Al-Ahram Weekly Online   15 - 21 May 2008
Issue No. 897
Economy
 
Published in Cairo by AL-AHRAM established in 1875

Waiting in the wings

The long awaited fruits of development have not yet been delivered, and experts seem to know why, Sherine Nasr listens in

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Since the early 1990s, when Egypt started adopting an economic reform programme, Egyptians have paid an expensive price for their economy to achieve the targeted seven per cent growth rate. Reaching the goal, the real challenge in the coming years will not only be to maintain this rate of growth but also to translate it into a better standard of living.

Experts believe that alleviating poverty, equal distribution of the wealth generated by growth, and upgrading the skills of the local workforce are challenges which Egypt has to overcome. Already, Egyptians survived many bottle-necks in the past few years, including collective layoffs as part of the privatisation process which have rendered a considerable part of the country's labour force unemployed at middle age; subsidies which are slowly but surely being withdrawn on a long list of indispensable commodities -- including fuel at a time when prices continue to leap higher; meanwhile, social security barely reaches those in dire need of it.

Government officials call it the price of economic reform, the natural outcome of shifting from a centralised economy into a free market economy. For two years now, the government has prided itself in an unprecedented growth rates, an influx of foreign direct investment (FDI) which hit $7.7 billion for the first half of 2007-2008, in addition to greatly simplifying investment procedures and creating an investment- friendly atmosphere.

However, high inflation rates coupled with rising unemployment and an uncontrolled hike in prices have cheated society out of any concrete results of the reform process. Ironically, the past few weeks witnessed a progressive rise in the price of most commodities -- not the first in a short period of time.

According to the Economic Strategic Trends for 2008, published by Al-Ahram Centre for Political and Strategic Studies, a 40 per cent increase in the price of 144 commodities was registered during the last three months of 2007. "Price hikes have helped create a high inflation rate, which in turn widens the gap of income distribution in a country where mal-distribution of wealth is already a phenomenon," stated the report.

The May issue of Egypt's Economy Watch Bulletin prepared by HC Securities noted that "inflation rates are on the rise on a monthly basis, but the government has taken some measures that managed to control local prices of some commodities. This might slow down the huge surge in inflation rates that hit 16.4 per cent in April, 2008, versus 15.8 per cent in March." The bulletin added that the government steps included imposing a ban on cement, steel and rice exports, while waiving duties on other strategic products such as dairy products and edible oil. "These measures seem to be bearing fruit," it stated.

Obviously, the national dilemma of rising prices was further aggravated by the international food crisis, which is coupled with all time high fuel prices worldwide. While these two factors and their implications on the local market cannot be ignored, yet economists tend to believe that the international scene alone is not responsible for progressively deteriorating socio-economic conditions of Egyptians.

"A demonstration of the widening gap between high growth rates and deteriorating economic conditions for the people became obvious in the past few weeks, which were characterised by an unprecedented wave of price increases which negatively affected all social categories, including civil servants, farmers, engineers, university professors," argued Mustafa Kamel El-Sayed, executive director of Partners in Development, a think tank specialised in issues of development. El-Sayed asserted that the government believes that growth in itself will lead to raising the people's standard of living, "but this cannot be achieved unless accompanied by concrete poverty alleviation measures."

At the same time, the much touted seven per cent growth rate in 2007 needs closer inspection. "This figure has to be re-examined in the light of other factors," commented Abdel-Aziz Hegazi, former prime minister and chairman of the General Federation of NGOs. Hegazi explained that growth can only be named so if it is the outcome of the maximisation of production. "In the case of Egypt, however, the seven per cent growth rate is simply the revenues from tourism, oil and Suez Canal; this is very tricky," he pointed out.

Economic Strategic Trends issue for 2008 agrees, indicating that the real growth rates of GDP are those generated either by new investments or through maximising the productivity of already existing projects. "This is the prime factor to determine the real growth rate." It added that "far more important than achieving a high growth rate is to examine the nature of this growth, the sectors contributing to it and whether or not it is being equally distributed among different social categories."

According to Naglaa El-Ahwani, professor of economics at Cairo University and deputy director of the Egyptian Centre for Economic Studies (ECES), underlines that the bad distribution of the country's wealth "is a trend in the Egyptian economy, and this is why the less privileged are deprived of the concrete results of growth." El-Ahwani believes that growth cannot be interpreted into something tangible except by creating new jobs. "One of the ways to examine a healthy economy is its ability to create formal, decent new jobs," she explained.

The International Labour Organisation (ILO)'s definition of a decent job is one which is sustainable, permanent and insured with a formal contract.

"The unemployment rate in Egypt is progressively increasing," stated El-Ahwani, who revealed unemployment in the formal sector is much underestimated at 9.8 per cent. The number of the unemployed in the informal sector has mounted to 7.5 million people, she noted, "therefore the main challenge before the Egyptian economy now is to create labour-intensive opportunities to be able to contain some 900,000 newcomers to the labour market every year."

However, the latest budget submitted by the government did not promise to tackle the most serious challenge before the country -- the quality of the labour force. "Instead, LE2 billion were cut from the education budget, at a time when expenditure on education and vocational training is most badly needed," according to El-Sayed. He predicts a gloomy future if economic policies continue in this vein.

"The Egyptian economy needs to adopt a new strategy inspired by the notion of human development," believes the executive director of Partners in Development. "The focus should shift to improving education and health." El-Sayed continued that the alleviation of poverty should not be a manifestation of charity. "To venture onto the path of sustainable development, we should maximise the potentials of Egyptians, the best asset this country has," he asserted.

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