March 24, 2016
Egypt’s Cabinet Reshuffle Reflects Economic Difficulties
By Elissa Miller
In one of the biggest moves in the reshuffle, Finance Minister Hany Kadry Dimian was replaced by Amr al-Garhy. Dimian was appointed Finance Minister in February 2014 by the interim government, prior to Sisi’s election in June 2014. Under Dimian, some of Egypt’s economic indicators saw modest improvement. Last month, he said that Egypt’s budget deficit for the current fiscal year, which ends in June, would reach about 11 percent of gross domestic product (GDP), down from 12.4 percent in 2014. Egypt also experienced a modest increase in growth in 2015, to 4.2 percent from 2.2 percent the year before. The country is, however, facing a major foreign currency shortage and is struggling to import goods. Dimian had also said that Egypt faces an estimated financing gap of between $25 billion and $30 billion over the next three years. He announced during his tenure that the government plans to tap international capital markets to help cover the budget deficit.
In October of last year, Dimian announced Egypt would receive a $3 billion loan from the World Bank in installments over three years. In December, Egypt and the World Bank signed an agreement for the first tranche of $1 billion. However, Mada Masr later reported that the loan is dependent on the fulfillment of certain economic reforms by Egypt, including the implementation of a value-added tax (VAT). The VAT bill has been repeatedly delayed and remains under review by parliament, despite efforts by Dimian to push it forward amid promises it will be implemented soon.
Garhy has held leadership positions at various financial institutions including Qalaa Holdings, El-Ahli Bank of Qatar, EFG Hermes, and Egypt’s National Investment Bank, where he oversaw the privatization of the Bank of Alexandria and the marketing of Egyptian government bonds on international markets. It is likely hoped that Garhy will leverage his extensive private sector experience to help boost the country’s economic performance, including its bond sales. His new deputy in charge of fiscal policy is Ahmed Kouchouk, a senior World Bank economist and former Economic Advisor to the Minister of Finance and the Director of the Macro Fiscal Unit. Mohamed Maeet, who has served previously as assistant to the Minister of Finance, and Amr El Monayer, former assistant to the Deputy Minister of Finance and partner at PricewaterhouseCoopers, will serve as deputies for treasury affairs and tax policy respectively.
Senior Economist at Dubai-based investment firm Aqraam Capital Reham ElDesoki said that Garhy’s appointment is a “good choice because he combines private sector experience with experience in public finance and government.” However Strategist at EFG Hermes Simon Kitchen said that while the appointment is encouraging, “foreign investors are looking for concrete reforms” after Egypt’s recent decision to devalue the pound.
Dalia Khorshed, previously Vice President and Group Treasurer at Orascom Construction and Vice President at Citibank, was appointed Investment Minister in place of Ashraf Salman, bringing the number of women in the cabinet to four. She is the second Minister to head the portfolio since Sisi added the new portfolio in June 2014, separating it from the Ministry of Industry and Trade.
Egypt has been working to attract investment since foreign direct investment (FDI) inflow collapsed following the 2011 revolution. In 2015, Egypt held a major investment conference in March 2015 in Sharm al-Sheikh. However, the returns from the conference have not been as high as was hoped. In the months leading up to the conference from January to March 2015, FDI reached $2.9 billion. It, however, dropped to $690 million the following quarter, recovering only slightly from July-September to $1.39 billion. A number of projects from the conference have reportedly been shelved, delayed, or are progressing slowly.
Egypt has had some success attracting investment from economic powerhouses including Saudi Arabia, which in December pledged to invest $8 billion in Egypt over the next five years, and China, which signed a number of investment agreements with Egypt in January. However, in 2015 Egypt faced major challenges repaying investors, reducing the country’s appeal as a destination for investment. In December 2015, the CBE cleared the entire backlog by repaying investors $547.2 million. Egypt continues to launch efforts aimed at attracting investment. This month, state-owned banks National Bank of Egypt and Banque Misr announced they would offer Egyptian pound investment certificates with a 15 percent yield in return for foreign currency.
In February, Bank of America Merrill Lynch said in a report that it did not expect any major changes in Egypt’s economic plan, noting that it expected authorities to continue to “muddle through due to import restrictions and external aid, hoping that foreign direct investment can pick up self-sustainably.”
Public Business Sector
Ashraf al-Sharqawy was appointed as Egypt’s first Public Business Sector Minister, where he will oversee public-sector businesses and encourage start-ups. His other current appointments include Head of Accounting Department at Cairo University and Board Member at state-owned Banque Misr. He was previously a Board Member for the Central Bank of Egypt and is the former Chairman of the Egyptian Financial Supervisory Authority. Sharqawy was also the founder and the first Executive Chairman of the Egyptian Audit Oversight Board.
In a statement following his appointment, he said the government is working on a plan to restructure of the public sector companies. He said the details on the plan will be announced when Ismail presents the government’s program to parliament early next week. The new ministry will seek to leverage a number of financial instruments to contribute to increasing government revenue.
The formation of the new ministry also comes as the CBE is taking steps to boost the growth of small and medium enterprises (SMEs) and support business growth. In January, Sisi announced that the CBE would inject $25 billion into the banking sector to support SMEs and that loans over for SMEs over the next four years would amount to at least 20 percent of all loans issued. The effort also comes as Egypt is also working to create jobs for youth and reduce unemployment. The unemployment rate remained high at 12.9 percent in 2015, although it improved from 13.4 percent the year before.
Tourism Minister Hisham Zaazou was replaced by Mohamed Yehia Rashed at a time when Egypt is struggling to attract more tourists to prop up the ailing industry. Zaazou served as minister from 2012 until March 2015. He was appointed again in September 2015 by Ismail.
Rashed has worked in the hotel industry for decades, spending over 30 years working for Marriott International. He also served as the Chief Officer at the Egyptian tourism unit of Kuwait’s Al-Kharafi tourism group.
Egypt has suffered a sharp loss in tourism revenues since the downing of a Russian airliner taking off from Sharm al-Sheikh in October 2015, killing all 224 passengers on board. Egypt’s tourism revenues stood at $6.1 billion in 2015, compared to $12.5 billion in 2010 before the 2011 revolution. In January, Zaazou said Egypt was losing $283 million per month since the bombing of the plane. This month, Ismail said that the tourist revenue had declined by a total of about $1.3 billion.
The Tourism Ministry has taken efforts to attract more tourism and project confidence in its security. Zaazou said Egypt was planning to offer incentives to low-cost airlines to promote foreign visits. He also announced that the Ministry added $32 million of its budget to airport security. This comes after Egypt hired global consultancy Control Risks to review airport security. Russia has not yet resumed direct flights to Egypt, with reports that it will, but that Russian security experts will have to be permanently stationed at Egyptian airports to follow up on the enforcement of security measures.
While Italy has resumed flights to Sharm al-Sheikh, UK airlines, including Monarch Airways and EasyJet, have extended a ban on flights to the Red Sea resort. Travel firm Thomas Cook extended its suspension of bookings to Sharm al-Sheikh until November 2016, and the British Foreign & Commonwealth Office (FCO) continues to advise against all but essential travel to Sharm al-Sheikh. Convincing Russia and Britain to resume flights will be a key priority for Rashed.
The reshuffle has replaced Civil Aviation Minister Hossam Kamal with Sherif Fathy, who has chaired EgyptAir since he was appointed by Kamal in August 2015. Fathy also had several positions with major western airlines, including Netherland's KLM and the United States' Northwest.
The replacement is part of the government’s attempt to revive confidence in airport security following the Russian plane crash in October. Kamal initially said that Egypt found no evidence that the incident was a terror attack, with Sisi acknowledging in February that militants were responsible for the attack. In November, Russian, British, and US officials determined that a bomb had brought the plane down. A month after the attack, the Islamic State released photos of what it says was the makeshift bomb. Fathy, along with new Minister of Tourism Rashed, will have to work to convince tourists and foreign governments that substantial progress has been made in improving security in Egyptian airports. He said in a statement that he will work to modernize Egypt’s air navigation systems and “develop unconventional solutions to all the challenges facing this great vital sector and overcome all obstacles in order to promote air transport industry.”
Judge Hossam Abdel Rehim was appointed Justice Minister, on the heels of the dismissal of former minister Ahmed al-Zend following comments he made saying he would jail even the Prophet Mohamed if he broke the law. Abdel Rehim is the former head of the Court of Cassation and Supreme Judicial Council.
Mohamed Saafan replaced Minister of Manpower Gamal Sorour. Sorour was appointed Minister of Manpower by Sisi in September 2015. He faced challenges in October thousands of Egyptian textile workers launched a strike over delayed bonuses. Saafan is the former head of the General Trade Union for Petroleum Workers. He also served as the deputy head of the Egyptian Trade Union Federation.
Mohamed Abdel-Atty will replace Hossam Moghazi as Irrigation Minister. He previously served as Head of Nile Water at the Ministry of Water Resources and Irrigation. Some have suggested that his close ties with Sudanese and Ethiopian officials were a factor in his choice to lead the ministry, as tripartite negotiations over Ethiopia’s Grand Renaissance Dam have stalled. Upon his appointment, he stressed the challenge Egypt is facing from limited water resources.
Galal al-Saeed is replacing Saad al-Geyoushi as Minister of Transportation. He previously served as Minister of Transportation under the Supreme Council of the Armed Forces government in 2011. He became Governor of Cairo in August 2013.
Khaled al-Anany is replacing Mamdouh al-Damaty as Antiquities Minister. He became General Supervisor of the Grand Egyptian Museum in 2015 and had previously served as Director General of the National Museum of Egyptian Civilization. Damaty, whose work developing and maintaining Egypt’s archaeological sites and museums is crucial for attracting foreign visitors, likely faced pressure in the face of dwindling tourism numbers. Anany said that he will continue to build on Damaty’s work, adding “I have several ideas in mind and I will work hard to implement them, in order to protect and preserve Egypt’s heritage.”
Finally, Nihal El Megharbel will serve as Deputy Minister for Planning. She previously served as first assistant and economic advisor to the Planning Minister.
Elissa Miller is a Program Assistant at the Rafik Hariri Center for the Middle East. Follow her on Twitter @elissafmiller