Abu Dhabi, UAEThursday 26 April 2018

Never mind politics, Egypt must reform its economy

The Egyptian economy is due for its own revolution, which may help average citizens to the better life to which they aspire.

In recent days President Mohammed Morsi has pushed some of the most powerful people in Egypt's military into retirement. He also got rid of a very powerful intelligence chief. And he appointed a new cabinet, albeit one with much of the old and a bit of the new.

But what has been done to solve the dire economic problems of Egypt? Nothing.

One can wonder whether anyone has a chance of turning the Egyptian economy around anytime soon. The Qataris have pledged a very large loan. IMF loans are under discussion. The World Bank is considering further loans. The Saudis have sent some money, in two tranches. But loans and even grants will not solve Egypt's economic problems.

Egypt is suffering from both long-term structural issues, some of which date back to the time of Gamal Nasser, and from the devastating economic effects of a revolution that still seems in progress.

During a recent lengthy visit to Egypt, I detected among many in the business and investment communities the sense that Egypt remains a serious risk.

Some of the top Coptic businessmen I met with think it is time to leave. Even some of the more conservative and pious Muslim business people want to go, due to a combination of the risk they still feel exists in Egypt, the opportunities they have to invest and live elsewhere, and the sense they get that Egypt is becoming more Islamist.

Some of the younger business people see Egypt as a land of growing opportunity. Indeed, there is still money to be made amid great uncertainty. They see older business people as losing their nerve.

It may also be the case that the significant number of business people who are part of the Muslim Brotherhood, either publicly or not, see this as their time. They can surely buy up the businesses of those wanting to leave, at fire-sale prices. These people are also looking at a society that is going their way.

Many of the secular and non-Muslim business people I know in Egypt do not feel comfortable with the Muslim Brotherhood. Many of the most conservative people I know stated quite frankly that they see the Muslim Brotherhood as a threat. They are quite concerned about what life awaits their children and grandchildren.

Egypt has significant unemployment and underemployment issues, especially among the youth. However, some of the older people I met told me of their financial losses, job losses and economic fears. One man in his 50s was near to tears when he told me that "there is no work out there".

Egypt has significant problems with its electricity system. While I was there the lights went out many times. In the countryside power was sometimes off more than it was on during the day. Many people in Egypt are upset with this. When the metro cannot work, computers are off and the lights are out, this is not a productive time for Egypt.

Farmers are concerned about shipping, storing, and processing their milk and crops in an uncertain electricity environment. Business owners, of coffee shops and textile mills alike, are worried.

There have been shortages of petrol and liquefied petroleum gas. Sometimes the water goes out in the villages and elsewhere.

Investment in infrastructure has gone down sharply since the start of the troubles. Maintenance of energy, water, transport and other infrastructure has been neglected. But good infrastructure, reliable electricity and water and high quality of labour are key issues that investors look at when choosing a country in which to invest.

The public education system of Egypt is not keeping up with the competition. It is losing the race for investors from both inside and outside of the country. It does seem that the work ethic has been damaged further by the revolution.

The competitiveness of Egypt in many industries has never been very good compared to that of most other countries. The revolution has damaged it further.

Egypt can be helped with loans from other countries and international institutions. However, its main preoccupation, from the leadership and strategic levels all the way down to the low-ranking bureaucrats in the Mugaama office complex at Tahrir Square, should be to get domestic and international investment moving forward, especially investment from future industries that could give Egypt a leg up in the coming decades.

Egypt also has to work very hard to bring back a sense that it is a secure and welcoming place for tourists. Recent events in the Sinai have not helped.

Can the new cabinet do this? I wish them luck. They have to deal with thousands of constraints preventing access to a better economy of Egypt.

Yes, money coming in could be part of the answer. But if the bureaucratic, educational, infrastructural and other serious constraints facing Egypt are not dealt with - and quickly - all of that money pouring in could be mostly for naught.

The Egyptian economy is due for its own revolution. If correctly handled this would be a peaceful, creative and enriching change in the business environment. It could also help average Egyptians to the better life to which they aspire.

But if the economy is not changed quickly and effectively then, as many credible, well-educated and well-connected people told me, a revolution of the hungry and unemployed is on the way.


Dr Paul Sullivan is a professor of economics at the US National Defense University and an adjunct professor of security studies at Georgetown University in Washington