Economy Key to Egyptian Transition

Without key reforms the opportunities of the revolution may be squandered.

Ehab Kotb

Ehab Kotb
IWPR Middle East programme

The Egyptian uprising was sparked to a large extent by the bad economic situation. Daily life in Egypt had become very difficult, especially for young people who had become frustrated and desperate, with no hope for the future. The middle class was seriously suffering – in itself not a new phenomenon, but one which was getting worse from day to day and year to year.

And it was those young, intelligent, educated people who saw the corruption of the former regime who were the ones who ended up leading the revolution.

The Egyptian economy has long been state-dominated. In the last two decades, a process of privatisation began. Price controls were relaxed; subsidies, inflation and taxes reduced. The whole point of this process should have been to provide more opportunities for growth and progression. The GDP of Egypt did indeed increase - but this did not mean that there was anything like a more equitable distribution of wealth. The majority of the middle class and working people gained nothing.

And decentralisation did not lead to a change in outlook within the business sector, which was still dominated by a public sector mentality. The major business leaders did not allow young middle managers to innovate or lead, an approach intended to contain the country’s wealth among a small few. This led to widespread frustration among the working and middle classes – again, especially among young people.

There was high unemployment, few opportunities for employment or development, and prices continued to increase dramatically. The government attempt to lower subsidies was so badly conceived that it took away resources from basic goods and services, while allowing big business to avoid their full tax burden. Basic goods in Egypt became so expensive that they were sometimes unaffordable; meat, for instance, costs so much that many people can only afford to buy it once a week or twice a month.

In the post-revolution period, there has been little attempt by any political party to provide a coherent programme to address these issues, beyond a general criticism of the old system. Politicians have rushed to present unrealistic solutions - for instance, promising to unilaterally lower the price of basic foods – but how exactly they will do this, and what the wider knock-on consequences might be, no-one is able to tell us.

Egypt cannot continue down this route. We have changed the regime but failed to address the system. Anti-corruption measures must be a priority. The entire banking system needs to be reformed, particular lending and investment, to try to encourage middle-sized enterprises which will also have the added benefit of creating employment.

The middle-class needs to have full access to the credit system, which up until now has been largely restricted to big business. Private investment in tourism and manufacturing is needed, and the role of the army as an employer reduced. We need a professional army – one of quality not quantity – and one that is not acting as a burden on the budget. Having the army as a major employer is not a situation that helps the country either economically or in its transition to democracy.

The international community has provided emergency aid for us – including a World Bank loan of 2.2 billion United States dollars - which will be very useful in the short term. But looking further down the road, we need widespread technical assistance. One option would be projects to improve the quality of our products so that they can be marketed in the European Union. Free trade zones would boost our output, and maybe joint projects with the private sector in Europe and the US.

Without action, Egypt’s economic problems will only grow. Between January and March this year, because of the uprising, our economy shrank by around seven per cent. The International Monetary Fund had predicted growth of five per cent here over the next year; it has now downgraded this to one per cent.

Everybody knows now that governments can fall. Citizens of this country know that they can go on strike, demonstrate in the streets, and set up protest tents.

But people in Upper Egypt, in the south, in the villages, are not yet seeing the result of change. We need to show them that their lives can improve; that the revolution will have a direct and beneficial effect for them. Otherwise, they will not remain calm - and this will no longer be a peaceful transition.

Ehab Kotb is the member of IWPR’s Iraq staff.