The Economic Well Being of Egyptians in a Globalized WorldUrban GovernoratesCairoAlexandriaPort SaidSuezLower EgyptDamiettaDakahliaSharkiaQaliubiaKafr-El-SheikhGharbiaMenufiaBeheraIsmailiaTable (2-3)Changes in Classification of Governorates(1986-1990 and 1990-1996)1986-1990 1990-19961986-1990HDVCVREGEGVRVCVCEGEGVCVCEGVRVRVRVRHDVCHDVRVCHDHDEGVRUpper EgyptGizaBeni-SuefFayoumMeniaAssiutSohagQenaAswanBorder GovernoratesVCVCVCVCVCVCEGHDHD1990-1996VRVCVCVCVCVCEGEGVREmpirical evidencefrom Egypt hasshown that, ingeneral, the share ofincome accruing tothe poor has tended torise with grossnational income.VR = virtuous; VC = vicious; HD= HD- lopsided, EG = EG- lopsidedlast for a decade or so, but it then shifts torapid rises in both incomes and humandevelopment, or falls into slowimprovements in both human developmentand incomes.”Tackling the ChallengeEmpirical evidence from Egypt has shownthat, in general, the share of incomeaccruing to the poor has tended to rise withgross national income. Furthermore, it hastended to rise with improvements in thepattern of income distribution as reflected indeclining Gini coefficients. The impact ofglobalization-related variables appears to bemixed. Trade openness has not shown anysignificant impact on the level of GNPalthough it affected negatively incomedistribution and increased incomeinequality. Foreign investment has positivelycontributed to enhancing the level ofnational income and improving the patternof distribution. These mixed results may beattributed to the fact that global integrationis not just a matter of opening up theeconomy to trade flows and to financialflows. It requires further deep institutional,managerial and political reforms, whichhave not taken place. Revision of prioritiesis also warranted. Higher income per capitais just one dimension of human welfare.Other major elements of human developmentinclude the social, political and securitydimensionsInvestigation of the interaction betweeneconomic growth and human developmentfirstly required the construction of a broadhuman development index (BHDI), whichreflects various dimensions of humandevelopment. More specifically, it embodiessixteen indicators, which represent health,education, housing conditions, employment,income inequality, gender gap and percapita GDP. Then various links betweeneconomic and human development wereidentified and analyzed.Applying these relations, at thegovernorate level in Egypt, revealed thatover the past sub-periods 1986-90 and1990-96, important changes in therelations between economic growth andhuman development have occurred. Thefour urban governorates which showedmixed interrelations between economicgrowth and human development indicators,during the first sub- period, all moved inthe nineties to balanced linkages witheconomic growth and human developmentmoving together in a mutually reinforcingway. The nine governorates in LowerEgypt showed mixed performances. Theyended up in the nineties with two reachingbalanced favorable linkages (Qaliubia andEgypt <strong>Human</strong> <strong>Development</strong> Report 2000/2001 - 35
The Economic Well Being of Egyptians in a Globalized WorldIsmailia), four showing a bias towardsadvances on the human development frontand lagging economic development(Damietta, Sharkia, Gharbia andMenufia), one showing a bias towardsadvances in economic growth unmatchedby human development (Behera) andfinally two, trapped in a vicious circle oflow economic growth and low humandevelopment (Dakahlia and Kafr -El-Sheikh). The eight governorates ofUpper Egypt remained mostly trapped in avicious circle of low improvements inboth human development and incomes(five governorates: Beni Suef, Fayoum,Menia, Assiut and Sohag), with onemoving forward on both economic growthand human development fronts (Giza) andtwo enjoying high economic growth butbackward human development indicators(Qena and Aswan, due to the flow oftourism revenues to these governorates).These results confirm that overall incomegrowth conceals wide variations in thedistribution of its benefits in terms ofeconomic returns and of humandevelopment advances among regions aswell as among social groups. The regionalpattern of distribution has been investigated.Further research on the pattern ofdistribution of economic and humandevelopment benefits among social groupsand/or income brackets is warranted. In anenvironment of globalization of marketsand withdrawal of governments fromprofitable economic endeavors andactivities, mitigating the distributiveimpacts of the expected benefits isessential.Currently, the Egyptian economy issuffering from recessionary pressures. Thisis reflected in higher rates ofunemployment, lack of liquidity and lessoptimism. These conditions have negativeeffects on human development and thequality of life. The economy has also beennegatively affected by a sharp devaluationin the last few months (about 18 per cent),which fostered expectation of instability inthe exchange rate regime. It is necessary tosolve these problems before embarking on along-term program that aims at achievingrapid growth with equity and improvedquality of life to enhance conditions ofhuman development under globalization.The suggested immediate measures include:● Confidence and OptimismIt is recognized that the psychologicalattitude of people is one of the causes ofeconomic cycles. There is a general feelingof loss of confidence and lack of optimismabout the short-term prospects of theeconomy. Reinstituting confidence in thefuture and regaining optimism is a necessaryprerequisite for a turnaround.● Appropriate Short-term PoliciesEconomic policy could introduce severalmeasures to deal with recession. InstrumentsBox (2.5)Policies for Short-Term Recoveryof monetary and fiscal policies could beactively used to overcome the recession. Thepayment of arrears accumulated bygovernment agencies to the business sectorcould have a positive multiplier effect on theeconomy. A reduction across the board of taxrates might also lead to increased publicrevenues through reduced incentive for taxevasion, which is believed to be high. Egyptranked among the top eight out of eighty ninecountries with the highest marginal corporatetax rate in 1999.● Exchange Rate RegimeUnder ERSAP, the exchange rate regime wasliberalized. Thanks to the surplus in BOPduring 1991/92-1996/97, the exchange rate ofthe pound vis-à-vis the US dollar remainedalmost constant. However, starting in 1997/98,the Egyptian BOP has been suffering from adeficit. In an attempt to maintain the stabilityof the exchange rate the Central Bank ofEgypt (CBE) drew on its internationalreserves which declined by almost 30 per cent(from about US$21bn to about US$14bn)without great success in stabilizing the valueof the Egyptian pound. Policies and measuresaiming at fixing the exchange rate at a levelwhich does not correctly reflect supply anddemand conditions lead to distortions, andmore seriously, to excess capacities, lowerrates of growth and higher rates of36 -Egypt <strong>Human</strong> <strong>Development</strong> Report 2000/2001