Egypt’s sweeping economic reforms are still not delivering on all of their promised rewards, according to Sherif Hamdy, a senior operation officer from the World Bank.
On December 2, Hamdy came to Business Forward’s 2019 anniversary at the AUC’s Tahrir campus to bring a much-needed wake-up call to the perceived positive outcomes of the economic reform program that has been pursued in recent years.
In May of this year, the World Bank released its Performance and Learning Review, a report compiled by the organization’s board of executive directors on the results of the World Bank’s 2015-2019 Country Partnership Framework (CPF). Many of the results were positive. “The government’s reform efforts which are supported under the CPF, have helped to stabilize the economy; growth has rebounded, the external and fiscal deficits have narrowed, inflation has declined, and foreign reserves have increased,” a summary of the report said on the World Bank’s website.
It continued: “Almost 77% of the original CPF objectives have already been achieved or are on track to be achieved by the end of the original framework period. Stronger macroeconomic management has made the business environment more conducive for the private sector, and key fiscal reforms have allowed the government to improve its debt sustainability outlook and redirect scarce budget resources to new social programs targeted at poor and vulnerable Egyptians.
Important legislation to support the business-enabling environment has been enacted, and automated government processes have reduced the bureaucratic hurdles to doing business. As such, Egypt’s ease of doing business ranking climbed from 131st out of 189 economies in 2016 to 120th out of 190 economies in 2018.”
Thanks to these results, the World Bank decided to offer a two-year extension to the CPF in April. However, Hamdy revealed some intimate details to pour cold water on these favorable indicators.
“The private sector, after the devaluation, was expected to pick up, translating that into more investments, more FDI, more jobs; this didn’t happen,” he said. The reasons for this are thanks to deeply rooted issues within the Egyptian economy and its governance which will need to be addressed in the coming period.
Despite what the World Bank’s report says, Hamdy maintained that bureaucracy still remains a key obstacle to business. He revealed that “what we have found that excessive red tape and excessive regulations are killing our businesses. It’s not really killing but…it’s a barrier for entry for many of the businesses.”
Some progress has been made in making the processes of starting a business more convenient. “While the government has worked very well on removing the barriers in registering a business, so now we can legally register [a business] within two or three days.” But it’s after registration where the real obstacles lie. “However, after that, an investor is faced by a wall of unclear set of regulations in order to obtain license and get land and start operating,” Hamdy added.
He also mentioned that trade barriers are a second key obstacle in the private sector, an issue which is perhaps a symptom of what Hamdy believed to be another major issue. “The third deeply rooted issue that we know [is] inhibiting our economy [is] more of the unlevelled playing field for businesses to operate in Egypt. So there is a state part; they will have some accessibility to resources…more than the private sector.” According to Hamdy, politically affiliated businesses continue to hold significant advantages over the rest of the private sector.
In tackling these stifling characteristics of the Egyptian economy, he suggested that they will each need different solutions to overcome them. Hamdy insisted that “a fundamental change in the way the government and Egypt should be thinking of how to unleash the private sector” is needed in order to “transform the economy from just being kind of mediocre to one of the of the winners in the region.”
Hamdy emphasized the need for a closer and more cooperative working relationship between the World Bank and the Egyptian government to tackle these issues. “The transformational goal right now is where are we going to go from here to resolve these rooted issues that are inhibiting the economy,” he continued.
Moving forward, there needs to be a continuing dialogue between the government and the World Bank; a collaborative effort to remove these stubborn obstacles in the private sector but to also ensure that the public sector prospers as well. “We need to go further rather than telling the government what should be done to more of how could it be done in a way that it’s more of a win-win situation… we need to get into sector by sector to come to understand what’s happening in these sectors. What’s the market configuration? What are the barriers for entry? What’s the division of the pie between states, private sector, between local and foreign investors?”
Most importantly, Hamdy revealed how the World Bank has now shifted its focus on financing infrastructure projects and programs intended for boosting economic growth, to “more on focusing our investments and government investment to human development and social inclusion.”
According to the summary of the World Bank’s Egypt report, “more efforts are needed to accelerate economic inclusion and absorb a growing labor force. Some 60 percent of Egypt’s population is either poor or vulnerable, and inequality is on the rise.”
Since the economic reform program began, the country’s poverty rate rose to more than 30% and “took a toll on the middle class, who face some higher costs of living as a result of the reforms.”
In the coming years, the World Bank will increase its efforts to address this situation so that Egypt’s economic gains are felt throughout society. “The World Bank Group will put more emphasis on human capital development by encouraging more rapid implementation of education and health reform projects. An ongoing focus will be the support of the government’s efforts to strengthen the country’s social safety net system, including the development of programs that help vulnerable groups build their own livelihoods and graduate from cash transfers.”
In his concluding remarks, Hamdy emphasized the guiding principle of the World Bank’s efforts in developing Egypt. “We [have to] find an equation [that will] maximise the progress for everybody. I think this is an ongoing dialogue.”