Egypt Independent

The economic revolution is yet to happen



“All our economic losses are a small price to pay for freedom,” said renowned businessman Naguib Sawiris to audience applause at a public event recently.

But beyond the slogans, it is impossible to gloss over the economic challenges in post-revolution Egypt. After all many of the reasons that brought Egyptians to revolt were economic, and will not be resolved by a cabinet reshuffle.

The inflation rate is around 10% and unemployment at 15%–youth being the main victim here, for over two thirds of the Egyptian population are below the age of 35–while a skewed production structure that favours services over weakening industrial and agricultural sectors. Growth projections for 2011 have been revised from 5% to 3%, and certain sectors such as tourism are unmistakably bearing the brunt.

Some, such as Egyptian Center for Economic Studies (ECES) director Ahmed Galal, draw parallels to other countries during phases of transition to democracy and offer a positive outlook. “Some countries in Eastern Europe actually saw their economy shrink by up to 10% and unemployment skyrocket. This is not the case here.”

His optimist outlook does not conceal a realization that a number of pressing economic problems will require a strong, carefully planned intervention–an economic revolution–to be redressed.

Rana Hendy, a researcher at the Economic Research Forum (ERF) points first and foremost to the stock market. “The fear is that risk-averse investors may wish to flee the market, resulting in stock prices crashing. What the government is waiting now is for the economic and political environment to stabilize, at which point hopefully investors will be more confident.” I ask her whether we’re not delaying the impossible. “Keeping the stock market closed is definitely costly–but resuming trading might cost us even more.”

“And the shockwave of the stock market crisis could widen,” cautiously concludes the World Bank’s Hoda Youssef. “With the sale of assets, the demand on US dollars will rise, thus increasing the depreciation of the Egyptian pound. The Central Bank is intervening in the market to redress the exchange rate, but as it does it could deplete its foreign currency reserves. But that’s a scenario we hope we won’t reach.”

“Bread, freedom, and social justice!” chanted the demonstrators in Tahrir square during the pro-democracy uprising that started on 25 January, and for Youssef the latter is a top priority. “The question of minimum wage urgently needs to be addressed,” she tells me. “It is hugely important as it relates to the strikes we are witnessing, affects production and distribution–it’s an economic, social and political issue. Knee-jerk solutions will undoubtedly backfire–there are sectors which have approved a wage increase without properly seeing if they had the resources for them, and besides, this will have repercussions in other sectors of the society. A more radical solution is necessary: the entire wage structure needs to be revamped.”

Wage injustice isn’t only absolute; it’s also relative. “In a number of sectors–and it is most apparent in banking for instance–there are two parallel systems and wage structures in the public and private sectors, where a large gap in salary exists between people performing the same professional tasks”, adds the economist.

While all discussions on a minimum wage increase involve a warning of an inflation increase, other factors also contribute to prices increases in Egypt. “International food prices are already climbing”, says Youssef, “and consequently, our inflation rate is expected to follow.” In Egypt, spending on food takes a staggering 40% of the average household’s income.

As certain sectors of the economy have suffered more than others, they will necessitate tailored interventions. One such sector is tourism. Representing LE154.7 billion in 2010–around 13% of Egypt's GDP–the sector employs more than 2.5 million Egyptians. But due to recent events it is now, by and large, in a desolate state. Adrien, a Frenchman who visited Luxor a few days after Mubarak's abdication, told me laughingly: "I had the Valley of the Kings all to myself!"–a disaster, of course, for the sector's workers and their families.

Inji Amr from Logic Consulting sums it up: "Tourism is one of the sectors that gets hit fastest and hardest at any sign of crisis. In the absence of tourists a wealth of business owners and employees are rendered without business. This starts with travel companies, hotels, tour operators, transport companies, tour guides, bazaars, resorts, manufacturers of souvenirs and restaurant owners".

Unfortunately for the sector however, it isn't merely a question of reopening tourist sites. General safety, which remains precarious, and the continuation of the curfew, discourage visitors. Wagih, who works at a travel agency in Tahrir Square, agrees: "What tour operator will bring groups when they have to ask them to go to bed as early as chicken?" he sighs. 

It cannot all be blamed on last month’s events, however. Amr points out that tourism suffers from more than the revolution's repercussions: "The current post-revolution tourism slump isn’t what ails the industry the most", she says, and cites people's attitudes as well as red tape that discourages, for instance, films and documentaries from being shot in Egypt.

Her suggestion: unconventional channels of advertisement using technology. "Start a Youtube channel, a Flickr account. Consider hosting a visitor in your home. Let us attempt to display a different face of Egypt, one more original and personal, one a lot more inviting."

Lastly, entrepreneurship and private enterprise creation will need to finally be given free reign. As measured by the World Bank, Egypt ranks near the global bottom in enterprise creation: for every 1000 persons of working age, 0.13 enterprises come into existence yearly. Bureaucracy and registration expenses remain much higher than the world average, to which one should add the cost of corruption and bribes. Many of the business-oriented reforms promised by the past few governments have only seen the light in the form of legal texts and remain to be implemented. A more concerted approach, involving the government, private and citizen sectors, could allow young entrepreneurs to create their own enterprises and build their own economic future–in the true spirit of the Egyptian revolution.