About Dr. Taher Helmy

Taher Helmy is the senior partner and co-founder of the Egyptian Law Firm Helmy, Hamza & PartnTaher Helmyers (Baker & McKenzie). He is a member Illinois and Chicago Bar Associations, and was the first Arab lawyer to be admitted before the US Supreme Court. After practicing with Baker & McKenzie’s head office in Chicago for nine years, he moved on to Riyadh, Saudi Arabia, where he co-founded the offices of Baker & McKenzie. In 1986, Helmy became a co-founder of Baker & McKenzie’s office in Cairo, handling corporate, banking and commercial matters. He served as a member of the Strategic Planning Committee and is currently a member of the Global Policy Committee of Baker & McKenzie, the European Regional Council and the Global.

A strong proponent of political and economic reforms in Egypt at a very early date, Dr. Helmy took key roles in a number of international business associations. He is the principal Founder and former Chairman of the Egyptian Centre for Economic Studies, the first independent, private, non-profit economic think tank in Egypt. He is also the former President of the American Chamber of Commerce in Egypt, a founder and board member of the British Business Association and former member of the U.S.-Egypt President’s Council. He is the former co-chairman of the U.S-Egypt Business Leaders Forum and founder and member of the executive board of Egypt’s International Economic Forum. He is a co-founder of the British Egyptian Businessmen Association and a member of the French Chamber of Commerce.

Dr. Helmy has participated in various committees reviewing the proposed U.S./Egyptian Investment Treaty and other Egyptian legislation.

Dr. Helmy has been engaged in numerous educational initiatives and supports a number of international Universities. He is a founder of the A.U.C Legal Masters Program, and n the past, has served on the Board of the Binational Fulbright commission and was a key participant in the Clarke Initiative at Cornell University Law School. Taher Helmy currently serves on the Board of Trustees of Nile University in Egypt. In addition, he is a member of the board of Washington based educational organization Amideast, a leading educational organisation working in international education, training and development activities in the Middle East and North Africa.

Over the years, he has authored many articles and gave numerous seminars and speeches in the United States, Europe and the Middle East on doing business in the Middle East, and on legislative and economic development in Egypt and the region.

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Taher Helmy’s Speech at the AUC Commencement Ceremony 2008

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Amcham Egypt: Doorknock Mission 2006 Part 3

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Amcham Egypt: Doorknock Mission 2006 Part 2

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Amcham Egypt: Doorknock Mission 2006 Part 1

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Morsi’s moment of truth

The time has arrived for President Morsi and his political party to show that they aim to create a participatory democracy, rather than an authoritarian state

The main point was to move forward with socially equitable development, and rebuild a fast-deteriorating economy. I warned that the ability to do so would depend on the new government’s actions. As the president consolidated his authorities following his election, he assumed unprecedented power which, I stressed, meant greater responsibility.

Give the new government the benefit of the doubt, I wrote, let us see how it exercises these vast powers and how, as it had promised, it would focus on building the nation.

The moment of truth has now arrived for President Morsi, the Muslim Brotherhood’s Freedom and Justice Party (FJP), their supporters and all Egyptians. The new government has revealed its intent to create not a participatory democracy but another authoritarian state.

This breach of trust and the resultant political turmoil come as grave disappointments to Egyptians. Many of those who voted for Mr Morsi, who was elected by a very narrow majority, are now protesting against him, even torching FJP headquarters.

Although he had assured the public he is “president of all Egyptians,” Mr Morsi’s recent actions prove otherwise. His 22 November constitutional declaration, that usurped all rights from the judiciary, made him immune to court challenges; all court cases against his decisions since taking office were nullified.

This gross abrogation of democratic practice was compounded by the call for a retrial of those recently acquitted before the courts in cases related to the killing of protesters during the January 25 Revolution, and the decommissioning of the attorney general and appointment of a new one. Under the constitution, the attorney general is independent, nominated by the judiciary. The president cannot fire or replace the individual whose duty is to uphold the rule of law along with an independent judiciary.

Citizens who realised that the declaration placed the president above the law took to the streets. In response, Mr Morsi issued yet another constitutional declaration on 8 December, which seemingly cancelled the first one.

Before the world, the president appeared to have backed down, but this was a tactical deception. The second declaration expressly retained all the consequences of the first, including Mr Morsi’s decision to fire the prosecutor general and appoint his replacement. It also stated that all such declarations (that only the president can issue) cannot be challenged before the courts, and all cases raised before the courts in this regard are hereby annulled.

Under pressure from the judiciary, Mr Morsi’s prosecutor general was forced to resign, only to retract his resignation days later. The uncertainty Egyptians feel is owed to the government’s inconsistency and the suspicion that the president, while seemingly all-powerful, is not the one calling the shots.

Although Mr Morsi announced that the Constituent Assembly had two months to finish drafting the constitution, it suddenly completed it and voted to approve its contents in an 18-hour marathon session. Instead of opening the draft for public dialogue, Mr Morsi immediately accepted it and called for the referendum to begin 15 December, leaving the public less than two weeks to form an opinion on this complicated document.

UN High Commissioner for Human Rights Navi Pillay, whose office has studied the contents of the draft constitution and monitored the writing process, echoed the fears of many average Egyptians. “The lack of inclusive participation of various actors in Egypt in the constitution-drafting process is a matter of major concern, and one of the main reasons for the disastrous situation that has been developing in Egypt over the past couple of weeks,” Pillay said, adding, ” … but I believe people are right to be very concerned — not just about the way the process has been short-circuited, but also about some of the elements included in, or missing from, the draft text.”

In his speech 6 December, re-asserting that the referendum would go forward despite massive protests, Mr Morsi resembled his predecessor, mistaking the mood of the street and expecting its acquiescence.

But Mubarak’s political disconnect was the product of undue power held for three decades. Mr Morsi has barely taken office yet he is already isolated from at least half the population.

In a subsequent speech, Morsi admitted he’d issued the first constitutional declaration in order to get the constitution draft he favours passed, stating that once the referendum is over, the constitutional declaration, and special arrest powers awarded the military, would be waived. But forcing people into a corner is not the democratic way to build consensus and has only deepened divisions.

The first phase of the referendum took place with only partial judiciary supervision. More judges are refusing to supervise the second half and the Supreme Elections Commission secretary general has resigned, placing the legitimacy of the ballot in question and open to future legal challenge. Mr Morsi’s tactics have split the judiciary as well as the nation.

What much of the public is meanwhile missing, is that President Morsi’s “Revolution Protection Decree,” issued alongside the first constitutional declaration, is a cause for serious concern. It calls for the creation of revolutionary courts under presidentially appointed judges and for a revolutionary prosecutor (that he appoints) with offices nationwide and the right to imprison suspects for up to six months without a court order.

Several high-profile citizens who opposed these flagrant violations of the rule of law have been accused, by Mr Morsi’s appointed prosecutor, of treason. The trend towards dictatorial rather than democratic practice could not be clearer.

Egypt’s president has squandered the public’s good will, and having acted largely on behalf of his party and other Islamists, raised legitimate fears that the Muslim Brotherhood is in fact running this country.

And after 83 years of marginalisation, from the time of King Farouk throughout the eras of three presidents, a newly empowered Brotherhood is showing its true colours, as a secretive organisation capable of militancy that demands absolute obedience and will not tolerate dissent. President Morsi may no longer be an official member of the Brotherhood, but his methods certainly bear their stamp.

While the referendum was being hastily organised in the midst of vehement protests, Washington received a FJP delegation for a series of meetings. The UN secretary general, the head of the European Commission, the UN Commission for Human Rights, as well as the German government and Swiss courts have taken a strong position against the Egyptian government’s behaviour. Why then is the so-called beacon of democracy, the United States, encouraging an organisation that is destroying Egypt’s democratic chances?

The moment of truth for America has also arrived. It supported Mr Morsi’s election as part of a nascent democratic process, but he has repeatedly violated democratic principles, while his draft constitution and Revolution Protection Decree promise a greater dearth of civil rights than Egypt has ever known. Why isn’t America taking a stand? Throughout Egypt and the region, people have reached the conclusion that America’s foreign policy agenda takes priority over the cause of democracy.

Mr Morsi could still salvage his credibility, restore public trust and rescue Egypt from disaster by halting the referendum, rescinding his constitutional declarations and the Revolution Protection Decree and reforming the Constituent Assembly to reflect Egypt’s multifaceted reality.

Above all, if Mr Morsi wishes us to believe in his commitment to democracy he should announce that once a new constitution has been ratified, Egypt will have new parliamentary as well as presidential elections based on that document. This would reunite the country and win a vote of confidence at home and abroad that could set Egypt back on track.

Mr Morsi’s moment of truth has arrived, and as national reserves dwindle, debts mount, and dreams of democracy fade, so has Egypt’s.

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Richard Branson calls for transition to inclusive democracy in Egypt

Morsi’s government should prove that it is a truly democratic government that encourages investment among its people to attract foreign entrepreneurs like Richard Branson

At the end of October, Sir Richard Branson, founder and chairman of British company Virgin Group, addressed audiences in Cairo on the subject of “succeeding in business during challenging times”, in which he supported the move to a democratic society, and focused on Egypt’s youth as agents for social and economic change.

Attendees were required to make a donation to the ‘Lift Off’ initiative, which has been implemented by the regional office of the International Institute of Education, in partnership with Endeavour Egypt, a global non-profit initiative promoting “high-impact entrepreneurship”, targeting younger generations within Middle Eastern and North African regions, and endorsing and supporting entrepreneurship as “a viable career-choice.”

Branson has been outspoken in his views about Egypt’s economic development since the ousting of Hosni Mubarak.

In early February, Branson published an article on his blog explaining his position, indicating that the establishment of a democratically elected government that stands by the key principle of free speech would ensure Egypt’s economic recovery: “All of the entrepreneurs I have spoken to want the same thing – a properly elected democracy in Egypt as soon as possible, with a fair rule of law and freedom of speech for its citizens.”

Following Egypt’s first democratic election, Branson posted an update in June of this year, advocating and supporting Egypt’s new democracy, and calling on the newly-elected government to look to the future in order to effectively stabilize the country and achieve the economic development so urgently needed. “They need to draw a line under the past and move forward,” he said.

During his visit to Egypt, Branson also clearly indicated, as featured on the front page of the Egyptian national newspaper Al-Masry Al-Youm, that he would not invest in the country unless he found evidence that the Egyptian people across the country were being treated fairly and equally under the new government (the “fair rule of law” that he called for earlier this year) and that the people are confident enough in their country to invest their own money to help to rebuild the faltering economy.

Branson heads up 200 companies operating in over 30 countries around the world, established in a range of markets covering everything from leisure, travel and tourism to mobile networks, broadband television, radio, and more recently finance and health.

With his extensive experience in these key market sectors, providing pivotal services that represent a stable infrastructure, it is the experience of entrepreneurs such as Branson, and his support in stimulating Egypt’s growth, which will help to revive the country’s market economy.

Following the recent developments within President Morsi’s government, however, it appears the assurances that entrepreneurs such as Mr. Branson require, that Egypt is a truly democratic country that is looking to the future and encouraging investment among its people, have as yet not come to fruition.

With members of President Morsi’s cabinet threatening some Egyptian businesses which have flourished over the last thirty years, it seems that there is little hope for the stabilizing effect that is needed to cultivate an environment that will attract investment from abroad.

The current position is certainly not conducive to encouraging economic stimulus from outside of Egypt. Following President Morsi’s recent speech in which he gave out the details of account number 333-333 held at the central bank of Egypt, and called on 32 Egyptian families, who he believed had monopolized Egypt’s capital and assets under the old regime, to return the wealth that they had accumulated under Mubarak’s rule, it seems to the eyes of all the world to be a step back from the progress that had been made with the establishment of a democratically elected government.

Moreover, the mere fact that the President himself in a public speech gave out an account number and called on such a specific number of families to return the wealth they have earned makes it seem in the eyes of the Egyptian people that the government is compiling lists of families and of individuals that they intend to target and pursue. This is tantamount to McCarthyism; making accusations, without first presenting evidence.

This is particularly disturbing for many Egyptians, as these steps have been taken publicly, without any court order, or information to explain who the 32 families are, or how he came to identify them.

President Morsi’s justification had a religious tone to it, when he said that “this will cleanse those who return the money from their corruption, but not absolve them of liability.” That is not the transparency, or the rule of law that we had hoped democracy in Egypt would achieve.

President Morsi’s declaration has simply served to undermine the reconciliation that had previously been extended. It is important for the new government to remember they are no longer the opposition; they are now responsible for a nation, for rebuilding its wealth, for establishing an infrastructure that will enable the country to move forward with the rest of the world’s economies. Living in the past will not restore Egypt’s wealth, nor will it inspire confidence among the Egyptian people, or other nations.

As Mr. Branson said after the election of President Morsi, it is of crucial importance that the new government “draw a line under the past and move forward.” Right now it seems that the line has indeed been drawn, but instead of looking beyond the line to the future, this government is looking behind the line to the past, for the answers and solutions to the country’s economic problems.

No progress has been made; and if the past is still the primary focus then this will not create wealth, jobs, or promote economic growth, it will not improve Egypt’s position, and it will certainly not improve Egypt’s social equality.

The priority must be to create a better life for the people of Egypt, rather than destroying all hopes that the revolution created.

President Morsi must show that he is a president for all Egyptians by inspiring the confidence of an entire nation that they can trust in their government to lead them towards a better future; but this must start with the economy. Stimulating growth, encouraging investment and creating jobs is the only way forward, and to achieve this, the future must be the focus for the new government and the possibilities it contains, not that which has passed.

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Egypt’s mixed messages

Egypt has turned a page and must respect the results of the nation’s first democratic presidential elections by giving the new leadership a chance. Although many have understandable reservations, the fact is that the Muslim Brotherhood won.

Now that President Morsi has consolidated his powers (appointed a new cabinet, provincial governors and reshuffled the armed forces’ leadership), he holds full responsibility for what happens next. In his first speech he declared he was the president of all Egyptians, even those who did not vote for him. Now the president must prove his commitment to those words, especially in dealing with Egypt’s main concern – the economy. Otherwise he and his party risk losing their political gains and throwing the nation into turmoil with unprecedented economic deprivation.

Although some are opposed to it, accepting the IMF loan of USD 4.8 billion is a step in the right direction. This is not because of the amount, which is comparatively small and be absorbed within a few months, but because it sends a message to other lenders, donors and investors that Egypt is open for business and willing to abide by commitments and international business standards. The IMF loan basically acts as a certificate of good standing but it is not a cure for Egypt’s ailments, so much as a band aid. We need to depend first and foremost on ourselves.

I won’t repeat the dismal macro-economic indicators; suffice to say that Egypt’s economic crisis demands a clearly prioritised plan, fresh legislation, institutional restructuring and management re-hauls. Economic recovery will demand that the government take the initiative and communicate a clear vision to the people, public and private sectors alike.

To have investors back on board, we need to restore trust and confidence in the investment environment. That means more transparent policy and coordination between government agencies to facilitate doing business between all parties on a level playing field where no one has unfair advantages.

Although foreign direct investment is important, statistically and traditionally Egyptians are Egypt’s biggest investors. On his recent trip to China, accompanied by a group of Egyptian businessmen, President Morsi made it clear that this group, which included former members of the National Democratic Party, was on board for the recovery process. He went so far as to name a former NDP leader present at the gathering. “We need to move forward not back,” he said, indicating that business leaders of the past have a role in Egypt’s future, a positive, much needed message. He stressed that without the dedication, hard work and investment by the private sector, there will be no economic recovery.

At the same time, the issue of illegally expatriated funds must be lawfully addressed. Egypt needs to recover these funds, but the fastest way to do so is by establishing a legal framework to negotiate settlements, and I suggest adopting a reconciliation programme similar to that used in post-apartheid South Africa. This would involve drafting a new law that can oblige those justly accused to restore funds, properties and/or pay appropriate damages.

This legislation can cover funds we already know about in addition to those to be discovered in the future. The important thing is to settle these matters legally, efficiently and move on.

The South African system was complicated, but I envisage a simple framework for settlements and/or the voluntary return of the funds. This is the most viable way of repatriating the controversial funds at a time when Egypt needs all the foreign currency it can get.

The president’s appointment of Selim al-Awa, prominent lawyer and former presidential candidate, as his advisor on “transitional justice” looked like a positive step in this direction, although Dr Awa’s mandate was not clearly defined.

President Morsi also established a committee to restore illegally expatriated funds, but its relationship with Awa’s “transitional justice” remains unclear. What’s more, the aggressive rhetoric of some committee members, Freedom and Justice Party members and some other recently appointed officials about “going after everyone” does not sound promising. This committee is reporting directly to the President who should outline its mandate publically, while ensuring it works in close cooperation with Dr Awa.

Right now there is talk about suing England for withholding expatriated funds. As a lawyer I can say that this is a long and costly process. Above all, such mixed messages regarding the state’s intent create discomfort and divisions.

Much was accomplished in recent decades and not all of it bad, or mired in corruption. Millions of Egyptians worked for the Mubarak-led government over the years and did so in good faith. Over six million still work for state bureaucracies. Over seven million work in the private sector, which incidentally contributes 80 per cent of GDP, and none of these businesses was established or grew without government consent and in most instances, connections – that’s how the system worked. But that doesn’t make every civil servant or entrepreneur felool (“remnants of the fallen regime”).

This issue will have to be dealt with legally, to put an end to the uncertainty within the business community and the often unfair suspicions surrounding it. But just as South Africa’s reconciliation required the leadership of President Mandela, so Egypt needs President Morsi to take charge and deliver the message unequivocally, as he did in China, that Egypt is looking forwards, not backwards, and that we all have to work together to get there.

Some opposition members are saying he will fail, that he is unable to unite the country and fix the economy. They are understandably positioning themselves politically, but a well-informed opposition is a vital part of the democratic system of checks and balances, so long as it provides constructive criticism.

Failure is the last thing Egyptians want, since it affects us all and will hit the underprivileged the hardest. Egypt’s newly elected President needs to prove his opponents wrong by engaging the support of all Egyptians who believe in the democratic process, whether they voted for him or not. This is not the time for the voice of vengeance but for the President to set the tone for reconciliation.

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Egypt’s consolidation of power… What’s next?

While Egypt’s Armed Forces were securing Sinai, President Mohammed Morsi took measures to secure the executive branch’s power. In a series of well-calculated moves, Morsi first eliminated the heads of central command, the military police and presidential guard, i.e. all those who can move ground forces, as well as the head of intelligence. The top brass came next: Field Marshall Hussein Tantawi and General Sami Annan were retired, decorated and appointed presidential advisors. General Al-Assar, a key contact with the US who retained his position, announced that the changes had been coordinated with the SCAF.

A few days after the, then head of military intelligence, General al-Sissi was appointed Minister of Defense, almost all high level military positions were reshuffled.

In the same stroke President Morsi made Judge Mahmoud Mekki his vice president, having appointed his older brother, Ahmed Mekki, Minister of Justice a week earlier; both are Islamists. This represents a rapprochement with the judicial branch of government and guarantees Morsi a say in the appointment of new judges.

All of these moves were not unexpected. President Morsi needed to build his own team, like any new administration. Tantawi, who had acted essentially as interim president for the last 18 months, had already accepted the post of Minister of Defense in Morsi’s new cabinet. As head of the armed forces, this gave him extensive powers, compounded by the Supplemental Constitutional Declaration issued by the SCAF just before handing over power to Morsi, that gave SCAF legislative power until Parliament is re-elected. The situation was untenable; a ship can only have one captain.

President Morsi rescinded the Supplemental Constitutional Declaration, bringing the legislative branch into his remit, leaving the military no say in drafting the constitution and the military budget no longer immune from civilian oversight. With these astute moves, the president has consolidated executive, legislative and, to some extent, judiciary powers and eliminated all notable opposition. This is unprecedented in Egypt’s history; the presidencies of Nasser, Sadat and Mubarak never held this much power.

Some may argue the legality of rescinding the Constitutional Declaration, but it is now a fait accompli. Nor does it matter whether President Morsi was the sole architect of these moves or performed them in compliance with Muslim Brotherhood leadership or even under foreign advice as claimed by some. But this is no time for bickering. We have to move forward to make Egypt productive. Now that the balance of power is in the president’s favor, so is the responsibility for what happens next; with power comes responsibility, the greater the power the more compelling the duty to administer it wisely. In a democracy, government acts in the interests of the people and is answerable to them.

The big question is how Morsi’s government will rebuild the fast-deteriorating economy, Egypt’s most pressing concern. The task is no less than turning the country around at a time when commodities prices are rising worldwide, the global economy is in bad shape and Egypt is impacted by conflict in Syria and potential power-keg of Iran, not to mention within its own borders in Sinai.

Fixing the broken economy will require the participation of all Egyptians, including skilled expats. Unfortunately, while Egypt needs all its resources more Egyptians are traveling abroad to seek jobs and opportunities and taking the talents they acquired in the last 20-30 years with them. The situation is reminiscent of the so-called brain drain that followed the 1952 Revolution and could have similarly grave consequences. Egyptians should not be leaving, they should be coming back.

For Egypt to move forward domestic and international investors and the work force needs to feel secure and confident in state support, not just for business but for democratic principles. Now that the president has unprecedented powers, it is his responsibility to use them to ensure that everyone is included and dealt with equitably. This is the time for true leadership.

So far President Morsi has done very little to bring the country together. A transparent, predictable economic environment inspires confidence – but that’s not the kind we have. Surprises were one of the hallmarks of the Mubarak years, often damaging our economic growth or giving too little too late but we can no longer afford haphazard governance. Without transparent and consistent policy making, there will be no confidence and no investment.

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Empowering the people

Taher Helmy* charts a course for social and economic success through empowerment of the average citizen

One of the challenges that Egypt is facing with regards to reform is the fact that those most affected — average Egyptians — have not been directly addressed by the process, or at least do not feel so. Reform is not just a matter of economic or procedural checks and balances dictated by authorities to achieve efficiency; it is a human process of seeking deliberate change in order to restore dignity to the lives of the people of this nation. Reform is therefore a comprehensive process that takes place on the level of society. Only by granting people their rightful place at the centre of this participatory process, can we achieve the goals to which we aspire.

Economic abstractions like growth rates, budget deficits, debt servicing and structural reform mean nothing to the average citizen concerned with a safe and secure home, how to feed a family and educate children on a highly-taxed salary that is shrinking with inflation. Under such conditions, people will view the reform process as adversarial, and public consensus will be withheld, preventing government from making the bold moves required to turn Egypt around. It is essential to facilitate public participation and support. This article outlines some of the means available to accomplish this; mindful of the fact that the job of political parties is to connect with the people, and the role of government is to serve the people, having earned their trust and confidence in their ability to do so.

Comprehensive reform means change that touches every aspect of life. This includes economic policy be it fiscal or monetary, institutional restructuring and decentralisation, and also public education, public health and financial empowerment for men and women of every walk of life. In other words the vision must encompass the design of technical and substantive policies (i.e. customs, taxes, property rights etc.), the people who will take responsibility for implementing them, and those who will benefit from them. In devising a master plan based on such a vision, the parts must fit together like pieces of a puzzle that are joined in sequence. Success of the whole depends on the inter-working of the many parts: change is only as strong as its weakest link.

Furthermore, this plan should not be the province of decision-makers alone. The role of the media must be reassessed as a great, untapped resource that can be rallied to the cause of public awareness to keep people apprised of the value of their participation throughout the reform process. It must be understood — and communicated — that such a process takes time, but the magnitude of the task should not prevent its beginning.

It is perfectly reasonable to set a ten-year framework, comprising a sequence of actions that consecutively lead to the agreed-upon goals that everyone must strictly abide by along the way.

The first goal is deregulation, which, for our purposes, means simplification. The last decade has seen key legislative changes that abolished taboos regarding a market-driven, versus centrally planned, economy. We have indeed made progress with policies, but stumbled in terms of implementation. Our skill level and institutional reform has not kept up with policy leaps; in fact, we have more bureaucracy today than before. Civil servants are being asked to make decisions regarding complex new market economy concepts and take responsibility for them. They are at a loss, so they create more obstacles to slow things down and protect themselves, knowing that mistakes can cost them their jobs — or worse. The absence of a simple system that is competently executed has proved to be a tremendous impediment for investors large and small, local and foreign.

SIMPLIFICATION — A CAMPAIGN AGAINST DISCRETION: In approaching the task of simplification, the bureaucracy itself must be reduced from the current six million civil servants to approximately two million over the course of the next ten years. This must not be understood as a way of punishing, or beating, the bureaucracy — which is in fact composed of average citizens trying to earn a livelihood — but as the process of revising a system that is no longer constructive, freeing millions from redundant and poorly paying jobs, while seeking to provide them with alternatives for a better life. Under the current scenario, no one profits — not the civil servants in their ill-conceived jobs, or a public who equates bureaucracy with overwhelming obstacles, or investors who face endless red tape.

The key lies in reducing discretion by government functionaries, making inappropriate, time- consuming decisions unnecessary. The simpler the system and procedures, the less the discretion. This is the first step towards achieving more efficient governance, a better business environment, more transparency and less corruption. For example, Egyptian customs recognises around 30 tariff bands and hundreds of sub- bands. These can be reduced to no more than three, simplifying the customs official’s work, not to mention reducing costs to businesses, and ultimately the consumer. We can start by first reducing the tariff bands to six and setting a time target, say three years, for having three bands at a low tariff rate that is globally competitive. Chile, the most successful Latin American economy, has one flat tariff rate of six per cent.

Similarly, tax procedures and the underlying legislation demand decisive action. The current tax system is hugely complex, inviting discretion and corruption. This could be remedied with a simple flat tax regime, say 15-20 per cent for everyone across the board with minimum easy deductions, if at all, and a higher level of allowances to help lower income groups. The allowance level increase must be significant: personal allowances should go over LE10,000, and family allowances over LE15,000. Likewise corporations would pay a flat tax rate without tax holidays, which only create distortions in the economy.

Studies conducted here and elsewhere show that although tax rates will go down in a flat rate scenario, revenue to government increases. Simplification will enlarge our tax base — but only provided a tax amnesty is granted. Indeed, a friendly settlement initiative to close corporate tax files (open in some instances for over ten years) and a “forgive and forget” approach would restore confidence in the system and ensure the success of the new tax policy.

The current system of taxation has failed to improve overall standards of living, and has created an atmosphere of distrust. The rich can afford lawyers and auditors to benefit from the system’s complexity, while the average wage earner, including civil servants, bears unrealistic burdens. The current system is therefore inherently unfair. Considering these features, it is no wonder that Egypt’s taxation system has bred a culture of avoidance. Ultimately, people either declare less than they earn, or do not file at all. In fact, according to World Bank estimates, Egyptians declared approximately 20 per cent of their income for the year 2001.

Another indication of our tax system’s failure is the presence of a massive informal economy. Research by the Egyptian Centre for Economic Studies (ECES), in cooperation with Hernando De Soto’s Institute for Liberty and Democracy, has shown that extra-legal businesses employ at least 8.2 million people, or about 40 per cent of Egypt’s work force. This number includes 1.4 million entrepreneurs, 82 per cent of Egypt’s total — the people who are willing to start and operate businesses that should generate employment.

Not only is the informal sector growing in its own right, it is attracting frustrated members of the formal sector who can no longer make a reasonable living. But the informal sector operates under serious limitations. Businesses that must hide to survive cannot expand and hire more employees; they cannot improve capacity or performance, use legitimate channels for finance, or offer legal social benefits to employees. One of the reasons the informal sector continues to grow, in addition to the bureaucracy, is an intimidating and prohibitive taxation system.

A flat tax could help remove these disadvantages. Like Egypt, Russia’s tax system was mired in complexity; also like Egypt, estimates of Russia’s declared income reached just 25 per cent of earnings prior to reform. Subsequent to the flat tax rate of 13 per cent, tax revenues rose by 28 per cent between 2000 and 2001, and a further 21 per cent the following year. Egypt could experience a similar turnaround. Right now personal income tax stands at 20-30 per cent; corporate tax on services and industries is 42 and 32 per cent respectively. In order to encourage people to participate in a system that once alienated them, they will have to feel that the new one is not only better but also a great bargain. A flat rate of between 15-20 per cent across the board, plus higher allowances for lower-income brackets, and a quick and fair settlement with tax payers, combined with amnesty on previous years’ taxes, would do just that.

A simplified system will be easier to enforce. Legitimacy is an incentive for informal businesses that each day face the fear of being shut down. As for established businesses, the new rate would cut tax expenditures substantially, not to mention reduce the anxiety derived from the system’s current arbitrariness. Closing corporate tax files on a yearly basis with auditors’ certification, and random tax audits, should replace the current invasive system of inspection. With higher allowances, more of the poor would be exempt, and low-wage earners would find their burdens substantially relieved. Given such incentives, confidence should be regained, and the tax base would broaden significantly.

Converting the informal sector to an equitable and simplified formal sector would increase the national output of goods and services and encourage more investment by promoting capital formation. With higher revenues and a reduced deficit, the government could provide better services and prove itself capable of instituting fair systems, thereby earning the respect of the people. The result is restored confidence — both on behalf of the people in government and vice versa — which is the very heart of political stability. Only bold actions such as these will reverse the culture of avoidance that currently undermines our economy. A flat tax is no magic wand, but it would allow us to turn a page and make a strong, fresh start, building a new economy on simpler and more participatory foundations.

DECENTRALISATION AND DEREGULATION: Decentralisation is a crucial aspect of reform, one that addresses the core problems plaguing Egypt’s bureaucracy, namely complex systems that are unresponsive to local realities, bad management, low salaries and incentives, and the resulting inefficient delivery of services and low economic performance. While simplification of bureaucratic systems is a necessary feature of reform, decentralisation and greater autonomy for well-organised governorates would lay the groundwork for an Egypt that is more productive in every way.

Egypt’s administrative bodies, business and industry are concentrated in and around the capital; consequently, so is a third of Egypt’s population. While centralisation may work for small-scale operations, it is stifling the economic and human potential of an overburdened capital, not to mention causing the atrophy of the provinces. The role of government has changed from an owner- manager of assets to a regulator, and the structure of government should reflect this change. We can’t use old institutions to administer new systems. Egypt is divided into 25 governorates, plus the city of Luxor — demarcations that are historic in some cases and haphazard in others, but anyway less functional than they might be. Egypt’s governorates could be restructured more productively, thereby providing the basis for lasting, beneficial reform.

Egypt needs responsive and efficient local governments. Decentralisation would render local governments answerable to their communities and more efficient in serving them. Decentralisation doesn’t mean delegating duties to local governments while calling the shots from the capital. It means the empowerment of local bodies to make decisions, based on their more intimate understanding of their communities’ needs. Decentralisation means more autonomy on the ground, and the financial strengths to back it up.

Although requiring in-depth study, we could examine how governorates are configured and think of new divisions based on the human, natural and financial resources, and potential in each area. We could redraw the lines to level the playing field, giving each new entity a chance to become more competitive and have fiscal independence. The latter could be achieved by either allowing local governments to levy state and city taxes, or by allocating a portion of the national budget to assist each governorate. Either strategy would enable the new governorates to compete in attracting investment and providing services — especially health and education — thus improving both the local environment and overall economy. The success of decentralisation is evident, the United States and Europe being the most obvious examples. But developing countries like Argentina, Brazil, South Africa and China also offer models. We can look at their experience for ideas on how to proceed.

Decentralisation does not mean relinquishing central government power. Indeed, local governments must be accountable for the failure — or success — of their decisions. In the latter case, the central government could offer incentives and rewards for productivity. Decentralisation does not entail a loss of control by the main governing body, but a more interactive rapport with local governments. Decentralisation would have wide-ranging effects, one of which is more participatory local government that better employs the talents of local individuals. The trend for migrating towards the capital will stop when people have options regarding where to live and conduct productive careers.

Under current conditions, cities like Alexandria, Suez, and Ismailia and their surrounding areas are not performing to the best of their abilities. One way of judging the potential of decentralisation would be to run a pilot project, perhaps in Alexandria, making it the centre of a new governorate that could generate income and make decisions and improvements based on local priorities, like improving tourism. What if the Alexandria municipality could afford to pay civil servants better, and was more actively and immediately responsible for their performance? You’d attract more talent to government and encourage mobility in the work force between governmental and non-governmental bodies. Ultimately, decentralisation eases the burden on central bureaucracy by creating more competent, manageable and transparent units to oversee.

GIVE TITLE, GIVE CREDIT, CREATE OPTIONS: Historically, extra-legality has been perceived as a political and social problem to national economies, whereas it could instead represent an excellent solution for economic growth. An ECES survey of Egypt’s property market has revealed some startling facts. Ninety-two per cent of Egypt’s property owners hold their real estate assets as extralegal — that is, unregistered and without a title. The total value of this property is estimated at a staggering $200 billion, and may well exceed this amount; but so long as it is unregistered, it is dead, useless capital. This situation is largely owed to an archaic and expensive process whereby registration of deeds and contracts takes over 200 days of red tape, and costs the applicant the sum of approximately LE20,000. The cost of obtaining authorisation to build on undeveloped land takes more than 1000 days and estimated costs exceed LE100,000. The registration process is dispersed and disorganised, representing a costly and daunting challenge that people find impossible to confront.

Clearly, it must become easier for people to own their property. The solution would be similar to that proposed for establishing new businesses — namely, a one-stop shop and a single real estate formalisation and registry authority. As De Soto has pointed out, “anarchy is not the absence of laws but the presence of too many laws”. Such is the case in Egypt, where vast amounts of capital have been rendered inert by not facilitating legal ownership.

By giving poor and average citizens the opportunity to own the place where they have lived, often all their lives, the government would in effect be providing them with a fresh start, real security and a capital asset. A deed in hand is far more valuable than any amount of rhetorical promises of future prosperity. By rendering property registration accessible, people would become a part of the reform process instead of its critics. Ownership would serve as collateral for loans with which people can start businesses, thus providing millions of average Egyptians with a concrete stake in the national enterprise. If people have their names on a deed that ensures the roof over their heads, and promises the possibility of credit and enterprise, while being provided a more equitable tax treatment at the same time, the impact on the economy and people’s outlook will be tremendously positive. Furthermore, the political benefit would be outstanding.

It is expected that restructuring the bureaucracy and privatisation would result in lay-offs and employees taking early pensions. This would be counterbalanced by giving people title and the possibility of seed money, reducing their taxes, simplifying the business environment, and therefore providing alternatives for people to improve their lives in any number of ways.

CLOSING THE CIRCLE: The ideas discussed here represent only the highlights of a comprehensive, participatory approach to reform, where every element is interrelated. The concept of simplification must extend to corporate, investment, competition, civil, and commercial law and court procedures, to name a few. Proper implementation of monetary policy and a stronger financial sector are also necessary goals. Public sector banks still await privatisation that can be accomplished using a phasing approach over the next three to five years, and we must resolve the lingering problem of non-performing loans. Although a detailed discussion of these aspects is beyond the scope of this article, they are nevertheless equally important parts of the puzzle.

Simplification and deregulation are essentially a means of reducing the role of government and increasing the autonomy of the private sector. But such a shift in responsibility will also increase litigation and commercial disputes. This will require a stronger court system. Accordingly, the upgrading and smooth functioning of the judicial system must become a priority. This will require training as well as creating new courts for areas such as banking, capital market and competition law issues, as well as family courts. Economic and political stability will only come when people feel confident that their contracts with government and each other can be enforced. The rule of law and a sense of justice are paramount and it must apply to rich and poor alike.

All of the strategies related here are motivated by the need to restore people’s confidence in government and in themselves, while involving citizens in a necessary process of growth and development. By applying these strategies people will become part of a reform process that they can understand, and will wish to advance and protect. Only by touching lives in beneficial ways will the government achieve the groundswell of support necessary to proceed with even deeper reform, including political reform. However demanding on people and government alike, this kind of change is nevertheless possible, thanks to significant shifts in thinking as evidenced by a more active political party apparatus, the composition of the new cabinet and the growth of civil society.

Devising and implementing a master plan for the future prosperity of a nation is a difficult task requiring coordination, courage and dedication. Its success relies not only on these qualities, but also on the ability to communicate them publicly with passion and sincerity, along with the advantageous reasons for embarking on real change. People know caring when they see it, and they will reward it with loyalty. Once Egypt’s future is recognised as the outcome of a group effort in which everyone has a place, that future will be secured. By laying the foundations for a participatory economy that respects the rights of citizens and workers, Egypt will take a major step towards democratic governance.

* The writer is president of the American Chamber of Commerce (AmCham) in Egypt.

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