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Custom Egypt, the Troubled Giant Essay

Egypt has the second largest population among the Arab countries and being one of the most popular countries in the world, is well endowed with many resources. The county is positioned around the Middle East which makes it key to the economy of the region. The country has passed through various regimes with each regime being faced by issues of corruption.

Egypt had economic policies that were not marching with the present economic demands of the world, therefore in 2004 the then Egypt’s Prime minister Ahmed Nazif together with western educated experts and business men as part of his team, instituted economic reforms through various policy changes, some included; reforms in the investments regulations, reduction of tariff tax, deregulation of major state owned and run firms and also reforms in the education sector.

The economic reforms brought major changes in the economy which boosted rapid economic growth. The GDP growth rate increased from 4.1% in 2004 to 7.2% in 2008, Exports more than doubled from $9 billion in 2004 to $25 billion in 2008, foreign direct investment changed from $4 billion to $11 billion in 2008. The liberalization policies created a dynamic economy with various income sources. Foreign investors also developed great appetite for Egypt, companies such as Microsoft, Vodafone and Oracle set up offices in the country. The reforms therefore created more jobs, unemployment fell to 8% from 11% in 2008 , there was a good environment for businesses, this saw several domestic information technology firms grow rapidly,  the construction of new highways and hypermarkets was seen all over the country. The tourism sector shifted its focus to the upper- class due to rapid growth in the sector. The sale of cars quadrupled as a result of the economic growth (Odawara et al, 2010).

Egypt was showing signs of an emerging economy by the year 2008.

Challenges Faced by Egypt

Even with the accelerated economic growth, however, Egypt still had economic and political problems making it vulnerable to global economic slowdown. Inflation was hitting double digits, by 2008 it was at 23%, moreover the global economic crises started by end of 2008 and the world was experiencing a recession.

 Most of the macroeconomic variables that had led to rapid economic growth were slowed down; tourism which had contributed $ 11 billion to the country, an estimated 8.5% of the GDP fell sharply in 2009.  Remittances from expatriates working outside the country were predicted to fall, the country had seen a contribution of $8.5 billion in 2008 from the expatriates, however, around 30,000 workers would return to Egypt from the Gulf as major projects, where most workers were employed, were closing down. The Suez Canal which had contributed $5.2 billion in 2008, was predicted to fall by 25% by end of 2009, this was as a result reduction of the global shipments due to the economic crises.

There was a huge gap between the rich and the poor; more than 44% of the Egypt’s population was rated as poor or experiencing extreme poverty conditions. The wage rate was estimated at $100 per month; around 2.6 million of the Egyptians had incomes that would not cater for their basic food needs. The educated and wealthy led a totally different kind of life.

The gap between the poor and the rich combined with the economic slowdown was the genesis of political tensions and instability of a rather stable country with a secure and strong government. The former president, Hosni Mubarak had been in power for more than 25 years and before the political instability there were indicators that he would have give power to his son facilitating continuation of autocratic leadership. Elections that took place in the country were not free and fair; opposition leaders faced police harassment while others were jailed on false charges, in 2010 seats. As a result there was only a 5% voter turnout for those elections. This also fueled the political tensions in 2011, after which president Hosni Mubarak stepped down in February.

Recommended Courses of Action on Egypt Troubles

•   Moving towards a market economy

•   Improving Egypt’s political stability will improve their economic stability

•   With Egypt’s large labor force, a sustained higher investment will be needed. Reforms need to tackle constraints on business development, such as inadequate infrastructure and the scarcity of skilled labor.

•   Improve banking supervision

•  Tackle the under-pricing of energy

Courses of Action

Egypt’s economy has been on a down turn since the recession to the time Hosni Mubarak stepped down in 2011. Part of the decline can be attributed to the problems of transition after a period of political instability. To be able to reverse the downturn in the economy, policy makers should focus on both long term and short term issues. The short term issues should be ; restoration of security, establishment of partnerships with new entrepreneurs’, adoption of a transparent approach to decision making, promotion of small and medium term enterprises, equal distribution of resources, improvement of weak institutions, correction of imbalances between the consumers and producers. As a result of this the country will reduce the expansion of public spending which is already at unsustainable levels.

Moving Towards a Market Economy

Production is determined by the interaction between supply and demand and signaled to producers through a price system. Therefore supply should not be restricted; this should be the case in the cement industry where only 12 plants work in the sector..

Improvement of the Banking Sector

The Central Bank of Egypt despite the rise in inflation has maintained the same monetary policy (9.75% as the lending rate). The private sector is incurring a high cost in sourcing out funds from the banking sector; banks on the other hand are reluctant to give out loans due to the uncertainty in the transition process. The Central bank should intervene and ensure that a financial facility is available to both innovative and creative entrepreneurs.

Assure the Private Sector of its Investments

The private sector investments are a major contributor to economic growth as a result the sector should have its interests safeguarded. There are over 6,000 corruption cases; this makes both domestic and private investors perceive Egypt is a high risk investment destination.

Export and production subsidies are impeding investments, they should be considered but only in the short term. High taxation and stringent regulations should be avoided. Setting up a business in Egypt requires six steps and approximately 7 days, the cost is up to 6.3% of per capita income. Reforms should be implemented to reduce the cost of doing business, the time procedures and cost of setting up a business should be reduced, the capital requirements should be minimized. Business registration through an electronic process would save a lot of time.

A Participatory Approach in Decision Making

According to Deborah, 2011, a country’s economic growth and development leads to the desire for more political freedom. There should be involvement of various political parties, organizations and corporate figures in the policy making process. There should be public debate on issues such as government spending, issue on taxation as well as subsidizes.

Custom Egypt, the Troubled Giant Essay

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