Q: What are the steps the Freedom and Justice Party (FJP) will take to achieve economic development?
Soliman: We have a plan to develop the economy strategically in the medium and long term as well as in the short term. In the medium and long term, we plan to support the establishment of a production economy. The Egyptian economy is currently a services-based economy, which includes revenues from the Suez Canal, petroleum, remittances and tourism.

The production economy that we aim for includes agriculture, livestock, industry, energy and mining. This is our strategic plan.
[For the] short term, as you know, there is a budget deficit in the FY2012/13 budget. We do not encourage borrowing, from the World Bank or any other entity; we plan to depend on Egypt’s own sources and there are several alternatives to borrowing from [the international financial institutions].

Q: For example?
Soliman: For example, the private funds accounted for so far, show the availability of more than LE 35 billion, and not all the private funds have been accounted for yet. Also, restructuring the price of energy for energy-intensive industries that sell their products in Egypt at international prices while paying subsidized prices of energy. They are all profitable companies and I am referring primarily to fertilizer and cement companies, which benefit from the subsidies that are meant to benefit the lower income segments of the society. We also seek to apply taxes to non-productive sectors and support the productive sectors.

Q: You will support productive sectors, however you will cut their subsidies?
Soliman: We want to support and grow industrial production because we have an unemployment problem. Energy-intensive industries are not labor intensive. So they are heavy consumers of subsidized energy and do not employ enough labor to solve Egypt’s unemployment problem. They allow wealth accumulation for a certain group of individuals or companies. 

What we want to do is support productive sectors, especially those that are labor-intensive or that solve problems such as food security — agriculture and livestock.

Q: So will you only cut subsidies to energy-intensive industries or will you restructure energy subsidies in general?
Soliman: There is a theory that instead of subsidizing a product, we could subsidize the individual. This will take time. What we can change right now is to cut subsidies given to energy-intensive industries, because by subsidizing them we are subsidizing the rich, not the poor. Also, these companies are consuming large amounts of energy, so it doesn’t make sense to continue subsidizing them.

Q: But this will raise prices.
Soliman: No, it won’t because these cement and fertilizer producers that benefit from subsidized energy prices are selling their products at international prices. So, if they decide to raise prices, we’ll allow imports. We don’t encourage importing, but will allow them if they raise prices unjustly. It makes no sense that a ton of cement costs LE 200 and is being sold at more than LE 500. That’s a profit margin of more than 100%. If they resort to raising prices in response to a cut in subsidies, we advocate allowing imports.

Q: If you do that, you won’t be solving Egypt’s unemployment problem.
Soliman: As I mentioned, the energy-intensive industries are not labor-intensive.

Q: But they do employ people.
Soliman: A very small [percentage]. If I give the same amount of energy that the energy-intensive industries use to a labor-intensive sector, I will be able to employ more than 100 times the labor that the energy-intensive industries employ.

The textile industry is a good example of an industry that really needs support. The industry faces a lot of competition from imports from East Asia.

Why should we subsidize energy-intensive industries when we have a problem with energy supplies and costs and the budget deficit? It would be more beneficial to subsidize the textile industry instead.

Q: How will you shift towards a new subsidy system whereby the individual is directly subsidized rather than the commodity?
Soliman: This will take some time; this actually requires research to identify who needs the subsidy more than others. Based on this research, instead of subsidizing a commodity that could result in its misallocation, we will identify the needy and give them the subsidy in-hand.

Q: Given the current fuel shortage and the tendency to direct subsidies to those who ‘deserve’ them, how would you decide on who does and does not deserve to benefit from the subsidy?
Soliman: We are clear on our policy: We will revise energy prices for energy-intensive industries. This is what we are referring to.

Q: The FJP aims to increase incomes and raise minimum wages. Given the budget deficit, where do you plan to get funds for that?
Soliman: To increase minimum wages, we have to reduce maximum wages. The president of Cairo University earned hundreds of thousands of pounds per month. His basic salary is, of course, less than that.

Cairo University has private funds, which have centers supporting industry and housing for example. The president and deans of the different colleges get a percentage of these centers, which is a small percentage, but multiplied by the total sum that the centers receive, it adds up to a large amount that goes into the pockets of a few people.

Meanwhile, a university professor who has been teaching for nearly 40 years and has a master’s degree and a PhD earns LE 5,000. To be able to raise his salary, we have to reduce the maximum income (not wages) of upper management to be able to raise the income of professors, assistant professors, etc.

Q: What is the minimum wage that according to the FJP will secure a comfortable standard of living for an Egyptian citizen?
Soliman: This differs from place to place. Our research shows that the minimum wage for a person working in a village is completely different than the minimum wage for someone who works in the city. This is the problem.

If we set the minimum wage in the public sector for example at X, this could be very suitable for a rural-dweller, but too low for a city-dweller. This is where our reformed subsidy policy comes in and this is why we don’t think that subsidizing commodities is the best policy. It’s not necessary that the rural and city-dwellers will both benefit from the subsidy on a commodity. We need to directly subsidize the city-dweller more than his rural counterpart simply because the city-dweller has higher expenses than the rural-dweller.

Q: You don’t want to borrow, so what are your sources of funds to cover the budget deficit?
Soliman: Private funds, restructuring the price of energy and properly applying the tax and customs regulations to increase their revenues. Several sources of revenues for the state were squandered due to corruption.

The tax system is currently being applied but not to its full capacity. Tax revenues do not compare to the size of the fortunes accumulated over the last ten years specifically. This means that there are shortcomings in the efficiency of the Egyptian tax system and this is what we are aiming for: to rid the tax and customs authorities of corruption to maximize the tax and custom revenue.

Q: How much do you think the tax revenue could be?
Soliman: It could double or triple. This might seem surprising, but we are pretty sure that this is the potential tax and customs revenue growth. This would not only cover the budget deficit, but could also solve several other problems.

Q: You refer in your agenda that you aim to reach self-sufficiency in strategic commodities such as wheat. It has been argued that Egypt does not have the capacity to produce its needs of wheat consumption. How would you respond to that?
Soliman: Egypt has 11 million feddans of cultivable land. There is enough water for 3.5 million feddans from underground water sources or from reusing wasted irrigation water. These 3.5 million feddans can be cultivated in the next ten years and meet Egypt’s demand for wheat and strategic crops.

The land is located in various locations throughout the country; in the delta, Sinai, the Western Desert and the North Coast. There are billions of cubic meters (bcm) of underground water available, besides our use of 55.5 bcm of Nile water.

If you look at a map of Egypt and look at the areas that get rainfall, you’ll find that the north coast can be cultivated using rainfall. There are at least one million feddans in Sinai that can be cultivated using rainfall. This is seasonal agriculture.

The problem in the North Coast, for example, is that there are land mines. The army had said it would remove these mines and this would free up more land for agriculture in that area, besides the one million feddans in Sinai. The land in Sinai is in the area of Saint Catherine’s and similar places which would be more suitable for the cultivation of olives for example, so this will not go towards covering Egypt’s demand for strategic crops.

The cultivation of the North Coast could meet Egypt’s demand for basic agricultural products: wheat, corn, crops for oil and sugar beets.

Q: How long will it take the army to remove the mines?
Soliman: This is something the army will be able to decide, but they are capable of doing so. The cultivation of the land can take place gradually; we can’t grow 3.5 million feddans all at once anyway. And this is all rainfall agriculture.
The good thing about having underground water resources is that if the rainfall is below what is needed, the deficit can be made up for from underground water.

Q: One of the FJP goals is to make the economy more diverse. Does the FJP not think that the Egyptian economy is diverse enough?
Soliman: It is very diversified, but what we are aiming for is to grow the economy’s productive sectors so we don’t have to depend on the services sectors such as tourism and the Suez Canal. The productive sector is less likely to be affected by changes. For example, any instability in the region could have an effect on the Suez Canal and tourists will not come.

Such events or changes would not have the same effect on the productive sector. As long as we have strong agricultural and livestock output, industry, exports, etc. This is a more stable economy, solves the unemployment problem and raises incomes.

Q: What about tourism?
Soliman: In the short term, there are more than LE 100 billion in investments on the Red Sea coast, so we need to make use of them to increase our hospitality capacities. In the next five years, Egypt will have capacities of more than double what it has right now, so we need to attract more tourists.

In 2010, the number of tourists reached 14.5 million. We aim to reach more than  25 million using the capacities that are currently under construction. The Egyptian banks are investing more than LE 90 billion on the Red Sea coast and in south Sinai. So we don’t need to inject new investments.

Now on a separate note, let’s look at the Egyptian Museum. The artifacts are displayed in a crowded manner and there are many more in the warehouses. A visitor to the museum does not get a proper chance to understand and see the pharaonic history and culture.

Pharaonic history can be divided into dynasties. Each one ruled a certain area along the Nile from Giza to Aswan. So we’ve suggested establishing museums for each dynasty, according to where they ruled.

So instead of having just one museum, we will have several of them and the tourists will take a Nile cruise and stop along all the different cities to visit the museums. This will not only increase tourism revenues and increase the number of tourists, but it will also generate income for Upper Egypt cities. Only Luxor and Aswan get an income from tourism. Governorates from Beni Suef to Qena have lower incomes, so this would help increase their income.

Q: How do you plan to change the image that the FJP, as a majority in parliament, will have a negative impact on tourism? How do you plan to attract more tourists in light of that?
Soliman: We will be holding a conference in Marsa Allam on February 23 in which we have invited tour operators and we will discuss our plans.

In a conference held on January 15, representatives of these companies were present, in which we invited and welcomed tourists to come to Egypt.

Q: What about alcohol?
Soliman: There was a straightforward question posed at [the January 15] conference: Will there be any changes made to beach tourism? Our clear and straightforward answer was: No, there will be no changes, at least in the next five years for which we have been voted into parliament for. Whatever happens after that is up to whoever will be in power after these five years.

Q: How do you plan to change the banking system into an Islamic system?
Soliman: This is not an option at all because it is related to Egypt’s social and economic systems. What is an option is that we encourage the establishment and growth of Islamic banks.

When Islam came, there was slavery. Slavery is worse than interest rates and yet when Islam came, it did not abolish slavery because the economic and social systems at the time were directly related to slavery.

The slaves are the manufacturers, the farmers and the traders. Their masters were simply the masters with not much to do. Abolishing slavery would have been just like the rush to privatize state-owned companies that happened a few years ago. That cost a lot of jobs. If the previous regime had succeeded in selling off all public sector companies, we would have had chaos.

For us, as long as something is directly related to the economic and social system of the country, we have to handle it wisely. Accordingly, commercial banks will continue to operate as they are, but we will encourage Islamic investment and banking.

Q: How do the existent Islamic banks differ from commercial banks?
Soliman: Honestly, the banking system in Egypt, commercial or Islamic, is completely under-developed compared to banking systems in the west or even in the Gulf. Our banking system needs an overhaul generally and specifically for Islamic banking.

Malaysia has a very advanced Islamic banking and finance system. If we want to establish an Islamic banking system, it won’t be along the same lines of the Islamic banks present in the market today. We will study the Malaysian model as an example and apply the same strategy here and we will draft laws, regulations and policies that will help bring about this kind of banking system that we are aiming for.

Q: People don’t see the difference between commercial and Islamic banks in Egypt right now. The difference is just in the name.
Soliman: That’s true. In Egypt, right now, there is no difference between the two. They are both very similar and both underdeveloped.
Let’s look at corporate finance. Here, an investor looking for funds has to present collaterals. If the investor is looking to raise LE 70 million, the bank will ask for collateral worth LE 100 million. If the project fails, the bank will sell off the collateral assets to cover the loan.
And above all that, the bank charges a very high interest rate.

In more developed banking systems, the bank reviews all the project’s feasibility studies and approvals and formulates its own opinion of the success of the project. If the bank’s studies indicate that the project might not be profitable, it won’t finance it, regardless of how much the investor is worth.

If the project proves to have profitable potentials, the bank will approve the loan and could pay up to four times what the investor is willing to pay. In some financing agreements, the investor pays 20% of the financing cost and the bank covers 80%. The project is the collateral.

Q: How do Egyptian Islamic banks differ from their more advanced counterparts in Malaysia?
Soliman: There is a huge difference. Malaysia’s Islamic financing is built on a form of partnership. Banks agree to finance a project because they see that it could be profitable so both the bank and investor share the profit. Or if it is not profitable, both will bear the loss.

This is very similar to the Western commercial banking system, but the difference is that the commercial banks will give a yes or no answer to the loan request and will set a fixed interest rate. The Islamic bank also gives a yes or no answer, but the interest rate is not fixed: it will increase and decrease according to the project’s profits.

We want commercial banks to operate like European banks do and Islamic banks to operate like their Malaysian counterparts. This will boost both the Egyptian commercial and Islamic banking systems. This will require training of the banking system so they can learn how to better deal with project finance requests. Banks employ experts in different sectors and some banks are specialized in financing projects in a certain sector.

Q: You’ve mentioned that you do not approve of the way in which some of the state-owned companies were privatized. Would you agree that some of these companies were loss-making and it was best for them to be sold?
Soliman: Not all the companies that were privatized were making losses. Cement companies, for example, were profitable companies.
Even so, if the government had sold 80–90% of the land bank of some of these unprofitable companies and kept the company intact, while depositing the sale revenue of the land in the bank and using the interest of the funds to finance the company, it would have been turned around from a loss-making company to a profitable one.

The problem was that these companies could not afford to invest in upgrading its production lines. This drags the company into a vicious cycle of losses until it goes bankrupt or the government will continue to support the company to a large extent. If these companies were given a source of funding that would solve its problems.

This is a multi-faceted solution really: the companies would get funds, the company would not be privatized, people would not lose their jobs, banks’ deposit base would be expanded and you would have freed up land that the private sector is eyeing to establish new projects on.

Q: What about the archaic management that has been blamed for running these companies to the ground?
Soliman: Change it. We don’t plan to privatize any public companies — we will change the management. We haven’t decided if the new management will be from within the public sector or not. We could announce job vacancies and have people apply for the various positions. This will bring a very valuable caliber [of employees] to the helm of these companies, doing away with the top-down approach to appointing people into positions regardless of their qualifications. We plan to restructure these loss-making companies into profitable ones.

Q: What about those that have already been sold? Do you plan to buy them back or void the initial contract?
Soliman: This would cause a lot of problems because the initial investor has already sold it off to a second, if not third and fourth investor. The second investor should not be blamed for the corruption that took place when the initial sale was made.

The problem is that a lot of the companies have been resold already and an example of that are the cement companies. Their current owners did not buy the companies from the government; they are secondhand buyers.

The first sale is what has to be revalued to identify if there was any corruption in the sale or not. All international laws state that if you can prove corruption, then it is your right to nullify or adjust the contract.

This cannot be solved overnight; it needs to be handled with caution so as not to cause too much disturbance in the investment environment.

Q: Will there be any changes in the regulations of the Egyptian Exchange or a direction towards taxing capital gains?
Soliman: It’s not logical that investors make big profits on the stock market and are not taxed, whereas the stock market employee is taxed. Therefore it only makes sense that capital gains are taxed, but I don’t see them being too high. They have not been set yet.
We’ve met with economists and they agree that capital gains should be taxed, but still, their suggested tax rate was not that high.

Q: Will you allow foreign investors to repatriate their money?
Soliman: We do not plan on prohibiting them from doing so, but there are two tax brackets: the first is on profits and the second is on the repatriation.

If a stock was at LE 100 and reached LE 1,000, there’s a LE 900 profit. That can be taxed at 10% for example. Now if the investor repatriates the LE 810 (after tax), then he should be taxed again at, say 5%. These numbers are purely for illustrative purposes; the actual tax rate has not been decided on. bt