Sayed Moawad Attia* discusses how Egypt could manage the implications of the global financial crisis It is important that we face the fact that the financial crisis will no doubt bring negative consequences on the growth rate, employment, inflows of foreign direct investments (FDIs), tourism revenues, and workers' remittances, lowering the overall standard of living. All of this may well lead to increased poverty in Egypt. The stakes are high, and in dealing with the global financial crisis we need to prioritise. First we must maintain growth. Second, we must avoid any negative consequences on employment. No doubt the most negative impact of the global crisis will be on jobs. The question that poses itself is: how can the government achieve these goals? The tactic to follow, as such, is for the government to exert all possible efforts to avoid job losses. The government can mitigate this potential if it expands expenditure on infrastructure, providing more incentives to firms that are in the process of being established, providing more subsidies to producers in the manufacturing sector in order to encourage them to compete on the international market, and reducing their costs. It is high time to accelerate the pace of modernising Egyptian industry, diversifying activities and exploring new avenues for Egyptian exports, particularly in Africa, which holds much promise given its condition as a virgin market suitable for Egyptian products in both price and quality. Indeed, I would note that one of the more positive aspects of the current crisis is the opportunities it holds for Egypt to tap into emerging markets not only in Africa but also in Latin America and Asia. In order to reduce the potential negative impact on Egyptian industry we should adopt more protective measures in the framework of the World Trade Organization (WTO), to hedge against potential increases in imports to Egypt from foreign countries. These protective measures would be temporary and part of a solution, and would only be effective in the very short term. A media campaign is strongly recommended at this stage to convince Egyptian consumers to use Egyptian products instead of imported goods. Traders and producers must go down the same route, reduce their prices and accept smaller profits, taking into account that consumers have paid their share of the invoice when world prices increased in early 2008. A similar campaign is needed to urge all taxpayers to pay their dues, as a matter of national duty. Moreover, an efficient and effective mechanism to monitor the domestic market and make sure that the prices of domestic and imported goods drop is needed. Parallel to this is coordination between the Chamber of Commerce and the Federation of Egyptian Industries, to give due attention to Egyptian products. By all means, the government should exert strenuous efforts to maintain growth rates and employment levels. I cannot stress enough that the hardest hit are the low-income and vulnerable groups. Therefore the government's role is to protect those groups against further suffering brought on as a result of the global crisis. At this critical stage, priority is to be given to the service sector. Egypt has a comparative advantage in the service sector but this is not fully utilised. The sector constitutes approximately 60 per cent of the gross domestic product (GDP), and absorbs a large number of the workforce. Additionally, the service sector is a forward and backward activity and works as a facilitator to the goods sector. Strengthening this sector is only a matter of orientation and awareness. A serious policy intervention by the government is needed to provide credit, education and training skills and access to physical infrastructure, the extension of social protection and strengthening the linkage with the formal sector can qualify the informal sector to graduate to the formal sector. The global financial crisis may have a positive effect in directing the attention of policymakers in Egypt to give the informal sector the attention it requires, as it may absorb shocks in both the short and long run. The likelihood of decline in FDI inflows after the crisis should direct more attention to the informal sector as a source of both investment and revenue to offset the likely decline in tourism and workers' remittances. So in responding to the question of whether the global financial crisis has a positive side to it, I would definitely say yes. But in order to capitalise on this, the government should look for more trade partners in order to diversify its markets and avoid being captive to the shocks that hit world economic leaders such as the US and EU. * The writer is senior international trade policies researcher in the Trade Agreements and Foreign Trade Sector, Ministry of Trade and Industry.
