By Reem Abdellatif
CAIRO: A year after Egyptians took to the streets demanding bread, freedom and social justice, a lack of vision on the government’s part has pushed the economy to a breaking point.
As opposed to quick fixes, economists suggest shifting focus by looking at the domestic market and supporting small businesses, in a bid to promote long-term, sustainable growth. Large scale infrastructure projects that spur the construction materials sector are also key to revitalizing the economy.
Hoda Selim, an economist at Egypt’s Economic Research Forum, said the government in 2011 “could have implemented measures to ensure employment creation and improve rates of employability especially for the youth.”
Moving forward, “incentives to private sector firms through a temporary holiday on payroll taxes and temporary on-the-job training subsidies may help increase hiring,” she added.
By enhancing productivity and promoting local demand, more jobs could have been created for Egyptians over the past year, said Sondos Faramawy, a strategic consultant.
While the ruling military council has called for celebrations to mark the Jan. 25 anniversary, activists say the revolution is ongoing until power is handed to a civilian authority. In the meantime, the economy has suffered as evidenced by declining figures in the traditional indicators.
Unconventionally looking inward
But instead of dwelling on lost tourism and foreign direct investment (FDI), economists argue that focus should shift to helping small and medium enterprises (SMEs), restructuring spending and stimulating the local economy.
“To reach investment and higher production, there has to be a concrete economic policy, but the political will is not there,” said Monette Doss, senior analyst at Prime Group.
The real solution lies in looking internally. “It would not be in borrowing per se,” Doss said.
However, Egypt has officially requested a $3.2 billion loan from the International Monetary Fund, a number that is likely to increase as negotiations proceed.
“The current people in power … are looking for quick fixes to the problems on the ground. …They are wasting their energy into trying to implement quick fixes, which [will] not work right away,” said Faramawy.
“Most major producers focus on exports, not local demand. When it comes to furniture, for example, the local market relies heavily on imports yet we export Egyptian furniture and import cheap Chinese furniture,” she said.
“If producers focus on the local market, there is a huge advantage there. That is why you have commercial centers like Carrefour or Spinney’s opening here, because they see we have a huge demand,” she added.
Before the uprising, the country’s foreign reserves were at $36 billion. Now, they have reached $18.1 billion, facing the risk of total depletion by March and making import cover vulnerable.
Focusing on the domestic market could work to decrease import expenses, thus curbing state spending, an issue the government has continued to stress as it struggles to plug a budget deficit of about LE 140 billion.
FDI slipped to $440.1 million from July-September 2011, down from $1.60 billion a year earlier, according to Reuters. One way to get money pumping into the economy is to promote infrastructure development.
“We are interested in creating infrastructure projects that can be sub-contracted,” said Alaa Ezz, secretary general of the Federation of Egyptian Industries.
Ezz has a vision to create mega-infrastructure projects in order to develop Egypt as well as encourage investments.
“In September, the Deauville partnership allocated $73 billion to help Arab Spring countries including Morocco, Jordan, Tunisia and Egypt,” Ezz said. “About $38 billion would come from the Group of Eight (G8), while $35 would be from the IMF.”
According to Ezz, one of the state’s goals should be to bring together engineers and visionaries that could come up with well thought out project proposals.
With this kind of package, each country would have to come up with immense infrastructure proposals such as airports, water plants, or highways, opening up the door for sub-contractors.
“The minimum to dump in these projects could reach $1 billion. To get any economy moving, like the US government did recently, you need to have a stimulus package,” Ezz added. If Egypt plans out these large-scale infrastructure projects, “then you’ll see contractors coming in.”
Such projects would need building materials, equipment, workers as well as suppliers and would in turn create jobs and a flow of liquidity in the market. However, in order to come up with presentable proposals for the G8, the government first needs to invest in consultants and engineers.
Several economists reiterated that in these uncertain times, propping SMEs is the answer.
“Entrepreneurs’ voices are not being heard. The larger corporations have borrowed a lot of money from banks — there is a lot at stake and banks are not willing to compromise. It is easier for them to focus on a $200 million loan, than a $2 million,” said Minoush Abdelmeguid, managing director of Union Capital.
Abdelmeguid, whose firm works closely with small businesses and offers free mentoring programs to entrepreneurs, also stressed the importance of creating centralized government support plans for these business.
Since banks prefer lending to larger corporations, funding has continued to hinder the growth of small businesses in Egypt.
Before the uprising, the government failed to enable small enterprises, focusing more on larger corporations and investors.
“The current government is an interim government. SMEs are a long-term solution; they need short-term, quick solutions. They are not focusing on it because it is not something they will be able to take credit for,” she said.
Risks
If economic prosperity is not fulfilled sooner rather than later, the democracy demanded by the ongoing revolution cannot be fostered, Magda Kandil, head of the Egyptian Center for Economic Studies, told Daily News Egypt.
The economic crunch continues to be the main threat to the “ongoing” revolution.
“People have already started to ask about the outcome of the revolution and fulfilling their vision. The government is not going to be able to create social stability under these economic pressures,” said Kandil.
With more than 16 million Egyptians living under the poverty line of $2 dollars a day, more and more citizens have become discontent with the worsening economy, and some resent the revolution and the youth activists.
The Supreme Council of the Armed Forces (SCAF), headed by Field Marshal Mohamed Hussein Tantawi, has repeatedly blamed strikes and protests for the economic malaise.
Kandil said there needs to be less focus on the street and more effort put into productivity. “The government focused more on increasing pensions, salaries and subsidies, when they should have focused on how to stimulate the economy,” she said.
“Instead of implementing a social agenda that increased spending, they should have focused on stimulus packages. They’ve missed it on both fronts,” she added, referring to a budget which increased spending without providing alternatives.
She said the transitional government aimed to temporarily appease the masses.
“They have increased spending and it backfired. Inflation and the economic problems we are facing today are a result of the government’s shortcomings over the past months,” she said.
At this time, facilitating credit for small businesses could have created thousands of jobs and resulted in a sustainable boost to the economy.
“It is elusive to say the government will provide jobs; private sector is what helps,” said Kandil.
