By Otito Greg-Obi
Recently, African heads of state gathered together in Egypt to sign the Tripartite Free Trade Area agreement (TFTA) which will join the forces of the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), and the Southern African Development Community (SADC).
Free trade is crucial to global economies because it reduces tariff barriers which in turn results in trade creation. The benefits of trade for developing nations in general are numerous. To name a few: first and foremost, trade allows for specialization meaning countries can build a comparative advantage by focusing on producing goods with low opportunity costs. Secondly, trade encourages healthy competition which incentivizes businesses to increase efficiency and cut costs. Lastly, trade can reduce dependence on existing markets and stabilize countries affected by seasonal changes in markets.
Photo: Muhammad Mansour
Hiba Safi is a CIPE-Atlas Corps Think Tank LINKS Fellow at the Tahrir Institute for Middle East Policy.
This post originally appeared on the Tahrir Institute for Middle East Policy blog
Over the course of the past several months, a revolt has taken place in Egypt’s banking sector. Seeking better opportunities and higher salaries in private sector banking jobs, hundreds of banking officials have resigned in protest since July 2014 legislation placed a cap on salaries for employees in Egypt’s public sector. While most public servants had little cause for concern, the law also applies to those working in state-owned companies. Suddenly executives at Egypt’s many state-owned banks would earn a maximum monthly wage of 42,000 Egyptian pounds (roughly US$6,000)—a mere fraction of their earning potential.
Former Minister of Finance Samir Radwan has spoken out against the implementation of a maximum wage, stressing that such an approach deprives public servants of their rights and does not meet demands for social justice. On February 17, a Cairo administrative court sided with workers from the Housing and Development Bank and the Export Development Bank of Egypt, ruling the maximum wage law to be unconstitutional. Tasked with fulfilling revolutionary calls for social justice and repairing an Egyptian economy on the ropes since the January 2011 uprising, President Abdel-Fattah El Sisi’s decision to cap a maximum wage at “no more than the president earns” aims to promote equality and social justice, halt the growth of income inequality, and bolster the middle class. But the actual impact of a maximum wage merits more consideration: Should there be a maximum wage in Egypt? Would the economy really be better off after capping earnings, particularly given the landscape of public and private ownership of many key sectors in the Egyptian economy?
The popular uprisings in Tunisia and Egypt in 2011 were sparked by citizen frustration based on a range of grievances including lack of opportunity, dissatisfaction with local governance, corruption, and unemployment. The public self-immolation by Tunisian informal entrepreneur, Mohamed Bouazizi, was a shocking demonstration of the frustration and hopelessness felt by some sectors of society and led to calls for political and economic reforms to address citizen grievances. Today, however, North African economies still urgently need economic reforms to promote greater economic inclusion and provide opportunities for youth.
The Center on Development, Democracy, and the Rule of Law at Stanford, in cooperation with CIPE, has conducted a survey of 131 Egyptian and Tunisian entrepreneurs and business owners to find what that the greatest barriers are to the growth of businesses in these countries. As Global Entrepreneurship Week comes to a close, CIPE is releasing an Economic Reform Feature Service article by Amr Adly about the study to contribute to the continuing conversation on supporting entrepreneurs around the world.
Egyptian President Abdel Fattah al-Sisi’s government is counting on a new multi-billion dollar Suez Canal project to help overcome what has been described as Egypt’s worst economic crisis since the 1930s, with high unemployment — 13.4 percent — and 45 percent of the population living below the international poverty line of $2 per day. Yet, what’s more important than the new Suez Canal’s objective to stimulate the economy and create jobs is who made it financially possible to carry out such an ambitious project and what that could mean for Egypt.
In eight days, Egyptians invested 64 billion EGP (about $9 billion) in the new Suez Canal project — and 82 percent of that investment came from individuals versus just 18 percent from institutions. The influx of investments introduced 27 billion EGP (about $3.8 billion) into the banking system, which is especially notable given that only one in ten Egyptians has a bank account. The overwhelming turnout of individual, cash-heavy investors from an underbanked population points to Egypt’s strong cash economy, which in turn begs the questions: how much more money is hiding under mattresses and why have these assets remained unused?
Members of Tunisia’s business community share their concerns at a March 2014 policy roundtable.
We know that North African economies urgently need economic reforms, opportunities for youth, and greater economic inclusion. But what do we know about where the opportunities lie and – just as important – what are the greatest barriers that obstruct the growth of businesses?
A few salient insights emerged from a recent survey of 131 Egyptian and 100 Tunisian entrepreneurs and business owners, which was conducted by the Center on Development, Democracy, and the Rule of Law at Stanford in cooperation with CIPE. Many of the findings will come as no surprise — the business environment and entrepreneurial ecosystems have room to improve in both countries, and political uncertainty puts a drag on business. One major, policy-relevant finding is the need to address disparities in access to opportunity.
In 2011, both Tunisia and Egypt were rocked by popular protests against economic and political repression that ended in the ouster of their authoritarian governments. Three years later, how much progress have these states made in reforming their economies? And what has happened to the entrepreneurs whose grievances helped fuel these revolutions?
Reforming the Entrepreneurship Ecosystem in Post-Revolutionary Egypt and Tunisia, a report from CIPE and Stanford University’s Center for Democracy, Development, and the Rule of Law (CDDRL), attempts to answer these key questions. With this report, CIPE staff and IACE will engage policymakers and stakeholders in roundtable discussions to formulate policy recommendations in the coming weeks.
Working with CIPE Cairo staff and CIPE partner L’Institut Arabe des Chefs d’Entreprises (IACE) in Tunisia, lead researcher Amr Adly conducted an extensive study of existing literature and over 100 detailed interviews with entrepreneurs in each country to shed light on the obstacles and opportunities that comprise the entrepreneurial ecosystems in these post-revolutionary states.
The survey results paint a small yet detailed portrait of what life is like for the Egyptians and Tunisians trying to make ends meet in countries with increasing unemployment rates, among other worries. Dysfunctional and inaccessible regulatory structures, crony networks solidified by corrupt past regimes, and a lack of access to information for the private sector and policymakers are only a few of the areas for which Adly’s research provides nuance.
Who are the entrepreneurs that can withstand such an unstable environment? The majority of respondents in both countries affirmed that they do not trust formal contract enforcement, managed to start their business largely through self-financing due to a lack of access to loans, and endure high transaction costs as a result of inadequate institutions. They are men and women, younger and older, more or less educated, formally registered or informally operating, risking bankruptcy and/or jail time for a failed venture, running joint or solo endeavors—and they are all citizens for whom their government is not working.