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Report explores shortcomings of trickle-down effect

CAIRO: The trickle-down effect of Egypt’s GDP growth rate over the past four years has been, for the most part, unaccounted for. A new government sponsored report attempted to examine the reasons behind this. “Toward Fair distributions of Growth Fruits, a report by General Authority for Investment and Free Zones (GAFI)’s board of trustees, gave …

CAIRO: The trickle-down effect of Egypt’s GDP growth rate over the past four years has been, for the most part, unaccounted for. A new government sponsored report attempted to examine the reasons behind this.

“Toward Fair distributions of Growth Fruits, a report by General Authority for Investment and Free Zones (GAFI)’s board of trustees, gave in-depth analysis of the constraints standing in the way of distributing the returns of such growth on the grass-root level.

The report found that despite the high growth rate that marked 2004-2008, investment only contributed with 19 percent of the total GDP. However, to maintain sustainable development this percentage should be raised to at least 25 percent.

Moreover, the report found that most of these investments, 66 percent to be exact, were centered in Cairo and Giza governorates and were mostly sector specific. The oil and gas sector got the lion’s share during the financial years of 2004/2005 and 2006/2007, while the agricultural sector, where more jobs can be created, received only 5 percent of the total investments in FY 2006/2007.

A number of distinguished economical and business experts authored this report, including: Ziad Bahaa Al-Din, head of GAFI’s board of trustees; Samir Radwan, advisor to the Chairman and a GAFI board member; Abdel Fattah El-Gebali head of the economic unit at Al-Ahram Center for Political and Strategic Studies; Lila El-Khawaga, professor of economics at the Faculty of Economics and Political Science (FEPS); and Ahmed Kamaly, professor of Economics at the American University in Cairo (AUC).

In order to sustain the growth and for it to reach the grassroots level, the report recommended directing efforts to four areas: constitutional reform, labor market policies, Small and Medium Enterprises SMEs, and legislative reform.

Hanaa Kheir El-Din, chairman of the Egyptian Center for Economic Studies (ECES), highlighted the second area, labor market, and emphasized the importance of training as a crucial tool to increase productivity. “Millions are paid for technical education, which, if had been paid for practical vocational training, will add to the national human capital.

The private sector is always afraid of investing in human capital due to concerns of losing these investments through corporate head hunting. “So the government should contribute to the cost, said Kheir El-Din.

“There is a need to increase the productivity in Egypt through extensive and ambitious programs for training and qualifying, read the report.

“Fair distribution of growth results has been one of my main concerns in the past few years, said Ehab Abdou, chairman of Nahdet Al-Mahrousa association for development who won several awards for entrepreneurship and an MA holder in international development, Pittsburg University.

“We should look deeply into other countries’ experience of how to deal with this issue, for instance Canada as well as Scandinavian countries.

In Abdou’s opinion, taxation is an effective and crucial tool. “A sound taxation system, accompanied by wise and transparent governmental policies will guarantee fair distribution of the results of growth, he explained.

Abdou has been working in development in Egypt since 1998, and was elected chairman of the Federation of Youth NGOs three years ago.

The report called for nationwide action, for instance a national program to link and coordinate between major projects with SMEs, and also for a national strategy for agricultural investment.

The report also stated that the labor law should be amended to sustain a positive work environment, which will reflect on the whole society.

The report also tackled SMEs’ main problems: “financing problem, the centralization, the unavailability of information, marketing, distributions and insurance.

“It is important to merge the non-official sector into the official sector through legal clear framework, the report added.

The report repeatedly stressed the importance of amending and modifing several laws and regulations, a step that has been put off for a while. “Heading the list are the private/public partnership law, bankruptcy law, and the law on license for commercial and industrial activities, the report read.

Investment in education and the health care sector is also a priority, according to the report.

“The framework for investment in educational and health care should be reconsidered. There should be standards for the services provided in both sectors set by the government to protect the [recipients] of these services, the report said.

Abdou agrees on the importance of education. “While we are seeing more investments being poured into the education sector, it should be a regulation that saves a certain quota for smart, talented Egyptians who can not afford the four- and five-digit tuition fees, and it could be 5 percent,

The report is considered a positive step in self-evaluation of the Egyptian economy; usually such reports are only issued by international institutions, such as the World Bank, the IFC, and the IMF.

However, the report didn’t include an action plan to implement its recommendations.

“The board has no authority to ask other authorities to commit to its recommendations, said Radwan, “However, in GAFI we will follow up on these recommendations in our bimonthly meetings.

There is a vision of how to implement these recommendations that “has been discussed in the many meetings we have held in order to issue the report, says Al-Gebali, “but decisions are to be made by authorities in charge.

Kheir El-Din deemed “Toward Fair distributions of Growth Fruits a visionary report, but “to implement the recommendations, a political [agenda] is needed.

“The next report will start by reviewing whatever has been adopted or implemented [and what wasn’t] by other authorities, as Hazem Hassan said and echoed by Minister of Investment Mahmoud Mohieldin in the launch ceremony, Radwan said

Egypt’s problems are well known as well as the solutions, Kheir El-Din said, but the decision makers don’t want to take decisions and when they do, they don’t follow up on them to make sure they are implemented, “I don’t know why, she said.

Topics: FJP

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