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Tuesday, 21 November 2017

Economic growth alone won't be enough

Ziad Bahaa-Eldin , Wednesday 15 Mar 2017
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Views: 2943

A few days ago, the London-based Economist published a story on improvements in the Egyptian economy resulting from recent government decisions and the IMF deal.

The venerable economics magazine saw the growth in demand on government bonds by foreign investors, increased remittances from Egyptians working abroad, a bump in exports, and higher dollar reserves with the Central Bank as signs of improvement.

And while the article did note the challenges facing the Egyptian economy, overall it demonstrates the cautious optimism prevalent in international and media reports.

This trend is based not only on past indicators, but on projected increases in foreign investment due to the floating of the pound, the gradual albeit slow return of tourism revenues, natural gas about to come on line from Mediterranean fields, and the readiness of the international community to support Egypt in light of current regional conditions.

For Egypt just to be back on the list of countries tracked by analysts, investors, and international institutions is itself a good thing, after having been off the radar of global investment for the past few years.

But since the ultimate goal is not merely to improve macroeconomic indicators or garner global interest—it’s rather the genuine improvement in citizens’ lives this would bring—the relationship between economic growth and sustainable economic development rears its head yet again.

On several occasions over the last 40 years, Egypt has seen a better investment climate and higher rates of employment, export, and growth, but absent the comprehensive socioeconomic development that sparks a comparable advance in the standard of living.

Most recently, in the five years prior to the 2011 January revolution, investment, employment, and growth reached unprecedented levels, but with these came increased poverty and a more acute sense that broad swathes of Egyptians were not enjoying the fruits of this economic growth.

I don’t think this contradiction is far from the thoughts of economic officials now, especially when signs of grievance and dissatisfaction appear, as they did last week with the demonstrations caused by the distribution of subsidised bread.

Even so, they seem to adhere to the belief that improved macroeconomic indicators, investment, export, and growth will inevitably lead to less unemployment, price stability, increased production, and, in turn, improved living standards. But this is exactly the assumption we need to examine, for two reasons:

First, the experience of Egypt prior to the January revolution and numerous other countries that implemented fiscal reform programs in the 1980s and 1990s shows that while investment, export, and growth are prerequisites for economic development, alone they aren’t enough. They must be paired with a social policy that redistributes income and wealth equitably, improved labor conditions, resources directed at human development, the suppression of monopolistic practices, the provision of equal opportunities for education, advancement, and competition, and direct intervention to protect the poorest.

Such mechanisms are needed to ensure a balanced distribution of the returns on growth. Reducing social justice to merely a bump in pensions and benefits without a more comprehensive social policy may temporarily alleviate abject poverty, but will not close the gap between rich and poor or bring social peace.

Second, translating economic growth into better living standards is not possible in a political climate that restricts liberties, disregards the constitution and law, and is hostile to pluralism. Living standards aren’t defined only by what society produces, consumes, or exports, but by citizens’ sense that they have rights, that the law protects them, and that their dignity and humanity is respected.

As long as the state embraces economic reform while forestalling political reform, economic growth will not give citizens a sense of satisfaction, security, and justice.

Macroeconomic indicators look better today than they did a year ago, and the country has a chance to break through the impasse. But if the state continues to ignore the economic reality lived by Egyptians, the need for a more just, comprehensive social policy, and the urgent need for a more relaxed political climate, the chance for genuine socioeconomic development could slip away as it has in the past.


*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 March.

 

 

 

 

 

 

 

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