Will Egypt benefit by devaluing its citizens?

The Egyptian government believes that aggrandizing the State at the expense of citizens will benefit the country. The government has an explicit policy of creating economic growth by expanding its fiscal budget while undermining the role of the private sector. Our government appears to be unaware that wealth is not only about money; ideas, knowledge and entrepreneurial spirit, qualities that are certainly more actively present within the private sector than in the entire government, are essential components of any given nation’s wealth.

Our government announced that it expects to collect 30 billion EGP from the latest electricity price increase (tariffs were raised by 42% for commercial entities and 21% for private consumers) – and substantial additional amounts will be collected as a result of price hikes applied to other utilities, all of which will boost the State’s fiscal budget. Moreover, the Egyptian government, notorious for its bureaucracy, corruption, and low productivity, wants to dominate the national economy by establishing an economic policy in which the private sector plays a secondary role.

The government’s primary focus is on expanding its fiscal budget and reducing its debts – an excellent approach endorsed by many economists. However, our government’s unconcern for the effectiveness and efficiency of fiscal budget expenditures and investments is clearly reflected in the performance of our respective industries. Rather than work on making its public-sector enterprises profitable, the government prefers to augment its revenues by applying more levies, raising utility bill prices and collecting additional personal and commercial taxes.

The Egyptian State obviously wants to reverse former President Mubarak’s policy of empowering the private sector to lead the Egyptian economy, forgetting that the policies adopted by consecutive Mubarak governments managed to realize good economic growth rates and led to the substantial expansion of Foreign Direct Investment – things that we completely lack today. The downside of the Mubarak era policies was the significant increase of cronyism, whose privileges our present government has reduced substantially.

Wealth in Egypt empowers citizens significantly; the State therefore believes that it is better off seizing the wealth of the society and completely dominating the economy. The Egyptian State does have the desire to eventually (after it has enriched itself) offer affordable services to our large population of more than one-hundred million inhabitants. Meanwhile, it is completely uninterested in applying a policy that enables Egyptians to compete for business opportunities on an equal footing, which will result in spreading wealth fairly among citizens, according to competency.

Egyptian state-enterprises have been privileged for decades by being permitted to create debt accounts at respective government enterprises or state banks. Eventually, the banks either reschedule these debts on easy-terms or use the option of forgiving a good portion of the debt. Since this is public money, the State sees no harm in favoring public enterprises at the expense of our economy. Meanwhile, non-performing private-sector enterprises are subject to compound interest rates and clear bank interference in company strategy.

No private sector entity is currently able to anticipate its industry’s future growth or profitability; thus, most private commercial entities are holding off any kind of investment expansion and there has been a noticeable decline in Foreign Direct Investment. Even in real estate, known to be the government’s “pet industry”, private companies have started to experience a significant decline in revenue and profitability – a result of the present economic policy of overinvestment in this sector.

The unaccountable public sector in Egypt should not compete with the private sector, especially since the government articulates economic policies that favor public-sector entities. The government should consider enhancing its industries to make them more attractive for private investors to expand while simultaneously obliging them to produce better quality products that would help us to penetrate international markets. To succeed, these moves will require independent professional players – not government manipulation.

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