Modest growth rates highlight the need to reconsider the management of Egypt's economy, report Niveen Wahish and Nesma Nowar Halfway through fiscal year 2011/12, growth figures give Egyptians nothing to brag about. Growth for the second quarter of 2011/12, running from October to December 2011, was announced to have reached 0.4 per cent, way below the 5.6 per cent of the same quarter the previous fiscal year, but slightly higher than the 0.2 per cent of the first quarter. That growth was said to have been spurred by domestic consumption. But one economist who asked not to be named told Al-Ahram Weekly he believed the 0.4 per cent growth is overrated. He does not believe there was much growth at all, especially with tourism down, foreign direct investments scarce and unemployment at almost 13 per cent. "How can all this be happening, while consumption is growing?" he asked. Egypt's economy was hard hit, according to the economist, because tourism is vital to the Egyptian economy. After the government, tourism is the country's second largest employer, giving work to about 10 to 12 per cent of Egypt's labour force. The sector also constitutes an important source of hard currency. Last year and despite a 30 per cent drop in tourist arrivals, it managed to rake in some $8 billion. Foreign direct investment has dropped drastically, without being compensated by local investment. "And without investment, no jobs are being created, incomes are down and so are spending levels. The level of investment is important in setting where growth is heading to," said the economist. Foreign direct investment fell in 2010/11 to around $2 billion compared to around $6 billion the year before. But why haven't investments been forthcoming? Economist Alia Mamdouh of CI Capital Holding said that the reason is Egypt's lack consistent decision-making. "Policy-makers do not seem to agree on anything and the starkest example is the case of NGO financing," she said. Mamdouh also stressed that political inconsistency is damaging because it creates instability, pushing local and foreign investors to postpone their investment decisions. "Capital is cowardly and in an atmosphere of high uncertainty the safest decision is to postpone," she said. But while renowned economist Galal Amin said that insecurity and the subsequent drops in tourism and foreign direct investment were normal in light of the revolution, he believes that these problems should not persist a year on. He said policy-makers took bad decisions, or at least failed to take the necessary procedures after the revolution which triggered a whole set of problems of its own, including the lack of any improvement in security. Addressing a roundtable on the Egyptian economy organised by the American University in Cairo (AUC), Amin lamented the long transitional period following the revolution and he criticised the government's management. He said policy-makers did not distinguish between long- term and short-term challenges. Amin added that the government aimed at taking decisions which would achieve social justice, ignoring the country's critical economic situation. "This is not the right time for implementing minimum and maximum wages," he said. "Investors are already wary of coming to the country." Daniel Drake, the British Embassy's first secretary for political and economic affairs told a press roundtable that while British investments have been forthcoming in the past year in areas such as oil and gas, retail and services, more investment could be attracted were it not for concerns related to political instability and insecurity. Investors have to know "what risks they need to assess," he said. Meanwhile, Mamdouh believes there are problems that need to be solved within each sector, in order to improve performance across the board. The economist cited the effects insecurity is having on tourism. Meanwhile, road blockages are disrupting distribution in the industrial sector. She believes continued instability will restrain growth, even despite expected spending on electoral campaigns. "All the unnecessary spending is being put off," she said, pointing out to a drop in car sales. For example, CI Capital showed that according to the Automotive Marketing Information Council's (AMIC), GB Auto's Hyundai cars 2011 sales volume dropped 19 per cent year on year. Mamdouh believes that the Egyptian economy has not lived up to its potential. "The advantage of the Egyptian economy is that it is diversified, but in recent years services have contributed the largest share to GDP," she said. "That needs to change. Industrialisation and agriculture need to play a bigger role." Mamdouh also believes that textiles, construction, agribusiness, car feeding industries, and the development of the Sinai Peninsula all hold unlimited potential for growth. That should reflect in more job opportunities. This issue was reiterated by Monal Abdel-Baqi, assistant professor of economics, who also spoke at the roundtable. Abdel-Baqi believes the Egyptian economy should rely more on the manufacturing and agriculture sectors, and move on from depending on tourism, remittances and Suez Canal revenues for 20 per cent of the country's GDP. Abdel-Baqi stressed that the Central Bank of Egypt (CBE) should play a role in directing customers' deposits towards productive sectors. She said that 40 per cent of deposits are going to households in order to purchase cars. "The CBE should pursue its supervisory role and direct 80 per cent of these deposits to production sectors," she said. In fact growth should focus on jobs. The anonymous economist said the growth figure is not important in itself but should be an indication of the number of jobs that will be created. Ideally the bigger the growth, the more jobs created and accordingly the more spending, spurring more growth. But practically, he explained, quality growth depends on the type of investments being created. Our problem, the economist said, is that in the recent past we had seven per cent growth, but it was achieved through investment in capital investment industries such as oil and gas rather than labour intensive industries. And as AUC professor of political economy Abdel-Aziz Ezz El-Arab said, Egypt's economic hardships started way before the 25 January Revolution. "On 24 January's eve the Egyptian economy was in dire straits," he said. "The revolution has just inherited this dire situation." In fact some of Egypt's economic problems have persisted since the 1970s, resulting from "stupid economic policies", according to Amin. These problems include sluggish growth, wage disparities, high unemployment rates and an endemic budget deficit. Amin attributed these problems to the adoption of poor open door policies, in which the state lifted its hand from the economy. "The state has left the private sector without supervision, and without filling the gaps it has left behind," he said. If the economy maintains the current level of growth, total growth for the year could come to around 1.5 per cent. The International Monetary Fund had preliminary forecasts of 1.8 per cent growth for the current year, although the government has a more optimistic rate of over three per cent.
