Time for a big bang?
After five years in office much has been achieved by the Nazif government, particularly in economic terms. However, much remains to be done, reports Niveen Wahish
When Prime Minister Ahmed Nazif's government entered office five years ago, a lot of hope was pinned on its ability to turn the economy around. A number of the ministers came from business or management backgrounds, hence it was thought that they stood a real chance of reducing Egypt's economic woes.
In fact, five years later a great deal has been done, according to economist Samir Radwan, a member of the General Authority for Investment and Free Zones. "The economy had hit rock bottom prior to the Nazif government's taking office," Radwan said, pointing out that growth rates have since hit an unprecedented 7.2 per cent in 2008, exchange rate fluctuations have largely ended, and at one point the country even posted a balance of payments surplus.
Hanaa Kheireldin, executive director of the Egyptian Centre for Economic Studies (ECES), agrees that the Nazif government has been much more effective than its predecessor in taking the steps that should have been taken 10 years ago in the areas of monetary policy, tax policy, customs policy and banking reform.
And Mona El-Baradei, executive director of the Egyptian National Competitiveness Council (ENCC), adds that work done in the area of infrastructure and improving the investment climate through the promulgation of new legislation, simplifying procedures and setting up new institutions such as the National Competition Authority (NCA) or the Internal Trade Authority, have all been immensely helpful.
However, all three experts still agree that the government has largely failed in its attempts to ensure a wider distribution of wealth and greater access to the fruits of economic growth.
According to Said El-Magharbi, 46, an Arabic-language teacher, he, like the average Egyptian citizen, "has not felt the effects of the growth that the government speaks about all the time."
So bad had his prospects in Egypt seemed that El-Magharbi is now teaching Arabic abroad in the Commonwealth of Independent States (CIS), where he earns far more than he could in Egypt. Yet, when his present contract is over, El-Magharbi says that he will have to go back to job hunting on the Egyptian labour market, which does not provide opportunities for ordinary people, he says.
The failures of the labour market and the inability of individuals to find decent jobs is at the core of the present misdistribution of the fruits of growth, says Radwan, adding that the first Egyptian Investment Report prepared by a group of economists for the board of the General Authority for Free Zones and Investment (GAFI) has revealed the extent to which wealth in the country is not evenly distributed.
The report shows that whereas Upper Egypt receives only six per cent of total investment, Cairo and Alexandria receive 66 per cent. Similarly, agriculture, which employs 28 per cent of the working population, receives only seven per cent of investment. In addition, some 44 per cent of the work force is either illiterate or semi- illiterate, giving such people little access to decently paying jobs.
Moreover, 35 per cent of the workforce works in the informal economy, the report says, which is low on wages and productivity. To change all this, Radwan says, drastic measures will be needed to improve education, productivity and geographical distribution. "The concept of self employment needs to be promoted among young people at an early age," he says, "and the mismatch between what the labour market needs and what is being produced by the educational system must be addressed."
The 2009 Egyptian Competitiveness Report produced by the ENCC showed that Egypt's ranking on the Global Competitiveness Index has dropped from 77 out of 131 countries to 81 out of 134. This has been caused by three weaknesses, the report says, namely "macroeconomic instability, poor labour market efficiency and the weak quality of educational institutions."
"A brave political decision is needed. Efforts to reform education have so far not been enough," stresses El-Baradei of the ENCC, adding that it is estimated that parents are now paying up to LE15 billion for private lessons throughout school stages. Free education must be targeted to those who most need it, she says, the same applying to subsidies.
According to the ENCC report, spending on subsidies and public-sector wages is among the rigidities in the Egyptian budget that "constrain efforts to improve infrastructure, health and education, key sectors that lead to improved human capital."
El-Baradei also calls for changes in labour and insurance laws that currently discourage businesses from hiring workers on proper contracts and make it difficult to lay off employees should there be a need to do so. Such laws need to be modified, and the system of unemployment assistance should be generalised, she says.
"If all this requires a change in the constitution, then so be it," El-Baradei comments.
Growth thus far has been concentrated in areas that generate few job opportunities for the general public, El-Baradei says. The benefits of reform are being felt by those working in thriving sectors such as information technology and construction, "yet those in IT are a professional few, and it is the real estate developers who are reaping the benefits of the construction boom, not the average worker."
El-Baradei admits, however, that the government has been unfortunate in that its efforts have been hit by crises over which it has little control, such as bird and swine flu and the current global economic meltdown, all of which have dampened high growth rates.
Yet, Kheireldin of the ECES says that the underlying problems of the Egyptian economy existed even before such crises. Better public services, whether in health or in education, are essential if the average citizen is to feel an improvement in quality of life, she says.
Kheireldin also refuses to blame the growing population for the country's woes. If properly managed, she says, this could represent a vast resource, pointing out that the Chinese economy has grown in leaps and bounds with the country's population.
She points out that in areas such as administrative reform the government has not been carrying out reforms as quickly as might have been desired. For years, the government has said that it will limit public-sector jobs, yet the public-sector workforce has now ballooned to some 5.5 million employees. The government should not throw such workers out onto the streets, but it should downsize gradually, Kheireldin says.
"Any reform is bound to leave some people unhappy. What is important is that reform is in favour of the needy and disadvantaged, and that those who are negatively affected can take the blow. If reforms hurt the disadvantaged, then they should be supported or compensated."
What Kheireldin suggests is bold decisions taken by the Egyptian government similar to the "big bang" policies adopted in Latin America, where economically necessary decisions were implemented even though they led to protests from some sections of the population.