Samir Radwan* assesses Egypt's competitiveness on the global scale Can Egypt compete on an international level? This is the six per cent question. If we want to realise this golden objective of GDP growth, we have to be able to produce goods and services that are of high enough quality to find a place in the domestic and, more importantly, the global market. "Emerging giants" like China and India have proven the point, and the experience of the "Asian Tigers" has become a model to emulate. Where do we stand? The Egyptian Competitiveness Report (ECR), published by the Egyptian National Competitiveness Council, which provides a comprehensive assessment of the competitiveness of the Egyptian economy, monitors the annual changes in Egypt's ranking. Resorting to several global indicators, the report tracks ongoing reforms and gives recommendations to guide the policy-making process in light of the observed strengths and weaknesses. This year's ECR analyses the change in rankings, and presents an overview of government policy reforms and their impacts. It also focuses on a few major issues that are crucial to competitiveness, such as the role of industry, and the importance of innovation. This year's ECR records notable improvements in Egypt's competitiveness rankings, reflecting the impact of significant economic reforms. The government of Egypt must be commended for the very strong showing in Pillar Three of the Global Competitiveness Index, "macroeconomy index," which made an impressive leap from 81st to 50th place. The government's economic management team lowered inflation, just as it lowered taxes and tariffs. The ranking would have been even higher, were it not for the low ranking induced by the continuing large government debt as a percentage of GDP. This is an area which the government recognises as one of continuing concern. This said, the reforms introduced by the cabinet of Prime Minister Ahmed Nazif since July 2004 have started to pay back. Building upon the work of the Ministry of Investment and the General Authority for Investment, a new environment has been created to encourage domestic and foreign investment. Several reforms were made in simplifying business start-up procedures, registering property, financial access and reducing the paperwork related to export and imports. Egypt established a single stop for trade documentation, and merged 26 approvals into five. However, such reforms need to be complemented by several microeconomic reforms. With regard to the other indices, Egypt seems to be a typical example of a country which is in its first stages of take off. It does well on the more basic requirements of institutions, infrastructure and the macroeconomy. However, the scores become less glamorous as one progresses to the more advanced pillars of technological readiness, business sophistication and innovation. Egypt was especially weak in the indicators related to basic human resources, where there is a continued high adult illiteracy, and where the productive sector reports that the educational system is not meeting the economy's needs. Egypt does not perform as well on Michael Porter's Business Competitiveness Indicator (BCI). This focuses on the "micro foundations of competitiveness" which include the sophistication of company strategy, operations, and the quality of the business environment. The results indicate that major work must be done at the microeconomic level to improve the business environment, if growth is to be sustainable. Indeed, the latest figures available show that Egyptian productivity has stagnated, suggesting that the recent improvement in economic growth may not be sustainable without microeconomic reforms. Using the UNIDO Competitive Industrial Performance (CIP) Index, the report also benchmarks the competitiveness of the Egyptian industrial sector. After growing in the 1980s and 1990s, Egyptian manufacturing exports have failed to drive the economy in terms of manufacturing value added and exports. Egypt's manufactured exports per capita remain quite low, and these manufactured exports are largely resource- based, or have a relatively low technology content. Egypt under-performs in medium- and high-tech exports. These currently account for more than 55 per cent of world trade, and are growing at a faster pace than low-technology exports. The report also explores the market, and the product diversification of Egyptian manufactured exports. Egypt has been able to diversity its markets geographically, thus reducing its dependence on the EU while increasing its export presence in the MENA region and Sub- Saharan Africa. It also continues to export to the USA. This market diversification strategy could reduce Egypt's exposure to possible demand slowdowns in specific regions. However, Egypt has not achieved product diversification. It's manufactured export concentration remains worrisome, compared to that of many other countries. Egypt's top five manufactured exports accounted for 66.6 per cent of total manufactured exports in 2004. What is even more striking is the fact that Egypt's product concentration has increased over time -- in 1990 its top five manufactured exports accounted for 60 per cent of the total. This product dependency is also concentrated in resource-based products, with petroleum- based ones clearly dominating the scene. Refined petroleum is Egypt's single major export to the US, as well as the EU and the Middle East and North African region. The analysis included in this report shows that Egypt is vulnerable to export displacement by countries like Turkey and China. If Egypt is to avoid losing ground, an appropriate industrial strategy is urgently needed. Such an industrial strategy, implemented by means of a comprehensive set of policies, must avoid the mistakes of failed industrial policies adopted by other countries. It needs to focus instead on the approaches that have proven successful among countries which achieved rapid industrialisation and successful export development. The new focus of industrial policy will improve productivity, while increasing employment. This requires a focus on improving the productivity of Egypt's human resources, as well as its business environment. It will also entail attention being directed to boosting private investment, both foreign and domestic. Innovation has become a key driver of the competitiveness of nations. It includes the ability to adopt and adapt imported technology to the development of new technologies, products and processes. Fostering innovation goes beyond merely boosting Egypt's very low level of research and development (R&D), compared to other countries. It requires a rich set of human resource systems. In his insightful contribution, Ismail Serageddin puts together a coherent vision for a "National Innovation System". This vision leads to a comprehensive framework which begins with the inception of ideas, translating them into reality and then moving them on to the markets. The report also highlights the imperative of creating open and tolerant societies which are conducive to the nurture of questioning, and of critical thinking. Yet, it argues that this requires no less than a major revolution in the educational system, of which curriculum reform is but a partial solution. The overall school atmosphere and teacher attitudes are just as important. Having a climate that allows young people to generate ideas is a necessary, yet not sufficient condition for innovation. Egypt needs a solid base in science and technology (S&T). The development of an indigenous capacity in S&T is not a luxury, but an absolute necessity if Egypt is to realise its potential in the coming decades. This would include a variety of initiatives, including human resources, centres of excellence, sources of technology, finance and creating the digital libraries of tomorrow. It would focus geographically on the industrial and high-technology hubs centered around Cairo and Alexandria. It is those that can better attract domestic as well as foreign investment. These hubs would become clusters, including campuses, industrial parks and business incubators. For the hubs to actually attract multinationals, and allow for the effective technology transfer that Egypt needs, it is essential that they have a supply chain of young talent to draw upon and train. Some of the alumni of such training -- the more ambitious among them -- should be encouraged to initiate their own start-up activities. Technological incubators would support them with initial start-up loans, with the possibility of setting up their labs in a close-by campus atmosphere. Common services such as the legal, administrative, financial and auditing services could be shared in a way that would minimise the cost to young entrepreneurs, allowing them to focus on their own technological businesses. This year's ECR ends with a practical recommendation. Egypt needs to build consensus around a common vision. Therefore, it is proposed that the Egyptian National Competitiveness Council bring together Egypt's private and public sector, along with civil society leaders to form a common vision and unify action. The council would advise the government on competitiveness-related initiatives. It would set priorities, provide advice to the government and monitor progress. It would make recommendations based on the latest data, the best expertise, and the insights among Egyptian experts from many parts of society. Measurable goals and manageable priorities would thus be established. Over the course of the next 12 months, a set of eight to 10 key priorities for competitiveness would be addressed. Recommendations would be assembled over the next 12 months to form a comprehensive Egyptian national competitiveness strategy, which would be included in next year's ECR. Throughout the year, the Egyptian National Competitiveness Council would foster dialogue among many groups in society and between these groups and government leaders who are equally committed to improving Egypt's competitiveness, productivity and living standards. The council would also improve broader public understanding and support for competitiveness-related reforms. It would also challenge the private sector to improve its competitiveness, in recognition that this sector too, needs reform. Many Egyptian companies and industries hold the key to prosperity, and can re-position themselves in world markets. The council would be open, inclusive and transparent, and would maintain a web site which would be useful to many. Egypt's economic growth and competitiveness rankings have both improved, thanks to the bold macroeconomic and trade reforms recently implemented by the government. This needs to be sustained by complementing such macroeconomic reforms with microeconomic ones in the business environment. Piecemeal and incremental reforms will not be sufficient. There is a need for a comprehensive approach which is informed by good data, inspired by best practices and supported with a broad consensus. This in turn can be monitored annually, by those who know that the real challenge comes with implementation. The engine is ready and ticking for take off. * The writer is managing director of the Economic Research Forum.
