In praise of the private sector

Abdel-Moneim Said
Thursday 27 Jan 2022

Abdel-Moneim Said discusses some of the private sector’s most pressing issues

One hears whispers and grumblings from representatives of the business community in Egypt that public and governmental sectors are vying with the private sector in areas where it has been successful, slowing its growth and edging it out of the market. 

Government officials from the president down have strenuously denied this. They point, firstly, to the many private sector firms involved in a large numbers of mega projects that have been carried out recently, generating great profits and financial returns outside the government as a result. They argue, secondly, that the private sector has repeatedly been invited to participate more intensively in purchasing and operating industrial, agricultural and service enterprises, from fisheries and greenhouses to new urban developments from the Administrative Capital to New Alamein. They state, thirdly, that a greater private sector role is essential to the current phase of progress. Coming after the phase of reestablishing and securing the pillars of the state and the phase of building infrastructure and equipping industrial zones, the third phase will see the launch of many of these projects thereby setting the economy and society as a whole on course to the ranks of developed nations. To this end, Egypt must marshal, mobilise and integrate all national resources from the public and governmental sectors to the private, cooperative and community sectors, each according to their place and ability.

If these arguments are valid and evident, why do we hear complaints and remarks despite the many avenues available for maximising the relationship between the government and private sector to the benefit of the national drive to progress? To answer this question we need to review some facts based on Egyptian official figures. 

First, looking at the ratio of private to public sector investment from 2000 to 2020, we find that after the ratio stood at roughly 50/50 from 2000 to 2004 it shifted to 60/40 in favour of the private sector from 2005 to 2015. Then the situation reversed, with the private sector accounting for only 35 per cent of total investment in 2016 and 2017. This was largely due to the intensive government investment in infrastructure construction. The 50/50 equilibrium resumed in the following two years (2018 and 2019) but then was thrown off kilter again due to the Covid-19 pandemic, which brought the public to private sector investment ratio to 70/30 in 2019 and 2020.

Secondly, the problem may have less to do with questions of proportion than of structure. The private sector is enormous, if measured by the number of private economic enterprises. There are 3.74 million establishments which employ 78.4 per cent of the workforce and contributed 72.4 per cent of GDP in 2020. But the sector is structurally weak. The reality is that 53 per cent of the private sector is concentrated in the informal sector, 58 per cent in wholesale and retail trade and automotive repairs. Moreover, 39 per cent of the businesses are located in only four governorates: Cairo, Giza, Dakahlia and Alexandria. Only 6.2 per cent of them use computer technology and only one per cent are involved in export.

Thirdly, while state-owned public enterprises are large, their contribution to economic activity is modest at best. Their returns are not commensurate with their huge assets, and the management of their assets is split between the government bodies involved in running them, which hampers the optimum use of assets. In addition, their internal organisational statutes are diverse and confusing, their goals diffuse, and they exist in unfamiliar ways in a number of economic sectors. Most of them are also not involved in export despite the incentives and exemptions they enjoy. 

Fourthly, regardless of whether economic activity is in the public or private sector, Egypt ranks at below a hundred in the World Bank’s doing business reports, which means that it is surpassed in this regard by other emergent industrial nations in the Arab region and Africa. This alerts us to the need for a fresh look at the situation taking into account the challenges Egypt currently faces and where we want to be ten, 15 or 20 years from now. 

The demographic factor is still our foremost challenge. Government resources and availability of basic services are not commensurate with a population that currently exceeds 100 million. On top of this, consider that the birth rate in Egypt exceeds that of the UK, Germany, France, Italy and a few other countries combined. What this means is that Egypt needs to create one million job opportunities every year which, in turn, requires a 25-30 per cent increase in total investments and a seven-nine per cent annual growth rate. As difficult as it may be to achieve such targets, it is not impossible. Developing and emergent economies have attested to this with growth rates surpassing 13 per cent in China. Indeed, Egypt’s own experience during the past few years testifies to outstanding capacities that seemed absent in other periods of our modern history.

What Egypt needs for the near future is more mega projects so as to raise its international ranking in doing business. Also towards this end, there should be a clear delineation of fields of work for the private and public sectors and new legislation to facilitate and promote productivity, competitiveness and conformity with the principles of the free market which should be immune to interventions that obstruct the forces of growth. 

The space is unavailable for much more than needs to be said on the subject. But basically, to build on what we have already accomplished requires a live dialogue on new horizons for Vision 2030 and a consensus on the goals that the government should attain in the next few years.

*A version of this article appears in print in the 27 January, 2022 edition of Al-Ahram Weekly.

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