As the northeast Africa country launches a three-year private sector growth plan, Egypt’s message to Nigeria is simple: Endure the short-term pain from implementing bold economic reforms and reap the benefits in the long haul. When Muhammadu Buhari was first elected president in 2015, Nigeria and Egypt were facing similar economic travails. Both nations had experienced drastic drops in their foreign exchange earnings from oil and tourism, and as a result were suffering chronic shortage of foreign currency shortage and an inability to bridge budget funding gaps with loans from international lenders.
Furthermore, both nations had resisted calls for a market-based exchange rate policy and instead adopted protectionist measures to maintain the values of their currencies, however, things have changed. Egypt has launched a three-year economic growth programme that targets 6-7 percent GDP expansion that will be rooted on boosting private sector growth, increasing exports, and accelerating the digitisation of the economy.
The country’s strong reliance on private sector investment contrasts sharply with the approach in Nigeria, where businesses and investors are complaining of government disdain and the false premise that public sector spending will get Africa’s largest economy out of the woods. Egypt’s three-year structural reform plan is key to helping the country overcome the impact of the coronavirus pandemic. The disciplined approach to economic development in Egypt has helped the country achieve key economic targets since it opted for this new path in 2016, and it is a departure from Nigeria where growth targets are routinely missed.
The initiative announced Tuesday builds on a broader economic programme launched in 2016 that helped curb a crippling Dollar crunch and revive investor confidence as Egypt struggled to rebound after the 2011 uprising against President Hosni Mubarak. The coronavirus pandemic has threatened to undercut some of those gains. Egypt’s new plans include developing the green economy and providing greater support for small and medium-sized enterprises, according to a document from the Planning Ministry.
Authorities have already begun providing aid to small businesses and working to ensure greater financial inclusion by making it easier for everyone to open bank accounts. The central bank is also encouraging the non-banking financial services sector, a move in line with the programme’s push for greater digitisation of the economy. Nigeria’s story is the exact opposite of Egypt’s successful economic reform. Trillions of naira has been spent on subsidising petrol in the domestic market, as well as electricity.
“If there is a lesson to learn from Egypt, it is likely that initially difficult reforms, including FX liberalisation and the lifting of subsidies, can eventually have important economic stability results,” said Razia Khan, head of research for Africa and the Middle East at Standard Chartered, in an email response to BusinessDay.
“Nigeria already has ongoing reforms but they are not moving well,” Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), said. “Nigeria needs reforms in oil and gas as the sector has the potential to attract a lot of foreign capital. Secondly, we need foreign exchange market reform because what we have now is allocative administration of foreign exchange, rationing and banning of items. We need to expand the scope for the market to drive allocation for forex,” Yusuf said, noting other reforms in Customs, regulation, trade and industrial policy.