Egypt’s Economic Issues

Many people would not be suprised that the revolutionary events that have been defining Egypt over the last 2 years, have had a very significant impact on the Egpytian economy.

This post attempts to highlight how the Egptian economy has been affected by the Revolution.

 

A holiday resort in Luxor, Egypt

Tourism

Egypt has been well-known as being a popular tourist destination, whether for sunbathers — who are up for all-inclusive beach resort — or for people interested in history, and for backpackers.  However, a couple of months after the overthrow of Hosni Mubarak’s regime, reports showed that the tourist industry has collapsed in light of the unrest in the country. Reuters reports that by the end of 2011, there was about a one-third fall in revenue compared to 2010.

More recently, however, Egypt’s tourism industry is recovering. However, a partial alcohol ban has been put in place in in February of this year, raising speculations and fears about the consequences of this move. While analysts believe that the Justice and Development Party will not push through a complete ban, which could have an adverse effect on tourism; a more relevant concern has to do with the liberal part of the country.

The move can be considered an implicit infringement of the principles of democracy. The decision does not consider the freedom of choice of liberal/non-religous citizens of Egypt who do drink alcohol, or at least want to be able to choose to do so.

Coming back to the tourist industry; Ahram Online reports that Egypt has lost about $2.5 billion is revenues from tourism since 2011. Also,

Hisham Zaazou, Egypt’s minister of tourism, will reportedly launch a live streaming channel to allow tourists to ascertain the security situation in Egypt, and to promote the country as a safe tourist destination.

Fuel shortages

Fuel shortages are causing tensions, there large queues at services stations, to get fuel. Beyond that, the government imposed a 50% price increase on fuel, which sparked further unrest.

Fuel shortages are becoming an everyday hassle for cab drivers and industrial and agricultural sectors following the government’s decision to increase fuel prices by 50%.

The fuel price hikes have recently led to traffic jams at nearby gas stations and scuffles with fuel consumers. Many operating businesses and factories have been forced to shut down as a result of price increases.

IMF loan

It appears that the IMF loan of $4.8 billion that is being negotiated between the Egyptian government and the IMF, is said not to be enough. David Malone, president of Canada’s International Development Research Centre (IDRC) said the following regarding this,

“The real issue is that economic management is missing from the political discourse; day-to-day politics seems to be the current priority,” asserted Malone. “Egypt is in desperate need for economic management.”

Economic growth is a prerequisite to Egypt’s development effort, he said, but growth must be accompanied with sound governance to combat long-term structural deficiencies, such as corruption and a crumbling public sector that hinders development efforts.

Index of Economic Freedom

The Heritage Foundation has a very interesting index which the present annually, called the Index of Economic Freedom. Egypt has been rated as the 125th most economically free country in the world with a rating of 54.8 (the world average is 56.9, and free economies score 84.5 and up). Comparatively speaking, the Egyptian economy has been becoming less ‘free’ in the last years, as you can see in the chart below.

These figures do not mean a lot without an explanation.

Firstly, economic freedom is defined as

the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.

Secondly, the general score is composed of the weighted average of four categories, them being rule of law, limited government, regulatory efficiency, and open markets.

The Heritage Foundation offers some details about the nature of the decline.

Given its challenging political and economic transition, the Egyptian economy has been experiencing an extended period of instability and uncertainty. Much-needed improvements in economic policy have been delayed, and the effectiveness of reforms that might have helped to open markets and improve productivity has been undercut by the fragile rule of law and the legacy of Egypt’s socialist past. A new, higher top tax rate of 25 percent applies to both individuals and corporations.

Deeper institutional reforms are critically needed to spur lasting economic growth and development. Those reforms include strengthening of the judicial system, better protection of property rights, and more effective action against growing corruption.

From the above it becomes clear that Egypt is missing a well-structured economic management.

US Ambassador  to Egypt, Anne Patterson, in a recent speech in Cairo (I reblogged that last week), concisely captures the crisis of Egypt and its economy in the below quote.

Every economy goes through bad periods, but economies only recover when they are tended.  And that means someone has to take ownership of the solutions (even if they are difficult) and lead the way out.  People must be shown a vision of how the future will reward the sacrifices of the present.

The most catastrophic path is for the government and the political leadership of the country – whether in power or in opposition – to avoid decisions, to show no leadership, to ignore the economic situation of the country.  When management of the economy is treated as a by-product of political disputes instead of a core function of political leadership, the business community is left trying to protect itself instead of investing and growing.  The talks with the IMF need to be brought to closure.

The Ambassador then goes on to offer three fields where Egypt has to work on,

  • First, Egypt needs to conclude a credible agreement with the IMF.
  • Second, Egypt needs to fix its energy sector, fundamentally overhauling a simply unsustainable subsidy program that costs billions of dollars every year.
  • Finally, Egypt needs to make peace with its past.

 

In earlier posts I emphasised that Egypt must stabilise politically, and prevent violent escalation, to progress. However, subsistence is the primary concern for people, other things like freedom come only after that. Without a stable economy, you will not achieve political stability either, especially not in a democracy, mere brutal repression is out of order.

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