Responsible development may be the shortcut to a competitive economy. Sherine Nasr reviews the findings of the latest competitiveness report No sooner does Egypt adapt itself to a global economic system than new realities emerge. The race goes on, dictating a necessity to adopt new strategies to deal with these new realities. "Towards the end of the current economic crisis, the world will be waking up to a new global economic system," said Minister of Foreign Trade and Industry Rachid Mohamed Rachid upon the launching of the sixth Egyptian Competitiveness Report (ECR) on 30 June. "Where Egypt stands depends largely on its ability to read through the changes in progress and the ability to adapt quickly and efficiently to those changes," Rachid added. Issued by the Egyptian National Competitiveness Council (ENCC), the ECR, entitled Beyond the Financial Crisis: Competitiveness and Sustainable Development continues to strive to bring insight and solutions to Egypt's development discourse. An alarming fact has been underlined by this year's report. Although Egypt's score on the Global Competitiveness Index (GCI) has been relatively stable over the last couple of years, its ranking has fallen from 77 out of 131 countries in 2007-2008 to 81 out of 134 nations in 2008- 2009. "This means that other countries are moving ahead of us. If we're not making progress, we are in danger of deteriorating," said Rachid. Malak Reda, a senior economist at the Egyptian Centre for Economic Studies (ECES), says the decline in ranking is largely due to three key weaknesses in the Egyptian economy: "macroeconomic instability, poor labour market efficiency and the weak quality of educational institutions." Macroeconomic instability remains a major challenge to the Egyptian government after Egypt dropped to 125 out of 134 countries. In labour market efficiency, Egypt ranked last and was 124th with respect to the quality of educational institutions. "The low and declining rankings in these areas reflect a major deficiency in human resource development in Egypt," said Mona El-Baradei, executive director of ENCC. Following the wake of a favourable 2007- 2008 where Egypt's GDP growth reached an exceptional 7.2 per cent, the economy could not but be affected by the slowdown resulting from the global financial crisis. Nevertheless, Egypt remained in a better position compared to other countries as indicated by Amina Ghanem, deputy minister of finance for international relations, who underlined that despite the number of pre- existing vulnerabilities that may slow recovery, two fundamental strengths have helped the economy weather the direct and harsh first round effects of the financial crisis: "Egypt's relatively strong domestic economy and its limited integration with the global financial markets." Ghanem underlined that the main drivers of high GDP growth rates during the past four years were buoyant domestic demand, reflected in robust consumption, and surging investment demand levels, including an overflow of foreign direct investment (FDI) which jumped from a mere three per cent of GDP in 2004 ($407 million) to 8.1 per cent of GDP ($13.2 billion) in June 2008. "While robust domestic demand will serve to buffer the economy, the impact of the recent turmoil will be channelled to Egypt through its strong trade and investment links with the Middle East and the rest of the world," said Ghanem, adding that the economy will be further affected if the global economic turndown continues longer than originally foreseen, and as a result, economic growth will experience a significant slowdown in 2008-2009. Other inherent features of the economy may add to the problem. The ECR underlines that inflation is still in double digits after peaking at 22.4 per cent in September 2008 compared to 8.4 per cent during the same period the previous year. The budget deficit remains high at 6.8 per cent, "but more serious, still, is the fact that the budget suffers from a number of rigidities that minimise the fiscal space available to implement a large stimulus package to stimulate economic growth," underlined the report. For example, wages stand at 23 per cent of total expenditures, interest payments at 15.4 per cent, subsidies at 39 per cent and defence expenditures at 7.5 per cent. "Therefore, we find that 85 per cent of total fiscal expenditures are rigid and under the current social constraints, it would be difficult to re-prioritise," Ghanem said. The report singles out agriculture as a sector of major economic significance to Egypt. "Growing concerns over food security and climate change have given Egypt more reason to focus on boosting the competitiveness of this sector," said agriculture expert Amira El-Adawi. Egypt's agricultural sector is a vital and integral component of the country's economic fabric. "The sector employs a larger portion of the workforce than any other sector in the economy (more than 27 per cent of the workforce in 2007) and generates approximately 15 per cent of the country's GDP," the report indicated. El-Adawi underlined that with the appropriate reforms, the agriculture sector has the potential to double its growth rate, create 910,000 new jobs and generate LE150 billion in sector investments over the next 12 to 15 years. How can Egypt improve? "By adopting a National Sustainable Development Strategy (NSDS)," the report underlined. Economic experts contributing to the ECR stress that NSDS is not document or government plan but a process that combines efforts by the government, the business sector and civil society. "Egypt's competitiveness depends in part on following a responsible development path, which means staying away from short-term profit-seeking and promoting investments that utilise resources efficiently and respects the environment, as well as ensuring worker and consumer rights."
