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Wednesday, 16 October 2019

Egypt: Balancing reform and social protection

New President of the World Bank Group David Malpass visited Egypt earlier this week less than a month after his appointment and explained his priorities in an interview with Sara Al-Issawy

Sara Al-Issawy , Wednesday 8 May 2019
David Malpass
President of the World Bank Group David Malpass (Photo: Reuters)
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The aim of the new president of the World Bank Group, David Malpass, is to strengthen cooperation and partnership with Egypt, based on the common goal of promoting sustainable development to improve the living standards of Egyptian citizens, through development programmes that meet the needs of people, he said during a visit to Cairo this week.

He explained ways of striking a balance between reform policies aiming at sustainable development and the need for greater social protection in the interview he gave to Al-Ahram Weekly below.

What are your impressions of the Egyptian economy following the first phase of reforms and in advance of the next phase?

Egypt has implemented a number of critical economic reforms that have helped the country restore economic stability and allowed the private sector to invest and grow.

The reforms have also contributed to creating jobs and reducing unemployment, and the financial and monetary reforms have reduced the budget deficit and reduced inflation.

These reforms have also created challenges for Egyptians at the lower end of the income scale, which is one of the reasons the World Bank has focused on social security projects that support the most vulnerable.

The economic reforms have brought several economic challenges, the most important of which have been the rise in inflation and increase in prices with their negative impacts on the middle and lower-income classes. How can a balance be achieved between moving ahead with economic reforms and achieving social justice?

I think there should be a mix of programmes that promote faster and higher economic growth rates and allow the private sector to expand and grow but also with social protection programmes that support the lower-income classes.

The middle class will benefit from the increase in the number of small and medium-sized enterprises as a result of projects to expand the private sector, which will provide more job opportunities that will improve living standards for the middle class and enable them to regain any lost ground.

The focus on improving the quality of education is also aimed at improving the lives of citizens. With better and more relevant skills, they will have access to more and better opportunities.

Debt is one of the problems faced by many developing countries, including Egypt. What is your view of the debt burden on the Egyptian economy, and is there a need for further loans?

Debt as a ratio to gross domestic product (GDP) has risen during past years as the Egyptian economy confronted a crisis. I am pleased to see this rate starting to decline over the past year, but it is still challenging for Egypt, as it is challenging for many other developing countries, to manage debt.

Financing for priority projects and programmes that promote economic growth and investments in human capital is essential, but this needs to include the mobilisation of private finance to reduce the burden on the national budget.

This is especially important in Egypt, which has great potential for expanding the private sector as the business environment improves, and laying the foundations for more sustainable development.

Small enterprises and entrepreneurship are one of the most important employment-generating sectors in Egypt, and the government has made great efforts to stimulate this sector and provide the necessary funding and support. What is the role of the World Bank in supporting small enterprises and increasing their ability to create jobs?

The World Bank is committed to supporting the private sector in Egypt and entrepreneurship, which are key sources of economic growth and job creation.

This includes supporting young people and women in the areas most in need of job creation.

We are committed to supporting Egypt’s efforts to promote entrepreneurship and small enterprises, which are essential engines for inclusive economic growth.

I believe Egypt needs $50 billion of private-sector funding to create the right environment for small enterprises to grow and prosper and contribute to a greater share of GDP. President Abdel-Fattah Al-Sisi has undertaken great efforts to promote small businesses and expand the private sector.

The World Bank Board recently approved a new $200 million project to support entrepreneurs in Egypt. Along with increasing access to credit, the project aims to address the obstacles entrepreneurs face at the launch of new projects, while providing training in the necessary business skills throughout the life-cycle of their projects to increase the chances of success and growth.

The project will target young people and women and people living in less-developed regions of the country.

What are the most important challenges for creating employment opportunities in Egypt and how can Egyptian youth be encouraged to start projects through the programmes launched by the government, most notably the “Your Idea is Your Company” programme and others to support potential entrepreneurs and start-ups?

Ensuring that education provides the necessary and relevant skills required by the job market is essential, while also creating the right business climate to encourage new businesses along with expanding the availability of credit.

I had the chance to visit the project “Your Idea is Your Company” launched by the Ministry of Investment, which aims to encourage entrepreneurs to launch innovative and pioneering projects and create job opportunities.

This is an important endeavour which must be accompanied by efforts to increase competition. This is a fundamental challenge for Egypt that must be tackled vigorously by creating a level playing field and a hospitable environment for the launch of small businesses, a sector which will play a vital role in the economy.

How do you see the reforms on improving the business climate and the investment environment?

Egypt has made major reforms in the legislative and legal structure of the business climate. During my visit, I met with several members of the Egyptian parliament who participated in the drafting of investment legislation and the legal framework for the business environment.

The World Bank supports these measures. The bank issues a regular report on the ease of doing business across a range of countries, as well as a report on the business climate in Egypt, and Egypt has made clear progress through several measures taken to improve the business climate and with the reforms to expand the private sector.

Egypt is expected to make further progress in order to attract more investments and projects which create jobs and contribute to economic growth.

Egypt also enjoys a great diversity of investment opportunities and has very promising potential, and ongoing reforms to improve the business environment will attract more investments and create jobs.

Egypt is focused on the development of human resources through the adoption of a programme for the development of education as well as healthcare. What is your view of the challenges of building human capital that Egypt is working to address and what impact will the programme have on the lives of citizens?

One of the important challenges of the educational system is for students to know and measure their own results by assessing the extent of their achievement and the ability of the educational system to raise their skills and employment potential.

It is important that the educational system contributes to development by making sure graduates are ready to work.

This should be assessed in relation to the current education reforms in Egypt, which aim to equip young people with skills relevant to the labour market, while also promoting innovation and entrepreneurship to encourage students to launch small enterprises and create their own jobs.

Fiscal Balance

How can we balance spending on human resource development in Egypt with spending on developing infrastructure and public services?

To achieve this balance, it is necessary to monitor the results of public expenditure and measure its effectiveness in achieving its intended goals.

It is important right now for Egypt to focus on human development through investments in education and in particular the motivation of teachers through training and regular opportunities to update their skills.

It is necessary to have highly competent and skilled teachers, so that they can interact well and respond to the education process, respond to the required development, and deal better with students and help them in the development of their skills and achieve better outputs from the educational process.

With regard to health, this sector in Egypt needs significant development of infrastructure to be able to provide services to citizens.

Egypt has made great efforts in the implementation of the Hepatitis C virus detection programme, which has achieved good results.

Egypt also needs to develop infrastructure in other sectors, and this needs a great effort and many programmes in cooperation with the private sector to mobilise private investment in priority sectors such as the transport sector.

Therefore, balancing expenditures on human development with spending on infrastructure is necessary and vital, and needs to include a role for the private sector.

The World Bank lowered its outlook for global economic growth this year, notably in developing countries. How can this challenge be dealt with?

The World Bank cannot control the global economic growth rate, but it plays a catalytic role in growth in developing countries.

One of the reasons for the decline in global growth is mainly due to the slowdown in economic growth in Europe, which is linked to the “Brexit” issue in the UK.

Part of the reason for the decline in growth is due to a slowing at the end of 2018, which saw slow growth in the business environment and investments.

Many countries in the region suffer from problems related to terrorism and political instability, which affect their economies and hinder development and stability. How do you see this situation and ways to overcome it?

Stability and security are essential components of economic growth and job creation. President Al-Sisi holds the chairmanship of the African Union this year, which gives him a great role in addressing the security problems that plague the African continent, especially in Libya and Sudan, and he can play a major role in stabilising and restoring security.

I must mention that there has been great development in southern Ethiopia and Eritrea towards achieving peace, and there is an opportunity to be seized to strengthen stability, which will also affect Egypt.

The World Bank Portfolio in Egypt

The World Bank's portfolio in Egypt includes 26 projects with a total financing of $6.6 billion. The bank’s projects aim to accelerate benefits from the growth of key sectors including energy, transportation, water, sanitation, agriculture, irrigation, housing and social protection, as well as education and health. 

The bank’s portfolio of projects is focused on increasing social protection, improving the competitiveness of the economy, strengthening infrastructure in less-developed regions, developing a strategy for digital development, and guiding private-sector investments in infrastructure projects.

Some of the most important projects financed by the Bank include the Benpan Solar Energy Project, the Takaful and Karama programmes for social protection, the reform of the education system and the health-insurance system, and a number of entrepreneurship projects.

The World Bank also has a special focus on creating opportunities in less-developed regions such as Upper Egypt.

World Bank President David Malpass

DAVID Malpass served as US under-secretary of the US Treasury Department for International Affairs and has represented the United States in many international forums including meetings of the G7 group of finance ministers, the G20 group, and annual meetings of the IMF and World Bank.

He played a major role in many major reforms and initiatives of the World Bank while at the US Treasury Department, including the World Bank’s recent increase in capital, and he played a major role in promoting the debt-transparency initiative adopted by the World Bank and the IMF.

Malpass has served as an international economic expert and as US deputy assistant secretary of state for developing countries and deputy assistant secretary for economic affairs for Latin America.

He received a Bachelor’s degree from the Colorado School of Business and a Master of Business Administration from the University of Denver in the US. On 5 April, the World Bank’s Board unanimously approved the appointment of Malpass as the new president of the World Bank Group for a five-year term.

He is the 13th president of the World Bank Group and as such is chairman of the bank’s Board of Directors and of the International Development Association.

He is also ex officio chair of the Boards of Directors of other institutions including the International Finance Corporation, Multilateral Investment Guarantee Agency, and the Centre for the Settlement of Investment Disputes.

*A version of this article appears in print in the 9 May, 2019 edition of Al-Ahram Weekly under the headline: Balancing reform and social protection

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