Investing in Egypt's Future

Returning to Cairo for the first time after the revolution, a frequent visitor is struck by both the sense of change and the enduring continuity. As someone who has been traveling to Egypt now for nearly 20 years I was expecting to see a landscape that had changed profoundly in both economic and political terms.

In speaking with dozens of leaders in business, civil society, youth movements, and political parties during my recent visit, I was struck by a mixture of hope, optimism, and deep concern. The hope and optimism spring from the spirit of revolution of Tahrir Square and the feeling that Egyptians have shown that they can affect change in their political system and usher in a new, democratic form of government.

The concern is a mixture of the obvious economic impacts: many firms are still shut down, workers are demanding much higher salaries due to inflation and the historical inequities in wages, and business people small and large are very concerned about the future of Egypt. Three major economic issues -- and how they are dealt with at the local and international levels -- will have a profound effect on the success of Egypt's revolution: tourism, debt renegotiation, and the power of the informal sector.

The absence of tourists has had dramatic economic consequences and is part of the sense of change that you see and feel -- the streets, hotels, and cafes seem nearly empty. During my visit last month, Samir Radwan, the Egyptian finance minister, announced that Egypt has lost over $3.5 billion (USD) in revenue since the revolution began. This will have serious and long-term consequences for Egypt, forcing the government into negotiations with the International Monetary Fund, World Bank, and other foreign donors. Last week's G-8 meetings in France are just a starting point for long term debt and aid negotiations for Egypt and other countries in the MENA region.

It's worth remembering that economic forces drove the revolution in the first place. The self immolation of Mohamed Bouazizi, a street vendor in Tunisia, set off this wave of revolutions and change across the Middle East. Bouazizi had been denied the right to formalize his business and was being harassed by the police. A survey and report conducted in Egypt in 2004 by the political economist Hernando de Soto indicated that legislation on both property rights and the formalization of business had generated informal sectors as large if not larger than those found in many emerging markets around the world. Egypt's informal sector is as large as 35-40 percent of the economy and a large part of work force.

The importance of this vital group of the Egyptian economy has also been acknowledged by important local business associations. The Federation of Economic Development Associations (FEDA) has been working for several years on a program to try to help street vendors understand their rights and access the formal legal system. The results of their study and their work can be found on their website and in translation.

One question I was asked in a live media appearance on Egyptian television's Al Hayat Al Youm was: What will be the economic cost of this revolution? No one knows what the ultimate cost will be. My suggestion is this: Let's not think of this as a cost; let's think of this as an investment. Egypt made significant reforms under the last government, but they were focused on international trade reform, banking, some privatizations and other macro-economic policies. This limited the economic opportunity to large firms operating in the formal sector and essentially left the average Egyptian shut out of benefiting from Egypt's growth.

Returning back to FEDA and Hernando de Soto, if Egyptians can think of this economic cost as an investment and use this time to liberate the forces of entrepreneurship, bring in the informal sector, encourage the dynamism of Egypt's small- and medium-sized companies, and most importantly, to immediately launch skills training programs and a reform of the education system, Egypt stands a very good chance of overcoming many of the issues and barriers that kept it from becoming one of the large, emerging markets along the lines of Brazil or India. These reforms are ready and reformers are poised and prepared to embrace revitalizing the Egyptian economy.

The challenge now is to come up with a set of reforms, a package that can be seen by the people as in the national interest and in their own interest so that support can be galvanized for a new democratic system to overhaul Egypt's overregulated and deeply corrupt economy.