A recent UNIDO report has heralded Egypt as an economic "winner" despite the country's severe economic problems. John Sfakianakis* investigates Once again a United Nations agency has stressed that the Middle East is not keeping up with global industrial development trends. In its recent report, the United Nations Industrial Development Organisation (UNIDO) also criticised the entire neo-liberal approach to economic reform. It questions fundamental assumptions that equity and wealth creation will automatically come from market-led reforms. Additionally, the report highlights that globalisation has not been equitable or beneficial for everyone. Globalisation "can be a powerful force for deprivation, inequality, marginalisation and ecological disruption". Countries following neo-liberal prescriptions saw equity deteriorate, with efficiency gains turning out to be both short- lived and elusive. Indeed, the real per capita income of 30 developing countries is lower today than it was 35 years ago. Global manufacturing industry has seen commensurate inequality as well, both between industrialised and developing countries, and within the developing world. According to UNIDO, per capita manufacturing value added in 1985 among the most industrialised five per cent of countries was 297 times that of the least industrialised five per cent. In 2000 the figure had risen to 344 times. In 1985, per capita manufacturing value added in the five most developed countries was 276 times that of the five least developed. By 2000, it was an astonishing 437 times higher. Although macroeconomic and institutional reforms have led to some improvements, productivity gains through the mobilisation of society's innovative potential have been sorely lacking. Technological learning and innovation have not followed macroeconomic and institutional reform. Hence, most developing countries have been unable to deploy new technology in the industrialisation process. A new benchmarking scoreboard showed that indigenous technological effort and foreign direct investment (FDI) were the two most important factors in improving industrial performance. Industrial competitiveness cannot be achieved simply by 'liberalisation' and entering the global economy. Industrial competitiveness, UNIDO suggests, requires building capabilities in the use of new technologies (referred to in the report as the "high road"). The report also suggested that developing countries link up with foreign partners to acquire new technology and re-orientate domestic policies to focus on innovation and learning. Overall, the Middle East and North Africa region has achieved fair manufacturing value added per capita. However, improvements in the region pale into insignificance when compared with the huge increases witnessed in East Asia. The Middle East's share of developing country manufactured good exports fell to three per cent in 1998. In the same year, East Asia's share amounted to a staggering two- thirds of the global total. The only regional success story has been Turkey, with four per cent of global manufacturing value added in 1998. China had the highest share with 29 per cent. Skills are also an important determinant of industrial performance. The report points to tertiary education as an important skill indicator. Although the Middle East has improved in terms of total tertiary educational enrollments between 1985-1998 (nearly 10 per cent of global distribution) it is still behind East Asia (about 50 per cent) and South Asia (20 per cent). Technological improvements are also an important factor for industrial development. Countries that import technology need to master them, then adapt them to local conditions. The more advanced and complex the technology, the greater the learning effort required. Research and development (R&D) becomes increasingly important as a country imports more sophisticated technologies. An entrepreneurial firm should not only understand but also adapt and eventually improve imported technologies. In this respect the Middle East lags behind even Sub-Saharan Africa. Although in most developing countries government financed R&D forms the bulk of national R&D, privately financed R&D is also essential for industrial innovation. Productive enterprise-financed R&D has also been sorely lacking in the Middle East. Some would argue that this is due to the lack of a real productive base in many of the countries of the Middle East. The UNIDO report also refers to various states as either "winners" or "losers", measured by a competitive industrial performance (CIP) ranking. Between 1985 and 1998 there were six "winners" that gained 10 or more places and 12 "losers" that lost 10 or more. Among the group of "winners" were, China, the Philippines, Indonesia, Thailand, Ireland and Egypt. Among the "losers" were Tanzania, followed by Peru, Ghana, Venezuela, Hong Kong, Zimbabwe, Saudi Arabia, Jamaica, Panama, Senegal, Oman and Algeria. The UNIDO report shows that, by 1998, Egypt had improved its CIP rank by 10 places, reaching 57th place. As the only country in the region to experience an impressing climb in its rankings, Egypt is clearly a "winner". Its manufactured value added grew by 9.5 per cent a year between 1985 and 1998, more than the average for the developing world and for the region (7.7 per cent). However, rapid industrial growth is often accompanied by increased pollution. According to the report, Egypt has become the 15th biggest polluter in the world, in GDP terms. Regionally, only Saudi-Arabia, Algeria and Bahrain have a worse record on pollution. Although manufactured exports have grown by 13 per cent since 1985, Egypt's global ranking fell from 68th to 70th place in 1998. More importantly, Egypt's share of medium and high-tech products in 1998 accounted for 39 per cent of manufactured value added whereas the share of medium and high-tech products in manufactured exports was only 8.8 per cent. In contrast, during the same period, Turkey's share of medium and high tech products was 38 per cent, with manufactured exports at 23 per cent. This decline is not merely indicative of the poor state of Egyptian exports -- resulting from protectionist policies -- but also of increased competition by new entrants into the global marketplace. FDI in Egypt was also very low ($13.3 in per capita terms in 1998) and has fallen over time, from $15.5 in 1985. Egypt's rank, in terms of FDI per capita, has dropped from 32nd place in 1985, to 61st place in 1998. This drop in FDI is partially the result of structural problems that made the Egyptian economy relatively unattractive, coupled with greater competition by Central and Eastern European countries in the early 1990s. Egypt will also have to make tremendous strides in R&D in the years to come. Egypt ranked a poorly 49th in terms of enterprise-financed R&D in 1998. Technology inputs and innovation must improve as well. In this respect, Egypt is an underachiever, outpaced by both Morocco and Tunisia. Finally, the report categorically states that Egypt is losing ground in skills and infrastructure, contrary to governmental claims. Indeed, the number of tertiary students declined from 75,000 in 1985 to 70,000 in 1995. In the infrastructure index Egypt ranked 63rd in 1998, just ahead of Morocco and Yemen, but has lost nine places since 1985. In order to become competitive, Egypt must attract more FDI and improve its base of skills, technology and infrastructure. One then has to question the degree to which a country can be branded as an industrial "winner" with so many deficiencies in vital industry-related sectors. * The writer is a research fellow at Harvard University's Centre of Middle Eastern Studies.
