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The Egyptian Economy: Anesthetic or Remedy?

Is Egypt treating the consequent symptoms of its economic problems or is it focusing on the root of all setbacks?
Hussein Kamal Mehrem | 24.03.2014

Views expressed are those of the author and may not reflect the opinion of Egypt Business Directory.

How many times have you read these headlines in Al-Ahram or any other Egyptian newspaper:

- The development of 78 slums

- A wage increase for employees in the public sector

- Government to ensure food subsidies reach the needy and the bottom of the Egyptian society

- Receiving a loan from the IMF to reduce budget deficit

Probably many times; and probably - as an Egyptian citizen - you barely felt or saw these developments yourself. These headlines depict the short-term vision that characterizes the Egyptian economic policy.

However, over the past 30 to 40 years, poverty and illiteracy rates have increased, income gaps had widened, wealth was concentrated within a small fraction of the society and severe institutional failures occurred. It is apparent that since the era of former President Anwar ElSadat, the Egyptian economic policy is based on giving some sort of Anesthetic to the Egyptian economy, in order to keep the poor in a state that allows them to survive and meanwhile, the government’s expansion in the application of neo-liberal policies does not coincide with the standards of living and economic circumstances in Egypt. Perhaps, since the era of former President Gamal Abd El-Nasser, the Egyptian authorities have not introduced a general long-term, time-frame dependent plan for the Egyptian economy that explains how to combat poverty and modernize both the health and education sector.

Therefore, what is needed is a long-term vision in order to tackle the root causes that are responsible for structural failures of the Egyptian economy. Yet, what are those structural failures? Is it unemployment for instance? No, this is only a symptom to a much more complicated illness. In fact, the issue is the absence of developed human capital and labour that is able to compete in the international market and the private sector that offers high wages. Consequently, one observes thousands and millions of unemployed Egyptian university graduates sitting in Cafes around Cairo, wasting their potential for the same reason. Alternatively, they would take jobs that do not match their set of skills or their university qualifications – a phenomenon called “disguised unemployment” in Economics. The problem then is not unemployment per se, but the complete divergence between the education system and the research sector as a whole, as well as the needs of the modern labour market.

Does the problem lie in the scarcity of investment or the lack of capital accumulation? No, it is rather the type or the nature of both foreign and domestic investment. We frequently hear the Egyptian government speaking about its intentions to create a haven for investment and investors, but again: what type of investment? What is mostly observed in the Egyptian economy is investment in raw materials and the latter’s export without any added value or technological breakthroughs. The general investment in technology is very limited. There is barely any investment in the manufacturing sector that could trigger technological breakthroughs and hence, economic progress in terms of cars, modern agricultural equipment, IT or renewable energy does not occur. Additionally, the Egyptian state takes the responsibility to protect those investors and protect them from any potential competition that may jeopardize their market power and profit margin.

Are corruption and bureaucracy the problem? No, they are also symptoms of deeper institutional deficiencies. These allow corruption and stagnated bureaucracy. The inequality within those institutions, low wages and the absence of political will to dismantle the security-minded central government promote a more de-centralized form of governance. The lack of political will can also be manifested in the weakness and the lack of independence of monitoring bodies who are responsible of ensuring transparency and combating corruption at the governmental level. Today, the executive in Egypt still has the authority to appoint the members of those monitoring bodies.

The previous paragraphs are only examples of some deep failures of the Egyptian economy that are only tackled via the utilisation of the Anesthetic. There is an absence of strategic vision for the Egyptian economy. What should really be asked is how Egyptians want their economy to be? Do they want a rentier type of economy? Or do they want an industrial economy with a strong manufacturing sector and highly developed human capital that is capable of competing on an international level?

If it is the second one, then we require a deeper understanding of the structural problems of the Egyptian economy. It is essential to comprehend that Egypt’s economic problems are utterly dissimilar to those of the West and hence, it is implausible to solve those through a prescription of the IMF or the West. Focusing on extensive privatization, market and price liberalization etc., in a country that lacks decent education and health services and where half of its population live on or under the poverty line is not necessarily ideal. It is time to understand the West’s industrial development over the past 3 centuries instead of blindly taking their advice. Developed economies of Europe, Asia and America strongly focused on the quality of education, industrial development and added-value, which led to higher wages and better standards of living. Those countries, who keep preaching about the absolute necessity for openness and free trade, protected their infant industries until they reached a level of maturity that qualified them to compete in the international market. There was also a focus on specific industries that gave them a relative competitive edge, such as textiles in Great Britain in the 18th and 19th century, cars in Germany and computers in the US.

Egypt still has the chance to establish a competitive industrial sector and focus on production that adds value and promotes technology. The country currently wastes many of its resources that could otherwise be utilised to provide quality education for millions of under-privileged Egyptian children. What is crucial is the political will of the coming governments of Egypt. It is time to find the remedy.