Made in Egypt: With job creation a priority, an industrial revamp could be on the cards

Efforts to boost industrial output, which were gathering momentum prior to Egypt’s political unrest of 2011, are more than an attempt to simply bolster GDP growth. A persistently high unemployment rate, which grew to 9% in 2010, according to Egypt’s Central Agency for Public Mobilisation and Statistics (CAPMAS), and reached 12.4% in 2011, has made the provision of employment opportunities a priority for recent governments – and the demands for social justice and the right to earn a living wage in the wake of the 2011 uprising has turned economic policy to political necessity. Labour-intensive manufacturing processes, in the view of many, provide a route to increased GDP growth and job creation.

GROWING WAGE DISPARITY: The Gini coefficient, the measure of statistical dispersion that is increasingly used in economic publications to demonstrate the gap between rich and poor in struggling Western economies, has recently been applied to Egypt’s workforce with interesting results. A 2012 study by the Egyptian Centre for Economic Studies (ECES) using a methodology which encompassed nine skill-level occupations revealed that the coefficient increased from 0.5 in 2000 to 0.55 in 2009. The findings showed that wage disparity in Egypt increased over this period but, more worrying for politicians seeking to meet the demands of Egypt’s growing middle class, it also revealed a trend in labour demand in which relative demand for high- and low-skilled workers is outstripping that for middle-skilled employees: the swelling ranks of Egypt’s educated middle class are losing out in comparative terms to a small, highly skilled component of the workforce and a larger component of low-skilled workers who have found steady employment in manual labour.

The findings are borne out by the nation’s unemployment statistics. Joblessness among those with college degrees reached 18.9% in 2010, according to CAPMAS, suggesting a mismatch between the demands of the labour market and the products of the Egyptian education system. Young people between the ages of 15 and 29 account for almost 70% of total unemployment and, as a 2011 paper for the IMF by Yasser Abdih showed, this bloc formed the bulk of the protesters which took to the streets to topple the administration of Hosni Mubarak. The continuing polarisation of wages which the ECES paper revealed is thus of great concern to the new government. Egypt’s young middle class will not find their demands answered if employment trends continue on their current trajectories.

WHY MANUFACTURING: Despite the success of some segments, such as fertiliser production, manufacturing has declined over the past decade relative to other economic activities. Many observers see a reversal of this trend through a well-targeted industrial policy as an effective way to provide employment opportunities for workers of all skill levels, but especially the middle-skilled who are the main losers in the hollowing out of the centre of the labour market identified by the ECES paper. The experience of other countries with declines in manufacturing output over the past decade, such as the US, has shown that modest rebounds are possible with the right policies, and that manufacturing has the potential to provide high-wage jobs, act as a spur to commercial innovation and make a significant contribution to reducing the nation’s trade deficit. In the Egyptian context the existent industrial sector demonstrates strong forward and backward linkages with other vital economic sectors, such as agriculture and services and has in the past proved itself a magnet for foreign direct investment (FDI).

WHAT NEXT: Egypt’s history of industrial reform dates back to 19th century, but in the modern era the overthrow of the monarchy and accession of Gamal Abdel Nasser to the presidency in 1956 marked the beginning of a new drive to transform Egypt into an industrial power. But this state-controlled process proved unable to compete with privately driven expansion in other regions of the world, and while the liberalisation of the economy begun in the 1980s under Anwar Sadat brought some optimism to the industrial sector, the piecemeal implementation of reform packages over the intervening decades resulted in intermittent growth up to the turn of the century.

It was not until the later years of the Mubarak administration that a more sustained programme of economic reform was formally introduced. That framework could make a useful starting point for the new government as it applies itself to the challenge of breathing life into the manufacturing sector.

STRATEGY: Central to the most recent drive to tackle Egypt’s industrial malaise is the Industrial Modernisation Centre (IMC). Established in 2000 as an independent body jointly funded by the government, the EU and the private sector, its aim is to bring Egyptian industry to international competitiveness by supporting industrial enterprises “individually or sectorally, according to their development needs, through comprehensive and customised business development competitiveness programmes”. These programmes address issues such as productivity enhancement, intellectual property rights, enhancing IT implementation, generating links between academia and industry, research and development, developing specialised industrial clusters, access to finance, a national quality programme and an export development scheme.

In formulating its programmes, the IMC has worked within a wider industrial strategy that began during the last government of the Mubarak administration. The strategy posited the idea of taking advantage of the accumulated experience of other nations in a process of technological “leapfrogging”. This process would be carried out as part of a national Industrial Development Strategy (IDS) centred along three major axes: “Achieving higher growth in industrial production through an aggressive utilisation of export development and FDI attraction, where both are vehicles for deepening Egypt’s regional and global integration drive; effecting a leapfrog in industrial productivity through a carefully designed set of policies and programmes aiming at leveraging industrial competitiveness; and achieving a gradual shift in the industrial structure from resource-based and low-tech activities to medium- and high-tech industries.” The IDS also outlined the segments in which most job opportunities might be created: engineering machinery and equipment, labour-intensive consumer electronics, automotive components, life sciences, biotechnology and ethnic products.

GLOBAL MARKETS: The development model established by the strategy is one of interaction with global markets, exploiting them where possible to affect technology transfer, seeking financing opportunities within them and exporting Egyptian-made products to them at competitive prices. This runs counter to Nasserite industrial strategy, which championed self-sufficiency at all stages of the industrial process. Egypt, emerging from another seismic political event, has an opportunity to re-evaluate its development strategy and redefine its relationship with the global economy. While the failure of previous economic agendas to unlock Egypt’s industrial potential is clear, many hope that the modernising and outward-looking stance adopted in the early years of this century will be embraced and built upon.

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The Report: Egypt 2012

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