouched for a year, while interest charges on repayment continue to mount. The most dramatic example of bad management in the public sector has been highlighted by the inability of Government economists to agree on what the Budget deficit was for last year and what it should be in the future.

The disagreement was touched off by the arrival earlier this year of an I.M.F. mission which, attempting to impose some fiscal discipline, promised to extend a loan of $730 million if the Budget deficit was brought under control. The loan has still not been drawn because Government economists, each armed with a different set of statistics relating to the Budget, cannot agree on what basis they should proceed. The absence of good management, or of any management at all, is on the other hand intimately bound up with the political structure of a country where it has traditionally been difficult to delegate responsibility. Decisions continue to be taken only at the top and those lower down in the decision-making structure are scared of shouldering responsibility for acts that might cost them their jobs and pensions.

These are psychological constraints with far-reaching economic implications that President Sadat will no take into account as he sets about his promise of liberalising Egyptian politics and thereby helping to set free the creative energies of his people. O.F.N.S. Copyright.