CAIRO: While panelists at a Euromoney conference applauded the government’s efforts to drive growth, there was an almost unanimous consensus that social inequality is a major concern for maintaining that development.
Taher Helmy, senior partner of Helmy, Hamza and Partners, stated that the government’s trickle down policy “has not worked,” speaking on a panel titled “Investment Priorities, the Macroeconomic Context, and Visions for the Competitiveness of the Nation.”
He added that the low-income segment of society has been unable to benefit from the strong economic growth as much as its upper strata. “This needs to be acknowledged,” he said.
This dynamic has a direct correlation with the development of human capital, which if left undeveloped, translates directly into a lack of strategic leadership and vision for the country, stated Marios Maraftheftis, head of research for the western hemisphere for Standard Chartered Bank.
Affirming these views was a recently published Organization for Economic Co-operation and Development (OECD) report, which assessed Egypt’s business climate.
The report found that Egypt scored very low with regard to the development of human capital, which had serious implications, explained panelist Ania Thiemann, senior economist and project manager for the MENA-OECD Investment Program.
A big segment of the population can’t profit from the economic growth due to their lack of education, stemming from a weak primary education system, which impedes these individuals from accessing financing.
One panelist however presented a more optimistic view concerning the glaring income gap in Egypt.
Florence Eid, chief executive officer of Arabia Monitor and member of the board of directors of the Arab Banking Corporation International Bank, explained that when compared to emerging economies Brazil and Turkey, two countries which have posted impressive growth figures following a series of economic reforms dating back to the 1990s, Egypt is demonstrating double the growth rate.
Eid argued that the trickle down effect “requires time” to reach the lower-income segment of society; and that strong economic growth invariably reaches the upper classes first, as they are better equipped and positioned to profit from it. Only after that do lower classes begin to feel its effects, there after creating a convergence in income levels, she said.
She added that both Brazil and Turkey had a much longer period of reform before any major political transition occurred, placing Egypt in a more “fragile” position in contrast.
Indeed, in both cases, 10 years transpired before either Brazilian President Lula, a leftist politician, and the Islamic party came to power in Turkey, while in Egypt, reforms were kick-started in 2004, and now, only six years later, upcoming presidential elections are creating uncertainty over a possible succession of power.
However, Helmy also pointed out that the government is cognizant of this issue, and as such, is seeking to address it — and not due to the upcoming parliamentary and presidential elections.
In the future, the government will strive to support small and medium enterprises and entrepreneurs. He also mentioned that it was imperative to avoid any contradictions in legislation, which could negatively impact business and investments. In addition, he stated that legislation needed to be created that would establish an exit strategy, which would allow firms to file for bankruptcy.
Lahcen Achy provided his own two cents, indicating that Egypt still has a “weak fiscal basis,” as taxes are 15-16 percent of GDP, while in many other countries it is near to 20 percent.
The added revenue via taxation, he indicated, translates into more funds for social spending, which would correct some of the patent social problems Egypt faces.