Unemployment in Egypt

A higher standard of living and a better quality of life must be the prime objectives of any efficient and sincere government. In Egypt – where employment insurance is almost non-existent, social insurance is very poor, and overly large population is still growing at a high rate – Unemployment has become a national problem. The Egyptian Center for Economic Studies (ECES) organized a two-day conference in  2002 to discuss the issue. The conference showed a number of discrepancies on the Egyptian way of dealing with unemployment.

The ECES conference, held Jan. 13-14, 2002, gathered some of Egypt’s top government officials, headed by Prime Minister Atef Ebeid, and some prominent Egyptian businessmen and economists. Under the wider title of the conference, Employment and Unemployment in Egypt, several papers were presented and discussed focusing on different aspects of the issue.
At the opening session, Prime Minister Ebeid gave a comprehensive speech describing the unemployment situation in Egypt and pointing out his government’s remedies for the problem. Mr. Ebeid criticized non-governmental economists who study the issue and come out with conclusions and indicators that are different from the ones announced by the government. Mr. Ebeid said that the government has its own experts who are working on those issues and are doing a good job. He also asked non-governmental researchers and experts – especially those who tackle macroeconomic policies in Egypt – to stop their studies and refrain from contradicting governmental announcements.

“We don’t want a shadow-government,” Mr. Ebeid said. Later in the conference, some speakers objected to Mr. Ebeid’s request and insisted on the importance of the role of non-governmental studies. Some other speakers even questioned and challenged the credibility of the indicators and statistical figures announced by the government. For instance, according to the government, the unemployment rate in Egypt is about 10 percent, while some academic and non-governmental studies indicated the rate up to 20 percent.

Mr. Ebeid answered a request from a participant to consider 500 pounds (about $110 U.S.) as a minimum monthly wage when counting the working labor force by saying, “I would rather be a farmer in an Egyptian village if I will be granted a minimum monthly wage of 500 pounds.” Mr. Ebeid’s answer, implying that 500 pounds as a minimum monthly wage is too good to be true, got laughs from some of the participants (mainly the government-friendly ones) but seemed to be rejected by some others.

One paper that provoked a hot discussion at the conference was the very first presentation, “The Macroeconomics of Labor Market Outcomes in MENA (Middle East and North Africa region) over the 1990s.” The paper, presented by Dr. Mustafa Nabli from the World Bank and written by his colleague Jennifer Keller, focused on how growth has failed to keep pace with a burgeoning labor market in this region.

Professor Galal Amin of the American University in Cairo, a socialist by background, gave the strongest possible critique of the paper. Professor Amin took issue with the paper’s MENA scope, what he called its overemphasis on growth, and what he found to be its incorrect results. Dr. Amin argued that generalization over the MENA region is pointless and misleading because of the great differences in the unemployment situations of MENA countries. He gave the example of combining Kuwait, with its unemployment rate of 1.3 percent, with a country like Algeria, whose unemployment rate stands at 28.7. Dr. Amin further rejected what he called the paper’s direct link between growth and unemployment. He argued that economic growth does not necessarily translate into lower unemployment rate but could be biased in favor of only a fraction of the society.

Another assertive but less aggressive critique to the paper came from Dr. Hazem El-Biblawy from the New Civic Forum, a non-governmental group. Dr. Biblawy said the paper was informative in a descriptive manner, answering the question of what has happened in the region concerning unemployment, but failed from the analytical side to tell why it happened.

Dr. Samiha Fawzy, deputy director and lead economist of ECES, presented another distinguished paper that focused on investment policies and incentives in Egypt and their impact on unemployment. Dr. Fawzy’s presentation confirmed the significance of the relation between investments and employment and explored the factors that hinder investments from creating more jobs. She gave a background overview of investments and unemployment in Egypt that showed a considerable inefficiency in comparison to some other selected developing countries such as Indonesia, Morocco, Tunisia, Mexico, Jordan, and China.

One of the most controversial points of Dr. Fawzy’s paper was a chart about the relation between investments and unemployment in Egypt according to the governmental statistics and indicators about whose accuracy Dr. Ebeid was speaking earlier. The chart shows that even at times when the percentage of investments of GNP (Gross National Production) is declining, the unemployment rate is also declining, contradicting almost all economic theories.

Dr. Fawzy commented on the chart, saying sarcastically, “If the government agrees that there is a relation between investments and unemployment, and its data shows that the unemployment rate decreases (from 1993 till now) even when investments are decreasing, then all they have to do to lower the unemployment rate is to decrease investments!”

Regardless of such a contradiction, Dr. Fawzy argued that the experiences of different countries of the world confirm the relation between investments and unemployment. She specified some sectors that have a stronger impact on the reduction of the unemployment rate, including export-oriented production, labor-intensive industries, and investments in small-scale industries generally. She argued that the current sectoral levels of investments are not in line with the objective of reducing the unemployment rate. Dr. Fawzy stated, according to official figures, that small industries, which represent 54.7 percent of working labor, receive a much smaller percentage of investments, only 14.1 percent.

At the end of her presentation Dr. Fawzy introduced two sets of recommendations. She called the first set the traditional ones, describing them as being repeated too often but saying she had to repeat them again because they are still not fully considered by the government. The traditional recommendations included:

• Introducing new, efficient, and sustainable macroeconomic policies
• Making these policies transparent and timely
• Improving the investments incentives and atmosphere
• Targeting labor-intensive industries for economic growth.

The second set of recommendations, which Dr. Fawzy called unconventional, were:

• Relating the offered incentives for investments to the number of jobs they generate
• Encouraging exports by equalizing profits from export-oriented production with profits from production for local consumption
• Improving education and training
• Providing more support and incentives for small enterprises.

Most of the comments on Dr. Fawzy’s paper were complimentary. Among the few critics was Dr. Mohammed Saqr of Cairo University. Dr. Saqr criticized the countries that were chosen for comparison with Egypt, declaring his suspicion that those specific countries were selectively chosen by the researcher to prove a preset conclusion.

Among popular sessions of the conference was the one chaired by Gamal Mubarak, son of the Egyptian president, the chairman of Medinvest Associates Ltd. (a private equity company), and a member of the board of ECES. In his introduction, Mubarak emphasized that the unemployment problem has been a major challenge for the Egyptian government throughout the last 10 years.

Unemployment is one of Egypt’s major economic and social problems that cannot be solved in isolation from the whole system, which is getting weaker. The main causes of unemployment in Egypt could be the same causes common to many of Egypt’s other economic and political challenges. These causes include the lack of transparent policies on the macro level and an increasing tendency for temporary solutions rather than well-established sustainable development policies.

For instance, while the government is suffering from over-staffing and a very low rate of productivity, it insists on hiring more employees, offering them very low wages. Could it be better if the government made a real effort to create a competitive investment atmosphere for both local and foreign investments that will not only supply job opportunities but also support the whole economy at large? (For instance, an investor in Egypt needs the approval of 21 governmental authorities to start a business in the field of tourism.)

The conference was another conference during which some sincere efforts and feasible recommendations were made, but even with the presence of the prime minister, did the government listen? Will it react? There are doubts and there are hopes.