Sayed Attia*, inspired by the Washington Consensus, outlines an agenda for achieving sustainable growth Successive Egyptian governments have adopted a gamut of reforms to spur economic growth and integrate Egypt into the global economy. As a result, for two years before the financial crisis Egypt managed to achieve growth rates of nearly seven per cent that demonstrated progress as a natural outcome of the reform policies adopted. However, as a result of the financial crisis, Egypt's growth rate declined to 4.5 per cent, due partly to the decrease in foreign direct investment and the number of tourists. The government reacted by increasing public investments by nearly LE13 billion, which represents nearly 1.2 per cent of GDP. It might be mere chance that the policies adopted echoed the reform polices drafted by economist John Williamson who drafted 10 reform policies to help some Latin American countries overcome their debt crisis. These policies were known as the "Washington Consensus". They include fiscal discipline; reordering public expenditure priorities; liberalisation of interest rates; tax reform; competitive exchange rates; trade liberalisation; liberalisation of inward foreign direct investment; privatisation; deregulation; and finally property rights. Egypt has excelled in most of these policies, but the financial crisis may be an invitation for the government to reconsider some of them. In this respect, the first on the list would be "reordering public expenditure priorities". It is very important to have equal distribution of the fruits of growth among all classes of society. In fields where the government plays a prominent role, subsidies and education, empirical studies show that a great portion of expenditure goes to those who are not in dire need of it. In 2006, the Commission on Growth and Development was launched, bringing together 22 leading practitioners from government, business and policymaking arenas, mostly from the developing world. The commission was dedicated to defining issues of importance to growth and development. The commission examined poverty and progress via the experience of some countries that sustained strong economic growth through a period of 25 years or longer. The Commission on Growth and Development successfully identified common characteristics of the countries that achieved sustained growth over a long period. These characteristics included integration with the world economy, benefiting from the experiences of other countries, and importing ideas, technology, and knowhow. These countries experienced high rates of investment and where domestic savings were significant. Furthermore, these economies enjoyed market incentives, entrepreneurial dynamism, macroeconomic strategies, and microeconomic regulation. These factors are prerequisites for economic growth for any country. Now, in Egypt, while we are seeking sustained growth we have to ask ourselves this question: Where does Egypt stand relative to the characteristics of economies that sustained strong growth over time? The answer to this question comes from the "Sixth Egyptian Competitiveness Report" that specified the main areas of weakness to include macroeconomic stability, goods market efficiency, higher education, training, health and primary education. The report considered labour market inefficiency to be most alarming. Resultant recommendations included: first, Egypt's need to give due attention to education at all levels, focussing on quality rather than quantity; and second, mobilising domestic savings to be the main engine of investment. This does not mean reducing the impact of foreign direct investment, but rather giving domestic investment a greater role in economic growth, especially that it can work as a guarantee against unforeseen developments such as sudden global financial crises. It was noted that saving rates in East Asia played a crucial role in achieving growth as domestic saving reached 25 per cent over a long period. This explains why growth rates in these countries were much higher than in Latin America where the average private saving rate was only 14 per cent. For emerging economies like Egypt, growth follows innovations that allow local sectors to catch up with frontier technology. In this regard, domestic saving is important for innovation, and therefore growth. Through domestic saving the local entrepreneur can put equity into cooperative ventures, which mitigates an agency problem that would otherwise deter the foreign investor from participating. The participation of foreign direct investment comes from the cooperation of a foreign investor familiar with frontier technology and a domestic entrepreneur familiar with local conditions. It is clear that the Egyptian government allocates a large portion of the budget for subsidies. It is high time to reorder Egypt's priorities. In this respect, top priority should be given to both health and education. The sustained growth to which we aspire is that which ensures broadly shared prosperity and opportunity. Growth is not an end in itself, but a way to achieve other significant objectives, for both individuals and societies. Through economic growth, resources are created to reduce poverty, enhance healthcare and drive education. * The writer is senior international trade policies researcher in the Trade Agreements and Foreign Trade Sector of the Egyptian Ministry of Trade and Industry. The opinions expressed are solely those of the author.
