Arab World Competitiveness Report 2011-2012 - World Economic ...

1. A Time of Opportunities: The Competitiveness Performance of the Arab World
Arab World Competitiveness Report 2011-2012
22
Box 3: Competitiveness and Socio-
Economic Development in Egypt:
Priorities for the Future
By Magda Kandil and Iman Al-Ayouty, Egyptian Centre
for Economic Studies
Out of 142 countries, Egypt occupies the 94th position
in a year that has so far proven particularly challenging
for the country. The weakening institutional environment
contributed to a drop of 13 places in the ranking as
compared to the Global Competitiveness Index (GCI)
2010-2011. Economic conditions are further burdened
by a deterioration in the macroeconomic situation, a
high level of unemployment, and a worsening standard
of living coupled with widening inequality. Indeed, the
fruits of high growth over the past few years were highly
concentrated, with little wealth trickling down, owing to
rampant corruption, inadequate human development,
and lack of political reforms – all culminating in the
outbreak of the January 25 revolution.
Despite reduced public debt (according to data included
in the GCI), the widening fiscal deficit and resulting
inflationary pressures are expected to continue to
burden the economy going forward. The Egyptian
government has been compelled to accommodate
growing social demands in the form of higher wages
and salaries to civil servants, new commitments to
subsidies, and additional employment in the public
sector – all resulting in higher consumption-based
support after the revolution. If such measures are
maintained without the necessary back-up of additional
fiscal revenues, Egypt’s competitiveness ranking may
drop even further in the coming years.
The short- to medium-term social agenda should
include concrete measures to ration government
spending. Such rationing calls for a reform of the
subsidy system towards a more targeted scheme that
would help contain leakages and establish greater
equity. In parallel, to mobilize additional revenues, reform
of public finances should aim to widen the tax base,
increase efficiency in tax collection, and encourage
better compliance.
To improve social justice in the context of inclusive
growth, economic priorities should be focused
on providing more jobs in parallel with supporting
productive activity. This should help vulnerable groups
graduate from continued dependence on subsidies, and
to capitalize on their skills so as to grow income in line
with productivity. Yet unleashing job creation will also
necessitate a continuation of private-led growth and the
support of small and medium enterprises to mobilize
additional demand for labor while enhancing domestic
competition and promoting greater openness to trade
and FDI.
Competitiveness-enhancing reforms call for overhauling
the educational system and curricula, in order to
increase the return on education. Specifically, Egypt
needs to ensure high enrolment, gear educational
outcomes more strongly towards the needs of the
business community, and address a pronounced skill
mismatch that has hindered additional employment
creation to date. Enhancing competitiveness also calls
for attention to the quality of scientific and research
institutions, their twinning with business needs,
the intensity of research and development, and its
implications for product and process innovations.
The labor market in Egypt suffers from an inefficient
use of available talent, rigid labor regulations, and an
inadequate system of collective bargaining, coupled with
the relative absence of trade unions as legitimate venues
for voicing employees’ concerns. To mobilize additional
demand for labor, the government needs to continue
its support to private sector activity via increasing tax
incentives for job creation, providing concessionary
credit to small and medium enterprises, investing in
education and training, and increasing efficiency to
close the gap between demand and supply. A reformed
pay system should consider variations across sectors,
based on economic indicators of growth and value
added, to align wages with productivity indicators.
Further, rules and regulations constraining hiring activity
in the private formal sector should be revisited to ease
structural bottlenecks and increase incentives for
formality. On the supply side, there is a pressing need
to change the current mindset from one that views
vocational and technical education as a mere valve
for easing pressure on universities, to one where such
forms of education are sound means for aligning labor
supply with business needs for highly skilled workers.
As graduates of vocational schools constitute a large
and growing group among new entrants into the labor
market, such alignment becomes essential for reducing
unemployment and increasing growth potential.
To conclude, the current political reform agenda should
go hand-in-hand with a well-defined and forwardlooking
economic strategy. Investment in quality
institutions, good governance, transparency, rule of
law, improved domestic security, a much-streamlined
bureaucracy, and drastically reduced corruption will
boost investors’ confidence and secure sustainable
and equitable growth to increase the welfare of Egypt’s
growing population.