Elections and Economics: What’s ahead for Egypt?

Busy street market in Cairo (Photo: CIPE)

Observers around the world are tuning into Egyptian politics this week, ahead of the country’s November 28 parliamentary elections. Amid the necessary yet saturated discussion on election monitoring, candidate registration, and local media coverage, a refreshing point of view focusing on Egypt’s shifting economy aired yesterday on NPR.

As the radio piece explains, President Hosni Mubarak has come to champion market-oriented reforms and has led efforts to privatize an estimated 85% of the Egyptian economy. This ideological change and ensuing policy reforms are reaping higher rates of foreign investment and engendering growth in key sectors, such as construction and tourism.

Yet moves to transform Egypt’s socialist economy to a market-based system have not been matched with regulations that ensure average citizens benefit from new policies. While foreign investors and Egypt’s elite have hailed Mubarak’s economic initiatives, the NPR report describes how ordinary Egyptians are not feeling the economic benefits.

CIPE has long recognized challenges that face Egypt as the government seeks to implement and expand market-oriented reforms. A primary focus for CIPE’s work in Egypt, and an issue highlighted in the NPR program, is the large portion of Egyptians that perform legitimate work and provide legal goods but are confined to the informal sector because of a restrictive regulatory environment and the burden of entry into the formal sector.

Egyptians who cannot afford to shop in malls such as the behemoth “City Stars” in Cairo often turn to informal market vendors for their purchases. An NPR correspondent interviewed an Egyptian street vendor who is a part of the informal sector. As the correspondent stated, this man would prefer “if the government provided a legal space for vendors to sell their wares, even if they have to pay a small fee to do so.” Yet the government’s response to this need is weak; authorities, for instance, have offered land for street vendors to establish permanent shops, but this real estate is located far from Cairo’s business center.

CIPE has worked with the Federation of Economic Development Associations (FEDA), a grassroots coalition of small and medium-sized enterprises (SMEs) in Egypt, to draw attention to how lowering the barriers to formal market entry can have a substantial positive impact on Egypt’s economy. CIPE has supported FEDA as the organization advocates in support of a draft law that would formalize an estimated additional 30% of the Egyptian economy and simplify street vendor regulations.

Corruption is another focus of CIPE’s work in Egypt. As the state continues to privatize its economy, the country must also ensure that it adheres to principles such as competitive bidding, avoiding conflicts of interest, and establishing checks and balances in decision-making. Nathaniel Heller, managing director of Global Integrity and a guest on the NPR program, highlighted the Egyptian budgetary process as an example of how the “hardwired rules of the game”—executive control over the budget—undermine the formation of a strong economic and political system. Another example given to focus on the issue of corruption was the recent legal case concerning a real estate sale for the $3 billion Madinaty (My City) project east of Cairo. The courts have invalidated the sale of state land to the developer of Madinaty citing the government’s failure to seek competitive bids.

National parliamentary elections are an apt time to reevaluate the interconnectedness of necessary political and economic reforms in Egypt, and the principles—including accountability, transparency, and the rule of law—that must underpin both if those reforms are to be successful.