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Unlocking employment potential in Egypt

A new report has highlighted the fact that sectors with low value-added and limited productivity are attracting more Egyptians of working age

Sherine Abdel-Razek , Monday 23 Nov 2020
Unlocking employment potential
The productivity of the manufacturing sector is on the decline
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Egypt’s unemployment rate dropped to 7.3 per cent in the third quarter of 2020 after hitting a two-year high of 9.6 per cent in the previous quarter, according to figures from the Central Agency of Public Mobilisation and Statistics (CAPMAS).

The decline came after the government eased lockdown restrictions relating to the Covid-19 pandemic at the end of June, following almost three months of slowed-down economic and business activity reflected in the loss of 2.7 million jobs.

Analysts believe that the unexpected 0.5 per cent interest-rate cut by the Central Bank of Egypt (CBE) last Thursday will encourage corporates to borrow more and create more jobs. The CBE cut is the third this year, totalling a four per cent drop in interest rates to reach 8.25 per cent on deposits and a lending rate of 9.25 per cent.

The release of the new unemployment figures came with the launch of a World Bank report looking at unemployment not in terms of only those who are jobless, but also by giving a thorough analysis of how to unlock productivity and job-creation opportunities in the economy. 

The Egypt Economic Monitor 2020 report points to flaws in the employment structure in Egypt.

While the GDP growth rate in Egypt is equivalent to its peers, the GDP per capita and the GDP per worker rate are sluggish, the report said. This was due to slim labour productivity, given by GDP divided by the number of employed individuals, which stood at an average of 1.9 per cent in 2003-2018 when the GDP growth rate stood at 4.5 per cent.

This 1.9 per cent rate is the lowest among Egypt’s peers in the middle-income countries.

Moreover, only 41.7 per cent of people of working age were employed in Egypt between 2014 and 2018 compared to an average of 57.5 per cent in other middle-income countries. This means that not only do economic sectors not offer enough job opportunities for the majority of those of working age, but also that the productivity of those in work is less than average.

To understand the reasons for this, the report analyses the employment structure in Egypt, whether private or public, and which sectors attract more employees.

During the 15-year period looked at, the private sector’s contribution to GDP increased by four per cent from 65.1 per cent to 69.2 per cent. Meanwhile, the percentage of those employed by the private sector as a percentage of overall employment grew more rapidly to reach 77.7 per cent of total employment compared to 66.9 in 2003.

An important characteristic is that private-sector jobs outside fixed establishments in Egypt make up the largest portion of total employment. Outside fixed establishments, employment is most vulnerable to job insecurity, as measured by irregularity of employment and involuntary part-time work.

The latter also has some of the highest rates of exposure to occupational hazards and injuries. Due to the nature of such jobs, this kind of employment often attracts unskilled male workers. Private-sector productivity, when measured by value-added per worker, has declined during the 15-year period.

The report looked at the nature of employment according to different economic sectors and highlighted the fact that this is substantial in two relatively low value-added sectors: private agriculture, which alone employs 24.4 per cent of the work force, and public social services, with 17.2 per cent of those employed working in it.

Meanwhile, economic transformation, which means raising productivity within sectors as well as the reallocation of labour and other sources of more productive service work, has been slow in Egypt. The report noted that employment shares were increasing in low value-added sectors or those experiencing a decline in productivity.

Private construction and transport have witnessed large increases in GDP shares, for example. But these two sectors are characterised by low productivity and have significant shares of employment outside fixed establishments.

While the private social services and wholesale and retail trade sectors saw increases in their contributions to GDP and employment growth, these are not export-oriented, and they may not have backwards and forwards linkages with other sectors.

More importantly, the key manufacturing sector’s share of GDP has declined from 18.2 per cent to 16.6 per cent, the report said. The public manufacturing sector witnessed an increase in productivity that was paralleled by a decrease in employment share. The case was different in the private manufacturing sector, where productivity has been edging down while its share of employment is on the rise.

Overall, according to the report, “the structure of the Egyptian economy has shifted to tradable sectors that can increase employment opportunities in potentially higher value-added sectors that can orient supply towards exports of goods and services.”

As a result, the potential of the country’s huge youth population has not been tapped, as the productivity and job-creation capacity of the economy remains constrained, it added.

The loss of jobs in the wake of the Covid-19 crisis, has led to 2.7 million jobs being lost, according to CAPMAS, and this has exacerbated the long-term problem of job creation, especially in the private sector. “The Egyptian economy has not been able to generate enough high-earning jobs, at scale,” the report stresses.

Egypt needs to double down on economic reforms to stimulate job creation and private-sector activity as a result, and in order to do so the report suggests a three-pronged strategy.

First, the government must work on sustaining economic stability by consolidating public finances and boosting fiscal and debt management and transparency. Maintaining a flexible exchange rate and keeping inflation low is also key, the report says.

Although better than before, Egypt also lags behind other emerging economies that have pushed ahead with pro-business reforms.

Second, Egypt must offer an enabling environment to create both local and foreign investments to guarantee sector growth and support the movement of workers to higher value-added sectors.

Third, there is a need to upgrade human capital by investing in education and job training, the report says. The government needs to put more energy into upskilling the labour force, giving businesses access to the talent they need if they are going to grow in higher value-added industries.

*A version of this article appears in print in the 19 November, 2020 edition of Al-Ahram Weekly

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