Egyptian Economy : What I would do

I’ve been asked to offer my 2 cents quite a bit, so here, all my cents in one post. I am not claiming there is an absolute truth when it comes to economics, yet this post is about what I would do if I were calling the shots to steer this economy to a safe harbour.

  • Ease of Doing Business: The economy is going through a tough time, fresh graduates can’t find a job, several of the really big businessmen are in jail or are facing the danger of being jailed, companies are downsizing and cutting costs to stay afloat. In this environment opportunities get born and the brave and entrepreneurial aim to capitalise on these opportunities. Yet the current legislative and regulatory environment makes their life hell. So if I were the policy maker I would make starting a business the easiest thing on the planet, slash down the time required to 24 hours and cut all the unnecessary red tape. Objective is to encourage people to do business, to generate output and to create employment. Moreover, those starting a business are doing it in unstable times, so whatever incentives you can throw their way would go a long way.
  • Trials: You don’t quite follow why there is still so much dissatisfaction in the Egyptian streets? It is because Egyptians don’t feel vindicated, they feel trials are being dragged out and retribution is not swift. Those in charge should expedite these trials, repossess all unlawful and illegal gains (with interest); take back lands, operating licenses, factories, cash and whatever else was extorted or obtained through abuse of power. Then, let all those who have been steam-rolled over the years have a shot at taking them to the cleaners, install a speedy system by which they could be sued and let justice take its course.
  • Attract investments: A couple of months ago a guest at CAC asked me why we were focusing so much on the fear of driving away investments when Lebanon was doing just great despite all the unrest. CNN Ben was quick to point out that most FDI flowing into Lebanon came from Lebanese origins and all the entrepreneurial Lebanese around the globe. Yet fact remains, we stand a shot at attracting FDI amongst all this madness. The trick is to stop dividing internally and show a united front. If I were the policy maker I would start selling licenses, the right to operate here in Egypt, especially in areas that in the past were monopolised either by the government or by some of the names in Porto Torah. I would give foreign investors a shot at buying a license to operate and offer private sector transport and logistics within Egypt. Imagine a second railway service, a private sector bus company, and privately designed and operated cargo ports.
  • Cost of funds: Interest rates in Egypt are on the rise, while as a depositor that is great news (despite the fact that it still a good solid 2% lower than inflation so the value of my money is still declining), it does not sound too promising to investors. The cost of funds is an integral part of the investment decision. Steps should be taken to reduce the cost of funds and to improve the access to finance to enable businesses in Egypt to operate smoothly and to enjoy enhanced liquidity.
  • Food safety: We are down around 8 billion dollars in foreign reserves and doomsday sayers will have you believe we are rapidly running out and soon won’t have enough reserves to cover our imports of basic necessities. That may well be true, but rather than zone in on that fact, efforts should be orchestrated and directed towards achieving some sort of internal independence with regard to food. Or, in the short-term, get foreign assistance in the form of supplies that will last the season until we can re-plan our approach to agriculture.
  • Prioritize policies: I can say this one with a great deal of personal interest and passion vested into it. For the past couple of months I’ve dreamed of having the likes of http://www.kiva.org operate in Egypt. Yet this dream has been made difficult by the strict (and sometimes excessively rigid) money laundering regulations and restrictions on transfer of funds. So I can’t help but wonder, what is more important at this particular moment in time? Potential money laundering versus potential inflow of funds to finance SMEs around the republic. This is one example, I’m sure there are others which are hindering a speedier economic recovery.
  • Wages: If enforcing a minimum wage is proving that difficult, a maximum wage should level the playing field a bit. As in this case the person making the measly wage will be relatively better off as the gap is bridged. I would take the time to revise all public sector and government wages and salaries (whether formal government contracts or under the table OUDA ones). I would slash down the ridiculous ones to meet the maximum wage criteria and I would channel those excess funds to better uses. Moreover, I would do all of this with a great deal of transparency.
  • Transparency: I would extend that transparency to all aspects of government economic policy in the coming period. I belive we have had enough “constructive ambiguity”, some old-fashioned constructive clarity would be nice. The people should get a say regarding the tax structure, the government budget and how any incoming aid money should be spent. A say we get through the People’s Assembly, yet a say we only get if information stops being asymmetric and we all have a fair chance of knowing where things stand.
Then again, that’s just me.
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10 thoughts on “Egyptian Economy : What I would do

  1. really, the same old neoliberal recipe?
    I don’t think egypt’s 40 million poor revolted so that middle class professionals could get richer…
    your policy proposals would only benefit those at the very top tier of egyptian society.
    theproposal sounds like a lame refried world bank proposal from ten years ago served up as “fresh ideas”…
    the best policy innovation has been in latin america, which has parted with neoliberal policy (after 30 disastrous years). the egyptian people should be looking to that region for ideas in fighting poverty, increasing popular participation in economic policy, reducing income gaps and doing it all while maintaining “growth”…

  2. Astounded: Really? You think it was the 40 million poor who revolted in Egypt? Get your facts straight.

    Meanwhile, since this concludes the non-constructive criticism portion of the day, perhaps you can offer something more helpful than a generic “the best policy innovation has been in latin america, which has parted with neoliberal policy (after 30 disastrous years). the egyptian people should be looking to that region for ideas in fighting poverty, increasing popular participation in economic policy, reducing income gaps and doing it all while maintaining “growth”

    Blog some concrete and tangible steps and recommendations and I’ll be happy to discuss and share.

  3. Hello Juka 🙂

    well I will have to disagree with some points. Simplifying business procedures regardless how much it is always welcomed & needed. I don’t think it is right at this phase.

    It is important to encourage people to start businesses, to invest & for the economy to grow. Yet opening the door for anyone, will open the door for the opportunists who would want to take advantage of the current situations rather than help fixing it.

    We need people to operate, but we still need not to bring damage in the near future.

    Trials, I believe as long as we are putting people into trails we will be scaring the big money away. I believe that we can do something similar to the tax evasion law. Where people are granted a fresh start if they returned back what’s illegal. Plus most of the cases will eventually be about land sold at lower prices & already have huge projects on them.
    So fresh start to old money will keep them in the country & encourage new money to come.

    The FDI, there is nothing new about this suggestion. We already had this option. We already have projects on BOT basis by FDIs. But again you have to ensure those new FDIs that they will be safe in the country. Rule no. 1 is political stability. Unstable politics means no one is safe & u can wake up one day to a wave of nationalizing those infrastructure projects financed by the FDI.

    So what we need is a guarantee that this won’t happen. That we are politically stable. & free marker economy is a choice that we won’t change.

    The wages … I am not really pro or anti setting a maximum wage limit. But I am anti setting a min. wage limit. Not a thing that the economy can handle now. But I am pro re-structuring the governmental sector which means lots of people should be sent home because they are being paid for doing nothing. Which will double the unemployment problem.

    So. maybe just a cut on the top level wages will help for the current time. Which might lead them to leave their jobs, which i dnt know if it will be a problem or not.

    The food safety is right now a problem because we are running out of reserve & we will have to borrow to finance it. Anything about self-sufficiency is for the long-run. Even the right now levels of self-sufficiency isn’t due to a new decisions made by the government. The 88% is due to a decision made by the last government after last summer’s Russia wheat problem. Anything regarding agriculture isn’t something that u decide now & see results no. It is subject to time & other circumstances.

    So, what worries me now that the foreign debt will again increase. Which isn’t good. I worry about the lack of stability that will increase the time needed for getting the economy back on its feet. I am worried about the tone anti arab investors in the time the whole world are after the arab money.

    And speaking of re-structuring. I believe that everyone who was hired because of whom they known not what they know should be sent home. Because these are one major reason of the problems in the governmental sector.

    • Shaimaa: Give me an example, what is that scary worst case scenario that is making a suggestion like “simplify start-up procedures” scary?

      So you want the people in jail released? Detained? You want us to reach a financial settlement? Point you’re making isn’t clear belnesbaly.

      I know for fact that a lot of people are being let go. Especially those who were there on AID contracts.

      As for the borrowing, oh we’re borrowing, we’re borrowing and begging and what not…..

      • well, I can’t think evil so I won’t easily come with an example. But I think making it too easy to establish a new business (which btw I think is relatively easy in Egypt) might lead to something similar to what happened in the 70s when we suddenly opened up fore free market.

        Yes, I think the best is to reach for financial settlements, ya3ny we say whoever had a problem we are ready not take the legal path with them in return they reach a settlement & be cleared. I think this will encourage those who already didn’t run away to stay & those who did to come back & will make new money safe to come to Egypt.
        Because the corruption things isn’t the 1st time it happens in Egypt & last time people went in a witch hunt after corrupted businessmen we ended with a wave of nationalization & later 20 yrs of restructuring the economy to make today possible,

        We are at the stage of borrowing & begging. I can understand & I honestly can’t think of better ways for the right now. Right now borrowing/ begging is needed to maintain the 5/6 mnths reserve of essential goods.

        If I were in place of dr. Radwan I dnt know for sure how would I solve the problem of borrowing, because even if the government tried rationalizing the consumption of goods like rice, sugar … etc. the people will create a black market & we will get back to that loop. So, borrowing is the only option I guess.

  4. A big no for point 2. Don’t encourage the scapegoat concept 1st of all 2nd those people had all the time in the world to fix their papers and accounts. How can we hold them hostages if we can’t prove they are guilty? It’s not that easy ya Inji, never was and never will be.
    People should have a say about the tax structure? A referendum? With a 95% ignorant population? What do they know about anything ?Common!

    • Sandra: I don’t understand how you understood what you understood from what I wrote.

      1) I don’t want them hostages, in fact I want a speedier trial and some sort of resolution 3ashan nekhlas. I’m actually not against financial settlement in some cases.

      2) I don’t want a referendum, I explicitly stated that the people’s input what happen through the People’s Assembly, just like it was before 3alla fekra, but with a greater degree of transparency and less corruption.

  5. The best thing the Egyptian government can do is to ensure a stable operating environment for foreign business. That is, ensure that a deal made today isn’t going to get undone tomorrow because an Egyptian government official or businessman gets arrested or starts fearing an arrest and runs away. Get the trials done quickly and issue an amnesty to everyone else. The more people are afraid of instability the more those that can afford it will run away… and take their money with them.

    Even if this is done it is unlikely that any economic programs will be effective until after the September elections. Economic growth can not occur during a period of massive political instability. The best thing the Egyptian government can do is try to cut its losses and prepare for a push to sell Egypt as a great place to do business after the election [hopefully] clarifies the new political reality.

    Until then the best thing might be just keep Egypt’s financial head over water (so to speak) by begging for funds abroad while organising as much and as many as possible “shovel-ready” projects that can get financed by Arab and Western financial aid (ideally this money would both stimulate the economy and generate tax revenues). At the same time it might be a necessity to cut some subsidies to reassure foreign investors and foreign lenders of the political willingness of the government to control expenditure. If there is any resources to spare they should be used on ensuring public order and especially on ensuring the security [and enjoyment] of tourists and Westerners who visit the country. Rejuvenating the tourism industry is at least as effective in stimulating economic growth and jobs as obtaining funds from abroad.

  6. This is coming from someone who has very limited visibility into Egypt’s political and economic issues. Apologies for any distorted viewpoints; the people who live in Egypt, who experience Egypt day-to-day would undoubtedly know more 🙂

    I would imagine that the current economic and politcal situation in Egypt is akin to what one would associate with the political and economic re-birth of a nation where political and economic uncertainities are generally the norm. I guess the key question is this: is Egypt ready politically and institutionally for an elected democracy ? If not, then there are imminent threats to Egypt’s political and economic future.

    The risk of sectarian groups, particularly those aligned with Salafist ideologies, filling the political void is real. The consequences of this happening are too damning not only for Egypt but also for the entire Middle East region. Perhaps the current military regime know that this is the card, if played well, could be used effectively to get international aid from an insecure West (and therein lies an obvious risk of further political instability similar to the one experienced by Pakistan). I wish Egypt does not get sucked into this vicious circle where political instability in turn engenders economic instability and vice versa.

    As Tarek Osman points out in his recently published FT article, the eroding Egyptianism that was at its height during the revolution still remains the one true hope for Egypt. While one can debate whether the Egyptianism of pre-Nasser era is still the ideal to be espoused by 21st century Egyptians, there is no doubt about the criticality of the political success of leaders such as ElBaradei to Egypt’s political and economic well being. Something will be needed as a counterweight to Egypt’s military and sectorian influence.

    While ElBaradei and Egypt’s middle classes carry the torch of Egyptianism’s modern avatar, the real question is, has this permeated enough into the Egyptian society ? Among the rural and urban poor ? Again only someone who lives and experiences Egypt on day-to-day basis can answer this.

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