Saturday,18 August, 2018
Current issue | Issue 1127, 20 - 26 December 2012
Saturday,18 August, 2018
Issue 1127, 20 - 26 December 2012

Ahram Weekly

Lost in transition

The revolution has so far failed people’s economic aspirations. Niveen Wahish finds out what went wrong and where future priorities should lie

Al-Ahram Weekly

Almost two years ago, the night Hosni Mubarak was ousted, people took the streets with nothing but joy and hope filling their hearts. Young men were spontaneously singing, “I will get married.” They thought that finally they would be able to get a job, find an apartment and afford to get married. But those hopes are dashed by now. According to official figures, unemployment today stands at around 13 per cent, two per cent higher than pre-revolution levels. Not only are new entrants to the labour market finding it difficult to land jobs, but also many who were employed have lost theirs.

Experts had great expectations for the recovery of the economy, saying that its fundamentals were strong and it would pick up once things calmed down. But two years later the dust has not yet settled and the lack of clarity is pervasive.

Recently, since President Morsi’s constitutional declaration of 22 November and the ensuing violence, things took another a turn for the worse. The situation was augmented by controversy over the constitution. Investors, local and foreign, had been waiting for the constitution to be finalised and approved to get a clearer picture of where the country is going. Now, even after the referendum, hoped for stability is not guaranteed. As one banker who preferred to remain anonymous said, “with controversy over the constitution, stability is not expected anytime soon.”

On a day-to-day basis, life is becoming tougher on the people; prices are increasing rapidly, despite inflation figures that say otherwise, especially following the decision to impose new taxes. Although the implementation of the taxes was delayed, prices have nonetheless risen. The value of the pound saw its greatest depreciation in two years this month. This Sunday, according to the Central Bank of Egypt it is selling for LE6.18 per dollar. The pound has depreciated from the beginning of this month by 0.6 per cent compared to a depreciation of 4.4 per cent since January 2011, according to Pharos Holding for Financial Investments. This means more price hikes are waiting to happen given that Egypt is a net food importer and its manufacturing sector is very much dependent on imported inputs.

But Ahmed Galal, managing director of the Economic Research Forum think tank, is not pessimistic. “Egypt could have done much better but it is not doing horribly either.” He pointed out that while policymakers did not manage the interim process well and did not lay the foundation to take off when the dust settles, Egypt did very well compared to Eastern European countries during their transition from communism. Eastern Europe witnessed negative growth by several percentage points. Unemployment was on average 30 per cent and their industrial sector came to a halt. Egypt, meanwhile, continued to see growth, though modest; unemployment is 13 per cent and the industrial sector has slowed down but is still operational.

The Egyptian economy grew at 2.2 per cent during fiscal year 2011/12, compared to 1.8 per cent during the previous fiscal year and compared to an average of five per cent before the revolution. Although the government is targeting a growth rate of 3.5 per cent in the current fiscal year (2012/13) experts believe that is too optimistic given the continued instability.

Galal would not specify any one country as a benchmark for Egypt to measure itself against because the circumstances differ; however, he said that the lesson to be learnt from countries which have undergone transitions is to capitalise on previous reforms and adjust missing elements.

Galal said that during the previous regime economic growth was happening but missed the distribution side and not everyone was enjoying the fruits of that growth. Nobody seems to have learnt the lesson. After the revolution things are no different. The government has yet to work on the distribution aspect. What the government has so far done is put in place a minimum and maximum, which is important, but achieving more equality is not achieved by this but through three channels, namely: promoting growth that creates jobs and is inclusive and designed to benefit different parts of the country; focussing on social services such as education, health, sanitation and roads; and creating a social safety net for people who can not make it on their own, such as pensioners and widows.

Galal attributed the failure to achieve those goals to the fact that interim governments since January 2011 did not have the legitimacy to make major changes. They also did not have a time horizon, which is important to be able to plan ahead. They were additionally focussed on putting out fires: expectations were high and they needed to deal with immediate demands. “But this is not justified once a constitution is passed and parliament and new government is formed.”

Galal believes the downturn in the last couple of years is normal and that a V-shaped recovery was unrealistic. “We are going through a U-shaped turn, but the length of time we could spend at the bottom depends on the political settlement and the ability to move from an old regime to a new way of doing business, and whether people are comfortable with the regime or not.”

If rulers pick policies that suit them politically, rather than what is good for the country, and these policies have a negative effect on growth, distribution of income and poverty, the worst-case scenario is another revolution, said Galal.

Similarly, Mustafa Kamel Al-Sayed, political science professor at Cairo University, believes that the revolution’s goal of bread and social justice were not achieved. He said that since the neoliberal economic policies adopted by Egypt and other Arab Spring countries before the revolution were one of the causes of the revolution, it was expected after the revolution that these countries would try to promote some kind of social justice in the distribution of wealth and income. But that did not happen and very few measures were taken in order to improve conditions for the poor.

He acknowledged that it would be very difficult to move away from market economy policies but some measure should have been taken to improve access to and quality of basic services to the poor through increased expenditure on health and education. He stressed that policies that aim at encouraging the private sector and investments should also be accompanied by policies that try to help in the alleviation of poverty, creation of more job opportunities and avoiding monopolies in the Egyptian economy.

Al-Sayed believes the government’s failure is explained by a lack of competence at the top level of the state. “What is needed is a government of competent people who are known to be very good in their field, irrespective of their ideological leanings. Party loyalty should not be the sole criterion.”

Most ministers of the current cabinet were top bureaucrats when former ministers were removed, and bureaucrats are known to be largely unimaginative, he pointed out. “We should look for people who can take initiative, not only be good at following in the footsteps of their former ministers. If we have competent people they would try to promote a clear vision for the future.”

To Al-Sayed, the most pressing issue is political stability, which will not be achieved without national reconciliation and some form of compromise between the government and opposition groups. Moreover, the orientation of the government should be clear. He underlined the importance of coming to terms with issues of transitional justice and fighting corruption. Referring to business people caught up in corruption cases, he said: “If they did not really violate the law, then they should be allowed to continue their activity. If they have violated the law, then they should be allowed to pay a fine rather than imprison them.”

In the meantime, the government should try to find resources to improve services to the poor and should not think of this as consumer expenditure. “This is really a way of promoting human development, which would have spill-over effects on economic development,” Al-Sayed said.

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