Egypt Independent

How does Egypt reach an 8% growth rate?

I am not accustomed to attending embassy celebrations on the national days of different countries. There are more than 100 embassies in Cairo, as well as many international and regional organizations, and attending such events is not commensurate with many of the burdens.

However, I was keen on attending the celebration of the Embassy of Latvia in Cairo with the centennial anniversary of the state. Latvia was one of the countries that came into existence in after World War I, on November 18, 1918. This was almost four years before the birth of the Egyptian state, which was based on the British declaration of February 28, 1922, following the Egyptian revolution of 1919, the centennial anniversary of which will be celebrated next year.

In reality, the similarity between Latvia and Egypt stops at this point. Egypt is located on the Mediterranean and Red seas, where the water is warm all year. Latvia is located on the Baltic Sea, where water is cold most of the year. Latvia has only 2 million people, while Egypt has 100 million people. While Latvia takes up an area slightly less than 65 square kilometers, Egypt takes up more than a million square kilometers. Latvia’s capital Riga won the title of the cleanest world capital this year, while Cairo won that title in 1925 in a different world and under different circumstances.

Latvia’s per capita income in the gross domestic product (GDP) measured by the purchasing power of the dollar is more than double that of Egypt’s. When measured by official value, then Latvia’s per capita income is more than five times that of Egypt’s. Latvia is a highly rated country in terms of human development indicators, while Egypt remains in a modest state in terms of the same indicators.

The difference between Egypt and Latvia is not the difference between a large country with a large population and a small country with a small population like Latvia (in fact, Latvia’s population declined between 2010 and 2018, but that is another story). The Egyptian dilemma would remain if the comparison were with other large countries with big populations – even those with a population of more than a billion, such as China and India. It would also exist if comparisons were with other small countries such as Estonia, Lithuania, Taiwan, Singapore, Hong Kong, Dubai, and so on.

If there is one consensus among those interested in Egyptian developmental thinking, whether within the government or among the governed, it is aiming to achieve an average growth rate of 8 percent annually over the next two decades. This would help overcome population growth rates and provide employment for 750,000 people entering the labor market each year, while also creating a sustainable energy for growth and progress to move Egypt from its current position in the world to the ranks of developed countries. There is nothing that unites China, with its huge size and population, and Latvia, with its small are and population, except achieving high growth rates for a period of time sufficient enough to overcome poverty, underdevelopment and their presence in the Third World.

The ever-pressing issue for Egypt is how to do it? The fact is that during the period from 2013 to 2018, Egypt achieved a remarkable leap from a negative growth rate in 2012/2013 to 5.3 percent during the past year, and there are expectations of achieving 5.5 percent during the current year, with glad tidings of reaching 6 percent by 2020. This reflects a great effort; however, reaching 8 percent is still far away. And with such current rates, reaching it will be at a time when the complexity is more complex than now because of the increase in population and other reasons, in addition to surprises that nobody knows when or how they may come.

What big and small countries have always done is achieving sufficient capital accumulation to achieve such growth, which in the Chinese case reached 13 percent in some years, until there is fear of the “heat” of the economy at this rate of growth through added energy consumption and burdens on infrastructure. But this is not Egypt’s case anyway, and its goal of achieving 8 percent is not only reasonable but also possible, if we first learn from other countries that each country and place in fact has competitive advantages in humans and production, and secondly that accumulation occurs only with heavy investment in different projects based on these competitive advantages.

It is clear that what has been achieved so far in Egypt has been the result of government investments that have rehabilitated the infrastructure, established giant projects, and laid the foundations to move from the river to the sea, as well as giving the state the ability to simply reach its outskirts and borders. Private investment was modest, and foreign investment rates were below pre-2011 levels, which means that Egypt needs to achieve a lot more in the way of laws, regulations and capacities that attract foreign investment. Greater effort is also needed for private sector investment, which suffers different kinds of apprehension. Historically, both foreign and private Egyptian investments were among the reasons Egypt achieved this desired rate at the end of the 1970s and came close to it in the mid-2000s.

Asking the question and looking for an answer on how to multiply the domestic and foreign capital businesses is the one that will bring Egypt closer to 8 percent; it will all be guaranteed if the municipalities do their roles in mobilizing local capitals to invest in each government separately. The fact is that the governor’s job is not only to work on controlling the markets, treating the citizens well, and inspecting hospitals and schools – all of which are laudable and commendable and require effort. But equally important is the development of the government itself and adding to national income through another “Dubai” on the sea or a second “Latvia” in the one of the governorates!