Coffee With: Mahmoud Mohieldin (LinkedIn), UN Special Envoy on Financing the 2030 Sustainable Development Agenda and former investment minister. The global economy is looking at an era of increased uncertainty that is putting most on edge — to understand what this all means for Egypt, EnterpriseAM sat down with Mohieldin last week. Below are edited excerpts from our conversation:

EnterpriseAM: Opposing the global trend, Egypt was one of few nations that saw its growthforecast revised upwards by the IMF during its latest World Economic Outlook — what does that mean for Egypt, and what is helping it offset the spillover effect from the ongoing trade tensions?

Mahmoud Mohieldin: There are elements that have to do with positive assumptions about the end of hostilities, the resumption of traffic in the Suez Canal, and maintaining growth in service-oriented sectors, including tourism.

If a country is revised up, that's good news, but the main thing here is about the quality of growth and whether this kind of growth is going to be enhancing the job market with what's called quality jobs. The other thing is whether [growth is] going to be sustained, and the third thing is whether it's going to put [Egypt] on a track for higher growth. In our part of the world — Africa, the Middle East, Mediterranean, and Arab countries — I would say that growth, real economic growth, that is less than 6-7% is not really helpful enough for sustaining what we are pushing for in terms of development.

E: What should authorities be doing to minimize the impact of what is happening globally from hurting the local economy?

MM: This is not just a trade war, it's an economic war, because it is very much the fact that if you have tensions in trade, there will be accompanying variability — if not volatility — in capital flows. We are expecting major negative implications on the growth momentum, which has been already suffering, not just because of Covid — we have been in a low-growth period for quite some time now, which is not really helpful for achieving the sustainable development agenda.

So having said that, what can we do better then? There are some reactions, you may realize, especially in the discussion [at the spring meetings], that there is some sort of revival of what I call new regionalism. So, the Europeans are rediscovering the merits of Europe, the Latin American countries are trying to get some of the older channels of trade, investment, and technological cooperation revived. The ASEAN group of the Southeast Asian countries is doing a fantastic job [on that front] — this is the best example that our region can learn from. And there’s the Africans through the continental free trade agreement.

Basically, Egypt needs to rediscover the beauty and the uniqueness of its geographic location and maximize benefiting from it by reducing trade barriers. This can be done by enhancing the investment prospects, cutting the red tape, improving its digital infrastructure, diversifying its economy, leveling the playing field, and reducing the public intervention in the areas of commercial business to the critical minimum. And when it comes to these investments, they have to be done fairly, meaning that every enterprise — be it public or private, domestic or external — has to be subject to the same rules. If that is the case, and I've been saying that for quite some time now, I don't really care if the ownership is public or private as long as the field is being leveled.

E: How do you expect what is happening globally to impact Egypt’s ability to borrow from international markets?

MM:So first on the ODA, the official development assistance, Egypt is not heavily relying on official development assistance compared to other countries in the continent, but again, that will push further mobilization and better efficiency for using the domestic resources. It will actually help push for a better way of dealing with some areas of investment, especially infrastructure, education, and health.

When it comes to borrowing, I would say that really needs to be rational. In Egypt, like many other countries, you see that the debt service is exceeding what is spent on health, education, and social services based on the latest budget approved by the parliament. So that is not really sustainable. The growth movement in terms of its investments needs to rely more on public-private partnerships (PPP). Our country should really be refraining from any kind of borrowing for any kind of infrastructure project if there is a possibility of a public-private partnership.

And I've been saying that for more than 20 years. Instead of borrowing for airports, seaports, and all these kinds of public utilities or even for electricity plants, you do PPPs. You do it for 5 years, 10 years, 20 years, based on the project and its feasibility. And that actually will save your borrowing ability for some of the essential areas where you don't really see the private sector — be it domestic or foreign — interested in engaging.

E: How should Egypt reshape its trade relationships with the world in light of the ongoing trade tensions?

MM: So there are these kinds of simplistic views when they say, well, you are subject to 10% tariffs while other countries are subject to more, so encourage those who are going to be exporting to the US or other jurisdictions to take your country as a base. Try it. It's not easy. Everybody is thinking the same way.

To do that, it is a kind of patience game, because these industries are not going to be moving to Egypt the next day. The other thing is that they are also going to be looking at the cost of transactions and the cost of doing business. Investors will compare the business environment at large, the investment climate at large.

If you are an investor in manufacturing or farming products, Egypt is a good place to do business. If you want to have a decent, stable, growing market of customers, in addition to [access to] export markets, Egypt is your place to be. If you want to have an adequate labor force with a good pool of trainable, skilled labor, Egypt, again, is going to be a good decision. But don't spoil this for investors with bureaucratic hurdles, by increasing the uncertainty, or by unnecessary intervention from the government.

E: In your opinion, how will capital move around the world amid current developments?

MM:Well, capital comes in different forms, sizes, and appetite to risk. So the kind of capital that I'm keen to see, which is FDI, will go to places where the business environment is getting better, where the returns are decent, and when the cost and risk are being minimized to optimize the prospects for FDI and Egypt can really be on top of that. And then the other type of capital flows is that coming through portfolio investment through the stock market. And then a third type of capital flows is the long term investments in bonds.

E: Current trade tensions and subsequent market volatility aside, why haven't we been seeing progress on the privatization front? Is weak investor appetite to blame?

MM:Based on experience in our home country and other countries, these kinds of programs are always complicated for technical reasons, policy reasons, and political reasons. For technical reasons, when it comes to valuation and when it comes to preparing the pipeline of projects and when you are ready with the technical work, you might be confronted by issues like the market not being ready or some macro issues of concern. So all of that is basically telling those who are preparing these corporations [for privatization] to always be ready and keep updating their due diligence work.

I was behind the idea of establishing a sovereign wealth fund, and that was more than 20 years ago, or close to 20 years ago. The sovereign wealth fund should be an institution that is investing in foreign currency at home or abroad — this is the classic definition unless we are reinventing the wheel. It needs to have this kind of strategic approach to complement the assets managed by the central bank and make them achieve higher returns and apply the risk management tools to this.

The Sovereign Fund of Egypt is closer to an asset management company or a super holding company. There is no harm in having this kind of company, but still, our country needs a sovereign wealth fund that can manage its USD assets and not make it subject to these ups and downs when it comes to the management of the international reserves.

I think the whole thing needs to be looked into properly — institutionally and policy-wise — with better coordination and with a better understanding of what an IPO can do for you and what a strategic investor from your home country or from abroad can do for you.

E: How do you think AI and the AI boom we're currently seeing are going to impact Egypt?

MM: It should have a fantastic impact. Don't listen to those who are warning us against AI. Yes, it may have some negative impact in some sectors, but [it will have a significant] impact on competitiveness and productivity. There will definitely be losers and winners [in the AI game], but I’d like to see the net impact. For a country with low competitiveness like Egypt, AI represents a great opportunity. Egypt should be investing in the areas identified to improve the AI landscape — digital infrastructure, labor force skills, adequate regulations, and the ethics of working with it.