In the second of a two-part article, Talaat Abdel-Malek continues to fit the remaining pieces of the puzzle Last week's article presented an empirical profile of Egypt's export performance since the early 1980s, and compared it with the performance of selected developing countries that have achieved notable export success. It was shown that Egypt's lackluster performance was reflected in a slow growth rate of total exports, merchandise exports and manufactured exports, a declining ratio of exports to GDP, and a low per capita export value. The impact of sluggish export growth has been compounded by rapidly rising imports, putting more pressure on the trade balance and on the country's official reserves that have declined by one third in less than a year. These have triggered recent measures to restrict imports and some efforts to promote exports. It was argued that Egypt's export development problems have become chronic and that dealing with them requires an integrated approach based on a correct diagnosis. In an effort to contribute to such diagnosis, we have used the analogy of a five-piece jigsaw puzzle to draw attention to the inter-locking nature of the challenges facing export development. We presented an analysis of two pieces of the puzzle, namely management practices and workforce skills and attitudes. In this article, our analysis deals with the remaining three pieces. THE ROLE OF GOVERNMENT: It has become increasingly evident that there is a close relationship between export conducive policies and policies that aim at modernizing the economy as a whole. This, of course, makes much sense since the "export sector" is an integral part of the total economy. Export-conducive policies imply a broad reform programme and not merely a set of export promotion measures. We will not go into the details of reform programmes here. However, we must point out that the government's dragging of its heels during the past four years in carrying out genuine reform is a major handicap in the way of putting the Egyptian economy back on the right track. Most of the reasons given to justify the slowdown in reform efforts are in fact arguments in favour of speeding it up. It is hoped that policy-makers will soon get over what we might call the "transition-period malaise" which causes policy paralysis, as they struggle to choose a path between a relapse into centralism and further policy contradictions on one hand or forward moves to more market-driven policy initiatives on the other. In this regard, it appears that a split persists in the cabinet as to the thrust and speed of reform, though the recent Sharm El Sheikh donors' conference has given clear enough signals that donors expect a faster pace of reform if the monies pledged are to be released as planned. Click to view charts Anyway, let's now focus on policies that have a more direct impact on exports. Two types of policies may be distinguished: institutional and functional. By institutional is meant a series of policy actions that deal with government structure and policy-making machinery. A major handicap is the multiplicity of government departments that are involved in exports. In fact, only a few ministries can state that they are not involved in export matters. The most recent cabinet shuffle has given the ministry of foreign trade the leadership role and has defined its responsibilities more clearly than before. But as long as a large number of 'autonomous' government entities have a say, and as long as co-ordination remains weak, the impact of bureaucracy and the possibility of policy contradictions will continue to add an obvious financial cost as well as a hidden cost in the form of discouraging export initiatives. Many press reports have given examples of exporters who got caught in the crossfire between departments as part of inter-ministerial wars. How did some countries deal with this problem? We refer to the successful experiences of a few countries that took the bold step of bringing under one roof and one command the responsible government officers from all export-related departments. The Philippines is one of the first countries to introduce this model under the attractive label of One Stop Export Centre. All export regulations and requirements are clearly posted. Applications that meet the requirements are processed within a 2-3 day period. The model works. Another approach, less drastic but also effective, is to reduce the number of government departments involved through limited re- organisation measures. Will government leadership be able to take the bold measures necessary to achieve the structural streamlining required? One must remember that there is more to streamlining than merging units or re-assigning responsibilities. An important aspect of the institutional factor is the upgrading of the knowledge and skills of civil servants and introduction of a more focused incentive system. The functional side of policies covers the broad range of issues affecting the competitiveness of exports through input and transaction costs. Policies that cause increases in the cost of raw materials, components, labour and capital, or a rise in transaction costs such as telecommunications, money transfers, stamp duties levied on a host of forms and documents, etc., are bound to push the cost of exports up. Governments have to generate revenue to meet pressing demands in the fields of education, health and so on. However, it is essential that the impact of these policies on export competitiveness be carefully examined beforehand. How can any industry hope to be internationally competitive when it has to cope, for example, with the burden of forty different types of tax, as reported recently by the Egyptian Businessmen's Association? There is an urgent need to deal with current inconsistencies and cost burdens in order to contain the damage done to the country's ability to earn hard currency and boost exports. One example of such inconsistencies is the recent action to impose foreign exchange and import controls as a means of saving precious foreign exchange and the "Buy Egyptian" campaign. A case can easily be made for restricting imports of conspicuous consumption and of products for which there are certified good quality local substitutes such as marble, ceramics, and many food products. But the initial indiscriminate application of controls has hurt the export sector unnecessarily by creating shortages, raising prices and pushing the level of uncertainty up. Again, whatever amendments have been introduced can only be taken as evidence of ill-studied hastily taken actions that carry serious implications. As for the well-meaning "Buy Egyptian" exhortations, it is one thing to increase awareness about local substitutes of good quality. But it is naive to think that poor quality, high priced products will become more competitive under protection. Such improvements are achievable in a competitive market environment, not the reverse. Accordingly, indiscriminate "buy local" measures can dampen the market-based pressures to upgrade quality and cut costs, with obvious consequences for export growth. Such protection has in fact cost Egypt more than meets the eye. The World Bank Review Report referred to earlier states that "lack of access to internationally priced inputs may help explain why Egypt has not become part of the new division of labor where multi-national companies outsource production of parts to other companies globally. Consequently, Egypt's participation in the three large international production networks (information, furniture, and automotive) has been minimal. Thus, the protection afforded the manufacturing sector during the 1990s did not lead to a significant supply response from the private sector as can be seen from limited growth in the share of the manufacturing sector in the economy." A key government task, therefore, is to respond favourably to pleas for relief from policy- induced cost increases, adopt more consistent policies and avoid indiscriminate pressures to buy local products regardless of quality and price considerations, thus ignoring the negative outcome of such pressures as shown by the experience of many countries. Experience in many developing countries, especially in South East Asia, underlines the crucial role of government-business consultations in addressing export development issues. One must also note that consultations usually lead not only to policy recommendations but also to business commitments to achieve certain goals as a result of government actions. Incentives, for example, are tied to expected performance results within a given time frame. Government support of exports is now restricted by the World Trade Organisation(WTO) rules. Previously admissible subsidies are no longer allowed and there is a more clearly defined framework. However, governments still have sufficient leeway under the WTO rules to provide meaningful support. Research and development, human resource upgrading and infrastructure improvement are but three fields that can make a tangible difference to export development efforts. Particularly important is the export infrastructure where it is readily accepted that governments must bear the lion's share of responsibility in its upgrading and maintenance. Among the services to be mentioned are trade representation, national quality systems, export credit and guarantee schemes, storage facilities for perishables, harbour and port facilities, and so on. Critical concerns here include questions of capacity, quality of service, cost issues, user- orientation, and continuous development to meet international standards. BUSINESS INSTITUTIONS: The fourth piece of the puzzle is the network of business institutions rendering a range of export services. In export-developed economies, these institutions play a pivotal role in serving the export development needs of individual enterprises. The most common are chambers of commerce and industry, other types of business associations including those that are sector-specific such as ready-made garments association, leather goods association and so on. Other organizations provide services for a fee, such as market research agencies, advertising and promotion agencies, training centres, export houses, financial institutions involved in export financing and foreign exchange dealings and insurance companies. Both types of service institutions are needed, as they complement one another in performing specialized export services. The re-emergence of business associations in Egypt is a welcome development that serves many a purpose. Unfortunately, most associations expend virtually their entire efforts and resources in lobbying government in matters arising from hastily drawn up pieces of legislation, often without prior consultation with the business community, inconsistencies in regulations, conflict between the demands of different departments, and so on. This is in contrast to the wide range of functions undertaken by business associations in more developed and rapidly developing countries. The success of these organizations is due not only to a more co-operative government-business climate but also to the fact that most association members are actively involved in its affairs through committees and task forces. These assume the bulk of responsibility for organizing seminars and conferences, setting up data banks, arranging contacts with foreign associations and participation in international fairs, recruiting specialized technical or commercial experts. Most of the service-for-a-fee organizations are also in their infancy in Egypt. Some, like banks, are old established. But they need to modernise their approaches and catch up with the fast pace of change in the financial sector globally. Others, such as training centres and market research agencies, are not well developed yet, partly because the Egyptian business culture has not taken these functions seriously yet and partly because of wide variations in quality and in the professionalism applied to training and research assignments. Over time, as these institutions mature, they will collectively establish quality standards and ethics of conduct that will benefit both service providers and clients. Finally, increased competition from foreign companies gaining access to the Egyptian market under WTO�s liberalization of services will enable Egyptian exporters to shop around for many services that have been available only locally. But this requires that enterprise managers adopt more of a global approach to procurement, foreign exchange rules permitting, as a means of rationalising their purchasing policies. BEHAVIOUR MODES: The fifth piece of the puzzle represents both a foundation base as well as an integrating web of the four other pieces. We refer to fundamental socio-cultural traits and modes of behaviour that dominate every facet of our lives and are evident across industry sectors and population strata. These shape most of what we do as individuals and organizations and how we go about doing things in general. Their impact on the export sector is especially powerful, and, regrettably, mostly negative. We concentrate here on a few of the more critical practices and traits. These are the "fahlawa" practice, honesty, discipline, fatalism and the work ethic. "Fahlawa" is a term that somehow defies any attempt to define it precisely. Yet, it has become an approach that determines an individual's thoughts and behaviour. Fahlawa is reflected in actions best described as not conforming to accepted professional and/or technical standards but giving the appearance of compliance. These actions satisfy the form but not the substance of an assignment, cutting corners as long as the possibility exists of getting away with it. The disciples of this approach apparently obtain a great deal of satisfaction, not only materially but behaviourally as well, every time they "score". Examples of fahlawa practice abound: buildings that violate the building code but have a permit and are ready to be occupied; roads that are nicely surfaced but soon begin to show serious cracks; processed foods that are attractively packaged but are not fit for human consumption; repair work that fixes the problem by using band- aid remedies to avoid the more demanding technical problem-solving methods; vaguely worded commitments that lend themselves to varied interpretations; fabricating truths that are difficult to document yet carry some rationality and so on. Fahlawa often involves the use of a variety of persuasive or, more accurately, deceptive techniques to win over the other side. The essence of fahlawa is using any means to profit unfairly and unprofessionally at the expense of the other party while seeking refuge in conforming to form and appearance. In negotiations, we sometimes like to sweeten the pot a little by offering attractive deals to win an order and subsequently find ways of releasing ourselves from some of the commitments. Now apply this approach to dealings between Egyptian businesses and their foreign customers and suppliers. Here you have a perfect clash of business cultures. In most cases, the line between fahlawa and violations of the law is extremely thin. More than any other trait, fahlawa poses a serious threat to our credibility as an exporting nation and as a maturing business community. Can we afford to lose more credibility? Talking about fahlawa inevitably leads to another trait or value called honesty. In fact, honesty is in many ways the opposite of fahlawa if we apply the criterion of conformity to accepted technical and professional standards. But honesty goes beyond that to refer to the practice of carrying out tasks or assignments in a conscientious manner and according to standards even if it sometimes means incurring a loss. Honesty requires transparency in dealing with the other party. These traits command a premium in export business, as they help build mutual trust between buyer and seller. This is the main basis of establishing long lasting relationships. Consider Japan's network of international contacts for example. There is no way that we can develop a sustainable export business with Japan without first cultivating mutual trust. Those who have dealt with the Japanese know exactly what this means. How does the traditional Egyptian management practice of keeping most matters as a "business secret" help us in negotiating deals abroad? Do we know where and when to draw the line between real secrets and other information that, with today�s technology, can be obtained from a number of sources by the other side? Would it not be better to avoid painting a completely rosy picture of our situation when evidence to the contrary is accessible to the other side? In a more open global environment, it has become more important than ever to upgrade our cross-cultural negotiating, and more generally, communication skills as well. One cannot talk about honesty without bringing up the issue of corruption. The spread of corruptive practices in government and business has become a national issue. It is not unrelated to the decline of other values discussed in this article. Suffice it to say that, rightly or wrongly, many foreign business people do take note of corruption indicators/indices such as those published by agencies such as Transparency International. Egypt's score was 2.9 out of a perfect 10, giving it a ranking (1998) of 66 out of 85 countries on the list. We may conveniently choose to ignore such indicators, but what matters is that these do not go unnoticed by foreign suppliers, customers and investors. A major step in dealing with corruption is to ensure that senior levels in any organization, whether public or private, set and follow high standards and are subject to regular independent audit. The work of the Administrative Control Agency and others represents a good base that must be expanded and given the necessary support to extend their monitoring and investigation capacities. It is important that no exceptions be made, as exceptions cause severe damage to the integrity and preemptive striking abilities of these agencies. Another important trait, discipline, is another of those elusive attributes in today�s local scene, whether one talks about self-discipline or the respect for laws, regulations and codes of behaviour. Self-discipline, of course, does not require a monitoring agency to ensure its application. It is an attribute cultivated primarily through schooling and the home, and becomes second nature to those fortunate individuals who acquire it. It influences the individual�s behaviour toward others according to a code of conduct that derives its principles from commonly acclaimed values by society. Meanwhile, there are such things as traffic regulations, respect for the rights of the handicapped and marginalized members of society, and meeting legal obligations whether in contracts or other contexts. Any first-time visitor to Cairo cannot help but wonder how traffic moves, seeing a most peculiar mix of vehicles, motorcycles, donkey- pulled carts, bicycles, stationary buses and cars parked under the "No Parking" signs, confusing traffic lights, and individuals crossing the road all at the same time these modes of travel are trying to move. The lack of discipline, or more precisely indiscipline, has entered more and more facets of our lives. What we see in Cairo streets is replicated in one form of another inside our factories, management offices, government departments and hospitals, to name a few. Lack of discipline and lack of organization are two sides of the same coin. This trait causes a hemorrhage of scarce resources through misuse of time and poor deployment of resources. The impact of indiscipline on export development should be obvious. Frequent delays in shipment deliveries, rejected products that do not meet specifications, under-utilisation of production capacities and input shortages due to poor planning, and loss of shipments of perishable products due to poor storage and erratic changes in transport arrangements are some consequences that are costing us dearly. Part of discipline, though also an important trait in itself, is hygiene. This is the most critical single requirement in processing food products, pharmaceuticals and similar products that are demanding in hygiene. In this respect, it is worth noting that the HACCP certification (Hazard Analysis Critical Control Point) is fast becoming a universal standard to be met by all those seriously interested in exporting food products. Fewer than 10 Egyptian companies are HACCP certified to-date. The continued decline in cleanliness standards has set new norms that are disturbing and costly in terms of public health and our prospects to expand exports in the food and agro-business field in which Egypt has an apparent competitive advantage. Because the lack of discipline has become more accepted at home, in schools and at work, our problems of dealing in a more disciplined international business world have multiplied. This world setting requires that we shift gears to exercise more discipline and this often clashes with the new norms. Our ability to rationalise errors and shortcomings in dealings with others Egyptians and foreigners)has become sharper and more sophisticated. Ask anyone why something has not been done on time or according to previously agreed specifications and you will receive a variety of intriguing reasons to justify the behaviour. This usually takes the form of blaming others or events beyond the person's (organisation�s) control. These reasons, to be sure, are valid in some situations. But their extended use has become an automatic defense mechanism that can be moulded to suit whatever circumstances may arise. Closely-related is the fatalistic attitude that seems to influence our actions or lack of actions, as we prefer to accept events (good and bad) as fate that cannot (and many would also advocate should not) be changed. As most foreign customers and suppliers do not share this attitude, we find ourselves facing another hurdle in cementing long lasting relationships. The work ethic is another aspect that has deteriorated as a phenomenon during the past few decades. Societies vary considerably in this respect, and Egypt is by no means the only country that scores low on that scale. But the deterioration is alarming. Absences from work, lack of punctuality (which is also a symptom of indiscipline), indifference toward work or quality considerations, and use or abuse of loopholes to avoid work, are reflections of a poor work ethic. These have often been reinforced by traditional autocratic management practices that do not allow workers much room to show creativity and to gain a sense of loyalty and belonging. In a domestic market suffering from an acute shortage of technical and managerial skills, the practice of poaching staff from competitors has become more common, instead of collaborating to train more qualified staff to the benefit of all. Lacking the sense of loyalty and pride at work, employees are lured mostly by higher remuneration packages to shuffle from one workplace to another. Putting things together, we seem to be fast approaching a situation in which there is neither a strong work ethic nor strong ethics at work. THE WAY OUT: Against the foregoing analysis, one must ask: is there a way out of this unsatisfactory state of affairs? The answer is: of course, there is. What then are the chances of Egypt carving a niche in global markets that matches its unrealized potential? We must always remember, for a start, that ordinary Egyptians possess invaluable social and personal qualities and have the potential to be second to no one technically or professionally. But these qualities need to be mobilized and supported in a climate in which this potential can thrive and bear fruit. Evidence? Consider the success stories of companies that have performed well in exports and become viable enterprises. Though these remain exceptions to the rule, they demonstrate that much can be accomplished, given the right environment. What are the constituents of such environment? Let's name the major building blocks. First, underlying all the good qualities necessary for human development generally and export development particularly is the set of values and attitudes dealt with above. The seeds of positive values and attributes have to be sown early in childhood and reinforced thereafter at home and in schools. Once an adult in a job situation, these positive attributes come more or less effortlessly as second nature, except for deviants of which every society has its share. The implication is that our education system, which has been undergoing structural change under the Ministry of Education's current efforts, should further stress these values and instill the necessary encouragement and discipline until results are obtained and sustained. Without reinforcement at home, these values will remain fragile and unsustainable. Speaking of education, we should borrow a leaf from the experiences of, once again, South East Asian countries that have given a healthy dose of international orientation to children from primary schooling on. It is essential that all our children be more literate in what is going on globally. Beside this literacy, there need to be equipped to handle a rapidly changing world, by emphasizing the skills of enquiry and problem-solving as well as foreign languages rather than stressing dogmas and memorization. The latter have become irrelevant and futile in today�s technology-based environment. It is difficult to exaggerate the importance of home and school in reversing the recent decline in ethical standards and the erosion of other desirable traits. This is a long-term challenge that warrants an immediate start and intensification of efforts; time alone will not cause progress. Second, comes the role of leadership at all levels in dealing with export problems. This role takes many forms. First, individual behaviour at senior levels has to be consistent with their expectations of better behaviour at lower levels. Otherwise, preaching and exhortations will fall on deaf ears. Leadership has to be more transparent with others in the organization about what is going on and what they plan to do about it. This is a prerequisite to building bridges and strengthening mutual confidence between different levels in the work place. It is also a means of team building ñ an important asset in tackling the multi-faceted export business. Third, a performance-based incentive system is essential to mobilize talents and enthusiasm and to reward excellence in performance. This, in turn, implies better-defined goals and policies and clear lines of authority and responsibility; otherwise, the very basis of the incentive system will be missing. Fourth, there is an urgent need to expand and deepen international exposure through networking with relevant counterpart institutions abroad. Twinning arrangements between chambers of commerce, industry associations and the like are one way to gain from the experiences of others who are ahead of us. The same goes for educational and training institutions. Promotion of international get-together meetings (conferences, seminars, trade missions, international fairs, etc.) should be given even more support. Some of this would be expected through technical assistance programmes. These also have an important role to play in technology transfer and in modernizing Egyptian industry if designed and carried out appropriately. Fifth, our preoccupation with values and traits does not belittle the attention that other pieces of the puzzle warrant. Thus, the issues, both institutional and functional, discussed above require serious rather than band-aid solutions. It is less important to establish a supreme council than to carry out a supreme piece of reform. It is more effective to apply existing laws and regulations and to do so in a transparent and firm manner than to add yet more regulations. It is more critical to invest in human resource upgrading in both business and government than to temporarily inflate the number of employed - many of them will, in fact, add to disguised un- or under- employment under prevailing conditions. A more open economy will put us under healthy pressure to do better while we also have to cater to the displaced. A more genuine reform and modernization programme, implemented at a faster pace than we have experienced during the past 4-5 years, would pave the way for a more conducive environment. An integrated export development plan, formulated in full consultation with the business community and based on business export commitments, would go a long way in dealing with the functional issues. All in all, we need to follow a consistent approach to reform and stop hanging our difficulties on external factors. It is time decision-makers paid more attention to longer-term perspective than to achieving short-lived improvements. The writer is professor of economics at The American University in Cairo and a former senior advisor to the International Trade Centre UNCTAD/GATT, Geneva
