Eye on the future

Reflecting on Egypt's USAID experience, Adel Beshai* sees lessons to be learnt, as well as opportunities for steering a better future course

Adel Beshai Foreign aid has always interested politicians at least as much as it did economists, and both have written extensively on the subject. There have always been critics, not just on the left, but also on the right. Some on the right argue that aid delays self- reliance on the part of the recipient country, perpetuating meagre domestic savings and the absence of policy reform. Others argue that aid magnifies the power of the government of the recipient country and politicises life in the poor countries.

Before I delve into the Egyptian experience, I would like to offer a quick word on the experience of Third World countries that receive aid. Success stories there may well be -- as in the example of the South Asian experience with food production -- but failures also abound.

It seems to me that we will not do justice to ourselves by criticising the impact of aid. At the outset, in any programme of aid, there are bound to be shortcomings. However, the litmus test lies in asking two questions: what the gains were and how a given situation in the future may be improved.

In sketching its programme in Egypt, USAID divided it into decades. The seventies included the funding of physical infrastructure, the provision of technical expertise and the expansion of agricultural productivity, health care and education. Several of these focuses were carried on to the eighties, which saw the shift to a market economy, privatisation, facilitation of market entry and an increasing access to credit for small businesses.

The success in the infrastructural sphere deserves praise, whether in such fields as communications, electricity or grain storage facilities. In these areas, achievements were wonderful; a model for every country. The Egyptian government, for at least two decades now, has had a clear vision that infrastructural development is a cornerstone for overall development. USAID-project blueprints exist in this domain and benefits have accrued. The lesson is that as much as critics condemn aid, they often turn a blind eye to the soundness of domestic policies which, it is now clear to us, cannot be ignored.

In the nineties, USAID shifted the emphasis to privatisation of state- owned enterprises and increasing exports. Resources were also transferred to healthcare and environmental issues.

Here, on privatisation, there are lessons for everyone.

It is simplistic to measure the success of the privatisation effort by counting the number of privatised companies. Privatisation is not an end in itself. Privatisation is not enough. The goal is to have a competitive market. If a public monopoly is turned into a private monopoly, the result may be worse. If privatisation takes place and the legal and regulatory infrastructures are not there, problems ensue. If privatisation takes place and the private sector is ultra-greedy for quick gains and does not invest in its personnel -- train them and pay them well -- then that sector will falter. The role of the government in a privatised economy is more difficult than in a command economy. The government needs to recognise its role; the private sector likewise needs to recognise the role of the government. Perhaps this takes time.

Beyond the year 2000, USAID and Egypt have agreed on a 10-year plan to reduce assistance. The programme, we are told, will focus on increasing mutual trade and attracting more investment to Egypt, while developing a better-trained work force. I couldn't agree more with these goals. I would, however, link them with the goal of the nineties of increasing exports, which has, so far, failed. The link I am suggesting is that of marrying foreign direct investment (FDI) with exports. If FDI comes with an export orientation, Egypt would benefit a great deal. This can only happen if USAID and Egypt are fully cognisant of the advantages of intra-industry trade, where parts or components are produced here on a big scale and then exported. There will also be added dynamic gains for the work force.

On this optimistic note, I close my remarks and would then certainly forgive some waste that may have occurred in the past.

* The writer is professor of economics at the American University in Cairo and a member of the Shura Council.

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		Al-Ahram Weekly Online 21 - 27 June 2001 Issue No.539
Published in Cairo by AL-AHRAM established in 1875		Current issue \| Previous issue \| Site map