At this critical stage of Egypt's history we are in a pressing need to pave the ground for a prosperous, inclusive, equitable, sustained period of economic growth. Recently the government stated it seeks to achieve economic growth of 3.5 per cent. It should be noted that the percentage of growth is not a target per se; the target is who benefits from such growth. Thus it is necessary for the government to pre-determine what kind of economic growth Egypt really needs. Proper economic growth should have the following characteristics: - Equality and inclusiveness. - Be value-added. - Be developmental, not merely expansionary. - Be technologically innovative, and institutionally based. - Be export-oriented. These criteria must be the governing factors when designing policies needed to achieve the intended growth. To achieve any sustained growth we have to consider the challenges facing the Egyptian economy. In this respect, we can distinguish between domestic and external factors. For the domestic factors, they include continuing growth of population. The last estimate shows that population in Egypt grows at nearly two per cent annually, which is a very high rate. Then there is corruption, the inefficient education system, weak local saving, and the low level of industrialisation, weak institutions, the budget deficit, and finally the distorted subsidy system. The subsidy regime is considered an anti-growth system. The main feature of subsidies in Egypt is that there is no distinction between the needy and the affluent. As for external factors, they include the fall of foreign direct investment (FDI), the fall in tourism and fluctuating foreign assistance. As Egypt starts a new and totally different stage of its history, and in order to achieve the economic growth its citizens aspire for, I would like to propose a number of solutions. First, the government must reconsider the subsidy system in general and energy subsidies in particular. I propose that a great portion of the energy subsidy be cut and redirected to sectors that directly touch the standard of living of the vulnerable segments of the population — these sectors are specifically health and education. Second, overhauling the education system. Through an efficient education system Egypt becomes able to invest in human capital, which is a key factor for growth. To make my point clear, physical capital is crucial to growth, but in the absence of human capital provided by efficient education, physical capital will be of less value. As a matter of fact, investment in human capital facilitates the adoption of technology. Furthermore, it brings improvements to technology. The advanced semi-conductors industry in South Korea and Malaysia is a clear example of the importance of education in creating a growth based on value-added. Education is an investment in human capital that creates economic value. Through efficient education Egypt will have a productive population, securing a return on education and accordingly generating income, leading to rising standards of living. As we are on the eve of a new phase we must realise that economic growth requires an indigenous capacity in science and technology (S&T) and research and development (R&D). Both S&T and R&D are no longer luxury items but imperative necessities. Third, securing intermediary financial tools for micro and small enterprises, with due attention given to the informal sector that constitutes a great portion of the economy. As we know, available statistics imply that informal enterprises encompass nearly 82 per cent of total economic activities in Egypt, and informal economy employees constitute approximately 40 per cent of the total labour market in the country. It is known that informal activities basically use family savings and traditional domestic resources. Therefore, mobilising both domestic savings and resources is critical to achieving economic growth. In this respect, we can say that domestic savings can work as a substitute for foreign capital, which necessitates huge efforts and incentives from the government. In spite of the fact that FDI is very important for economic growth, domestic savings are of paramount importance. On the ground, domestic savings are of great effect in the accumulation of wealth for Egyptian citizens, and the net value added to the economy is higher than in the case of solely relying on FDI. Transfers out are very limited comparing to FDI. Furthermore, the efficient utilisation of domestic resources reduces dependence on imported inputs, minimising pressure on foreign currency reserves. All this can be achieved smoothly if there are intermediary financial facilities available at a reasonable rate in order reduce the costs of production, to be able to compete in the market. After the revolution, FDI declined dramatically. Therefore, the informal sector, financed by domestic resources and savings, is apt to fill the gap. Fourth, deepening industrialisation, as industry is a locomotive for growth, which links back to education, as industry needs skilled human resources that have the ability to innovate. The competitiveness of the Egyptian manufacturing sector has failed to drive the economy in terms of manufacturing value-added and exports. There are facts that invite the policymaker to give industry due attention. Egypt's manufactured exports are commonly described as low per capita, resource-based and low in technology content. Fifth, as we look for export-oriented growth, we have to maximise the benefits of bilateral, regional and multilateral agreements signed with key trade partners such as the EU, COMESA and others. Of course, Egypt will not maximise benefits without an efficient and productive industrial sector. To conclude, in order to achieve sustained economic growth in Egypt, brave decisions must be taken in areas of subsidies, education, industry and diversification of foreign markets. Egypt is in dire need of an industrial and educational revolution. We aspire to economic growth that creates jobs and secures equal opportunity for all individuals and, most importantly, economic growth that is based on a fair distribution of resources and reducing the suffering of vulnerable segments of society. The government should take into account that economic growth that is comprehensive is a panacea for all problems Egypt has suffered, before the revolution and after it.
The writer is a senior international trade policies researcher in the Trade Agreements and Foreign Trade Sector, the Egyptian Ministry of Trade and Industry.
