Insight into present economic development in Egypt
Egypt, Economics, 4/30/2002

This important book addresses the key issue of the relationship between politics and economics. It argues that development of political infrastructure, including institutions and organizations that contribute to policy making, as well as those that administer policies, is vital to improved economic performance in Egypt.

"Institutional Reform and Economic Development in Egypt" documents rates of development of both political infrastructure and the economy, noting how lags in the latter can be accounted for by inadequacies in the former. In particular, this 197-page book, edited by Noha el-Mikawy and Heba Handoussa, suggests that insufficient and inappropriate governmental allocations to social services result from weak policy-making institutions and organizations, whereas Egypt's relatively poor export performance stems in large measure from non-supportive governmental administration.

This pioneering effort demonstrates that political and economic reform need to proceed in tandem draws upon an impressive array of data. With regard to political infrastructure, the book focuses primarily on the People's Assembly (the lower house of the Egyptian parliament), which it analyzes. in several insightful chapters that are replete with behavioral and data, the latter based on a survey of members. The broad conclusions are that executive branch preponderance has impeded the Assembly's ability to acquire information, represent constituents, and produce appropriate, effective legislation at the much-discussed "business lobby" does not have significant influence in the assembly; and that it (the assembly) has increasingly focused on legislation that regulates the economy, with some positive results.

As regards the economy, after a fine overview written by Handoussa, the managing director of the Cairo-base, Economic Research Forum, of general economic performance ,this important book focuses on impediments to improve export performance.

The primary conclusions, based on surveys of key target group, including business groups an government officials, are the state's efforts to stimulate exports have been impeded by the various ills that plague the state's public administration as a whole.

Those ills, the book stresses, are overstaffing, excessive control rather than concern for client service, a non-facilitative legal context, and lack of appropriately trained personnel.

"the volume is intended not just reveal linkages between political infrastructure and rate and type of economic growth, but to serve as a guide policy-makers.

Scattered throughout the text suggestions for improvements, while the editors address policy reforms head on, both in separate chapters and in a joint conclusion.

The 1990s in Egypt, the book says, tell a story of tremendous governmental efforts to reorient statist, protective economic policies toward an open free market.

But this positive record has been tarnished by a lack of institutional reform, either on the economic or on the political levels. There are two schools of thought about how best to tackle the problem. The first is an executive-based approach that envisages reform starting inside the executive. The second line of approach, which is adopted in this volume, is more comprehensive, widening the focus of reform to include the institutions of lawmaking, information, and interest aggregation, as well as administration.

In Part One of this volume; in Chapters 2 and 8, the contributors focus on the role of parliament in an executive dominated and one-party-dominated system.

They look at the specific impact of this political context on economic legislation, underlining the quality of economic laws, particularly those relevant to investment attraction -and export promotion.

An informed parliament requires an informed society, the book says.

In Chapters 4, 5, and 6, the authors turn to the institution of information and knowledge circulation inside parliament as well as to the system of interest aggregation outside parliament.

Business interests

They take up the issue of the ability of business interests to assert themselves as a collective group, beyond individualistic survivalists communication with members of the executive or legislature.

In this way, they extend the debate to the question of whether or not the strengthening of voices is good for reform. They also provoke a discussion on what kind of interest articulation is required in the age of globalization.

However, their point remains that organization and articulation of interest are part of information processing and knowledge creation in society, and hence part of the institutional reform needed for economic performance.

Without reforming the institution of-information and interest aggregation there is not enough articulation of policy options, let alone enough information-based and knowledge- based critique.

The significance of reforming the institution of administration is addressed in Part two.

Structural adjustment

Facing an economic crisis in the second half of the 1980s, the book says that the Egyptian Government committed itself to a serious pursuit of liberalization and, relatively speaking, privatization of the economy.

The 1990s have witnessed a tremendous effort of economic stabilization, the book says.

" Structural adjustment measures were also introduced, with considerable deregulation being implemented in key sectors of the economy.

The balance between such achievements and what is still left to do is highlighted in Chapters 8 and 9.

The urgency of institutional reform is discussed in Chapter 10, using the example of Egyptian/European relations.

It is argued that without institutional reform, the positive impact of efforts to integrate Egypt in a European Mediterranean regional system will be limited.

The consensus about the need and urgency of institutional reform, especially among businessmen and key opinion makers, is discussed in Chapter 11.

In that chapter, the authors analyze the results of an opinion survey conducted in 1999-2000, underlining the importance of institutional reform for a better investment environment.

Finally, in Chapter 12, they put forward their recommendations for the institutional reform of the administration.

They started out by asking: What is the role of a state that wants to catch up in the midst of a tough globalization race?

Tracing the political and economic trends that characterized the 1980s and 1990s, they found that there have been some fundamental changes towards liberalization, but that certain consistent institutional weaknesses remained, especially in the areas of legislation for economic reform, bureaucratic performance in promotion of investment and exports, and the environment of information, training, and technology application.

By means of a number of opinion surveys and extensive interviews, they identify some indicators that would enable one to measure institutional reform in these areas in the future.

Our endeavor made it clear that such institutional reform is a requirement, if policy change is to help Egypt cope with the challenges of globalization. Even an agreement for regional integration would not bear fruit without institutional reform," the authors wrote.

By the mid 1980's, Egypt's import substitution industrialization model was in crisis, and the expansion of state bureaucracy had resulted in non-sustainable growth of the government's wages' bill. However, although Egypt has moved from the speculative to the investment category, two weaknesses stand out: (a) lack of transparency, (b) the manufacturing sector is still far too weak to attract foreign direct investment and make Egyptian exports internationally competitive.

To get rid of this double weakness, the book suggests that the state has to turn its attention to the promotion of a more cooperative system of organization in society and of know-how-intensive growth in l the private sector.

Six weak areas

To start first with the negative side, there are, in the authors' view, six main areas in which deficiencies exist:

The link between policies of I liberalization and institutional reform has been weak.

Legislation in support of economic reform has picked up speed in the 1990s. However, laws are arbitrarily enacted (with weak societal input) and vaguely written, and the process of enacting them is not transparent.

* Interest groups and promotional organizations exist, but in a nascent form.

* Egypt's export performance is still very weak by developing country standards.

The organizational infrastructure of government has witnessed considerable improvements in the l990s: in governmental investment and export promotion agencies, which work in tandem with business associations. However, the researchers indicate that the agencies suffer from- bureaucratic misallocation of resources, from a lack of skilled personnel and information managers, and from a lack of creativity in the professions of promotion, market identification and product marketing.

The labor regime in Egypt is still open for debate.

positive indicators However, in the researchers' view, there are also some key positive indicators: The legislature has constantly voiced concern for the social tradeoff of economic reform, and the executive branch has by and large taken heed of this.

The mass of Egyptian non competitive civil servants remained for a long time a politically sensitive problem.

However, the researchers revealed a widespread belief that weak governmental performance is a personnel issue: and a budgeting issue.

The stabilization and structural adjustment measures have resulted in some very positive reforms of public expenditure.

There is consensus on the need for state involvement in reforming the social security system, training labor, encouraging small and medium size firms and nurturing the necessary environment for an information society.

The book says that reform can still be delayed because of the tendency of some parliamentarians, government officials, and business groups/individuals to continue business as usual, not taking the necessary steps towards reform.

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