News / Middle East

    If Egypt’s Economy Doesn’t Improve, Does Democracy Matter?

    A jewelry vendor outside a store in the Khan al-Khalili area of Cairo (file photo)
    A jewelry vendor outside a store in the Khan al-Khalili area of Cairo (file photo)
    Mohamed Elshinnawi

    This is Part 2 of a 3-part series: Egypt’s Transition
    Parts 1 / 2 / 3

    Eman Mahran can’t find a job. The unemployed biomedical engineer has been looking for work for four years and her plight represents a large and troubling aspect of the ailing Egyptian economy.

    “I graduated in 2007 and I thought I would have a bright career because of my specialty. But I lost hope, joining my unlucky generation of young Egyptians,” said Mahran, who is unmarried and lives with her retired father.

    Main challenges

    Egypt’s unemployment rate is approximately 12 percent, according to the International Monetary Fund. Even those who have jobs are worried. Egyptians, such as Magdy El Meshmeshy, a vice president of a manufacturing group, complains that the current political situation in Egypt is not helping the economy. “Social unrest, a security vacuum, continued instability, shrinking production and lack of incentives for medium-sized enterprises are not the right way to revive the troubled economy,” said El Meshmeshy.

    Magda Kandil, the executive director of the Cairo-based Egyptian Center for Economic Studies, agreed. She listed several challenges facing post-revolution the Egypt.

    “At the top of these challenges, we should mention security failure,” the economist said. “Also, corruption charges have tarnished the image of the private sector and have made it very difficult to reestablish a good image of private-led growth.” Kandil also called political instability a “genuine concern.” In addition, she listed other factors as major sources of Egypt’s economic malaise: the loss of foreign capital influx, the decline of tourism,  slumping foreign direct investment, and capital flight after some Egyptians decided to just “liquidate and leave.”

    Sobering facts and figures

    Kandil also warned that the transitional government and the Supreme Council of the Armed Forces that now rule post-revolution Egypt must tackle the economic challenges more seriously. With a budget deficit that accounts for 10 percent of the GDP, an unemployment rate of 12 percent, an 11.8 percent rate of inflation, a 33 percent drop in tourism and a 12 percent decline in the value of the Egyptian pound relative to the Euro, the prospect of economic recovery is gloomy.

    Kandil is also worried about the national debt, estimated at $35 billion, and the fact that Central Bank reserves are being used to pay for minimum wage increases. Foreign currency reserves have dropped from $36 billion to $26 billion since the revolution, according to the Egyptian Center for Economic Studies.

    Then there is the issue of costly subsidies, such as the $70 billion the Egyptian government spends to support petroleum products. There is general agreement among economists that such subsidies should be slashed drastically with monies only going to the most vulnerable enterprises. They say that the huge resulting savings could help improve education and job training.

    Gap between solutions and actions

    Ibrahim Oweiss, a professor of economics at Georgetown University in Washington, D.C., says the government has so far not taken any major steps to deal with these daunting challenges.

    “The first thing is really to establish a system of law and order to reestablish stability throughout the country,” Oweiss said, “and after that, things could move forward because there are great potentials for the Egyptian economy in the future.”

    Magdy El Meshmeshy feels there is a wide gap between the available solutions and the way the ruling military council and the transitional government are handling the situation. “There is no articulated road map for the economy or a medium-range strategy so far. But if the new government starts to deal with the corruption and restoring security, investors will feel more comfortable to come back and help the Egyptian economy,” El Meshmeshy said. He argues that small and mid-sized enterprises could create more jobs and contribute to reviving the economy.

    What the economy needs

    Experts agree that priorities should be focused on improving security, and on political reforms that ensure good governance and accountability. These reforms should be coupled with a well-defined and forward-looking economic strategy that will restore confidence and bring back domestic and foreign investment.

    “There is a lot to be desired in terms of legislation to fight corruption, red tape and bureaucracy,” Kandil of the Egyptian Center for Economic Studies said. She complained that the ruling military council and the transitional government did not articulate a clear vision for the post-revolution economy. “They need to press ahead with reforms to ease controls on lending to small and medium size enterprises, reform existing labor laws, reduce waste in government spending and increase efficiency in tax collection to boost revenues.”

    Many Egyptians feel that after years of organized corruption, an economy dominated by government-protected business monopolies, and stark injustices in wealth distribution, there is a need to build  a private sector that will put the economy back on its feet. El Meshmeshy put it this way: The government needs to come forward with “a clear message about the private sector leading the growth and creating jobs, more incentives and a new image of the private sector away from the corruption that tarnished the reputation of businessmen during the Mubarak years.”

    The consensus among experts is that crony capitalism basically prevented the fruits of Egypt’s past economic growth from reaching the working class. Consequently, there is now a need to put special emphasis on promoting sectors with employment opportunities that will help the wealth trickle down.

    Eman Mahran, the unemployed biomedical engineer, agrees. “With less corruption and more focus on the quality of education and health care, more jobs would be available for qualified people and that will help me join the work force in the near future,” she says hopefully.

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