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Egypt’s Economic Procrastination

Posted on the 25 November 2011 by Center For International Private Enterprise @CIPEglobal
Egypt’s economic procrastination

Unfinished apartment buildings in Cairo. (Photo: Flickr user qejecit)

We are facing an interesting dilemma in Egypt: although everyone realizes the importance of the economic dimension of the country’s transition and the quest for democracy, people tend to turn their backs when economic issues are brought up.

Last week I attended a political debate on reform in Egypt where economic questions were raised, but – intentionally or unintentionally – neglected by both the supporters of the SCAF and the revolutionaries. This is the reality of economic procrastination in Egypt: political powers on all sides are postponing the search for answers in meeting the country’s economic challenges.

Procrastination is part of the political blame game. On the one hand, SCAF is raising economic questions as part of its campaign for stability. On the other hand, the revolutionaries, represented in youth coalitions, emerging political parties, and media, accuse SCAF of being incompetent to lead the transition. The economic card is being played to gain political points rather than to find viable solutions.

Economic procrastination is in fact a major distortion to the democratic political transition in Egypt. Most in Egypt would agree that economic deterioration is one of the major reasons behind the anger that led to the revolution. The slogans during the 18 days of struggle, such as “Bread, Freedom and Social Justice,” tell the story.

The high poverty level in Egypt and unfair distribution of economic opportunity led to the injustice which fueled frustration against the old political system. Ironically, on the aggregate level, Egypt has enjoyed good economic growth rates in recent years. Nevertheless, the distribution of that wealth was the real problem – many of those at the bottom of the development ladder simply did not have access to the political system nor the benefits of macro-level economic growth.

In many ways, a lack of true democracy in Egypt can explain these trends. The economic orientation of the former political system encompassed the primacy of the economic sphere over the political sphere. This was represented in the corrupt relationship between some of the business groups and the dissolved National Democratic Party. Moreover, economic reform and compliance with the World Bank and IMF prescriptions without tailoring policies to local priorities and conditions lacked the necessary component of actual political reform. The wealth never trickled down, something which many assumed would automatically occur over time, but rather remained concentrated at the top of the pyramid, leading to frustration among the Egyptian masses.

There has been a lack of action to correct these problems following the revolution. Much of the focus has been on the political sphere, while economic issues, including creating economic opportunities for the Egyptian poor, remain ignored.

To understand the nature of economic problems facing Egypt, one can look at four major dimensions of the Egyptian economy:

  1. The hesitant rentier state: The Egyptian economy is highly dependent on revenues coming from rents, such revenues from the Suez Canal, gas and tourism industries, as well as significant foreign aid inflows. As rent revenues have decreased in recent years, the government has undertaken extensive tax reform, looking to tax financial institutions and transactions as a means of increasing its revenues.
  2. Absence of coherent economic platforms: Although there has been a tremendous growth in the number of political parties following the revolution – by latest estimates there are 50 political parties covering most of the political spectrum in Egypt – most if not all of those parties are not policy-oriented. Most of the parties are disconnected from their voters’ economic and social concerns and thus have little to offer in terms of practical policy solutions to current problems.
  3. Lack of business inclusion: The transitional government, or any government for that matter, cannot carry the burden of economic reform without engaging stakeholders who share the responsibility for economic development in the country. Unfortunately, business groups in Egypt, especially the majority of small and medium enterprises and the extensive informal sector, have not been integrated in the newly emerging political system in Egypt. Big businessmen are accused of being part of the former regime and carrying their own political agenda, and this view then extends to the entire private sector as a whole. SMEs and informal entrepreneurs have great policy recommendations that could represent a clear way out of the current economic crisis, but their voices often remain neglected.
  4. Government involvement in the economy: The military, directly and indirectly, controls a large portion of the Egyptian economy, which certainly reflects on its interference in the country’s economic policy. The exact numbers are unavailable due to the lack of transparency in the system. Such involvement, however, means that the military closely watches the state budget, leading to a more centralized system and negatively affecting demands for decentralization of power in the country. In seeking to preserve its economic power through political involvement, the military is also likely to be a strong voice against increasing calls for privatization.

Egyptians’ procrastination when it comes to addressing economic issues encompasses historical, cultural and social patterns. Despite widespread agreement on the importance of  economic issues during the transition period, disparities in power engender passive behavior towards such challenges. Sweeping current economic problems under the carpet in hopes that the new parliament will address them is not a viable strategy. If left unattended, these problems will only get worse. The time for action is now.

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