Tag Archives: egypt

Peru’s Lesson for the Middle East and North Africa

Hernando de Soto

One of the first people to walk through the doors after CIPE’s founding in 1983 was Hernando de Soto, President of the Institute for Liberty and Democracy (ILD) in Lima, Peru. Mr. de Soto had the fundamental insight that poor people were not part of the development problem but instead part of the solution. In his best-selling books, The Other Path and The Mystery of Capital, he explained how the lack of access to property rights and other institutions of a market economy keeps the poor in most developing countries trapped in the informal sector.

In one of its first-ever programs, CIPE teamed up with de Soto and ILD to begin bringing the poor in Peru from the extralegal economy into the formal economy and the rule of law. As a result of ILD’s unique and innovative property rights and business reform program, Peruvian society received $18.4 billion in net benefits between 1992 and 1997, including saving formalized urban owners some $196 million in red tape costs.


Egyptian Doctors and Freedom of Information

Egyptian doctors on strike. (Photo: Mai Shaheen/Ahram Online)

With all that is going on in Egypt these days, it is hard to take our eyes off of the Constitutional Assembly and the constitution drafting process. Yet if you look around the country, you will begin to see that the members of the constituent assembly are not the only ones mobilizing to secure support for broad-based reforms in the country. Last month, Egyptian doctors began to protest to demand better pay and working conditions.

Doctors have been on a partial strike since October 1 to demand an increase in health spending to 15 percent of the state budget, wage increases, and better healthcare standards and security at hospitals. A salary for a recently graduated doctor is 200 Egyptian pounds ($32.70) a month. But low pay is not the only thing new doctors have to worry about. Recently, there were two separate incidents where assailants attacked hospitals in Shubra (Cairo), and in the Al-Qantara Sharq (governorate of Isamaila).

The problems that plague the healthcare industry are endemic to the public sector as a whole, where public sector employees are paid very low salaries compared to other industries. With the dire state of the economy, it will be difficult for the Morsi Administration to raise salaries for doctors and other public sector employees without significant cuts in other areas. So where should the money come from? In the long run, the only solution will be to fix the underlying issues of corruption and bad governance.


How Improving Egypt’s Business Environment Could Reduce Traffic in Cairo

Photo by Flickr user “tronics”

Having lived in Egypt as a kid in the early ’80s, I still have vivid memories of Cairo traffic – the honking, the intermingled smells of hot dust and exhaust and garbage, the sight of busses going by with people hanging from every handhold like a human fringe – everyone inching along and maybe, eventually, getting somewhere. According to a recent New York Times Cairo Journal article, A Dictator Is Gone, but Egypt’s Traffic and Congestion Seem Immovable, three decades and one revolution later the Egyptian capital still hasn’t resolved its congestion problems.

What struck me most about the article was the connection made between traffic and street vendors. The author quotes a tamarind vendor, Mohammed Ghaleb, who explains that his road-side business works because, “The people in the cars coming this way are all hot, and so they want something to drink.” The article interprets the chain of cause and effect a bit differently: “The people are hot, in part, because of the traffic, and the traffic is bad, in part, because of Mr. Ghaleb.”

Egypt’s President Mohammed Morsi seems to have bought this logic. He has pledged to remove the street vendors and reduce traffic, and has proposed building designated markets or market areas to bring order to chaos.

Designated markets are not always a bad idea, but in many countries such initiatives lead to “forced resettlement” of merchants and end in failure. Why? Because officials rarely think to involve vendors themselves when planning new markets. All too often they end up with shiny new buildings way outside of town. If you’re a vendor surviving on a very narrow profit margin, it’s often better to stay where you are near your clients even if it means continuing to dodge authorities when you must.


Sesame Street, Swine Flu, and Unintended Consequences in Egypt

Zabbaleen boys in Mokattam Village in 2009. (Photo: Wikipedia)

“The law is not feeding me.”  That was the quote that really caught my eye.  At CIPE we talk about “Democracy that Delivers,” but I have never seen such a fundamentally honest and genuine expression of the concept – a democracy will not work unless it is delivering in tangible ways for its citizens.

“The law is not feeding me.”

The source was a black market pig farmer quoted in a fascinating article on a garbage collection crisis in Egypt in Monday’s Washington Post.  (And no, I didn’t know there was such a thing as a black market pig farmer, either.)  It seems that pigs raised by Cairo’s Coptic Christian Zabbaleen community used to consume a significant portion of the city’s garbage.  Reacting to the global swine flu epidemic in 2009, the Egyptian government slaughtered all of the country’s pigs and, from then on, banned ownership of trash-fed pigs.  This usurped the livelihood of the Zabbaleen – and resulted in a city-wide backlog of unconsumed, uncollected garbage.  To make matters worse, in the current economy, government-contracted sanitation firms are being short-changed by a full half of their fees and have had to cut back service accordingly.


The other transition

Egyptians in Tahrir Square during the presidential election (Andre Pain/European Pressphoto Agency)

The turmoil engulfing Egypt’s presidential election has been a stark reminder of the difficulties the Arab Spring countries face with challenging political transitions. In countries where democracy has little precedent and where popular will was long suppressed, the new political opening has brought much anticipated civil liberties but also juxtaposed competing forces and diverging interests. Yet, among all the attention that headlines give to the political process, the story of another equally crucial transition – economic one – is often lost.

It is important to keep in mind that the roots of MENA revolts were both political and economic in nature, including demographic pressures, inefficient public sector, and constrained private sector. In other words, the lack of political freedoms was compounded by the profound lack of economic freedoms. That in turn fueled unsustainable levels of government employment and swelled the ranks of young people like Tunisia’s Mohammed Bouazizi who, without other viable options, strive to earn a meager living in the informal sector. A year and a half after Tunisia ousted its long-time authoritarian ruler, political transformation is underway but the economy struggles.

Many Tunisians who rose in protest against Ben Ali are disappointed with slow progress of reforms. Protestor Beshar Messaoud recently interviewed by NPR says that, economically speaking, things are exactly the same and the government has brought no solutions to the problems that led to the revolution in the first place. Unemployment is officially at 18 percent but it may actually be twice as high. Another interviewee, 35-year-old Laila Turki adds that if Tunisia doesn’t get its act together and improve its economy quickly, it will undermine its chances to build a functioning democracy.

But there are many misconceptions about what is needed for the economy to improve. For one, demands for economic change often focus on populist calls for more entitlements with little consideration given to how a sound economy capable of delivering sustained prosperity to its citizens can be built. What is more, the very understanding of what a true market economy entails has been tainted by decades of crony capitalism in the region. As a recent post on the Institute of Economic Affairs’ (IEA) blog points out, the meaning of “pro-business” in MENA has been warped: the “pro-business” policies of authoritarian leaders were limited to only one type of businesses – the ones connected to the government. That’s not the same as being pro-market, which requires allowing economic freedom for all segments of the society and building institutions that enable competition on a level playing field.

Instead, MENA ruling elites built systems that monopolized economic rents and jealously guarded their own economic privileges. That, in turn, necessitated the suppression of not just freedom of political expression but economic freedom as well. The legacy of that system is clearly visible in Egypt today. During the rule of post-independence leaders Gamal Abdel Nasser, Anwar Sadat, and Hosni Mubarak – all military men – the military has amassed a huge business empire in sectors from agriculture to electronics. Current estimates show that military-connected enterprises account for 10 to 40 percent of the Egyptian economy; meanwhile, more than 40 percent of Egyptians continue to live on $2 a day or less. Therefore, the real question of Egypt’s political transition is whether the formal return to civilian rule will translate into meaningful boost to pluralism on the economic front (pun intended).

The same goes for transitions in other MENA countries as well. Their success will depend on the degree to which the economic undercurrents of political turmoil are better understood and more effectively addressed, and the degree to which the misconceptions about the nature of market-oriented reforms are overcome. As the IEA blog emphasizes, a deeper reflection on the central place of the entrepreneur in economic development is needed, since “the future of the Arab Spring depends on the capacity of the new democratically elected governments to implement measures to prevent crony capitalism, restore the rule of law and promote economic freedom, in order to ensure general prosperity.”

The Youth Struggle to Participate in Egypt’s Transition

Seif El Khawanky was a youth activist in Tahrir Square during the revolution.

Watch a video of Seif discussing the motivations of the youth revolution and Egypt’s future.

Nearly 14 months after the resignation of Hosni Mubarak, Egypt has reached a point of reckoning. Over the next few months, Egyptians are scheduled to write and adopt a constitution and elect their first post-revolutionary president. These Herculean undertakings will only be as successful as the consensus that backs them, and yet Egyptian society shows a troubling degree of polarization.

Among those who express frustration with their country’s post-revolutionary transition are the youth activists who sparked it. Egypt’s youth unquestionably played a leading role in organizing their countrymen and outmaneuvering the leaders who had long failed to provide opportunities to participate politically and economically. Yet, youth have complained that they have been sidelined from the post-revolutionary transition.

Speaking at a recent CIPE brownbag lunch about the role of youth in Egypt’s transition and their difficulty securing a role in it, CIPE Junior Program Officer and Egyptian youth activist Seif El Khawanky used an analogy that for me brought back some painful memories.

According to Khawanky, the Egyptian political scene currently comprises a series of informal checks and balances between the Egyptian Parliament; the interim government and the Supreme Council of the Armed Forces (SCAF); and the Egyptian Street, a group that includes the youth activists who drove Egypt’s revolution. According to Khawanky, the hierarchical nature of organizations like the SCAF, Muslim Brotherhood, and political parties has simultaneously made it easier for them to negotiate with each other and harder to conduct dialogue with youth who have eschewed hierarchical organization.

“We are playing soccer. They are playing basketball. So, we cannot go to the same playground,” Khawanky said. Unfortunately, the time I spent living in Cairo taught me just how painful it can be when these two games intersect.

In a soccer-crazed city that offers approximately a footprint of green space per person, basketball courts can be hard to find. Among the few refuges to play basketball was a strip of dusty tiles under the 6th of October Bridge. With two ends of the strip featuring basketball hoops and the other two featuring soccer goals, however, the space was contested. It became commonplace to find myself in an argument about which game should take precedence.

The most common resolution to that argument was that while far from ideal, the two could take place simultaneously. Unfortunately for the soccer players, my Derrick Rose-like drives to the basket would sometimes serve as an obstruction to the path of their ball. And unfortunately for my face, soccer balls don’t avoid obstructions; they smash into them.

Egypt’s transition has often resembled this confused situation, and the results have at times been far more painful than a soccer ball to the face. In playing basketball, as Khawanky put it, Egypt’s generals and political leaders have largely organized themselves into hierarchical organizations with clear leaders. They have scored baskets by securing widespread compliance or support for their political roles. In playing soccer, Egypt’s youth activists have organized themselves in a more amorphous fashion. They have scored goals largely by exposing injustices or building pressure for change.

The two games have often intersected and impacted each other. As Egyptian activists have realized that both the military and some political parties enjoy some level of popular support, they have broadened their tactics from mass gatherings in Tahrir Square. Likewise, as the generals and politicians have realized the potential of youth to mobilize around a goal, they have often had to change the composition of the government or the timeline of their transition plan. Khawanky pointed out that in the past month protests successfully pressured the government to try police officers who bore some responsibility for the deadly clashes earlier this year in Port Said.

Many youth have tried to carve out a role in the game played by the generals and politicians, volunteering their time and energy to the many campaigns for the politicians who might be able to change the system from within. Street activism, however, continues to be perceived by many as the most effective means of forcing change, at least in accomplishing limited goals. Yet, it comes with a cost. To Egyptians tired of the destabilizing effect of their revolution on their daily lives, continued protests, despite their effectiveness, have reinforced the misperception, according to Khawanky, that youth are “irresponsible, intolerant, inexperienced, and radical,” furthering their marginalization.

This state of affairs, in which Egyptian policymakers exclude youth from the policymaking process but expect them to swallow their frustration like they did before the revolution, is a recipe for continued crisis. In a country that badly needs a modicum of stability, Egyptian policymakers need to find a way to capitalize on the energy and ideas of this generation of revolutionary youth.

Egyptian youth can help themselves, however, as well. According to Khawanky, part of the reason for the marginalization of youth has been their failure to present a clear vision and the fact that their idealism has made it hard to compromise. A movement that so ingeniously organized itself into a leaderless movement united in purpose during the uprising has struggled to organize itself to maximize its impact following Mubarak’s fall.

By building organizations such as NGOs, think tanks, newspapers, and magazines capable of not only highlighting problems but also positing solutions that adhere both to the principles of their revolution and to the challenges Egyptians face, youth activists might find that not only can they play the generals’ and politicians’ game, but they can win it. And they can do so while building the trust of their countrymen. This will not be easy in the difficult political environment in which Egypt is mired. Yet, Egyptian youth have proven that it is a mistake to underestimate their potential.

In the meantime, while it’s possible to play basketball and soccer simultaneously on the same court, it can make for a painful game.

Egypt’s Food Subsidies and the IMF

Egyptians wait to buy subsidized bread. (Photo: Reuters)

This week, the IMF is back in Egypt to meet with government leaders to discuss a proposed $3.2 billion loan to the country’s transitional government. So far, the package has yet to garner support from either the Muslim Brotherhood or leading Salafist party Al-Nour, both of whom are waiting to hear more details about the economic measures related to the package.

One of the reforms being considered is an end to the billion-dollar food subsidy program, an issue that the has historically proved contentious in Egypt. However, with the right reforms, the Egyptian Government may finally be able to improve an unsustainable program without causing civil unrest or creating uncertainty that would drive away the outside investment the country so desperately needs.

The Egyptian government has long been dependent on food subsidies to shore up popular support. In 1977, President Sadat tried unsuccessfully to end subsidies on flour, rice, and cooking oil, which brought hundreds of thousands of people into the streets to protest. In 2008, people again took to the streets in Cairo, as in other cities around the world, to protest the skyrocketing price of food. In response, the Egyptian government increased its food subsidies. Egypt is now the world’s largest buyer of wheat on international markets.

Today, according to a recent Wall Street Journal article, subsidies absorb at least 28% of Egypt’s state budget, and when combined with fuel subsidies account for over 10% of GDP. This increase in food subsidies is the result of a number of structural problems stemming from the weakness of the private sector. As Egypt’s new governing institutions develop, space needs to be created for the private sector to grow and play a role in providing feedback on any economic reforms made by the government.

According to the World Bank’s Logistics Performance Index, Egypt ranks 106th globally in its quality of trade and transport related infrastructure. Weak port infrastructure and a lack of cool storage facilities at ports increase the cost of staple goods such as rice and grain, which factor into the cost of food subsidies.

A second problem, which is endemic across the region, is a highly segmented and regulated regional trade network. Barriers to trade and other complicated trade logistics, which vary on a country-to-country basis increase transaction costs, which add to the value of important staple goods. According to a research paper by Oxford University, The Economics of the Arab Spring, “a better infrastructure, by connecting the region’s agricultural markets, can mitigate fluctuations in food prices, since transport costs can make up as much as 40 percent of the overall food price in the region.”

Removing barriers to trade, modernizing infrastructure, and developing regional trade networks are much needed reforms that the Egyptian government and newly elected parliament should quickly embrace, especially in labor-intensive industries such as in agriculture. Recently, the Turkish government has stated their intention to pump over $1 billion into Egyptian investment projects in the next few years. Egypt’s Minister of Industry and Trade has recently disclosed plans for a shipping route between the port of Alexandria and Mersin on Turkey’s Mediterranean coast. Investments related to ports and other trade-related infrastructure must be coupled with any IMF-mandated economic reforms.

As we have seen in the past few months, there is a global interest in seeing that the IMF loan is signed, and these much needed reforms are made to an increasingly unstable food subsidy system. The EU, African Union, and multinational companies from all around the world have expressed interest in making investments into Egypt. However, most of these outside investments are contingent upon the Egyptian government signing the IMF loan. By making structural reforms to solve problems stemming from a weak private sector, and making investments in infrastructure and other trade-related industries, the government may be able to reform the food subsidy system, and put itself back on a path of short-term budget sustainability and long-term economic growth without losing the backing of the Egyptian people.