(CNN) -- As Middle East economies try to combat the impact of rampant inflation this week, Egypt raised interest rates for a second time this year to control the problem.
Despite being hit by rampant inflation, Egypt is still on target, says Mahmoud Mohieldin
Mahmoud Mohieldin, Egypt's Minister of Investment thinks the country is still on target to achieve its year's projected growth rate.
He sat down with CNN's John Defterios (JD) and gave his opinions on the current level of global uncertainty in the markets, the impact on foreign investment, the effect of inflation and Egypt's plans for future investment.
(JD): We're seeing an intense level of uncertainty. Do you get a sense that from the Middle East perspective,the bottom is almost near?
(MM): Let me first talk about the globe. All crises have an end, but it is how they are going to be ending. Every time after a crisis you get new rules, new arrangements, some winners, some losers. Some emerging markets emerge more and others submerges. Some developing countries would have some advances, others would have less in the relative positions.
But I'm much more concerned about the policy formulations in the future because the kind of extreme pragmatism that we're witnessing today could be justified in the short-term by uncertainty, by requirements of having to make some quick actions to fix problems.
I'm concerned about the fact that some of the capitals in the Organisation for Economic Co-operation and Development (OECD) are considering interventionist policy -- a return, as some are saying of old mercantilist policies in a new shape by the use of tariff and non-tariff barriers. So, all of these things are not very healthy and we need actually more from the global civil servants in the international financial institutions and in the world trade organizations and better representation from the emerging markets in the debates and the discussion in order to put emphasis on the rules of the game in the future.
Meanwhile we have to do the fire fighters' work in order to deal with the problems of the market. But what remains is basically what is going to be settled in our minds about what is the best course of action that will have to be taken in the future, as far as dealing with the globe and its problems.
(JD): You're coming off of a record year for foreign direct investment. Will this actually hurt U.S. investment decisions in Tunisia or are you more buffered now than in the past?
(MM): Egypt is becoming a well-integrated economy with the rest of the world. From the sources of foreign direct investment (FDI) you can see greater diversity if you compare what is happening during the last two years, compared to what was happening during the last 20 years. So there are more sources of FDI from the U.S., from Canada, from rest of the OECD countries, but also more FDI coming from the Gulf states, India, China, and Turkey.
Through these kinds of diversified sources, we are very comfortable that we are going to remain a very attractive country for multinationals and capital interests.
(JD): You're coming off a solid year of growth and there don't seem to be as many concerns about the US recession versus previous cycles. Am I reading it correctly?
(MM): I think we are going to be meeting the expected target for the year ending in June 2008 which is to have a 7 percent plus growth rate. But we mentioned last year that we are aiming for an 8 percent plus growth rate in the mid-term. I think we are going to be continuing with the 7 percent plus rather than 8 percent plus so the net impact on whatever is happening in the economy of the world internalized, factored in, is something like a loss of 0.5 percentage points to one percentage point.
But as it is known, anything above 6 percent is great in Egypt. There is going to be an improvement in per capita income, it will generate jobs. We have been creating 725,000 jobs every year during the last three years. And we'll continue to do that.
(JD): As you know the Gulf countries are linked to the dollar and Egypt for all its trading purposes a dollar-based economy. With the dollar falling as severely as it has, what sort of pressures is it putting on Egypt in terms of day-to-day operations, even inflation?
(MM): Despite all of the talks after 9/11 many countries including the Gulf countries, became more dollar concentrated. I think during the last eighteen months or so, there have been some revisions of that but we're waiting for updates from institutions like the Institute of International Finance (IIF) and the Bank of International Settlements (BIS) and other sources of information.
But in the case of Egypt we're not really that pegged to the dollar and you can see major changes in the value of our currency versus the dollar and changes in trade composition, and changes in capital inflow, sources have been putting an emphasis on that. The composition of the international reserves as well have been reflecting these changes as well recently.
(JD): Do you try at this stage of the cycle to redefine where Egypt places in the global economy in terms of its low cost labor, in terms of it human capital to attract FDI from other parts of the world?
(MM): We have, in terms of geography a better location than India. We're a smaller country so we could be more competitive and agile. What's happening in India is remarkable and we have been benefiting ourselves from the success stories in India given that we're having better economic ties with India. But as an example we have policies to integrate us further, to have more diversified trade links, and at the same time we are sharpening the skills of our workers, we're having a policy of inclusivity that is improving the access to finance, to land, to education, to resources, to every Egyptian. We're not going to be leaving an Egyptian behind as far as the benefits of growth are concerned.
But more is needed to be done in terms of sharpening skills in particular and dealing with the issues related to the mismatch between the requirements of the markets and the production of the schools and universities.
(JD): There was discussion about a free trade agreement with the United States in light of the global slowdown. Do you see that coming back onto the table? Do you have hopes that it can be restarted in a new administration?
(MM): A free trade agreement (FTA) could be beneficial to the two countries so it will be considered in that spirit. But having said that, without the free trade agreement the trade statistics have been showing some positive export growth of Egyptian products to the United States through the qualified industrial zones, through better competitiveness in our industry, and through the links between investment and trade - more investment from the United States led to more exports to the United States.
So the FTA is important but I think it is not really an issue of 'make it or break it,' as far as the bilateral arrangements are concerned. If it happens it is going to be good because we believe in the benefits of free trade in general.
(JD): - In terms of Egypt and more broadly the Middle East being less dependent on the EU or the U.S.?
(MM): I can talk about Egypt but it's very hard to define the broader Middle East but because it comes with different shapes and sizes and all of that. But in Egypt we are getting much more integrated and much more coupled actually as opposed to the decoupling scenarios and theorems with different spots in the world.
We're in more healthy relations with the OECD countries, specially with the Europeans benefiting from the partnership agreements and the proximity. We're betting as well that we are going to be further improving our infrastructure - the ports, the transport links through the Mediterranean - we're going to be having better trade arrangements as well in the future, lower transaction costs. But now we're seeing as well those rising stars from China, India to Vietnam as good trading partners along with Turkey and other countries. E-mail to a friend