London, Asharq Al-Awsat—Last month’s passage of a new constitution in Egypt brought about great uncertainty regarding the country’s democratic future. What is more, the lack of entrepreneur-friendly policies in the newly proposed economic reforms adds a similar level of uncertainty to the future of Egypt’s Entrepreneurs – whose small and medium enterprises account for 70 percent of the total economy.
This month, Egypt’s government resumed talks with IMF officials on as set of economic reforms which will help secure a $4.8 billion dollar loan from the international agency. Much of the reforms center around austerity measures, encouraging a return of incoming foreign investment flows as well as quelling concerns from international markets.
As necessary as these reforms are in safeguarding against economic disaster, they do little to take advantage of the swelling entrepreneurial optimism that seems to be sweeping the country. The government could and should address the challenges that entrepreneurs face from regulatory/procedural burdens and inadequate levels of information and technology infrastructure.
The economic reforms, which ultimately must be a signed off by the IMF, offer the standard cocktail of measures, which combine prudent fiscal with conservative monetary policy. They include an austerity programme intended to decrease an eye-watering 10.4 percent budget deficit – this will reduce the debt burden on the taxpayer. An introduction of a value added tax (VAT) – from a general sales tax – and the reforming of energy subsidies, which will restore fair market principles and gain the government vital revenue for social programs (40 percent of the population live on less than $2 a day). Monetary policy will be geared towards reducing inflation and shoring up depleting currency reserves – the central bank announced earlier this month that they had enough reserves left for 3 more months of imports.
It’s pretty clear that Egypt desperately needs these reforms if it wants any semblance of a functioning economy. But an underlying objective is to bring economic stability by calming international markets and making Egypt a favourable market for foreign investors to return to – last year foreign direct investment levels dropped to 2.9 percent of GDP; they stood at 9 percent during Mubarak’s regime in 2008. Attracting such investment, will undoubtedly help Egypt – but this should only be part of a larger economic strategy that should also encourage domestic private sector growth.
The Legatum Prosperity Index™ – an annual study that examines 142 countries’ prosperity based on the economy, democratic institutions, health/educational services, and social cohesion – reveals that Egyptian entrepreneurs (and aspiring entrepreneurs) yearn to play a role in building the future economy. The Index finds that 96 percent of the population feel confident that they can get ahead by working hard and nearly one in two Egyptians think their country is a good place to start a business. This post-revolutionary euphoria of Egyptians working for Egypt should not be overlooked. The government should do what it can to capture this spirit before it disappears.
The Prosperity Index shows that, in part, this can be done, by enacting additional economic reforms which aim to minimise regulatory and procedural burdens on businesses and increase investment in ICT infrastructure.
Egyptian entrepreneurs have benefited from earlier, although ambiguously successful, attempts at economic liberalisation. But, starting a business today in Egypt still costs 10.2 percent of gross national income per capita or about $628 –a substantial chunk of money for the ordinary citizen. This is low given that the MENA regional average stands at 30 percent, but is still more than double the OECD average of 4.5 percent. Moreover, a business wanting a commercial contract to be enforced by the courts can take up to 4 years. Such high costs and judicial inefficiency need to be addressed if entrepreneurs are to have a fighting chance.
The Prosperity Index also tells us that there is a boom Egypt’s ICT infrastructure. There are now twice as many mobile phones (101 per 100 people) than under Mubarak’s regime back in 2008. Internet bandwidth speed has doubled since last year (from 97 Mbps to 200 Mbps) and is seven times faster than under Mubarak just three years ago. Given the role technology played in spreading word of the revolution, it is unsurprising that Egyptians are demanding more of it.
This technology can now be used not just as a tool to expose political oppression, but also to help entrepreneurs thrive. But ICT infrastructure needs to continue to develop. Egypt falls short of the global average of secure internet servers, which stands at 41 per one million people – there are just three for every million people in Egypt. This is crucial if Egyptian entrepreneurs want to conduct more of their business through e-commerce – where protected online payments are an absolute necessity. Internet bandwidth levels also need to increase by at least 25 times in order to match more closely to levels in Europe. This will give Entrepreneurs more reliable connections and wider coverage to international markets.
There is much that the Egyptian government can do to help with this – especially when one realises that there have been no reforms for entrepreneurs since the fall of Mubarak two years ago. Yes, there were (and are) more politically pressing matters to address – but now the government should look to the long term future and the role entrepreneurs can play in helping transition Egypt to a modern thriving economy. The government could partially achieve this by enacting measures for the judiciary to streamline contract enforcement and a commitment to help promote public or private investment in the country’s technological infrastructure.
The economic reforms outlined thus far, should incorporate these measures if Egypt wants long-term growth lead by Egyptians and not just foreigners. The Egyptian people and entrepreneurs are expressing a deep desire to play a key role in building their nation’s economy – the Egyptian government would be foolish if it missed this once in a generation opportunity to help its people do just that.