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Abstract Part three discussed how Egypt can benefit from the Malaysian experience in economic development. To do so, we needed to analyze the performance of the Egyptian economy during 2004-2010, and then address the challenges that face economic development in Egypt, and finally see how Egypt can benefit from that experience. Chapter one studied the performance of the Egyptian economy and the challenges that face economic development in Egypt during 2004-2010. The researcher did this from three perspectives, the macroeconomic perspective discussing GDP growth, investments, trade, inflation, and unemployment; the sectoral perspective discussing agriculture, manufacturing, and services sectors; lastly the socioeconomic perspective discussing poverty and income inequality. from the macroeconomic perspective, real growth in GDP reached 7.3 percent in FY 2007/08 up from an average 4.1 percent during FY2003/04 underpinned by the broad array of structural reforms that included liberalization of foreign trade and investments, privatization of public entities and measures to strengthen the domestic banking sector. After the second half of 2008, the negative consequences of the financial crisis began to bite the Egyptian economy in many fields causing the real growth rate to reach 4.5 percent in FY 2008/09. Egypt weathered the global financial crisis relatively well as real GDP growth increased to 5.1 percent in FY 2009/10. The Youth revolution of 25th Jan 2011 led the national economy to go through a critical stage because of emergency circumstances that accompanied this revolution, and the changes that led to huge losses which may lead the economy to slow down for a while. By all measures, Egypt’s investment performance is on a positive path. Investments, especially private investments have grown significantly from 2003/04 - 2007/08 while DROPping due to the global financial crisis in 2008/09 then rebounded in 2009/10. Egypt encouraged FDI during the same period leading to a significant growth in FDI. Egypt’s trade was booming during the period 2003/04 - 2007/08. Egypt’s trade in services is in a good path as the balance of services always records a surplus especially because of tourism and Suez Canal receipts. 246 However merchandise trade balance always shows a deficit which is considered a big challenge that faces the Egyptian economy. According to The CAPMAS, the annual inflation rate reached its peak in 2007/08 to reach 20.2 percent because of the successive increases in food prices, the supply shocks related to oil subsidy cuts and avian flu, the decline in food self- sufficiency and the consequent rise in imports thereof. Then the slowdown in domestic economy lead to a reduction in the annual inflation rate to 9.9 percent in 2008/09 and increased to 10.7 percent in 2009/10. The unemployment is a major challenge facing the Egyptian economy. Unemployment rate is high in Egypt ranges between 9 to 11 percent during the study period. This is because the Egyptian labor does not fulfill the market requirements and it is a critical impediment to private sector’s growth and competitiveness in what has become an open and liberal economy. High illiteracy, low education quality, and low spending on education and R&D are the major reasons of this problem. from the sectoral perspective, firstly agriculture sector remains an important component of Egypt’s economy. The challenge for Egypt is to maintain and expand agricultural production for domestic and export markets while at the same time adding value and employment through the development of more agriculture-based processing activities. This sector grew at an average rate of 3.4 percent annually and accounting for 14.8 percent of GDP on average as compared to an average share in employment of 28.3 percent during the period 2003/04 - 2008/09. Secondly, manufacturing sector grew impressively during the same period by an average rate of 5.2 percent, accounting on average for 17.6 percent of GDP, 12.6 percent of total employment, and 16.7 percent of total investments. Challenges that face this sector include improving skills in management, raising productivity and improving the quality and cost of Egyptian-made inputs….etc. Lastly, services sector have always been an important contributor to the Egyptian economy in terms of share of GDP, trade and employment. This sector accounted for 57 percent of GDP on average, 51.3 percent of total employment and 47.8 percent of total investments during 2003/04 - 2008/09. Examples of inefficient services that can hinder the competitiveness of the Egyptian economy include lack of storage capacity, poor stock management, unreliable transportation, expensive communications, poor product design, insufficient and costly 247 financing, inadequate legal advice, or even outdated software products and processes. from the socioeconomic perspective, Poverty presents a major hurdle to sustainable development and to economic growth. Egypt has already fulfilled its international commitment toward reducing extreme poverty (at the rate of $1 per day) by half. Although the incidence of extreme poverty is fairly low, much of Egypt’s population is still poor. Accelerated growth juxtaposed with persistent poverty can generate social tension and instability as people become frustrated by insufficient opportunity for upward mobility. While Egypt has experienced reductions in the levels of poverty, the risk of poverty did not fall at the same rate for all Egyptians. The impacts of higher food prices on welfare are strongly influenced by the patterns of household incomes and expenditures. Increasing food prices at a higher rate compared to other expenditure items has its adverse impact on poorer groups, as they will allocate larger shares of their budgets to be spent on food items or they will consume cheaper and nutritionally unbalanced diets. Government subsidies are another reason of worsening poor people’s welfare because it has been estimated that the richest quintile in Egypt accounts for a disproportionately large share of the energy subsidy. Income inequality is another major challenge that hinders economic development in Egypt. Despite widespread poverty, however, uneven development has led to the emergence of an affluent class that controls most of the country’s wealth and enjoys an elevated standard of living that includes shopping at centers that feature the best imported goods. And this was one of the reasons that led to the Egyptian youth revolution of 25th of Jan, 2011. Inequality is particularly pronounced between Upper (southern) and Lower (northern) Egypt, and between agricultural and nonagricultural workers. In Chapter two we discussed how Egypt can benefit from the Malaysian experience in economic development. We found that there are important lessons that one can extract from the Malaysian experience. However, it will be dangerous to make generalizations based on observations that are specific in terms of both space and time because every country is unique and each country will have to construct its own development model according to its own changing circumstances. We can take some lessons in investments and trade, agriculture, manufacturing, poverty and income distribution, and education. 248 Firstly, lessons in investments could be that export-oriented industrialization drive could not taken place without FDI as it provides access to not only foreign capital but also foreign technology, foreign markets and foreign management know-how, and demonstration effect of FDI on the domestic enterprises. Another policy message for Egypt is that regional trade (intra-Arab trade and intra-African trade) cannot grow unless regional investments increase (intra-Arab investments and intra- African investments). Also, While FDI can bring about rapid economic development and generate much trade; it is certainly no substitute for local investment. Another policy message for Egypt to encourage investments whether domestic or foreign is to provide incentives for activities of high priority for the country and that bring benefit to the economy, as well as providing special incentives to promoted areas. In agriculture, the first and important lesson that Egypt can learn from Malaysia is formulating a National Agricultural Policy that draws the guidelines needed for developing the agricultural sector, in addition to a mid-term review to follow up the implementation of the policy. The second lesson is improving agricultural productivity through the use of biotechnology and R&D to generate high yielding varieties, clones, endogenous breeds, easy-to-use planting and harvesting equipment, as well as effective extension programs to ensure successful adoption of labour-augmenting technology by farmers. Another aspect is modernizing the agricultural sector through the provision of support services including marketing, extension services, training, and credit facilities. In manufacturing, Egypt can benefit from the Malaysian experience in industrial zones as it is characterized by providing advanced services such as technology centers and shipping companies and many of the logistics services. Another aspect could be in upgrading and promoting small and medium enterprises in a way that makes them an important and viable vehicle for industrial expansion and the creation of inter-industry linkages and support. Export promotion is another area by considering the experience of MATRADE that promotes, assists, and develops Malaysia’s external trade with particular emphasis on the export of manufactured and semi-manufactured products and, on a selective basis, imports. Finally, overcoming the challenge of low manufacturing valueadded per capita and labor productivity in manufacturing through encouraging strategic alliances in high value-added and hi-tech industries, encouraging the adoption of information-intensive and knowledge-driven processes in manufacturing and related activities, and upgrading labor 249 skills through training and retraining with the focus on knowledge to meet industry demands, is another area where Egypt can benefit from Malaysia. As for poverty and income inequality problems, solving regional disparities should be the first lesson Egypt can learn. This can be done through enhancing the quality of life for the poor by providing this region with better social services and basic infrastructure. Another aspect is intensifying efforts to ensure that the poor and low-income groups benefit from various measures implemented in the education system to improve students’ skills which would help them find work easily and earn higher income. Also, reducing poverty in rural and agriculture sectors by introducing more income-generating activities to increase the household income of the poor and low-income groups is another lesson. Egypt can benefit from Malaysia in reducing urban poverty and improving the quality of urban living, creating a larger middle-income group and increasing income and improving the quality of life of the lowest 30% of the population by giving them financial assistance based on household income and upgrading the skills of workers from the lower occupational category through education and training. As for the subsidies system, both the Malaysian & the Egyptian governments subsidize and control prices on a lot of essential items to keep the prices low. However, the current system of subsidies in Malaysia & Egypt has become ineffective in helping those who need it the most. Therefore an important policy lesson for Egypt is to apply a subsidy reform (like the Malaysian one) via gradual reduction of subsidies and at the same time vulnerable groups and those in low income brackets who require support will continue to be provided with assistance, as a portion of the savings from subsidy rationalization will be directed towards them. The assistance should take the form of income support for the bottom 40% of the population. A central database should be made to identify and coordinate the delivery of income support. The database allows for continuous monitoring and evaluation of the effectiveness of these programs, and will enable auditing of program beneficiaries. It should include more comprehensive information on the target groups to prevent duplication while ensuring better targeting. This strategy will not be new in Egypt, as Dr Ali Lotfy, professor of Economics and former Prime Minister was the first economist in Egypt who calls for applying this system but it was not implemented. Another way to help those vulnerable groups that Malaysia undertook and could benefit Egypt is making 250 available information through the central database to registered nongovernmental organizations (NGOs), charities and corporations to enable better targeting and disbursement of non-governmental aid programmes as well as to encourage more companies to be involved in corporate social responsibility CSR programs. Malaysia has made important strides in reforming its education system making it useful to learn from this experience. One lesson is improving quality of education through improving curricula taking into account the curricula of more developed nations, and making the curricula more relevant to current and emerging needs of the country. The second lesson is increasing the participation of students in the science section to increase its pool of scientists. A third lesson is improving technical and vocational education through schools and improving the outdated curricula and equipment used in the learning process. Egypt must also learn from Malaysia that any authentic, sustained, and nation-wide initiative in the educational sector calls for a holistic vision and requires responses form all participants in the education process in addition to enhancing the use of ICT in education and improving the quality of smart schools. We ended up with the conclusion that by overcoming the challenges that face investments, agriculture, manufacturing, and education, Egypt would be able to solve the problems of high unemployment and inflation. Also Egypt should achieve social justice by eradicating poverty and enhance income distribution to be more equitable as well as fighting corruption that hinders economic development and leads to social tension in the Egyptian society. |