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INTERVIEW: 'Egypt’s economic reforms were necessary, but insufficient,' former World Bank consultant says

'In fact, the economy was seizing up. There was no liquidity in foreign exchange. Thus, reforms were necessary but not sufficient to create the needed structural change,' Assaad told Ahram Online

Doaa A.Moneim , Thursday 19 Dec 2019
Assaad
A former consultant to the World Bank Ragui Assaad
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Ragui Assaad, professor of planning and public affairs at the University of Minnesota and former consultant to the World Bank, UNICEF, and the UNDP, said that the economic reforms Egypt has adopted since 2016 were necessary but not sufficient, and that macro-economic reform is needed.

“In fact, the economy was seizing up. There was no liquidity in foreign exchange. Thus, reforms were necessary but not sufficient to create the needed structural change. They need to be followed by micro-economic and institutional reforms that have not been taken place,” Assaad explained.

In an interview with Ahram Online on the sidelines of “Towards an Economy for All” organised by Alternative Policy Solutions on Wednesday at the American University in Cairo, Assaad said that Egypt has seen recovery in its economic growth since 2014, reaching more than 5 percent in its economic growth indicator.

'Jobless growth'

Assaad said that Egypt’s economic growth is "jobless growth," and has no impact on employment rates or the quality of jobs.

“The Egyptian market has seen significant increase in informal employment outside the formal establishments, which tends to be a very vulnerable and irregular form of informal employment. Furthermore, this growth has been primarily driven by real estate development through state-owned and private sector projects alike, especially in infrastructure and construction, which provides irregular, casual jobs that are not stable,” according to Assaad.

The surge in real estate projects in the domestic market includes national mega projects and a significant number of residential gated communities, Assaad says.

“The public sector is investing a lot in infrastructure in mega projects, but investors also find that investing in real estate is safer, more productive, and more profitable than investing in any other sector. This situation has caused a kind of deficiency in the capital market that prevents private sector savings from being directed to more productive sectors to establish projects that the domestic market really needs,” Assaad explained.

“This boom in real estate is a form of speculative investment, and I think it is just a bubble that might burst and will not continue. The problem with the real estate sector in Egypt is that it provides employment only for the period in which the real estate project is being built. It does not create jobs,” Assaad added.

Labour problemcaused by nature of development

The nature of the Egyptian labour market's problem comes from the form the development and economic growth that have been adopted, Assaad said, but the government is now making notable efforts to reinvigorate the manufacturing sector. These efforts include the recent initiative launched by the Central Bank of Egypt to provide concessionary financing at low interest rates for manufacturing firms and forgive those who have unpaid depts. Assaad says this is a good initiative for reviving the manufacturing sector, which should absorb a large part of the labour force.

“Egypt’s development and economic reform need a greater focus on increasing exports, especially in manufacturing sector goods and commodities. Generally, the response of the export sector to the devaluation of the Egyptian pound has not been as we expected. We thought, as economic and policy experts, that the sector would respond much more vigorously to the devaluation. But there are still some signs that this could start happening, especially with the new CBE initiative,” Assaad said.

Good signs ahead

On the other hand, Assaad said that there are good signs ahead for Egypt’s economic growth. These include the rapid growth of small and medium enterprises (SMEs), which had been growing very slowly from the period between 1996 and 2006. Assaad said that medium-sized enterprises are now growing faster than either micro or large projects, which is very good news because they provide higher quality jobs.

“Basically, the SME sector is growing more rapidly thanks to greater attention from the Egyptian government over the past few years, including the CBE’s initiative to provide 5 percent interest for financing the projects in this sector and the new SME law that is being discussed in parliament. Such efforts reflect a greater focus on this vital sector away from the very large, politically well-connected enterprises,” he said.

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