INVESTING IN A NEW EGYPT

Transcription

1 Page 1 INVESTING IN A NEW EGYPT Revitalizing the Egyptian Economy by Rebuilding the U.S.-Egypt Relationship November 2012

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3 Page 3 INVESTING IN A NEW EGYPT Revitalizing the Egyptian Economy by Rebuilding the U.S.-Egypt Relationship immediate aftermath of its revolution, its political evolution continues to develop. Economic conditions, meanwhile, remain precarious, as the country has yet to fully recover from the drop in investment, tourism, and economic activity that accompanied the revolution even as it must rapidly transition to increased and inclusive growth and job creation so that the underlying conditions that ignited the revolution may be addressed. Yet, Egypt remains a country of enormous talent and opportunity. And it remains a vital partner not just of the United States Government, but also of the American business community. I. Introduction: A New Partnership for a New Era As the Obama Administration prepares for its next four-year-term, the transformation of the Middle East and North Africa that the Arab Spring sparked continues to evolve. A number of states across the region are engaged in complicated governmental transitions even as all states in the region have been touched by the possibility of change as new political, economic, and social realities take root. The stakes of this historic transformation moving in a positive direction that expands opportunity for all the peoples of the Middle East and North Africa could not be higher for the region itself, for America, and for the entire global community. Indeed, the American relationship with this vital region stands at a critical juncture between closer cooperation that expands opportunity and serves our mutual benefit or heightened mistrust that may eventually lead to strained ties and diminished opportunity for all. Perhaps no state in the region better encapsulates the importance of this moment than Egypt. As the largest country in the Arab world, and a long-standing U.S. ally, developments in Egypt remain critically important for the United States and the global community. However, the situation in Egypt remains challenging. While Egypt s security situation has improved since the To build upon the positive role that the business community can continue to play in strengthening opportunity in Egypt, the United States Chamber of Commerce, the U.S.-Egypt Business Council, and the American Chamber of Commerce in Egypt recently organized a high-profile business mission to the country. From September 8-11, 2012, fifty leading American companies, represented by over 100 senior executives came to Cairo to deliver a simple message: even as Egypt's transition to democracy continues to unfold, the country remains open for business, and the international community has a major stake in helping to stabilize and to grow Egypt's economy for the benefit of all of its citizens. This was this largest business delegation to the region ever organized by the U.S. Chamber, and the second largest in the 100-year history of the institution. Moreover, this was the third business delegation that we fielded since the 2011 Revolution because we believe in the critical importance and mutual benefit of investing in Egypt now particularly in its talented young men and women. We returned from our mission even more committed to forging a productive relationship with a new Egypt and to building a future of more widely shared prosperity, growth, and development. With a democratically elected Egyptian government now in place, we believe that this is a critical and historic moment to take concrete steps to broaden and to deepen the Egyptian-American ties.

4 Page 4 Above all else, we believe that this relationship must be focused on helping Egypt create high-quality jobs so that a far greater number of Egyptians have the opportunity to productively participate in their economy and society. Going forward, we are particularly focused on increasing opportunities for Egyptian small and medium sized enterprises, including their integration in our member companies global supply chains, reviving Egypt s critical tourism industry, increasing opportunities for Egyptians by promoting social entrepreneurship and expanding our corporate social responsibility efforts, and strengthening Egyptian-American university and research collaboration. U.S. commercial engagement with Egypt is, of course, long-standing. For nearly 40 years, the strength of economic cooperation between the United States and Egypt has been intimately linked to the strong partnership between our two countries. Indeed, the United States and Egypt have had a strategic alliance and close friendship that has yielded significant benefits for both sides. These mutual benefits have included: close cooperation aimed at establishing and maintaining regional peace and security; the provision of large-scale U.S. assistance for Egypt s development, including approximately $30 billion of non-military assistance; and a growing commercial and investment relationship two-way trade in 2011 alone was valued at $4.16 billion that has had a positive impact in the lives of many Egyptians and Americans. Yet, despite the considerable progress that has been made, we must candidly acknowledge the many un-met expectations. We are deeply cognizant that many of Egypt s development objectives have not been realized: economic progress has eluded far too many Egyptians and unemployment levels, particularly for the young, remain painfully and unacceptably high. As Egypt continues along the path of reform started by its revolution, the United States and Egypt must build a new partnership that reflects the promise of this new era. And, as Egyptians must continue in their process to create a more participatory, accountable, and transparent form of government, we believe that the Egyptian-U.S. alliance must be transformed into an equal and mature partnership based upon close cooperation and increasing engagement between all segments of our two societies. This new relationship must be based on mutual respect and it should address the concerns of both partners. And it must reflect Egypt s traditional role as a leader in the region, as well as the desire of the United States to actively contribute to the growth and development of its long-standing friend. In this regard, we are eager to work with the new Egyptian government and all Egyptians to achieve their democratic and development aspirations during this critical period in their nation s history. Our desire to work with a broad range of Egyptian society was reflected in our delegation s extensive itinerary. In three days in Cairo, we held productive meetings with leaders from across the Egyptian government, including His Excellency President Morsi, Prime Minister Kandil, and senior members of the cabinet. We also engaged senior leaders spanning Egypt s political spectrum, business community, young entrepreneurs, journalists, academics, and civil society. We also appreciated the strong support of our mission by the Government of the United States. We are particularly grateful for the unprecedented participation by Deputy Secretary of State Thomas Nides, Assistant to the President and Deputy National Security Advisor for International Economics Michael Froman, and U.S. Ambassador to Egypt Anne Patterson. Their support was a tangible demonstration of America s commitment to a public-private partnership to advance sustained development in Egypt. Ultimately, Egypt s future will be shaped, above all else, by the Egyptian people. We believe, however, that by working together we can help Egyptians address their country s most pressing development challenges, establish new businesses, and stimulate the creation of new private sector jobs. Indeed, our mission sought to highlight the critical role that the Egyptian and American private sectors hope to play in revitalizing Egypt s economy. We came to Cairo not only to listen and learn, but also to directly contribute to Egypt s renewal agenda.

5 Page 5 Throughout our discussions, we were enormously impressed by the vision that our Egyptian partners outlined for their future. They stressed that developing sufficient numbers of high-quality jobs will require both unleashing the inherent vibrancy of Egypt s private sector while at the same time modernizing the country s public sector institutions to meet their needs in an increasingly competitive global economy. As representatives of companies that have invested in Egypt for decades, we share our Egyptian partners perspective that Egypt s strategic location and its large and attractive domestic market will permit the country to successfully position itself as a regional and global manufacturing and services hub. We, likewise, share the belief that given the talents of the Egyptian people, Egypt has the ability to transform itself into a 21st Century knowledge economy. core, therefore, our plan is also a human and moral agenda befitting the friendship that Egyptians and Americans seek. Ultimately, as a result of our mission, we remain highly confident in Egypt s future. We know first-hand the talent and promise of its people, and we believe that Egypt holds tremendous opportunity across a broad range of sectors. We are certain that despite the considerable challenges that loom large today, the right enabling environment coupled with strong partnerships with its many friends around the world will allow Egypt to overcome its difficulties as few countries could. More simply stated, wise political, economic, and social policies will reveal that Egypt s future is boundless. This report includes a set of recommendations to both the Egyptian and U.S. governments about the steps that they can take to realize the full promise of the Egyptian-American commercial relationship. II: About the U.S-Egypt Business Council and the American Chamber of Commerce in Egypt To be clear, many of our recommendations are not new. They do, however, form the fundamental basis of actions that we have long believed would help to modernize the Egyptian economy. Moreover, these recommendations do not favor a particular political agenda. Rather, we believe them to be in the national interest of both countries, because they can serve the broad populations of each. The U.S.-Egypt Business Council and the American Chamber of Commerce in Egypt (AmCham Egypt) have prepared this report to present to the United States and Egyptian governments as a result of their joint Business Mission held September 8-11, This delegation was comprised of over 50 leading American companies represented by over 100 senior executives. Similarly, these recommendations are not designed to be strictly conditional on either side; progress in one area should not necessarily be held up due to developments in another. All suggested initiatives should be carried out as quickly as possible. But, we also understand that for each side some of these steps may not be easily implemented. Both sides have their own political, institutional, and budgetary constraints; however, we view these recommendations as achievable and smart investments. Additionally, our recommendations are designed to empower the many Egyptians who, if given the chance, can build a positive future for themselves and productively contribute to their families, communities, and country, as well as to the global community. At its The September 2012 business delegation follows a continuum of policy and programmatic engagement by the U.S-Egypt Business Council and AmCham Egypt, particularly in the wake of the Egypt s historic transition. This includes a supplier s conference, organized in February 2012, at which more than 650 participants convened to hear business opportunities presented by top U.S. and Egyptian companies, including General Electric, Apache, Dow, Bechtel, Coca-Cola, and Pepsico, as well as a business delegation organized June 2011 that brought 25 companies to Egypt. These activities demonstrate our long-term commitment to working with the government and people of Egypt to create greater opportunities for all

6 Page 6 Egyptians. Our organizations have long provided a bridge between the business communities of our two nations. Our work has always been grounded in the belief that enhanced commercial ties are not only mutually beneficial to our businesses, but also have a positive impact on the lives of our two peoples. In the aftermath of the 2011 Revolution, and given the hunger for greater economic and social empowerment that were at its core, the United States and Egypt have a direct and immediate interest in elevating our commercial and economic cooperation to higher levels of ambition and tangible achievement. In that spirit, we wish that this report be viewed as a significant milestone in an ongoing dialogue between the governments of Egypt and the United States, our bi-national organizations, and our member companies regarding the best means of realizing our common objective of advancing economic growth and opportunity in Egypt. III. Our Shared Vision and Commitment to an Advancing Egypt Because a great many American companies have invested and operated in Egypt for many years, the U.S. business community is acutely aware of the complex and inter-connected political and economic environment in Egypt today. While tremendous opportunities exist, the financial landscape remains perilous: reserves have fallen from a high of $35 billion in January 2011 to $15.0 billion in September 2012; currency has depreciated by 5.37 percent since January 2011; tourism receipts have fallen by 29.6 percent from 2010 to 2011; net foreign direct investment inflows have fallen by 83.3 percent from a peak of $11.6 billion in 2007 to $6.4 billion in 2010 to register a net outflow of $0.5 billion in 2011 billion; and external credit facilities have been slow to materialize. Governance is further complicated by a number of other economic characteristics: unemployment is at a high of 12.6 percent; fuel and bread subsidies cost the government $1.7 billion per month; public employment has reached record levels with one out of every 13 Egyptians working at some level of government; and the talents of many Egyptians across all segments of society continue to be under-cultivated and underutilized. Moreover, during the recent transition period, these challenges were compounded by a leadership vacuum that rendered it difficult for the Egyptian Government to take economic decisions. Nevertheless, we believe that the Egyptian people are equal to the myriad of challenges they face. Throughout our mission to Cairo, we were deeply impressed by the vision that our Egyptian friends and colleagues from both inside and outside the government outlined for their future. We were particularly pleased by their call for bold action to revive the country s economy by re-integrating it into the global market. From the perspective of the business community, we believe that economic revitalization in Egypt as in all countries is ultimately dependent on a healthy domestic and foreign business community that is transparently regulated by well-functioning public sector institutions, as well as by programs that spread the development of human capital across society. And we believe that the local and international business communities must always do their share to contribute to Egypt s advancement. That is our continued commitment to the people of Egypt. As a sign of this commitment, we have placed special emphasis on efforts to expand American investment across all sectors of the Egyptian economy, to provide increased opportunities for small and medium-sized Egyptian businesses in our companies global supply chains, to revive Egypt s critical tourism industry, and to create shared value and increased opportunities for Egyptians by promoting social entrepreneurship and expanding our corporate social responsibility efforts. The business community understands that for Egypt to achieve its full potential, we must help cultivate the talents of members of the Egyptian workforce and to equip them to compete successfully in an increasingly dynamic global economy. Only by maximizing its human capital, can Egypt fully transform its economy to meet its job creation requirements. That is why our

7 Page 7 companies have engaged in significant efforts at working with young entrepreneurs and small and medium sized enterprises. During our mission, we were pleased to have the opportunity to begin still more conversations and we will build upon these relationships to our mutual benefit in the months and years ahead. Ultimately, we share the aspirations of so many across Egypt who have not yet experienced globalization s positive impact. But we believe that the country can seize this moment to build greater opportunities for its people and return to its rightful place as a model for the entire region. Indeed, we believe that Egypt can build upon its inherent advantages to transform its economy into a regional powerhouse rooted on three fundamental pillars: 1) Egypt as a beacon of regional hope and progress; 2) Egypt as a hub for the regional and global economy; 3) Egypt as a knowledge economy. Egypt as a Beacon For millennia, Egypt has been a beacon of progress and advancement not only for its own region, but also for the global community. Egypt s size, its dynamic population and its strategic position make the success of its transition relevant far beyond its borders. Our vision is not just about attracting investment, although that will be a critical factor in Egypt s success. It is, likewise, not just about revitalizing critical industries, although that will be extremely important as well. Our vision is of an Egypt that is transforming and modernizing existing industries, and creating new ones, to reflect the values of this new era in Egyptian history and the necessities of competing in today s global economy. For example, we were pleased to engage in positive, substantive discussions on revitalizing Egypt s tourism industry. Against the backdrop of unprecedented change and opportunity in Egypt, the country s tourism sector has suffered greatly. The travel sector has heretofore been a key driver of economic activity, development, and employment generation in Egypt. The time is right, however, to revitalize, to modernize, and to strengthen the infrastructure of tourism in Egypt. We believe that tourism can not only return to pre-revolution levels in the years ahead, but that it can be transformed to involve greater opportunities for Egyptians. That is why we engaged in discussions with the Minister of Tourism, governors, and leaders of the Egyptian tourism industry. We similarly entered discussions on how we can help preserve Egypt s archeological, cultural, and artistic heritage against the shadow of those who have tried to exploit recent events to damage Egypt s heritage. We intend to build on these discussions during the year ahead, and to forge greater collaboration among the hotel, airline, and cruise industries as well as other parts of the tourism sector, the U.S. Government, and experts in Egypt s history and cultural heritage. We wish to help emphasize to the international travel market that Egypt is again hospitable for travel. Revival of the tourism industry is one of the most concrete ways to catalyze near-term economic growth and employment generation. We also believe that a critical element of Egypt s successful transformation is to encourage development outside of Cairo to areas of the country, such as Upper Egypt, that have been neglected in recent years. To be sure, rebuilding the economy in these areas as critical to the success of Egypt as a whole during this transition. Egypt as a Hub for Economic Growth With its strategic location at the confluence of three continents and two seas, its large market and youthful population, and its cultural and historical significance for the Arab World and the broader Mediterranean and African regions, Egypt is a natural hub for economic activity throughout its neighborhood and beyond.

8 Page 8 Indeed, Egypt has already become a prime destination for U.S. investment in the Middle East. But Egypt also holds additional promise as a hub for companies looking to export to Europe, Asia, and Africa. We believe that Egypt can become an integral part of the global supply chain and a key hub for regional and global manufacturing. Moreover, in addition to its potential to serve as a manufacturing hub, Egypt s services sector also has significant potential. With the growth of the country s service industry in recent years, Egypt has already become a regional leader in offering high-quality services at relatively low cost. The country has a fast-growing domestic market in sectors such as training, business service centers, ICT, and green technology. All of these industries can be expanded, and new ones, such as a leading pharmaceuticals and medical device industry, can be developed with the adoption of the right enabling policies in tandem with key investments. Of course, as with all countries that have a strategic location, Egypt s position also has the potential to be exploited by de-stabilizing elements. In this regard, the critical question is not whether Egypt will be a hub, but what kind of hub it will be. Egypt has already been working diligently for the last few years to liberalize its market, to update its economic regulations, and to streamline its bureaucracy. These policies are particularly important given that Egypt will face increasing competition not only from other global competitors but also from newly reforming countries within the Arab World. These reforms must be accelerated if American and international companies are to grow their businesses and thereby to create more jobs in Egypt. Ultimately, we believe that Egypt s position as a transit hub can be used to establish a forward-looking manufacturing and services platform that will move Egypt increasingly up the value chain. And we look forward to working together with the new government to achieve that goal. Egypt as a Knowledge Economy Given the talents of the Egyptian people, we believe that Egypt has the ability to transform itself into a 21st Century knowledge economy. And to this end, Egypt s growing population is a fundamental source of strength. That is why throughout our trip we placed special emphasis on expanding Egyptian-American scientific and research collaboration, and working with young Egyptians to help them gain the skills to compete in the 21st Century. For the business community and our member companies that means that we have an obligation to assist Egypt in expanding education and workforce development at all levels of society. We believe that our companies can play a vital role in helping bring practical experience into the Egyptian classroom, from primary and secondary schools all the way through universities and professional education. In this regard, we are eager to play a role in helping Egypt expand and link its community college and vocational system to the needs of the job market and increased opportunities with our companies. As President Morsi emphasized in our meeting, Egypt will place priority on research collaboration and innovation in partnership with universities and the private sector. We share President Morsi s belief that scientific cooperation between our two countries can be of tremendous benefit to our respective economies. We are also committed to promoting entrepreneurship in Egypt by linking research collaboration and innovation and our companies global supply chains with increased opportunities for Egyptian small and medium size enterprises. Ultimately, we share the belief that by opening opportunities to new players in the Egyptian market, we can assist Egypt in its quest to position itself as a leading knowledge economy befitting the tremendous talents of the Egyptian people.

9 Page 9 IV. Recommendations for the Government of Egypt To implement such a vision, we look forward to working with the Government of Egypt to address the following recommendations that we believe will be vital to attracting and sustaining the investment that Egypt needs in the months and years ahead: Strategic Communication of Egypt s National Plan: We were pleased to hear a great many positive elements of the Government of Egypt s national revitalization program. From the perspective of the business community, we believe that further dialogue to build Egyptian consensus around this national economic plan can help to unleash Egyptian capital to kick-start the economy while also attracting the external investment necessary for Egypt s development. Throughout its transition, Egypt lacked a clear economic plan for both internal and external audiences. The new government s formal release of an economic agenda can help to restore confidence and dispel common misconceptions about the new government s program. This strategic communications plan should establish policy coherence across the full range of ministries and thus ensure that the Egyptian government acts and speaks in unison. We believe that there is a basis for consensus among all Egyptians for an economic program that follows the broad parameters outlined in the prior section. We hope that the Government of Egypt formally seeks the approval of the broadest section of Egyptian society, including the possible issuance of a statement of shared principles with as many political, economic, and social actors as possible. Security: Without a restoration of domestic security and the preservation of international peace, Egypt s economy will face severe challenges in recovering from the current economic crisis. Accordingly, we were pleased by the Government of Egypt s commitment to restore domestic security, to promote the rule of law and good governance, and to ensure the universal human rights and civil liberties of all Egyptians. From the perspective of the business community, we also believe that it is vital that Egypt continue its critical role in preserving international peace and security in the region. Conversely, a lack of progress in any of these key areas will negatively impact efforts to attract investment, and further cripple critical industries, such as tourism. During our trip, we were particularly encouraged by President s Morsi s strong personal commitment to upholding Egypt s international agreements and preserving its critical role in preserving regional security. We were also heartened by the president s pledge to preserve the civil nature of the Egyptian state. These assurances are essential to moving Egypt forward economically in the years ahead. Macroeconomic Stability: For the business community, it is particularly important that the Government of Egypt take immediate steps to remedy its ongoing fiscal crisis and to stabilize the country s macro-economic situation. We welcomed the fact that the Egyptian government has intensified its dialogue with the IMF about restoring the country s fiscal health. We believe that the discussions over an IMF agreement are an important signal of the new government s commitment to avoid a further deterioration of its financial situation. In our opinion, completion of an agreement would be a positive signal to investors at home and abroad. Without it, we fear that Egypt will have difficulty attracting significant investment from the U.S., Europe, or the Gulf States.

10 P a g e 10 We also share Egypt s concern that any dislocations caused by such an IMF program package not be unduly born by those most vulnerable in Egyptian society. We believe that a positive agenda can be enacted that removes the threat of instability, expands opportunity, and returns the country to fiscal health. For our part, we have been encouraging the U.S. Government, the international financial institutions, and the broader international community to quickly assist Egypt on terms that provide the Egyptian government prudent flexibility to implement its economic program while still undertaking long-needed structural reforms. Policy Certainty: The international and Egyptian business community share common requirements for good governance, the rule of law, transparency, and the implementation of policies that support business confidence. Good national policies in these areas will ultimately benefit the Egyptian economy. We were pleased by the new government s commitment to restore policy certainty in order to boost business confidence. Of particular concern to the business community is the fate of a number of earlier reforms to the financial system, tariff structures, business regulations, property rights, and labor laws. We believe that these reforms had considerable merit; however, they were not completely made and were not fully extended to the broader economy, especially small and medium-sized enterprises. From our perspective, it is important that the Government of Egypt corrects governmental mismanagement and spreads positive reforms more broadly and deeply into Egyptian society. Additionally, a lack of legal certainty has had a chilling effect for investors. Of course, no one would deny that Egypt has the sovereign right to investigate all previous instances of corruption. However, we believe that these investigations should be de-politicized, transparent, swift, and orderly so as not to accelerate the withdrawal of capital or to inhibit investors from returning to Egypt. Good Governance and Rule of Law: The fundamental basis for attracting international investment will be the restoration of effective governance and the rule of law. We believe that it is vital that Egypt enact democratic reforms to ensure regulatory transparency and fair and consistent enforcement, as well as to ensure that court cases are handled expeditiously by an effective, independent judiciary. As a business community, we are eager to work with the Government of Egypt to improve Egypt s regulatory environment, and present best practices on regulatory policy from our considerable experience working with governments around the world. Facilitating the Movement of Goods and Services: For the business community, we believe it is important that the Government of Egypt take steps to streamline the bureaucratic obstacles facing investors in Egypt. Simplifying and expediting the movement of goods into and out of the country, including by modernizing ports, more effective border control regimes, and infrastructure enhancements would be key to expanding international investment throughout Egypt. In this, we are encouraged by the Egyptian government s plans for modernizing and fully developing the Suez Canal Zone to take advantage of the high levels of traffic flows through Egyptian waters, as well as the government s plans to revitalize infrastructure development in Upper Egypt. As part of the effort to facilitate international investment into Egypt, we would also encourage the Government of Egypt to fully empower its existing one-stop shop so that members of the business community can have a single point of contact when they undertake to invest in Egypt.

11 P a g e 11 Fair Competition: To attract international investment, as well as to develop its own private sector including building up its own small and medium sized enterprises we believe that the Government of Egypt should expand competition and anti-trust laws equally to both the public and private sectors. Indeed, in the absence of policies that allow all firms to compete on a level playing field, including for government procurement, the Egyptian market may become increasingly impenetrable and uninviting both for international investors and for newer firms that can be a principal source for job creation. Protecting Intellectual Property: A strong commitment to protecting intellectual property will be key to attracting international investment. Egypt has already attracted significant investments in key sectors such as information and communications technology. To expand on this success, we believe that it is important to strengthen commitments to intellectual property protection, as there are many more industries in which Egypt can excel, such as pharmaceuticals, biotechnology, medical equipment, and consumer goods. Indeed, without adequate safeguards on intellectual property, Egypt may lose a critical opportunity to become a hub of investment in these innovative and growing areas. Combating Illicit Trade: Stepping-up enforcement against illicit trade in both contraband and counterfeit items would not only benefit the Egyptian consumer, but it would also curb a potential threat to Egyptian security. Due to Egypt s location as a transit hub, the country is susceptible to trade in illicit goods. These items not only threaten the health and safety of Egyptian consumers, as they are largely unregulated, but their large, illicit profits could potentially underpin criminal enterprises that could pose long-term threats to the stability of Egypt. To combat illicit trade, the business community is eager to work with the government as a partner in strengthening its inspection and enforcement regime against such illegal activity even as it minimizes obstacles to expanded legal trade. Private Sector Development: Developing Egypt s private sector will require a range of reforms to facilitate skills development, access to capital, and prudent risk-taking. In the immediate term, perhaps the quickest way to encourage job growth is through the return of tourism, which will be essential for Egypt to restore economic health. Over the medium- and long-term, however, the country needs a forward-thinking agenda to develop targeted industries for both the domestic and international market as well as to encourage a broader culture of innovation and entrepreneurship to unleash the full talents of the Egyptian people. We believe that Egypt has the potential to become a key link in the supply chain of a number of manufacturing industries, such as consumer goods and pharmaceuticals, if it were to enact the policies necessary to attract international partnerships. To foster a greater climate of innovation and entrepreneurship, the business community is also eager to see reform to Egypt s insolvency and bankruptcy laws so that failure, an inevitable part of the entrepreneurial process, does not permanently discredit essential risk-taking. Integrating the Informal Economy: Studies have demonstrated that as much as 40 percent of the Egyptian economy takes place in the informal sector. As Egypt develops a system of fair and open competition, we are eager to see the informal sector integrated into the legal regime so that its participants can benefit fully from the protection of Egyptian law and standards and their commercial activity is calculated and included in the presentations of Egypt s macro economic environment. Measures to integrate the informal sector include the protection of property rights, the expansion of the banking and insurance

12 P a g e 12 sectors to small, medium, and micro enterprises, and transparent regulation. As Peruvian Economist Hernando de Soto has argued, these policies would simultaneously allow Egypt to unlock significant sources of Dead Capital while providing members of the informal economy greater security and the chance to move up the value chain. Addressing Egypt s Skills Imbalance: The promotion of education at all levels is a critical component of Egypt s future success. Egypt currently has a significant skills imbalance, where the education system is producing graduates without the needed skills for the private sector. We are eager to work with the Government of Egypt to encourage high quality educational outcomes at all levels. We believe that a critical focus must be upon technical and vocational training to re-train many of the currently unemployed. Building a Culture of Consultation: In all of our recommendations, we believe that a key to Egypt s success will be building up a culture of consultation among all of Egypt s key stakeholders, including the business community. We were pleased to hear that not only does the Government of Egypt share our perspective on the importance of signaling to both international and Egyptian businesses that Egypt is open for business, but that it is committed to working in a collaborative fashion with the business community as it develops its plans. In fact, we believe that the business community and the Government of Egypt should engage in continuous consultation that is transparent and inclusive. Our member companies are eager to engage in a dialogue on steps that we both can take to improve the business environment, facilitate investment in Egypt and expand job opportunities for Egyptians. V. Recommendations for the Government of the United States Just as we are eager to work with the Egyptian government to take steps that expand opportunities to all Egyptians, we also believe that the U.S. Government should assist Egypt during its time of need and revitalize, broaden, and deepen its long-term partnership with Egypt in this new era. In particular, it is vitally important that the American government assist Egypt to stabilize its economy, as well as to carry out longterm reforms to aid in its central goal of job creation. Unfortunately, due to a variety of circumstances, some of them domestic, the U.S. Government s economic response to the unfolding situation in Egypt has been highly constrained. In this environment, we applaud the steps that the U.S. Government has taken to assist the Egyptian transition, such as creating a $60 million U.S.-Egypt Enterprise Fund, setting up a $250 million loan guarantee facility through the Overseas Private Investment Corporation, and continuing to provide its ongoing economic assistance package to Egypt. However, we are concerned that much of the assistance promised to Egypt, including the items identified by President Obama in his speech of May 19, 2011, has yet to materialize. Now that a new Egyptian government is in place, and the 2012 U.S. elections are behind us, we urge both the U.S. and Egyptian governments to work together collaboratively to deliver assistance to Egypt. This should include the U.S. Congress lifting its hold on $450 million in additional budget support to Egypt at the soonest appropriate moment. Since we believe that it is in America s vital interest to expand cooperative economic ties with Egypt, we urge the adoption of the following additional steps to strengthen the Egyptian-American economic relationship:

13 P a g e 13 an even greater flow of trade and investment in both directions. Launching a U.S.-Egypt Strategic Economic Dialogue: We urge the U.S. administration to formally establish a Strategic Economic Dialogue with the Government of Egypt similar to dialogues that the United States has with other critical countries, such as India, Brazil, and China. This dialogue should be focused on concrete steps that the American and Egyptian governments can take together to strengthen their cooperation. It should also include a comprehensive bilateral review of U.S. assistance to Egypt so that it realizes the intended goal of serving as a bridge between the American and Egyptian peoples. This Dialogue would elevate economic cooperation as a central component of U.S.-Egypt relations and would serve as model of the type of broader and deeper relationship that we believe is mutually beneficial. Both the U.S.-Egypt Business Council and AmCham Egypt are eager to work with the U.S. and Egyptian governments to ensure private sector participation. We would also encourage congressional and parliamentary representation, as well as full representation of civil society, including academia and youth. Support for Negotiations That Lead to a U.S.Egypt Free Trade Agreement (FTA): We strongly support President Obama s contention that the U.S. relationship with the Middle East needs to be focused on trade, not just aid; on investment, not just assistance. While the U.S. is Egypt s largest investor and trading partner, with approximately $14 billion of FDI stock and $8.2 billion in two-way trade in 2011, both countries acknowledge the potential and the need to increase the level of investment significantly. In 2011, Egypt was the top destination for US exports in the 20-member common Market for Eastern and Southern Africa (COMESA) region, the 3rd largest among the Middle East and North Africa (MENA) countries, and the 33rd largest destination for U.S. exports world-wide. We believe that increasing bilateral trade and investment mechanisms can facilitate The U.S.-Egypt Business Council and the AmCham Egypt have been strong supporters of a United StatesEgypt FTA for many years. We believe that the importance of an FTA between our two countries has never been more critical. It would not only allow mutual market access, but it would also serve as an anchor of a stronger economic relationship and have tangible benefits for both economies. An FTA would, additionally, be an important signal to both publics of the importance of our relationship. We also believe that launching negotiations will have an immediate positive signal to both publics and to the international community, and could also be coupled with trade facilitation activities. Consequently, we urge a quick resumption of negotiations that will lead to the successful completion of a U.S-Free Trade Agreement. Debt Relief and Additional Assistance to Egypt: We believe it is vital that a new Egypt not be saddled with the debts of the previous era. Moreover, securing debt relief for Egypt will not only have a positive effect on Egypt s fiscal situation, but it will also be an important symbol of America s commitment to Egypt. While we applauded the U.S. Government s pledge of providing Egypt with nearly $1 billion in debt relief and budget support, we are concerned that this support has yet to be delivered. We believe that the American taxpayer rightly expects close scrutiny of U.S. assistance to any country, but we also believe that aid to Egypt is not only an important investment in Egypt s stability, it is an investment in America s security as well. Many Egyptians across the political and ideological spectrum have been dismayed by the delay of delivery of U.S. economic assistance; in fact, we have been told that is undermining U.S. credibility in Egypt, and that it risks decreasing our leverage with the Egyptian government and eroding U.S. prestige across this vital region. Additionally, we urge the U.S. administration to continue to advocate for aid to Egypt from our

14 P a g e 14 international allies and key international financial institutions. We commend the role that the U.S. administration has taken in forcefully advocating for international assistance to Egypt from the international community, including from Egypt s neighbors in the Middle East and Europe, and international financial institutions, such as the IMF, the World Bank, and the European Bank for Reconstruction and Development. However, we also note that even if all promised U.S. assistance to Egypt were to materialize, it would still fall far short of Egypt s needs. Therefore, we urge the U.S. Government to consider fully relieving Egypt s entire $3 billion debt owed to the United States at the appropriate time as part of enhanced cooperation between our two countries. VI: Conclusion: Building a Model Partnership that Delivers Results Throughout our time in Egypt, we were reminded that the true test of our partnership will not only be our commitments to building a new relationship with Egypt, but on how we, as the private sector, deliver on these commitments to improve the lives of all Egyptians. Indeed, all of us concerned about Egypt including those in the Egyptian and American governments and in positions of responsibility across our two societies face the critical task of matching our words with tangible deeds. We have a unique opportunity to strengthen the bonds between our two countries and, indeed, to build a partnership that can be a model for an entire region in transition. For millennia, Egypt has been a source of stability, innovation, and advancement for the Middle East and North Africa and indeed for global civilization. For centuries, Egypt has been a leader of the Arab World, and remains its most populous country. For decades, Egypt has been a cornerstone of America s relationship with the region. The world is carefully watching the political and economic development of the Middle East and the governance of the new Egyptian Administration. And we recognize that forging a new relationship with Egypt will not be easy. It will require immediate and sustained action by all involved, including both governments and private sectors, as well as by Egypt s neighbors and friends around the world. But it can be done. In recent decades, a series of countries across the globe have emerged as economic powerhouses. Egypt has the necessary talent and potential to likewise achieve a meteoric rise in productivity and standards of living. But all sides must not forget what s at stake for Egypt, for the region, for the United States, and for the international community. As the transition in Egypt continues, we call upon our respective governments to build a new partnership that is commensurate with the full magnitude and promise of this historic moment. And we are committed to doing our part in this endeavor. About the Author Ari Ratner is an expert on American foreign policy towards the Middle East and emerging economies. Ratner is a former Obama Administration appointee at the State Department, where he served as Special Assistant to the Under Secretary of State for Economic Growth, Energy, and the Environment. Ratner previously served as an Associate at the White House and as Congressional Liaison for Near Eastern Affairs at the State Department. Prior to joining the Obama Administration, Ratner worked as both a journalist and a campaign staffer. He has a Bachelor of Arts from Stanford University and a Master's in Public Policy from Harvard's Kennedy School of Government, and has held fellowships at the Center for Strategic and International Studies, the International Institute for Strategic Studies in London, and the Truman Project on National Security.

15 P a g e 15 Chamber of Commerce of the United States of America 1615 H Street, NW Washington, DC Telephone: Website: U.S.-Egypt Business Council 1615 H Street, NW Washington, DC Telephone: Website: American Chamber of Commerce in Egypt 33 Soliman Abaza Street, Dokki - Giza Telephone: (20-2) Fax: (20-2) Website:

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