Khalid Ikram and Heba Nassar (eds.), The Egyptian Economy in the Twenty-first Century: The Hard Road to Inclusive Prosperity (The American University in Cairo Press, 2022).
Jadaliyya (J): What made you edit this book?
Khalid Ikram and Heba Nassar (KI & HN): We wanted to address a conundrum that dogs anyone who studies the Egyptian economy: why has Egypt, despite the many assets it possesses—a strategically vital geographical location, extensive oil and gas resources, unrivaled tourist attractions, a fertile agriculture, a hardworking population, an extensive diaspora that remits home large amounts of foreign currency, a long history as an important center of education in the Middle East—underperformed its potential over the last sixty years (say, two generations), and what should it do in the next two or three decades to overcome the challenges that might restrict its performance. What should Egypt do to ensure that its past does not become its future?
To address this puzzle one needed to draw on the breadth of ideas that a diversity of voices would bring. We therefore organized a collaboration of experts, Egyptian and foreign, who had considered this matter from different aspects. The result is a collective effort by nineteen scholars from universities, governments, think tanks, nongovernmental organizations, the World Bank, the International Monetary Fund, and independent researchers who, in addition to their study of Egypt’s economy and society had worked intensively on the economies of more than thirty developing countries. Informed by their expertise and experience, the study would escort the reader through the thicket of the most important issues that would impact on the future of the Egyptian economy.
J: What particular topics, issues, and literatures does the book address?
KI & HN: The discussion identifies two key goals for the government: (a) providing a better life for Egyptians; and (b) reducing the country’s vulnerability to external pressures. In operational terms, the first goal requires expanding Egypt’s production of goods and services, i.e., its GDP, and ensuring its equitable distribution; the second requires reducing the deficits on Egypt’s balance of payments and the domestic budget. These are the “what”s of the strategy; the “how”s are addressed in chapters dealing with population growth, the development strategy, the nature of the economy that would make Egypt competitive in the twenty-first century, fiscal and monetary policies, poverty and income distribution, the higher education system, external trade issues, improving the competitiveness of Egypt’s enterprise system, questions relating to energy, the urbanization strategy, the vital question of water availability, crucial institutional issues, and others.
The book provides a platform to discuss Egypt’s main challenges in achieving economic stability and better living standards. It was found that high unemployment and poverty in Egypt live alongside weaknesses in the structure of the economy, such as inefficient systems of subsidies, cumbersome business regulations, low human capital, poor infrastructure, low access to finance, and poor external competitiveness in a highly populated country and poor institutions.
Moreover, the book stresses that with the right policies, Egypt’s government can meet the hopes and aspirations of Egyptians and raise their living standards, while achieving economic stability, by understanding what went wrong and by following timely policies. Suggested directions drawn by the experts contributing to the book include: revisiting the role of the government in the economy; prioritizing spending on mega projects; encouraging private sector investments through an enabling and inviting business environment; and adopting a more inclusive economic approach and capitalizing on Egypt’s most important asset—its human capital—by creating employment opportunities away from low value-added economic sectors, which can help to deliver a more advanced level of productivity growth and consequently positively affect exports.
J: How does this book connect to and/or depart from your previous work?
KI: My previous books looked at the state of the Egyptian economy at the time of writing and analyzed how it had reached that position over fifty or more years. The analysis applied the tools of modern economics to Egypt’s performance, and also discussed the principal political-economy issues, i.e., the political factors behind the adoption of certain economic policies and the rejection of others. The present book looks forward. It focuses on key challenges that will confront the Egyptian economy in the next two or three decades, and identifies policies that would help overcome the problems.
HN: I have just finished coediting a World Bank report on Population Dividend in Egypt. Most of my previous work focused on several aspects of human resource development in Egypt, starting from labor market distortions, challenges of education, health and human capital, family planning as investment, the economic participation of women, children’s status, poverty dynamics, population, and so on. But this book studies the challenges of the various sectors of the Egyptian economy (including agriculture, trade, water, and industry). It adds intensive and significant analysis to all problems facing the Egyptian economy as a whole. I myself benefitted a lot in the exploration of all these aspects, which gave me a broad picture of the economy going forward.
J: Who do you hope will read this book, and what sort of impact would you like it to have?
KI & HN: We would like the book to be read by policymakers, teachers, students, journalists, and in fact by anyone interested in the economic prospects of the Arab world’s most populous country, and one that occupies a key strategic role in the Middle East and, indeed, in the world. I hope we have provided sufficient data, analyses, and policy recommendations, together with details of relevant international experiences, to support an informed discussion on the subject. Our group would be amply satisfied if the book were to act as a catalyst for such a dialogue.
J: What other projects are you working on now?
KI: At the moment I am involved in some policy papers for Pakistan’s policymakers.
HN: I am now going back to human resources development, and am working now on gender sensitive budgeting and on the impact of the food crisis on malnutrition of households and particularly children in Egypt. I am sure for this I will benefit from the general overview of the Egyptian economy portrayed in the book.
J: What, in your view, is the essential reason for Egypt’s not performing to its economic potential?
KI & HN: The central problem for Egypt’s economic underperformance is not economic; it lies more in the realm of political economy. It is not that Egypt’s policymakers are unaware of what needs to be done; it is that they have been unwilling to press vigorously for reforms that would eliminate inefficiencies in the economy.
Why are they unwilling? Much of the answer is that the politically powerful class benefits from existing inefficiencies. Inefficient policies create economic rents, i.e., unearned incomes, and these are captured largely by this class. Correcting these policies could reduce their incomes. Understanding the urgency for Egypt of economic reform is not rocket science. But as the American writer and political activist Upton Sinclair said, “It is difficult to get a man to understand something when his income depends upon his not understanding it.”
Excerpt from the book (from the introduction, pp. 2-6)
What Is the Nature and Extent of Egypt’s Economic Challenge?
The basic challenge is posed by the conflict between Egypt’s geography and its demography. What Napoleon termed “usable Egypt” is only a narrow oasis located in a vast desert. Although the country comprises about one million square kilometers (386,000 square miles), only about 40,000 square kilometers (15,000 square miles) are inhabited. Crammed into this 4 percent of the country’s area is 98 percent of a population estimated at 104 million in 2020, giving a density of more than 2,000 persons per square kilometer (more than 5,000 per square mile).
Moreover, the cropped area (the cultivated area multiplied by the cropping intensity) is increasing much more slowly than the population. Between 1947 and 2020 the cropped area increased by only 50 percent, while the population increased by some 400 percent. A feddan in 2020 was expected to support six persons, compared with 2.1 in 1947. “Our density is our destiny,” wrote Hamdan, while Little succinctly summed up the basic issue: “The fact that Nile development can never again keep pace with population is at the root of Egypt’s economic problem.”
Moreover, time is not on Egypt’s side. Every two years Egypt adds a New Zealand or Ireland to its population; every three, a Denmark or a Finland; every four, an Israel or a Switzerland; and every five, a Sweden or a Portugal. And while it adds the population, Egypt does not add the capital assets, the technical knowledge, the institutions, and the governance of these countries.
What of the future? The problem is not merely that Egypt’s population has been growing rapidly; its age structure and fertility characteristics are likely to create a boost or “echo” in the growth rate in the succeeding decades.
For how many Egyptians is a better life to be provided? Egypt’s population in 2020 was about 104 million. The medium variant of the United Nations’ population projections suggests that by 2030 the population will have reached 120 million, by 2040 about 140 million, and by 2050 about 160 million. A special effort must be made to improve the lot of individuals whose consumption falls below the poverty line—these accounted for about 30 percent of the population in 2019.
If the better life is to be provided, as in other countries, principally through employment, what are the chief demographic issues that policymakers face?
The first issue is a rapid growth in the working-age cohort (15–64 years) and the entry of jobseekers into the labor market. The increase results from both the growth of the population and evolutions in its age structure. The additions to the working-age population are projected to rise from about a million persons per year in the 2010–25 period to nearly 1.6 million a year in the 2025–35 period. This growth will gradually subside after 2035, but is still likely to exceed 1 million persons a year by 2045–50.
Second, rates of participation in the labor force by both males and females have been declining, but the decline should be reversed in the future. The World Bank reports that from 2010 to 2019 the rate for men fell from 75 percent to 67 percent, while that for women collapsed from an already low 23 percent to an abysmal 16 percent.
The men’s rate declined largely because of youths’ difficulty in finding their first job (the youth unemployment rate at the end of 2019 was 27 percent). This discouraged substantial numbers of them (keep in mind that half of the country’s population is younger than 24 years old) from continuing to look for jobs, and they dropped out of the labor force.
The female rate was affected by (i) the contraction in the role of the public sector (hitherto an important source of female employment); (ii) the pattern of economic development during the last two decades in which growth occurred largely in the construction and transportation sectors, in which women’s opportunities are constrained for physical and social reasons; and (iii) an unwelcoming environment for women in the private sector. The declining participation rates must be reversed if Egypt is to provide a better life for its citizens and also to mobilize its labor resources to benefit from its “demographic dividend” and thus fully realize its economic potential.
Third, the wave of new entrants into the labor force will be substantially more educated than their predecessors: 50–60 percent will have secondary or post-secondary education, and another one- third will have a university education or higher. The quality of jobs created by the Egyptian economy would thus have to improve substantially to satisfy the aspirations of the increasingly educated new entrants.
Along with other changes, the economy must generate more jobs with “formal” characteristics. Those who work in the government or public enterprises, or whose working arrangements provide either social insurance or a formal, written work contract, are deemed to be in the formal sector. Workers who lack both social insurance and a formal, written contract, and are not in the farm sector, are considered to be in the informal private sector.
Most job growth in Egypt in the last two decades has been of the informal variety. Large numbers of workers are involved. In 2018, 62 percent of the workforce had informal employment arrangements (not all were employed in the informal sector). If we subtract the 17 percent working in agriculture, then 45 percent were in informal nonagricultural employment. The proportion of the workforce with formal-type arrangements will have to rapidly increase—precarious and uninsured jobs are hardly the metric of an improved life.
The challenge is thus to rapidly increase the number of jobs for an extended period and also ensure that the jobs are of better quality than in the past two decades. This will require a notable effort. The World Bank estimates that about 600,000 additional jobs would have to be created annually between 2019 and 2030 merely to keep the employment rate at the 2019 level. This is double the average of about 300,000 (mostly informal) jobs a year created between 2009 and 2019.
At What Rate Must the Economy Grow to Create the Required Jobs?
The relation between GDP growth and job creation is not ironclad or permanent. Estimates by the IMF and the World Bank of employment elasticity with respect to GDP growth provide a starting point. These suggest that the GDP would have to grow at 6–7 percent a year in order to provide jobs for the increasing labor force and to absorb the accumulated backlog of unemployment and underemployment. A high growth rate is also required to expand the range of policy options. A stagnant economy increasingly compels the adoption of zero-sum policies—policymakers cannot increase support to one group without decreasing support for another.
The foregoing labor force projections are conservative; in particular, better working conditions in the private sector for women are likely to induce more of them to participate in the labor force, as would making it easier for the youth group to obtain their first job. Both outcomes would enlarge the labor force and raise the requirements of job creation.
Moreover, since multitudes of discouraged youths and harassed women do nothing to suggest a “better life,” one would expect policymakers to resolve these problems over the next decade or so. It would thus be prudent to think of the required GDP growth rate as around 7 percent a year in real terms. As against this, between 1960 and 2020 Egypt’s real GDP grew at an average annual rate of 4.6 percent.
The required growth rate is about 50 percent higher than the average achieved over the last sixty years. But it is not beyond Egypt’s capabilities— Egypt’s GDP growth reached or exceeded 7 percent a year in the mid-1970s and again between 2006 and 2008. Let us also note that the growth rates for the fast-growing countries in East Asia (China, Japan, Korea, Taiwan, Malaysia, Hong Kong, Singapore) during two or more decades of their rapid growth period averaged 8 percent a year, while China’s was frequently around 9–10 percent a year.