The Arabist

The Arabist

By Issandr El Amrani and friends.

Carnegie: The political economy of reform in Egypt

From a recent report by the Carnegie Endowment:
As a result of reform efforts, and over the past three years, Egypt has managed to stabilize the economy, increase foreign currency reserves, and achieve steady growth. Reform programs have introduced effective amendments in the social contract between the state, market, and society. Yet little if any progress has been made in the fight against corruption and in creating an enabling and competitive business environment. The current institutional environment poses critical questions about the capability of the Egyptian economy to sustain growth; to create decent jobs for the unemployed, the underemployed, and new entrants into the labor market; and to alleviate massive poverty. These failures to address socioeconomic problems and curb the side effects of economic reform are proving key impediments to accelerating the reform process in Egypt.

The reform process in Egypt suffers from the lack of a consensus on the meaning and ramifications of reform among key national stakeholders. Debate with the state over economic reform is more or less limited to major private- sector actors, who are often close to the regime or part of it. This debate centers on the costs and benefits to these actors. The majority of the private sector, represented by small and medium-sized enterprises (SMEs) and members of civil society, especially workers and grassroots organizations, is excluded from the debate with the state over Egypt’s economic reform strategy.
The report provides an history of economic reform in Egypt since the 1970s and gives a cursory look at the practices of cronyism in the business world. While it won't give watchers of Egypt's economy any major new insights, it is worth highlighting in that foreign coverage of economic reforms in Egypt have largely been superficial and reflexively positive -- due, I think, to the real if limited achievements of the Nazif cabinet coming as such a relief for those in the business and analyst community. But then again, although this report ignores some of the bureaucratic improvements made in recent years for investors, I don't think any serious person could deny that Egypt's number one problem, an opaque and corrupt general business environment, has not been really seriously addressed.

So what's the solution?

On the one hand, Egypt lacks the institutional capacity to design and implement comprehensive reform programs. On the other hand, current institutions have neither been able to adapt to changes resulting from reform programs nor mitigate the negative spillover from reform policies. Therefore, if Egypt is to meet its current economic challenges and engage in comprehensive reform, special attention should be paid to developing a set of formal and informal institutions that can define the rights and obligations for all actors in the economy and regulate the process of reform.
Read the report for the details, but special kudos for highlighting the need to give representation to civil society elements, notably workers, in hammering out a new social contract. For too long the only people at the negotiating table have been the government, the business community (both protectionist and market-oriented) and international financial institutions. To put it another way, the solution towards forming a consensual economic reform policy is creating the vehicles for genuine consultation. That sounds an awful lot like democracy.