ByTheEast: According to a report published by the World Economic Forum, Egypt’s economy ranks 11th in the Middle East. How can you explain this bad ranking?
Weber: In the 2017-2018 Global Competitiveness Index published by the World Economic Forum, Egypt ranked 100th out of 137 economies and 11th in the MENA region out of 12 economies. Policy instability features in the report as the most problematic factor for doing business, followed by inflation, corruption, inefficient government bureaucracy and inadequately educated workforce. However, trends matter: Although from a low base, Egypt improved the most across the region, up 15 ranks from 2016-2017, with significant improvements in developing state institutions, infrastructure, and financial markets.
The government of Egypt initiated an ambitious economic reform program in 2015, with key policy actions including liberalization of the exchange rate, introduction of the VAT, gradual elimination of energy subsidies, and streamlining of business registration and industrial licensing.
In fiscal year 2018, real GDP grew at 5.3 percent, compared to 4.2 percent in FY17, and Egypt has started to reap the benefits from higher economic growth, while inflation gradually slowed to an annual 13.6 percent in August 2018 from a record high of 33 percent a year ago. Medium-term growth prospects are favorable, provided that the growth-oriented policies and reforms continue. The structural reform agenda ahead includes policies to provide a level playing field for enterprises, foster competition and innovation, improve government transparency and tackle corruption, and improve government efficiency.
BTE: Usually, World Bank loans are used for huge projects, such as road infrastructures as in Lebanon for the highways. What kind of projects do you finance in Egypt? And what are the next main projects?
Weber: A low middle-income country, Egypt is eligible to low-interest loans complemented by an extensive package of advisory services and analytics from the World Bank. Since the beginning of its operations in Egypt in 1959, the World Bank has contributed to improve the country’s energy, transport, sanitation and irrigation infrastructure.
Implemented jointly with IFC, the private sector arm of the World Bank Group, and the WBG guarantee agency MIGA, our 2015-2019 Country Partnership Framework was developed at a critical juncture in Egypt’s history. It focuses on fighting poverty and inequality through transformational policy, institutional and investment operations aimed to promote private sector led job creation, social inclusion, and enhanced governance.
“Rural areas of the Nile Delta are particularly affected due to high population density, shallow groundwater levels, and the discharge of untreated sewage directly into the water system.
This situation is expected to worsen due to climate change”
Totaling USD 6.7 billion, the Egypt portfolio currently accounts for 40 percent of the Word Bank active commitments in the MENA region. We just concluded a USD 3.15 billion Development Policy Financing series that catalyzed key policy actions in the government’s economic reform program such as a streamlined industrial licensing framework, a Feed-in-Tariff for renewables, and the gradual phasing out of universal energy subsidies. Savings from energy subsidies allowed to double the social protection budget in FY2017/18 for the poorest 20% of the population through a targeted cash transfer program also supported by the World Bank.
At a time when the World Bank Group is getting ready to launch a new Human Capital Index globally, helping Egypt enhance its human capital is our next challenge with two recently approved operations totaling over USD 1 billion for ambitious education and health sectors reform. Moving forward, the Bank is also expected to contribute to Sinai’s integrated development, productive inclusion schemes for cash transfer beneficiaries, access to finance and capacity building for women and youth entrepreneurs, and expansion of rural sanitation and social housing finance programs.
BTE: As in Lebanon and all over the Arab world, sanitation sector and water resources are a main issue for the population. What improvement can be achieved in Egyptians daily life?
Weber: In the past two decades Egypt has made significant progress in providing direct access to safe drinking water at the household level (96 percent) and basic sanitation services (82 percent). However, geographic and socio-economic disparities remain: An estimated 90 percent of urban households are covered by public sewers, compared to only 18 percent in rural areas. In rural areas, an estimated 77 percent of collected wastewater is currently treated but most treatment plants do not achieve Egyptian effluent standards. Rural areas of the Nile Delta are particularly affected due to high population density, shallow groundwater levels, and the discharge of untreated sewage directly into the water system. This situation is expected to worsen due to climate change.
Launched in 2015 as a key presidential program, the National Rural Sanitation Program (NRSP) seeks to address those issues by providing universal access to rural sanitation services and encouraging improved performance and sustainability at the local level.
In 2015, the World Bank initiated a USD 550 million program in support of the NRSP. It focused on the priorities of connecting households near important waterways in the Nile Delta to enhanced sanitation systems, and decentralizing sanitation services to improve their quality by making them more accountable to citizens. With a USD 300 million additional financing, the program will more than double the goal to 345,000 households, or around 1,710,000 Egyptians.
BTE: Dr. Hala Zaid, Minister of Health and Population, said that “Health is a top priority for the government”. What are the main challenges, both for the public and the private sector?
Weber: First, public spending on health remains low, at 2.2 percent of GDP and 5.6 percent of total government budget. Consequently, out-of-pocket payments account for 61 percent of total health expenditure in Egypt, which has a significant impoverishing effect on the most vulnerable. Also, the annual population growth rate has jumped from 1.9 percent in 2006 to 2.4 percent in 2017, and the demographic transition is exerting tremendous pressure on healthcare services and facilities.
This happens in a context where the country is witnessing a unique burden of communicable diseases, notably chronic Hepatitis C, and a rise in non-communicable diseases, especially diabetes driven by poorly managed risk factors. There is an increasing need for public healthcare funds to cover the prevention, control and treatment costs of these chronic diseases.
On the supply side, challenges include low capacities and skills, mal-distribution of physicians across geographic regions and specialties, and insufficient compensation especially in the public sector resulting in the so-called ‘dual practice’, which disadvantages the poorer segments of society.
BTE: How the Universal Health Insurance System could match the situation in the field?
Weber: The new Comprehensive Health Insurance Law that passed in December 2017 has been designed to accelerate the progress towards universal health coverage and raise demand not only for services in general but also for higher quality.
To improve health sector’s efficiency, quality, accountability and responsiveness to people’s needs, the new system is designed to cover all population through mandatory enrollment and subsidization of the poor, reduce fragmentation of public service provision, and separate the purchasing function from service delivery.
The implementation of the new law will entail a strong and effective engagement of private healthcare providers. This comes in contrast to the current health insurance model with limited partnership with the private sector as main service providers. Under the new scheme, meeting national accreditation standards will become mandatory for public and private health facilities, and family health physicians will serve as gate-keepers for referrals to accredited facilities.
Among Health-related questions, you mentioned the Hepatitis C issue which has raised concerns. What could be the right answer to this threat? How can the World Bank impact positively this situation?
The prevalence of hepatitis C in Egypt is the highest in the world at 7% and it is significantly higher among adults above the age of 40, the poor, and those living in rural areas.
However, since 2014, with Hepatitis C medications available at markedly reduced prices, more than a million Egyptians have been treated, with a cure rate close to 95 percent. Such rapid progress has brought Egypt significant international attention, with some observers predicting that Egypt might serve as a model for other low and middle-income countries facing high Hepatitis C burdens.
In 2015, the World Bank began cooperating with the Egyptian government and relevant stakeholders to provide technical advice and financial assistance supporting the country’s National Viral Hepatitis Plan of Action. Under our USD 75 million Health Quality Improvement Project (HQIP), 1.6 million people in 9 governorates of Upper Egypt were screened for Hepatitis C and 30,000 infected individuals were treated.
The World Bank also carried out multiple in-depth studies analyzing epidemiological, policy, economic, and fiscal data, to help authorities prioritize their actions as they seek to eliminate the disease. Our new USD 530 million Transforming Egypt’s Health Sector Project approved in June 2018 will support the prevention and control of hepatitis C via mass screening, treatment of the adult population, and improvement to the national blood bank.
BTE: Let’s talk about another challenge: illiteracy. What can the World Bank Group do about it? Do you think that the public response is adequate?
Weber: Although Egypt made significant progress in primary and secondary school enrollment, one in five students in grade 3 cannot read a single word from a reading passage and enter grade 4 as functionally illiterate (USAID 2013).
More recently, Egypt’s results on the 2016 Progress in International Reading Literacy Study (PIRLS) show an average reading score for grade 4 students below the “low” international benchmark. There is consensus among government and non-government stakeholders that education is the top priority in the country. The government of Egypt recently launched an education reform program aimed to bring learning back to the classroom in public schools.
This home-grown reform program is supported by a USD 500 million loan from the World Bank approved in April 2018. The “Supporting Egypt Education Reform Project” will make extensive use of education technology, communication, and monitoring and evaluation. It will have national coverage, with a special focus on expanding access to kindergarten in poor districts. This would enhance students’ readiness for school, their entire learning experience, and ultimately reduce illiteracy.
BTE: Agriculture in Egypt has witnessed many crises for the past three decades. How is the situation nowadays? What are the main challenges?
Weber: The overall productivity in the agriculture sector is reasonably good, but the sector still faces a number of challenges.
First, there are multiple inefficiencies along key agricultural value chains, including losses resulting from poor, or lack of, access to logistics and marketing infrastructure; poor skills and limited access to new technologies; and lack of extension services, preventing farmers from receiving advice on good practices and suitable technologies, which would help maximize productivity.
Water scarcity is another key challenge, as agriculture uses 86 percent of Egypt’s water. Low water use efficiency is exacerbated by population growth, climate change effects, and intensifying water scarcity issues.
Lastly, the agriculture sector is highly fragmented. More than 80% of farming units are less than 3 feddan, and such high fragmentation deters competitiveness and does not allow for use of machinery in land cultivation (which would increase production efficiency). It also limits access to markets for the smallholder farmers due the small volumes produced.
“We need to improve natural resource management efficiency, as well as work on facilitating market access for women, youth and smallholders”
Only 10% of agricultural products are currently processed, and they account for approximately 50% of exports. This indicates significant opportunities to increase processing and move towards higher-value processed foods. Horticulture for instance, is amongst the value chains with highest potential. Therefore, if we were to focus on food safety and quality and avail the opportunity for the development of processing hubs, we would be able to capitalize on a significant untapped potential in the agriculture sector.
BTE: What are the main challenges for the next 10 years? Any way to make this sector more efficient and more sustainability-friendly?
Weber: The challenges related to low efficiency and lower than could be competitiveness in the sector will take some time to address. We need to work collectively on addressing the regulatory and institutional constraints and help create an enabling business environment for private sector investment, which would help lift the sector to a qualitatively new level.
To increase the sustainability in the sector, we need to improve natural resource management efficiency, as well as work on facilitating market access for women, youth and smallholders through integrated and competitive value chains. We need to help ensure that incomes are raising, and sustainable jobs are available for the people of Egypt.
BTE: FAO (Food and Agriculture Organization of the UN) – in collaboration with the WB and other international institutions such as EBRD – works on improving food security in Egypt. What kind of investments can be done in this sector. For which results?
Weber: In December 2017, the World Bank signed a MoU with FAO and EBRD to, among other things, improve food security in Egypt. Food security has many aspects, from increasing food production to increase its availability, to increasing incomes of the population to increase its affordability. The investments we would envision from the World Bank perspective would raise efficiency and competitiveness of the agricultural sector in Egypt, at the same time providing sustainable jobs and improving incomes for Egypt’s people. We would also focus on leveraging private investment in the sector, to maximize finance for development as part of a concerted and coordinated effort.