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Thursday, 19 October 2017

Egypt: Two faces of the same economy

Ziad Bahaa-Eldin , Monday 20 Feb 2017
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In recent weeks, I’ve had the chance to meet several foreign investors who have come to Egypt seeking to understand the economic landscape and size up available opportunities.

Generally speaking, most of them now have a positive view of the Egyptian economy after recent government decisions. They pointed to relative currency stability, signs of a return of tourism, a climbing stock market index, and an improved sovereign rating as indications that the country is on the right track.

This view is not limited to foreign investors and analysts. Many Egyptians also see recent decisions as harsh, but necessary measures that offer new opportunities for investment, export, and growth.

The problem is that the everyday economic reality lived by the vast majority of Egyptians stands in stark contrast to this optimism. I do not need to repeat the facts of this reality, which have turned the lives of every family into a struggle against near-daily price hikes and a scramble for the next day’s needs.

Inflation, unemployment, and deteriorating public services are no longer a concern only for the poor, but for all classes albeit to varying degrees.

So where does the truth lie? Are people refusing to recognise the economic improvement seen by the outside world and the official media, preferring to gripe instead? Or are investors and economic analysts living on another planet oblivious to the people’s plight?

Actually, there’s no contradiction between the two views. Recent government economic policies targeted, in agreement with the IMF, major dysfunctions in the state budget and currency market in the belief that correcting these would spur growth, employment, and export, ultimately bringing economic development to the entire society.

This isn’t an Egyptian policy recipe. It was applied in numerous developing and middle-income countries, with varying degrees of success and failure, in the 1980s and 90s. In present-day Egypt, however, it faces four major obstacles.

First, while recognising the need to take drastic measures to restructure the public budget and balance of payments, the government embarked on these without preparing for the well-known, inevitable repercussions.

This has entailed successive crises in sugar, milk, fertiliser, medication, and more, along with steep price hikes resulting from a lack of oversight mechanisms and protections against monopolistic practices.

Second, the government continues to apply contradictory policies. It talks about encouraging private investment and issuing a new investment law, while state intervention in the economy, especially by agencies under the armed forces, increases daily, even in ordinary economic activities without any pressing security or strategic value.

As a result, the country pays a heavy price for difficult economic decisions, but does not benefit from the opportunities they generate, so we pay twice over.

Third, it’s assumed that better growth rates will automatically be translated into comprehensive economic development and improved living conditions for citizens.

But past experiences around the world demonstrate that this doesn’t happen when a country’s political and social system allows a minority to command the bulk of the returns of growth, leaving the majority to pick over the crumbs and creating a cheap labor force and demand for inferior products.

Equitable economic growth doesn’t happen spontaneously. It requires informed policy, political will, and a bias in favour of the poor. 

Finally, there is a persistent belief that an economic surge is possible in a closed political climate that restricts liberties and disregards the constitution and law. This isn’t bringing politics into economics, pace those who believe the two can be neatly separated—it’s a recognition of the inseparable link between the two.

Without a political opening and respect for the constitution, investment may come, but it won’t be long term or impactful, and it will not further the country’s aspirations for development. It will be minimal investment seeking quick profit and ready to bolt at the earliest sign of trouble. That will not bring real, sustainable economic development.

It’s natural for the economy to look different depending on one’s position in it and his/her interests. But such a stark gap in perceived economic reality is dangerous; it’s dangerous to disregard the social aspect of economics to an extent that becomes unbearable for the public and to stifle the political sphere and restrict freedoms.

In the years leading up to the January revolution, we tried quick economic growth without a complementary social policy and an open political climate. Must we repeat the same mistake now?


*The writer holds a PhD in financial law from the London School of Economics. He is former deputy prime minister, former chairman of the Egyptian Financial Supervisory Authority and former chairman of the General Authority for Investment.

A version of this article was published in Arabic in El-Shorouq newspaper on Monday, 13 February.

 

 

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