Low Egypt Rankings Due to Frail Economy, Poor Administrative System

Out of 148 countries surveyed in the 2013 – 2014 Global Competitiveness Report, Egypt ranked 118 in terms of global competitiveness, lagging behind other countries in the Middle East and North Africa region, and ranked last in terms of the quality of primary education. In addition, the 2014 "Doing Business" data issued by the International Finance Corporation ranked Egypt 128 out of 189 countries in terms of ease of doing business.

"It is fairly easy to blame the revolution(s) and the political instability for this decline in Egypt’s competitiveness," said Mohamed El-Komi, assistant professor of economics. "However, this year’s fall is the fourth since 2009. In 2010 - 2011, Egypt fell down 11 places to 81 among 133 countries. It dropped 13 places further down to 94 in 2011 - 2012, then 13 places down to the rank of 107 in 2012 - 2013. In the latest report, it fell 11 places to 118. The alarming issue is the continuous and speedy decline since 2009. This hints to some deep-rooted problems in the Egyptian economy that were only exacerbated by the 2011 revolution and the aftermath."

AUC faculty members traced the reasons for these low rankings to poor administrative development, bureaucracy, economic challenges and a stressed educational system.

Weak Administrative System One of the factors deemed as a great limitation to global competitiveness is Egypt’s poor administrative system. “The biggest challenge that has been haunting Egypt for quite a long time is its underdeveloped administrative system. This manifests itself in inefficient management and a decaying government financial system,” said El-Komi. “The impact of this underdeveloped administrative system is obvious when looking at the most problematic factors for doing business in the country, namely inefficient government bureaucracy, corruption, policy instability, tax regulations and an inadequate supply of infrastructure.” Hamid Ali, associate professor of public policy, also noted the way Egypt’s administrative system places barriers on business development. “The government bureaucracy dated back to decades of big brothers; it was effective bureaucracy back then, but not today,” he affirmed. “Reforming the government management is essential to reducing business transaction costs. The governing philosophy should provide better services and responsiveness to citizen needs to maximize the general welfare rather than the bureaucracy acting as an autonomous agency that manipulates the process to its own self-interests.” Economic Reform It is not just Egypt’s administrative system that has led to its current economic struggles. El-Komi noted that the banking sector is also in desperate need of reform. “Nearly half of the Egyptian population is living under or just above the poverty line, but many are excluded from formal financial services,” he explained. “Naturally, banks do not find the poor as attractive or profitable enough for their operations. Without the proper incentives and regulations for the banking system, providing access to finance to a big portion of the Egyptian population will remain limited.” Tarek Selim, chair of the economics department, argues that for Egypt to have a stable economic outlook, there must be a long-term overhaul of old economic practices and policies. “There are many issues that we are facing right now requiring drastic structural changes,” Selim said. “A good example of this is subsidies, which are a major issue. There are subsidies for energy, food and water, as well as education and health. Education is a primary issue because there is entitlement, but no function. We find people working in specializations that they have never been trained in; a social scientist may end up working in a factory or an accountant may work as an IT assistant. This shows that there is no mapping between the labor market and the education market, and these are two main pillars of the economy.” Other pressing structural reforms are needed with the domestic savings and investments rates, Selim added. “The savings rate is low because the typical income for people is low, and when people are poor, most of their money goes into consumption, not savings,” he said. The vicious cycle created by this type of system is one where “there is a constant unemployment problem because the domestic savings rates are below the threshold needed to maintain an adequate flow of employment, and savings are ultimately channeled into investments,” said Selim. “Since we don’t have enough investments, we consequently don’t have enough jobs to offer people.” A solution that could break the cycle would be to concentrate on raising foreign direct investment. “Unfortunately, most investments, especially in the last 30 years, have been capital-intensive rather than labor-intensive,” explained Selim. “We need real investments that drive employment and trigger the financial banking cycle –– investments that feed into the supply chain and small enterprises, and increase employment opportunities.” Selim is also a strong proponent of decentralization. “Each governorate should have its own elected governor, budget and tax collection agency, and should be empowered to utilize its own natural resources,” he said. “If each governorate is able to market itself in terms of its capabilities, output and resources, it would be a much better system. This is a positive type of competition because each governorate will be a winner in the end, since it will specialize in what it is best at. This way, economic development would take a bottom-up approach, which would yield better results.” In addition to these necessary reforms, Selim also proposed three restructuring goals that he finds pertinent to Egypt’s economic comeback, namely focusing on investments from Gulf countries; revamping the public sector, including pharmaceuticals, textiles and the automotive industry; and fighting corruption. “Corruption is a disease,” Selim asserted, “and one way of curing it is to address it early on rather than letting it get through the system.” Uplifting Education Beyond the reform of the government and financial institutions, several professors also noted that Egypt’s struggling educational system is one of the most problematic factors that limits economic growth, arguing that the country’s poor educational system produces a workforce lacking several necessary skills. Ted Purinton, associate provost for strategic initiatives and associate dean of the Graduate School of Education, emphasized the lack of incentives for good quality teaching. “Teachers are not paid well and are not generally regarded too highly within society, so what is their incentive to master subject-specific pedagogical techniques?” Purinton noted. “What is their incentive to not rely on private tutoring for the bulk of their income and then to subsequently ignore the importance of their regular classroom duties?” But Purinton acknowledged that problems with the educational system go beyond incentivizing teachers. “The entire accountability system has flaws as well,” he asserted. “Regardless of where students get their highest quality instruction –– in the classroom or from private tutoring –– the instruction is geared toward poorly designed exams. So although students push themselves quite hard in order to benefit from the system on some level, they are pushing themselves in a direction that will not provide them with skills needed in a modern and globalized workforce.” Russanne Hozayin, associate professor of practice at the Graduate School of Education, also noted the lack of resources that are put into the educational system, especially primary education. “The attitude is that people who teach younger children are somehow less important, so more resources are put into higher grades,” she said. How to Move Forward Given the diversity of factors that can be attributed to Egypt’s economic struggles, the solutions to these deep-rooted problems are not simple. In terms of education, Purinton suggests reforming the examination system. “I would want to see exams that are relevant to skills, knowledge and citizenship development, which are necessary for participation in work and society,” he said. El-Komi also agrees that reforming the educational system is important, but highlighted the importance of restructuring state institutions. “We need to focus on fixing the state administrative system and its public financial system,” he said. “This should bring early rewards in the next couple of years, if done properly from now.” Although the situation may appear bleak, Ali noted that if several strategic decisions are made now, Egypt’s global competitiveness will have the chance to improve in the upcoming years. “The country needs to set strategic decisions in terms of development, social justice, strategies for job creation and, above all, respect for rule of law. If these conditions are met, eventually we will see upward trajectories,” he affirmed.