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Revolution 2.0: Egypt’s Economic Metamorphosis

By Kate Moran Unemployment is one of the most difficult and insidious threats facing the Middle East today. If gone unchecked, it has the potential to increase regional instability [1], augment militant groups’ capacity to recruit followers [2], and to permanently damage the Arab world’s economic prospects [3]. A booming youth population and threats from non-state actors like the Islamic State make rising unemployment and the Middle East’s economic woes some of the most critical issues of the day.

Egypt tells a particularly interesting story in this regard. Egypt occupies economic and geopolitically strategic positions in the Middle East. At a time when civil wars and refugees are spilling across national borders at alarming rates, religious extremism is on the rise, and non-state actors like the Islamic State are occupying significant swaths of territory [4], Egypt is in many ways, a regional linchpin.[5] As the United States’ key Arab partner in Middle East security efforts, Egypt has played a crucial role in peace negotiations with the Israelis and the Palestinians. Egypt also has the largest population of the Arab states and has comparatively significant military capacity in the region. Moreover, Egypt’s possession and operation of the Suez Canal places it directly the middle of international economic interests making Egypt’s geographic location and resources of great strategic importance to itself and other world powers. Thus, what happens (or doesn’t happen) in Egypt will drastically alter the future of the Middle East. A sustainable economic solution is of the utmost importance.

Egypt faces a difficult combination of persistently low national growth, a high budget deficit, and a host of external vulnerabilities—such as political and social tensions—that exacerbate its already floundering economy. Unemployment was 13.4 percent in the fourth quarter of 2013. [6] More than a million youth enter the workforce each year, many of them educated, but most find that the only opportunities available to them are in the informal sector. These positions offer low pay, no benefits, and virtually no potential for career advancement.

Reorienting budgetary resources towards infrastructure, education, and promoting entrepreneurship will be important to improving growth prospects. Expanding the number of job creators will expand the number of available jobs. With an arsenal of computer and social media skills at their disposal [7], Egypt’s millennial generation is well positioned to raise the country out of its stagnancy. Creating conditions for entrepreneurship—such as initiating a microloan program in the style of Muhammad Yunus—will, in turn, create opportunities for Egyptian youth to transcend the limitations of the informal sector and forge a “third path”: small, people-directed business initiatives. [8]

Streamlining the bureaucratic red tape involved in obtaining a business license is the first step to paving the way for Egypt’s “entrepreneurial revolution.” It also frees up resources from the formal sector and channels them into more productive economic ventures. Namely, encouraging and financially supporting small-scale business ventures. Data from World Bank’s Enterprise Surveys has shown that small-scale entrepreneurs (5-19 employees) are the primary engines of job growth in developing countries. [9] Small businesses generate significantly higher rates of employment growth than larger businesses in many key emerging economies, including Indonesia, Nigeria, South Africa, and Mexico. An expansion of entrepreneurship and small-scale business initiatives in Egypt could (and, if adequately encouraged by the government, will) yield a similar result.

Achieving higher and more inclusive growth is one of the best ways to move Egypt forward. In the short-run, Egypt’s poor will suffer, as they did following al-Sisi’s implementation of austerity measures during Summer 2014. [10] The prices of everyday goods increased, but ultimately, subsidy reforms are the means to reestablishing microeconomic balance in the country. Government resources should be reallocated to programs that will expand training and vocational opportunities for people. It is important, however, that subsidy reductions be gradually implemented, in tandem with the expansion of a social safety net so that Egypt’s most vulnerable citizens are not left vulnerable.

Investing in human capital has two advantages: it is a means of job creation that has a multiplier effect; and it raises the skill level, health, and general morale of the already-working population. The value of investing in people cannot be underestimated, particularly in Egypt, where conditions are ripe for increased civil unrest and economic decline. Investment in its people is the country’s only option. But it is an investment that, if taken seriously, can yield a generation of movers and thinkers to transform the region—economically and beyond. [11]


[1] Azeng, Therese F., and Thierry U. Yogo. "Youth Unemployment and Political Instability in Selected Developing Countries." African Development Bank Group, May 2013. Accessed November 05, 2014. http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Working_Paper_171__Youth_Unemployment_and_Political_Instability_in_Selected_Developing_Countries.pdf.

[2] Yahya, Maha. "The Ultimate Fatal Attraction: 5 Reasons People Join ISIS." Carnegie Middle East Center. November 07, 2014. Accessed November 08, 2014. http://carnegie-mec.org/2014/11/07/ultimate-fatal-attraction-5-reasons-people-join-isis/htze.

[3] Drine, Imed. "Youth Unemployment in the Arab World: What Do We Know? What Is the Way Forward?" United Nations University: UNU-WIDER. June/July 2012. Accessed November 08, 2014.  http://www.wider.unu.edu/publications/newsletter/articles-2012/en_GB/06-07-2012-Drine/.

[4]  “Graphic: Tracking the Islamic State's Rise.” The Washington Post. The Washington Post, 22 Sept. 2014. Web. 03 Oct. 2014; Gilsinan, Kathy. "The Many Ways to Map the Islamic 'State'" The Atlantic. August 27, 2014. Accessed September 30, 2014. http://www.theatlantic.com/international/archive/2014/08/the-many-ways-to-map-the-islamic-state/379196/.

[5] "Egypt Profile." BBC News. October 19, 2014. Accessed November 06, 2014. http://www.bbc.com/news/world-africa-13313370; "Jordan Profile." BBC News. July 01, 2014. Accessed November 08, 2014. http://www.bbc.com/news/world-middle-east-14631981.

[6] “Arab Countries in Transition: An Update on Economic Outlook and Key Transitions.” The International Monetary Fund. 9 April 2014.

[7] Rosen, Lawrence. "The New Arabs: How the Millennial Generation Is Changing the Middle East by Juan Cole – Review." The Guardian. Accessed November 06, 2014. http%3A%2F%2Fwww.theguardian.com%2Fbooks%2F2014%2Faug%2F14%2Fnew-arabs-millenial-generation-changing-middle-east-juan-cole-review.

[8] “Q&A with Muhammad Yunus.” Interview by NOW on PBS. PBS Foundation. 2007. Accessed October 02, 2014. http://www.pbs.org/now/enterprisingideas/Muhammad-Yunus.html.

[9] Manpower Group. "Youth Unemployment Challenges and Solutions: What Business Can Do Now." The William and Mary Quarterly 69, no. 4 (October 01, 2012): 885-89. Accessed October 03, 2014. http://www3.weforum.org/docs/GAC12/IssueBrief/IB_YouthUnemployment.pdf.

[10] Rein, Yael. "Egypt To Cut Subsidies, Ease Deficit." Jewish Policy Center. July 10, 2014. Accessed November 08, 2014. http://www.jewishpolicycenter.org/blog/2014/07/egypt-to-cut-subsidies-easing-deficit; Fick, Maggie. "Egypt Must Target Neediest in Food Subsidy Reforms: WFP." Reuters. October 27, 2014. Accessed November 08, 2014. http://www.reuters.com/article/2014/10/27/us-egypt-foodsecurity-idUSKBN0IG20J20141027.

[11] “Arab Countries in Transition: An Update on Economic Outlook and Key Transitions.” The International Monetary Fund. 9 April 2014.

 

 

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