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The global pandemic has recently renewed pressure on Egypt’s labour market, a development that economists say cannot be quickly reversed with the disappearance of the COVID-19 given the country’s demographic forecasts and model of development.
On August 17, Egypt’s statistics agency reported that the unemployment rate had risen to 9.6 percent in the second quarter of 2020, compared with 7.5 percent a year earlier. The increase was blamed on the partial economic lockdown aimed at curbing the spread of the coronavirus, which has so far infected more than 98,000 people and caused 5342 deaths.
According to Ragui Assad, a labour economist with the Humphrey School of Public Affairs, the recent increase in unemployment rate has to do primarily with the loss of employment, mostly in the construction and service sectors, among Egypt’s large population of casual workers.
The informal economy is estimated to contribute 35 percent of Egypt’s GDP. In 2019, informal workers constituted nearly 54 percent of the total non-agricultural employment in Egypt, according to the World Bank.
“We also have many Egyptian workers in the Gulf who have lost their jobs and returned to Egypt,” said Dina Abdel Fattah, a labour economist with the American University in Cairo. More than half of Egypt’s estimated ten million expats work in the Gulf countries, namely Saudi Arabia, the UAE and Qatar. The three oil-rich monarchies have been battling the double economic burden of plummeting oil prices and COVID-19.
“Unfortunately, we do not have a specific estimate of how many people have returned to Egypt, but they must have contributed to the recent rise in unemployment,” she added.
In recent years, the government has celebrated the decline in unemployment rates from 13.15 percent in 2013 to 10.76 percent in 2019. Stability after years of political turmoil, coupled with the adoption of an IMF-dictated economic restructuring programme, is widely held as the reason behind the improvement of the country’s various macroeconomic indicators, including employment.
However, labour economists believe otherwise.
“The decline in unemployment rate over the last two years had to do with demographic reasons. The number of people getting into the labour market has been getting smaller,” Assad said.
“Calm before the storm”
Egypt’s population has been growing at a fairly steady rate of nearly 2 percent per annum over the last three decades. However, the population growth across different age groups has varied. From 1988 to 2006, the youth population has been the fastest-growing age group. This youth bulge exerted tremendous pressure on the labour market. From 2006 to the present, the growth rate of the working age population has been declining, which led to a decrease in the labour supply and hence reduced the pressure on the labour market.
“It is a kind of calm before the storm. It is a demographic lull,” said Assaad, adding that as soon as 2025 kicks in, Egypt will witness a second youth bulge.
Since 2006, the bulge has shifted to the child population, which has been growing at an annual rate of 3.8 percent.
“If we are not ready with job opportunities for those young people, unemployment will go up again,” said Abdel Fattah.
Despite Egypt’s recent economic recovery, many economists remain sceptical about the ability of Egypt’s labour market to cater to these prospective newcomers. “Since 2011, the employment rate has been declining steadily. […] COVID slowed things down even further,” Assaad said.
According to Assaad, the employment rate, has dropped by 8.5 percent between 2010 and 2018. “The economy unfortunately has been mostly driven by real-estate development and infrastructure construction,” he said, and explained that such sectors usually generate low-quality casual jobs that most educated young Egyptians avoid.
A boost to manufacturing is necessary to generate high-quality stable jobs that could attract educated youths, said Assaad.
According to the Central Bank of Egypt, the manufacturing sector contributes nearly 17 percent of the country’s GDP and hires 12.4 percent of Egypt’s employed workforce. However, the construction sector contributes less than 6 percent to the GDP and hires 14.1 percent.
“We have been having a big and long-term decline in manufacturing since the early 2000s,” said Assaad. “Only recently could we see a number of positive developments that may help the manufacturing sector to recover.”
Egypt’s much-celebrated strategic vision for sustainable development has aimed to reduce the unemployment rate to five percent by the year 2030.
“Egypt was hoping to attract a lot of foreign direct investment, strengthen the private sector and hence create more job opportunities,” said Abdel Fattah. “That was feasible before COVID-19 hit, causing the current global economic recession.”
“We should be pinning hopes on startups and entrepreneurship. We cannot reply on the private sector to absorb the increased unemployment given how the global economy looks,” she added.
(Reporting by Noha El Hennawy, editing by Seban Scaria)
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