The economy has struggled in the wake of the revolution, but a turnaround is eminently possible.
Major political upheavals may create a financial downturn, but many are followed by a quick rebound.
A key factor in determining which rebound sharply and which do not is business confidence. Confidence is what asset prices are built on, why transactions are made, and what creates demand. The challenge now will be restoring that confidence. The government has made it clear that they endorse a market-driven economic strategy that puts the private investment at the center. With that in place there are three simple ways to begin the process: embrace efficient regulation, engage in structured dialogue with the private sector, and use the power of the private sector to address the country’s social and economic challenges.
The foundation of business confidence is trust between people, government and business. Some question if the private sector can be trusted to care for air quality, consumer safety and serving poor communities. The task of ensuring that public interests are taken into account falls to regulation.
One of the best ways to restore trust is by introducing effective regulations that reduce the cost and time required to comply while increasing the certainty of the process, including enforcement. In the best case scenario these are “win-win”, protecting the environment, for example, while stoking competition and allowing good firms to thrive.
An area that requires this kind of approach is border control, where there is a clear public interest in preventing illegal or dangerous goods from entering the country and a private interest in a fast process. Nations that regulate borders badly tend to inspect every container, causing delays, damaging shipments, and creating a strong incentive for non-transparent procedures.
But it need not be that way. The government of Morocco uses information technology to identify cargo that poses the most risk and, as a result, it inspects only 5 to 10 percent of shipments. This has increased the detection rate of bad cargo, thus protecting the public interest, while making trade faster and firms more competitive. Like many countries, Tunisia has reformed scores of laws, and supported them with regulations.
But it also had a stock of obsolete regulation. Based on a decree by the prime minister, Tunisia’s finance ministry has created a high-level technical committee along with working groups in all departments to look at 500 formalities and eliminate those that are unnecessary, ineffective, not based on law, or redundant. It will have this job done by next March, creating a much more competitive environment, something that is vital for the prosperity of a new Tunisia.
Good regulation emerges from a well-structured dialogue with the private sector, which often has excellent ideas on ways to target regulations to achieve public objectives efficiently. Working together to discuss and solve problems is essential to realizing a shared vision of a competitive and inclusive business climate, and to building confidence. Beyond dialogue, the private sector can play a role in enforcement through voluntary standards or self-regulation.
Self-regulation can be efficient, and can be enforced through a threat to use government enforcement if industry does not deliver. An example comes from New Zealand, where officials have allowed industry to come up with their own mechanisms for reducing carbon emissions. If this fails, New Zealand will introduce a carbon tax.
To demonstrate commitment to the idea of social justice that was a key part of Egypt’s revolution, many firms are embracing corporate social responsibility, which may take the form of donating a share of profits to charity. This is commendable, but some entrepreneurs are now going farther, focusing not only the profits but the entire business on addressing deep social needs.
These are called “inclusive businesses” or “social enterprises.” One of the most relevant examples for Egypt comes from the Philippines. Manila Water, which emerged from the privatization of the capital’s water supply, helps the poorest communities apply for water connections collectively rather than individually, and teaches them to manage and protect their own connections.
Through the program, many families saw their water bills drop from $45 per month with informal vendors to $5 per month. A good way to start projects like this locally is to partner with non-governmental organizations that are already active in the poorest communities, such as Masr El Kheir, Nahdet Al Mahrousa, CID, or Ashoka to name a few.
The skills of business can help such efforts become self-sustaining. If the private sector does not do this, who will? Restoring confidence requires timely action on the most crucial issues. When the people of Indonesia forced the resignation of Suharto in 1998 in the wake of the Asian Financial Crisis, the interim president Jusef Habibie introduced laws that transformed the country through decentralization.
The policy was refined after elections, but it is clear in retrospect that this was one of the most decisive factors leading to Indonesia’s success today. Around the same time, Korea took on its chaebols, and Thailand introduced new laws for bankruptcy and social safety nets.
Egypt will have its own reform priorities, but there is no reason why an interim government cannot send an equally powerful message about a new business climate that is both pro-business and pro-society. That message will help restore confidence.
As in any transition, there is uncertainty in Egypt. But there is also certainty. The pyramids aren’t going anywhere. The Nile will flow. And 85 million Egyptians, with a new sense of pride, will work, provide for their families, and hope for a better future for their children. These are the fundamentals of a vibrant economy, and the private sector, whether it is a small business or a big company, will always be needed to deliver on that promise.
Magdi M. Amin manages the Investment Climate Advisory Services in the Middle East and North Africa for IFC, a member of the World Bank Group. The team, with offices in Cairo, Amman, Pakistan, Rabat and Sana’a, works with governments, the private sector and civil society in the region to create a better enabling environment for businesses and entrepreneurs, to raise competitiveness, enhance social impact, and ultimately create jobs.
This article was written exclusively for Daily News Egypt. The findings, interpretations and conclusions expressed in this article are the authors’ own and do not necessarily reflect the views of IFC, a member of the World Bank Group.
