2 minutes with Sergei Guriev: How effective is Egypt’s transition?

EBRD Chief Economist Sergei Guriev (Photo courtesy of EBRD)

In an effort to foster the transition to an open market-oriented economy and promote entrepreneurship, the European Bank for Reconstruction and Development (EBRD) published a report last October, aiming to further understand the process of transition.

The “Transition Report 2018-19: Work in Transition” reveals that the number of jobs in Egypt needs to grow by 2 percent ever year (equivalent to 750,000). Moreover, employers are the least satisfied with the basic quality of education in the country, according to the World Economic Forum’s Global Competitiveness Index 2017-2018, according to the report.

In terms of governance, the EBRD points out that Egypt’s rank declined in the transparency of government policymaking category and also mentions that credible tariff reforms are ongoing and being pushed through an inflationary backdrop. Unfortunately, it is not clear when market pricing and cost reflectivity will be achieved.

Although a number of aspects need to be addressed for economic prosperity including unemployment and inflation rates, chief economist at the EBRD Guriev expresses optimism about the Egyptian economy.

Guriev speaks with Business Forward about Egypt’s demographic transition, taxation systems and monetary and fiscal policies.

How would you assess Egypt’s monetary policies and fiscal situation?
Egypt’s macroeconomic adjustment has been exceeding expectations and bringing sustainability back. Two or three years ago, we were much less optimistic about Egypt compared to what we see today; however, we are still concerned about inflation rates because they are not optimal and have to be reduced. The fiscal situation has improved but inflation has to be addressed in order to enable businesses and individuals to take long-term mortgages in the local currency.

 In what way did population shifts in Egypt impact economic activity?
The country still has not undergone a demographic transition. The main challenge now is to make sure that Egyptian youth have a better skillset that is useable in today’s labor market. The private sector is responsible for deciding which skills are in demand and can be applied on a daily work basis. The educational system also has to be reformed to avoid a skill mismatch and lack of social peace which occurs when you train young people who cannot get employed.

 How can taxation systems be properly used to encourage labor force participation?
Taxes should generally be easier to pay and they should be lower for people moving from formal to informal sectors. There are various ways to do that, including moving to a digital government or providing incentives for investors.

One of the things that are not considered is that informal enterprises are unable to expand to certain extents. In modern economies, the expansion is important in order to achieve productivity and income. For example, informal small and medium-sized enterprises (SMEs) are not able to grow enough to support more jobs and higher income.

How can Egypt conduct better tariff reforms to boost trade in the region?
Egypt has to conduct vigorous dialogues with its neighbors in the region, export more to advanced economies, reduce red tape and curb corruption.

 

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