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Egypt's non-oil & gas private sector contracted in Jan with PMI rising from 48.2 to 48.7, but still in contraction territory below 50
Despite the praise Egypt gets, the private sector shrank in 51 of past 60 months. IMF program didn't deliver private sector led growth
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Despite the praise Egypt gets, the private sector shrank in 51 of past 60 months. IMF program didn't deliver private sector led growth
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Growth is also far from inclusive as poverty rose sharply initially & persists. It's clear that energy sector & govt spending is at heart of the growth with Regime Owned Enterprises playing outsized roles in growth sectors & enjoying a huge rise in profits https://www.reuters.com/article/egypt-economy-idUSL8N2JF2UT
Undoubtedly Covid is placing additional pressure on markets globally but as figures show, this was a challenge long before the pandemic. In fact, 3 of the 9 months of very modest growth in past 5 years were during the pandemic due to a rebound following the initial restrictions
There are many reasons why the private sector has been persistently contracting but undoubtedly poor governance & aggressive anti-competitive tactics by ROEs are important parts of the story. The rise in poverty isn't only a humanitarian problem, it has exacerbated contraction
Poverty has led to a drop in demand in the domestic market adding to strain on businesses and disincentivizing expansion & investment. Inequality is bad for growth. This is a well known problem and policies must address this in order to achieve growth objectives.
The incoherence & unevenness of reforms led to many wasted opportunities in past 5 years. Fiscal reforms without governance reforms led to punishing economic outcomes without substantive medium term benefits for the public. Moreover, Egypt remains vulnerable to external shocks
High interest rates attempting to arrest inflation encouraged Egyptians with wealth to leave their money in the bank rather than take risks with investments. The poor investment environment with the added risk of competing with the military in the market exacerbated this problem.
The next most popular place to deposit wealth was in real estate, a decades long repository for dead capital that fuels rent seeking by the regime which profits from the sale of state lands to developers and now has property developer companies of its own to profit on both sides
What's worse is military owned companies keep their profits. They're not conventional state owned enterprises & so the public doesn't benefit from the profits of their agressive expansion in the market. Military companies deter private investment & withhold profits from state
While there is excitement abt possible sale of equity in military companies, it seems this is less abt exiting market, but more abt benefiting from access to private capital with nowhere else to go deepening dependency of the private sector on the regime https://www.bloomberg.com/opinion/articles/2020-12-24/egypt-s-military-companies-aren-t-going-anywhere?sref=dZCb6QAy
This isn't to say the military owns 30% of the economy or any such nonsense. It doesn't need to. It controls the distribution of economic opportunities & access to growth sectors which ensures dependence of the private sector allowing the regime to expand & consolidate its power
The strategy is effective at expanding & deepening their grip on power but it comes at the cost of undermining Egypt's economic potential. In the past decade the regime jailed tortured & killed Egyptians who threatened its grip on power, why wouldn't they impoverish them too?
And before the trolls ask, yes Egypt was only MENA country with GDP growth during pandemic, but still the private sector shrank while poverty deepened. So who captured the growth & why is that worth celebrating? The govt says 73.5% of workers saw a loss in income in FY20
