Turbulent year for Egypt’s economy shook its citizens, starting with a 35 percent annual inflation for basic goods like fruits and vegetables, followed by implementing a 13 percent value-added tax in August. On November 3rd, the Central Bank of Egypt devalued the pound by 35 percent against the USD on the day of the free-float, and reduced energy subsidies by 40 percent. In addition, domestic debt reached 102 percent of Gross Domestic Product* (GDP) compared to 74 and 86 percent in 2010 and 2014, respectively. In simple terms, the government keeps incurring way more expenses than its revenues. The economic policies took, of course, led to hyperinflation of most goods in December (Exhibit 1).
In contrast, the Egyptian Stock Exchange index for the 30 most active companies (EGX30) gained 105 percent during 2016 and set its all-time high in December, making it the best performing stock market in 2016. However, in dollar terms this is an overhype and the EGX30 USD lost 32.64 percent (from 3406 on Nov 3rd to 2294 on Dec 29th). If Secret Santa is real, he ought to bring Egyptians an economic miracle or a job abroad.
* Debt-to-GDP ratio is high in most advanced economies including USA.
In 2016, economic policies caused Egypt’s economy to accelerate downhill on the short-term
The World Economic Forum puts Egypt in a sticky situation
The Global Competitiveness Index by the World Economic Forum in 2016, ranked 138 Countries on several pillars including: health, education, innovation, and market size. Egypt competitive index is 115 out of 138 countries, where higher is worse, compared to 63, 94, and 118 in 2006, 2011, and 2013, respectively. On the bright side, Egypt ranked 23rd, 25th, and 46th on gross domestic product*, market size of both domestic and foreign markets, and availability of scientists and engineers, respectively. How can Egyptians leverage these in 2017 to promote economic growth remains an important question (Exhibit 2).
* Note that Egypt ranks 15th in the world by population which affects GDP. The growth of GDP is lower than the growth of population which translates into lower standard of living.
GDP and availability of scientists and engineers are Egypt’s only strong pillars compared to 138 countries
To put this into perspective, Egypt’s overall competitiveness is decreasing compared to previous years. And cross-country comparisons with similar African and Gulf countries are not on par (Exhibit 3).
In 2016, Egypt’s overall competitiveness index is not on par with similar African and GCC countries
Three things Egyptians must do in 2017 to reawaken economic growth
First, allocate more resources to STEM education. In 2017, time and effort precede money when it comes to education. And Science, Technology, Engineering and Mathematics—STEM education empowers citizens and spearheads economies to the future. Economic growth, income, patents, and exports are all higher in STEM-based economics. According to the latest PISA survey, which measures students in the education system on science and math literacy, the Far East, UK, Europe and US dominate the top 20 countries. In addition, USA, China, Germany, UK, Japan and Russia are the top countries with doctorates in STEM according to the Science, Technology and Industry Scoreboard by the OECD in 2015. What do all these countries have in common? A strong economy. Unfortunately, Egypt is not in either ranking although the country has a lot of top performing students. Thus, allocating more time, effort, and money to STEM education, for both genders, will strengthen the economy.
To add, Egyptians can study STEM abroad after the pound free-float, but they might want to consider these scholarships: Chevening, Cambridge Trust, Fulbright, Onsi Sawiriss, and Qalaa. Also, online education is a very cost-effective alternative, on platforms like Khan Academy or LinkedIn Learning. You can even get certified from an Ivy League on Coursera or the top Business School in the world INSEAD.
Second, to increase work productivity, get further education, do hobbies that increase longevity, and generate more income. To increase productivity, you either produce more outcome or work more hours. The latter seems impossible to most Egyptians. The good news is according to a recent study by Expert Market, the most productive countries actually have the shortest working hours. These countries are: Luxembourg, Norway, Australia, Switzerland, Netherlands, Germany and Denmark. These countries also score highest on the Human Development Index (HDI) by the United Nations, which accesses countries on life expectancy, education, and income level. Eight out of the top nine most productive countries rank highest on the Human Development Index. Unfortunately, Egypt ranks 108th out of 188 countries on HDI in 2015, which translates into low productivity, low life expectancy, poor education, and low-income level (Exhibit 4).
Thus, for Egyptians to increase productivity without working more hours, they must further their education, do hobbies that increase longevity, and generate more income. Also, consider doing different types of work like unpaid and creative work like writing, painting, and singing. Lastly, consider using a calendar to manage time and fit more tasks throughout your workday. On a geeky note, you can always use the Pomodoro Technique.
Third, prioritize local substitutes. Most Egyptians consume and prefer foreign, which is rational thinking. The mantra here is to change consumption habits by trying, if possible, to substitutes foreign goods and services with their alternative local ones. For example: buying from local fashion designers instead of the famous online e-commerce company, or travelling to El Gouna instead of another sunny beach in Europe.
The economic logic behind this is simple. When Egyptians consume local products and services, the demand will increase surpassing supply, which will increase local suppliers and encourage them to innovate and work hardier to meet the demand. Competitiveness will encourage Egyptian business entrepreneurs to compete against foreign companies which is essential for economic development. For example, technopreneurs can build their own national taxi app instead of Egyptians paying foreign currency to an international company just to commute to work. While these might sound trivial changes, collective prioritization of local consumption significantly reduces the demand for foreign currency. Which leads to the appreciating of the Egyptian pound against foreign currencies and lower inflation rates.
Eight out of the top nine most productive countries in the world also rank highest on the Human Development Index
Putting it all together
Egyptians know that the three main pillars to reawaken economic growth are: education, work productivity, and decrease in foreign spending. The important question is not only what Egypt needs, but also how to and why bring economic growth. The challenge for 2017 is purely economical, as usual. Collective steps by citizens can strengthen the economy (Exhibit 5), and maybe close the gap to the wishful idealism of The Capital Cairo.
Three economic steps Egyptians must be do in 2017 to feed the country’s foundation within different time horizons
What do you think Egyptians must do in 2017 to reawaken economic growth? Curious to your thoughts.
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