CAIRO: Egypt must focus on economic reform and foster private investment, according to a July 20 report released by a team of foreign experts.
The Legatum Institute, an international investment group, and the Carnegie Endowment for International Peace, a nonprofit organization geared toward international cooperation, released the study in conjunction with the Atlantic Council, an international affairs think tank based in Washington, DC.
The report, which was researched in mid-June, debunked several myths about the Egyptian economy. It first stressed that Egypt’s economic situation is not a lost cause.
“Egypt has a robust and diversified market economy,” the report said. “Before the revolution, Egypt enjoyed solid rates of economic growth.”
Between 2003 and 2009, Egypt experienced growth rates in the range of 6-7 percent, followed by 4.7 percent in 2009 and 5.3 percent in 2010.
The report added that Egypt’s debt, although sizable, is predominantly domestic, with a foreign debt to GDP ratio under 15 percent.
Egypt’s economy, however, is facing serious challenges. In order to match the population growth, 700,000 jobs in the private sector must be created annually. But with so much attention on the political situation, the report argued, not enough attention is being given to the economy.
“Egypt’s economy is capable of resuming fairly rapid growth,” the report said. “But for this growth to be sustained, far reaching economic reforms are needed.”
Studies have found that 82 percent of private businesses are run informally, while 62 percent of the workforce is informally employed. One study showed that 92 percent of Egyptians hold their property without a formal title.
The report suggested low-cost, high-impact changes such as bankruptcy reform, transparency of public sector information, and lowering the costs of operating in the formal sector.
In another section, the study emphasized the need to cut back on fuel subsidies, which swallow a huge portion of the government budget.
“Replacing regressive subsidies with a system of supports explicitly targeted at the poor can correct this distortion, and may also prove politically appealing,” the report said.
In the 2011/1012 budget, $16.8 billion is allocated to fuel and electricity subsidies, constituting over 20 percent of total government expenditure.
Recently, countries such as Jordan, Mexico, and India have changed subsidy programs to programs focused on low-income groups with success.
Although the Egyptian government has refused additional international funding, the international community can stimulate private-sector growth to support the economy, the report concluded.
“A free trade agreement with Egypt would be the best way to signal a deep and durable commitment by the United States to the success of the Egyptian transition,” the report said.
These agreements should be targeted towards increasing labor mobility, liberalizing the manufacturing and service industries, and improving market competition, the report added. They should also facilitate foreign direct investment.
Egyptians would also benefit from technical and legal assistance that would make the region more attractive to investors.
“If the transition in Egypt succeeds, and the country acquires a democratic, accountable, and efficient form of government, it is likely to become a powerful example and, ultimately, a stabilizing force in a turbulent region,” the report said.
