With the demands articulated by the January 25 revolution in mind, a new report from the non-governmental think tank the Egyptian National Competitiveness Council entitled "A Sustainable Competitiveness Strategy for Egypt" proposes measures aimed at sustainable, inclusive economic growth and provides "a guide for what needs to be done in order to improve the lives of ordinary Egyptians as well as launch Egypt's economy forward."
The paper begins by outlining Egypt's inherent economic advantages, which include a young, educated workforce; a wealth of tourist attractions; energy resources (fossil fuels and renewable power sources such as solar); and a strategic location at the crossroads of Europe, Asia, Africa and the Middle East. But despite these assets, the report contends, the nation's potential for prosperity has not been realized because the economic policies of past decades have failed the Egyptian people.
Historically, the ENCC argues, Egypt's economy has been characterized by short spurts of rapid growth that unfortunately do not translate into sustainable gains: This fluctuating activity "has not led to the long-term accumulation of capital that would propel further sustained growth." Drawing heavily on Egypt's lackluster ratings in the World Economic Forum's Global Competitiveness Report, the Council argues that Egypt is performing far below its potential, not only in comparison to rapidly growing powerhouses like Brazil and India; but even next to more slowly expanding economies such as Vietnam, Malaysia and Jordan. Statistics also show that Egypt's economic woes predate the revolution and the fiscal crisis and stem largely from poor policies rather than political turmoil. The Council also argues that what growth Egypt did enjoy over past decades failed to benefit the masses. Absolute poverty, for example, rose steadily from 16.74 percent in 1999 to 21.6 percent by 2008. This economic inequality, the ENCC contends, was in large part what drove Egyptians to the streets in 2011 calling angrily for "bread, freedom and social justice."
The report states that progress must depend on two essential factors: political will and good institutions. "Without these two key requisites, Egypt's economic policy will likely be business as usual or damaging to long-term economic health," the authors write. They define political will as a clear vision combined with a strategy for implementing it, effective communication with the populace and better control of state apparatuses. Strengthening institutions, meanwhile, requires a "transparent, efficient, effective, and accountable system of governance." The report confines its policy recommendations to the economy rather than to statecraft, offering little guidance on how these crucial elements might be put in place. It does, however, offer an economic vision it hopes the government will adopt.
Investing in people
The ENCC designates developing Egypt's human resources as the first pillar of its strategy. The Egyptian people should enjoy universal literacy along with "excellent primary and secondary education, effective technical and vocational training and excellent tertiary education." Moreover, everyone should have access to adequate nutrition and basic health care as well as the protection of fair labor laws. Egypt's poor international competitiveness rankings, the report maintains, reflect "the dire need for human resource development in Egypt." In higher education quality, for example, Egypt ranked a dismal 131st among 139 countries in 2011. According to the ENCC, investing in Egypt's citizenry by providing fundamental rights and resources not only honors their basic human rights, it makes good economic sense. Egypt needs human capital to drive its economy and combat unemployment and poverty. The health, well-being and education of the populace are essential prerequisites of any further reforms.
Innovation
The second pillar of the proposal is to create an environment that fosters "new products, services, processes or business models that prove to be commercially useful." Despite a large pool of educated young people and a rise in entrepreneurship, Egypt lags behind its peers when it comes to developing and marketing new products and ideas. For example, though Egypt has more scientists and engineers than Turkey or Malaysia, it produces fewer patents and less scholarly research. Egypt also suffers from brain drain, as its best talent often defects to the United States and Europe, where researchers have access to more funds, better infrastructure and higher salaries. The report identifies an array of obstacles that discourage competition: weak intellectual property rights, low government and private sector research spending, a lack of venture capital and the absence of a national innovation strategy. To overcome them, the ENCC proposes a strategy that involves providing more innovation and entrepreneurship education beginning at the primary level, establishing technology transfer offices at Egyptian universities and innovation task force teams and a "1,000 talents" scheme to to lure Egyptian experts back home from overseas.
Green growth
The ENCC contends that the country has drained its resources, especially via energy and water over-consumption. These are not just environmental issues but also pose grave economic and national security risks. Egypt is currently an "ecological debtor," consuming more resources than its ecosystem can support, rendering the nation dependent on countries with greater bio-capacities. "This is not only economically and politically unsustainable," it says, but also leads to "a reduction in natural capital that also reduces production in the medium to long term, potentially constraining economic growth." The report singles out four sectors that are in critical need of reform: agriculture (which accounts for 85% of water use), construction (responsible for about one-third of Egypt's greenhouse gas emissions), fisheries (current policy promotes commercial fishing in the Red Sea, despite the far greater value of marine life as a tourist attraction), and tourism (where Egypt has failed to exploit the potential market for "green holidays," which is growing at three times the rate of traditional vacation packages). Shifting to more environmentally sound policies, the Council argues, would not only ease the strain on Egypt's resources but would also position the country to benefit from growth in sustainable industries like alternative energy, organic agriculture and eco-tourism.
Stability with social inclusion
Faced with a post-revolution fiscal slump, a global financial crisis and a legacy of decades of short-sighted domestic policies, the government faces a monumental task in trying to turn around Egypt's struggling economy. At such a moment, the ENCC argues, it's crucial to make "difficult fiscal choices in ways that build rather than weaken prospects for growth in a socially just manner." Thus, the fourth pillar of its proposal emphasizes macroeconomic stability (moderate inflation, modest deficits, sustainable levels of debt, a market-driven but predictable rate of foreign exchange) combined with social inclusiveness (good jobs and universal services, citizens who are equipped to contribute to the economy). Recognizing that funds are limited, the ENCC calls on the government to prioritize projects that can both uplift the poor and promote growth, including investing in education, good health and better infrastructure. Policies like blanket bread subsidies that assuage the poor but don't contribute to growth should be a lower priority, as should incentives for capital intensive industries, which promote growth but do little for the poor.
In addition to these four pillars of sustainable growth, the ENCC offers a broad set of goals and policies including investment mobilization (total investments should be equal to around 25 to 30 percent of GDP but stood at about 15.5 percent in recent years), export development programs to capitalize on Egypt's "remarkable" access to international markets, a reduction in red tape for businesses, modernizing the financial sector and encouraging competitiveness at the governorate level. It also suggests a series of "quick win initiatives" it believes can be implemented relatively quickly and have the potential to build confidence and momentum. Such measures include combating Cairo traffic, improving solid waste management and developing a pilot project for slum improvement in the Suez region.
The report also points to three large, long-term initiatives that are worthy of immediate investment. These include developing the Suez Canal area as a global manufacturing and logistics hub, fostering a solar energy industry and working to transform Sharm el-Sheikh into a green tourism destination. Each of these projects, the ENCC believes, holds the potential to help Egypt capitalize on natural and human resources to become more globally competitive. All together, the Council contends, aligning the country's economic policies with these goals will help Egypt grow. Such measures will also take crucial steps toward meeting public demands for economic justice, a better standard of living and meaningful participation in the economy.
© Business Monthly 2012
