Egypt Economic Growth 1974-2004
Economic Growth in Egypt
Impediments & Constraints
(1974-2004)
Dr. Hazem El Beblawi
Introduction:
There is no shortage of studies or research papers on the Egyptian economy. Existing literature on almost every aspect of the said economy is but too abundant. The purpose of this paper is not to add another piece of research on the subject. Rather, it is our intention to draw few lessons from Egypt’s development experience as depicted by existing literature.
We shall focus our analysis on the last three decades or so. By mid-seventies (1974), Egypt announced its new “Open Door Policy” committing itself to a more market-oriented system. From that time to date, the Egyptian economy evolved more or less smoothly without any serious disruption. This does not mean that during this period there were no major changes in the economy. In fact, the Egyptian economy has undergone important changes. However, all this took place gradually, perhaps too slowly, and all happened within the same socio-economic setting. Though our interest is primarily concerned with Egypt’s economic performance over the last three decades, we cannot totally overlook earlier developments.
The basic assumption of the paper is that Egypt’s economic performance during this period was less than satisfactory compared with the most successful examples in the Far East or elsewhere. Though Egypt’s long-run growth compares reasonably well with the average developing countries, it fell far below the higher performers in Asia. The core of the paper is an attempt to explain what went wrong, and why Egypt failed to join the club of higher performers. This should not, however, be misunderstood. Concentrating on the factors that impeded Egypt’s economic high performance does not mean that everything was bad in Egypt. Egypt has done remarkably well in maintaining political stability with a moderate economic growth. However, if the question posed is why did Egypt fail to match the best performers and what went wrong in this regard, the answer would inevitably emphasize the negative aspects. This is the logical consequence of the question asked. If you are not feeling well, and consult a doctor, he will most probably tell you what is wrong with you, even if you are otherwise in good general health.
We recognize that Egypt’s experience was not a total failure. There are, in fact, quite few areas of notables success. However, we believe that the overall economic performance remains quite modest and in many aspects disappointing.
Of course, success and failure are relative concepts. All depends on the reference criteria or the measurement rod. If we compare Egypt’s performance with such countries as Somalia, Congo, Rwanda, and the like, Egypt’s economic performance would look impressive. On the other hand, if the comparison is with China, India or with South Korea, Singapore, Hong Kong, Thailand, Malaysia, Egypt’s success will pale enormously.
We believe that it is not too unreasonable to set the measuring rod at the higher level. The reason for this choice is that Egypt’s initial conditions at the first half of the 20th century put her quite comfortly compared with the winners in the development race at the end of the century. Egypt compared favorably with India, China, Korea, in the mid 20th century. Hong Kong, Singapore and Malaysia did not even exist, as national entities, at the time. Starting with reasonably favorable initial conditions in the early 20th century, Egypt ended the race at the close of the century at a lower ranking compared to where it started. We will take the assumption of Egypt’s unsatisfactory performance as granted, with no further need for evidence. This is our assumption. The question is why?
Historical Background
Egypt is one among few developing countries to have experimented with development and modernization for almost two centuries. More often, these experimentations were aborted before a self-propelled growth could be sustained.
The French expedition, in the late 18th and early 19th centuries, exposed Egypt to a cultural shock through an encounter with the West. After the restoration of the Ottoman sovereignty, Mohamed Ali (1805-1849), motivated by personal and military ambitions, embarked on a serious program to modernize Egypt. He shifted Egypt’s agriculture from basin to perennial irrigation, developed transport by building the port of Alexandria and opened the Mahmudiya canal. He also started an impressive industrial structure. Militarily defeated (1840) by a coalition headed by the British, Mohamed Ali’s dreams were thwarted and so was his development program.
With the American civil war in the sixties of the 19th century, cotton prices rocketed to high levels, thus attracting many foreign investors to Egypt, mainly profiteers, seeking to grab a newly found prosperity. Egypt became an export-oriented economy, a major supplier of cotton to textile industries. The opening of the Suez Canal a few years later, consolidated Egypt’s position as a center of transport and communication. An enlightened ruler, Ismael Pasha (1863-79) , though tarnished with oriental extravagance, had hoped to make Egypt part of Europe. Property rights were recognized and the judiciary systems modernized with the promulgation of a civil code and the establishment of civil courts. An elected assembly, with limited power, was called for. However, financial mismanagement and rivalries between France and England to control the Suez Canal, pushed the British to occupy the country. The second experiment with modernization was thus aborted too following a financial crisis and a foreign occupation.
After the First World War and under the pressure of popular unrest, the British government conceded a limited independence to Egypt (1922) and a new era of nascent liberal State emerged. A liberal constitution was adopted (1923). Though the concept of economic development was not yet invented, the establishment of Banque Misr ignited national aspiration for economic independence alongside with the claim for political independence. The world economic crisis of the 1930’s took the best part of the following decade.
With the Second World War, Egypt, like other British colonies, became part of the war efforts and joined the Sterling block. With the end of the war, a chapter of modern Egypt was closed and a new era started with a military coup in 1952. Egypt was well positioned to take off for a new phase of development. At mid-century, Egypt was better equipped than most developing countries who became the champions of economic miracles by the end of the century.
Over the second half of the 20th century, a more authoritarian regime succeeded the semi liberal monarchy. During this new phase, the economic performance of Egypt was rather erratic and the ideological orientation of the country underwent major changes, though the power of the State remained overwhelming all along, albeit under different labels.
Under Nasser, a military man himself, the country was rather militarized in a command economy, inwardly looking and centrally managed. After breaking the wealth of large land owners, the declared policy of the new regime was to industrialize the country soon and fast. In fact, the economy showed, reasonably good rates of growth (6%) in the early sixties, but quickly lost steam after a military intervention in Yemen and a political skirmish with the United States. The l967 defeat (Arab/Israeli war) totally put an end to Nasser’s economic development program.
With Sadat, a new “Open Door Policy” was proclaimed to encourage the role of the private sector. Taking advantage of the availability of the petro-money in the Middle East at mid-seventies, an incentive package was offered to foreign (Arab) and national investors. Also, restrictions on imports were eased. In spite of all the rhetoric of economic liberalization, the structure of the economy only changed a little. The public sector kept tight reins of all commanding heights of the economy; major industries, transport, banks, insurance, foreign trade, etc. A small private sector emerged in small and medium industries, with a boom in tourism and real estate. Egypt’s great success was in attracting foreign (mainly Arab governments) capital. At the mid-seventies, the economy showed an impressive rate of growth for another five or six years before lapsing again into anther recession.
The first decade of Mubarak’s rule (1981- ) showed a rather mediocre economic performance; budget deficit reached record levels (18% of GDP), inflation was no better, foreign debt sky rocketed to more than $50 billion, and, defaulting on payments were not unusual. In the aftermath of the Gulf War (Iraq invasion of Kuwait), Egypt embarked on a first economic reform under the aegis of the IMF, with a generous foreign support, writing off of the American military debt ($7 billion), and the Arab debt (another $7 billion). Paris Club wrote off another 50% of the public debt. The economic reform (a stabilization program) was implemented successfully, bringing the budget deficit to healthy levels (3% of GDP), inflation was kept under control, and, a more stable foreign exchange was achieved. This success was followed by another relapse for almost a decade, before a very recent vigorous recovery (2004) took off over the last two or three years.
A View with a Hindsight
Looking back at this story, we cannot fail to recognize in the filigree an Egyptian Malthusian situation with a race between population and resources. Egypt’s modernization took place against a background of uninterrupted demographic revolution. The population during Mohamed Ali, was estimated at about 2.5 million with a cultivated area of almost 2.5 million feddans (acres). At the dawn of the 21st century, Egypt’s population grew to more than 70 million, while the arable area did not exceed 8 million feddans.
Generally speaking, we can say that Egypt managed reasonably well during the 19th century, matching the population growth, but failed to maintain economic growth in tandem with population later on. In the 20th century, Egypt lost course and was held in a Malthusian trap.
But how can we say that Egypt failed in the 20th century in spite of all the progress realized during this period in literacy, life expectancy, health service, nutrition etc... Is not Egypt now a better place to live in? There is no doubt, that Egypt now is much better than Egypt of the nineteenth century. Yet, this is not the right answer.
Success and failure, as has been mentioned earlier, are relative concepts. Development in any country is after all an historical process, to be judged within the overall historical context. What was considered highly developed by 19th century standards could be quite backward by the 20th century’s criteria. Egypt has no doubt made important strides in many areas of social and economic developments. Yet, it remains true, that its relative place in the world hierarchy has not improved, and in many regards, deteriorated.
Why then, did Egypt succeed, in relative terms, in facing the Malthusian challenge in 19th century while failing to do the same in the 20th century?
We think that the answer to this question resides in the response undertaken to meet the population challenge. In the 19th century, the bulk of the development effort was concentrated in improving and upgrading the agricultural productivity. Agriculture was under-exploited with a large untapped potential. Egypt had only one major resource, fertile land, but until the First World War, agriculture was quite enough to sustain rapid growth . Agricultural development was thus, an adequate response to the challenge.
At the beginning of the 19th century, with a long history of agricultural tradition. Agriculture was no stranger to Egypt. All that Egypt needed was law and order, better irrigation and drainage systems, new crops and better marketing channels. This is precisely what Mohamed Ali and his successors provided.
After long political instability, Egypt found with Mohamed Ali a strong ruler able to impose law and order. He also undertook a large program of building dams, opening new canals and improving the drainage system. Mohamed Ali controlled foreign trade and introduced cotton cultivation for the first time. Agriculture had become market-oriented, and tenure had been radically transformed and almost all farmland was privately own . Few years after Mohamed Ali, the first railway was built. In fact, Egypt, was thus one of the first countries to use the railway. Egypt got a railways before Sweden and long before Japan. Institutional improvements were also implemented with the introduction of a legislative chamber, the recognition of land ownership, and the introduction of a clear legal and judicial system. Under British rule (1882-1922) Egypt was efficiently administrated and made impressive investments in irrigation and transport. Few countries could match Egypt’s superb irrigation system. All these innovations helped improve the environment for agricultural development. Moreover, though not directly related to agriculture, the opening of the Suez Canal added to the country’s assets. During the first half of the 20th century, Egypt has outperformed its neighbors in the Middle East, (Iran and Turkey). Charles Issawi gave us some relevant indicators to that affect
In the 20th century, agricultural development reached its limits. The iron law of diminishing returns imposed its limits on further major changes in agriculture. Agriculture was not the solution any more. The last major agricultural project was the third heightening of Aswan dam in 1910. The solution to the population problem was elsewhere; in industry. However, by saying that agriculture has reached its limits, we mean “traditional agriculture”. Modern agriculture is a completely different thing, it is part of the industrial society, operated by entrepreneurs and farmers not by peasants. There is still room for transforming Egypt’s agriculture into a more modern and scientific agriculture. By industry we mean more than simply adding few manufacturing plants here and there. What is meant is the transition to an industrial society. Egypt needed its Industrial Revolution.
In all fairness, industrialization was earnestly sought after by most political decision makers as a way to overcome Egypt’s problems. Economic development was conceived as synonymous with industrialization. The challenge with industrialization is that it involves much more than building new industrial plants. It is a total transformation of the society, with new economic agents, motivated with a special spirit and a different mentality and new institutions. Though Egypt recognized the strategic importance of industrialization since the beginning of the 20th century, the proper environment was lacking. The industrialization process was, unfortunately, implemented in the wrong environment. So, the question boils down to ask why Egypt failed to provide the proper environment for its industrial revolution?
It is not easy to present a comprehensive answer to this question. In what follows, we shall try to shed some light on what we consider to be of major significance. We can identify three factors of particular relevance to our question. These are:
- A strong State and weak society,
- A semi rentier economy, and
- An inadequate education system.
The first factor refers to the clumsiness of the principal agent (the State) in effecting change. The State, with its political and bureaucratic perspectives failed to properly perceive the needs of economic rationality for industrialization. The weakness of the Society denied the economy, the much needed initiatives and creative contributions. The second factor emphasizes the emergence of a rentier mentality giving free reins to speculations and profiteering, thus corrupting true entrepreneurial spirit. Finally, the education’s system failed to provide the numbers and qualities of skills needed for an industrial society. These factors are, moreover, interdependent and mutually reinforcing of each other.
In selecting these factors, we confine ourselves to those factors which are mainly under the control of the society. We do not think that it is helpful to complain of those factors lying beyond the control of the country. Blaming imperialism or globalization , for example, is of no help. We take these factors as given and deal with the world as is.
I. A Strong State and a Weak Society
In Egypt, the role of the State is legendary. A flat country, totally dependant on the management of the Nile, Egypt’s geography gave birth to the concept of a “hydraulic Society”, ruled by an absolute sovereign. The ruler of old Egypt was not only the archetype of absolute power, he was also divine. Modern Egypt did not remain the same, though old habits die-hard. Sadat used to say that he is “the last Pharaoh”. He was wrong, he was not a Pharaoh, nor was he the last.
Exposed to world international politics since the early 19th century, Egypt grappled with liberal ideas since the early 20th century with the adoption of a constitution (1923). A new constitutional monarchy was envisaged. It was, however, a timid, unsteady and after all a short-lived liberal era. Less than two decades later, the Second World War broke out and the liberal experience was severely restrained.
The roots of recent State hegemony:
Soon after the end of the Second World War, a coup d’Etat took over power in 1952, giving the newly born liberal era its coup de grace. A strong, paternalistic but also modernized State tightened its grips on the country. After few years in limbo, the military regime embarked on a socialist approach by nationalizing the bulk of the national wealth. The new State thus monopolized both politics and economics. Though Sadat and after him Mubarak, reversed the socialist orientation of the economy, the power of the State was hardly affected. The strength of the State was further enhanced by technological modernization of the security apparatus (police, intelligence services). The power of the media, the radio and then the television, can hardly be overestimated. It is usually asserted that technology is a factor of democratization. While this is generally true, it is also true that repressive regimes benefit from modern technology as well. This is one of the external diseconomies of globalization. With the availability of highly sophisticated technologies in the market place, many repressive governments were able to hold to power, in spite of popular discontent, because of this imported technological superiority.
If we limit ourselves to the last fifty years, the strength of the Egyptian State showed remarkable resilience and continuity. Obviously, the make-up of the State changed over time to adjust to the new environment domestically as well as internationally. In spite of these changes, one thing remains, by and large, constant: the State is always paramount. The style could be different, the discourse more liberal, yet, the substance continued with little change.
With the military coup of 1952, a new young and confident regime was established. The old liberal regime was discredited. It was, thus, easy for the new military junta to ban political parties, nationalize the press, control the media, and, adopt a one party system. Civil society’s organizations were closely monitored, trade unions penetrated and manipulated, and the rule of law eroded. The new regime was heavily guarded by a strong police and vociferous propaganda. Less than ten years after the coup of 1952, the new regime adopted a new ideology-(socialism) and accordingly, nationalized most of the economic wealth. The State became the only provider of public services, the sole employer, as well as the preacher and teacher. The State tightly monopolized political power, controlled economic wealth and supervised information and opinions. In other words, there emerged a paternalistic State taking care of the individual from cradle to grave. This strong State did not lack legitimacy or popular support. It had proved its credentials, by scoring a few spectacular successes, in particular with Suez Canal nationalization and then aborting the Suez campaign by the long-hated colonial power (Britain) and the no-less hated ally (Israel). In the euphoria, it was easy for the people to abdicate their rights and prerogatives to a triumphant and proud State. The Egyptian State reigned supremely over the society among popular applauds. All this came to a tragic end with the l967 defeat. With this military debacle, the myth died out and enthusiasm turned into disillusion if not cynicism. The State continued nonetheless, with minor cosmetic changes. It remained a strong State but without a soul.
In the mid-seventies, the Middle East experienced a sudden financial upheaval with the oil prices hikes. The region became overnight awash with liquid money looking for placements. As we shall see later, the oil money was part of a rentier economy. Egypt’s Sadat turn-coat policy seized the opportunity and announced his “Open Door Policy” to attract as much as he can from this new found manna. The “Open Door Policy” was thus inaugurated in a context of easy money, of windfall benefits from heaven. The Egyptian government received considerable sums in aid from brotherly Arab States. Remittances from Egyptian workers in the Gulf represented a substantial percentage of Egypt’s foreign exchange. The result was a strong surge in consumers imports. The consumer society was thus imported from the Gulf along with the oil money. The private sector flourished in the import business, with little inclination for industry.
Moreover, the newly born private sector had to work in an environment totally dominated by the public sector. The public sector was the major supplier and buyer in the economy. The private sector had to accommodate this public sector by creating alliances and common interests with it. This was a time, when it was fashionable for every public sector enterprise to form a joint venture with a foreign or private company. Public interest was thus, diluted giving way to open corruption. The private sector which was born in the womb of the public sector, improved its status vis-à-vis this public sector, graduating from a client status to a partner, but remained still too timid and too dependent. The partnership of the government and the privet sector, thus, gave rise to a new category of rent – seekers. Also, the private sector failed to establish a credible image in the public opinion as a dynamic, creative body. Stories and/or rumors of corruption and profiteering undermined their picture in the public eyes. If the private sector remained weak, political parties, the labour movement and civil society’s organizations were even weaker. They could not flourish without a serious political reform.
The State was not in a position to yield easily. It took the government almost a quarter of a century before proceeding seriously with the economic reform. Starting in mid-Seventies with the “Open Door Policy”, the government needed almost two decades to implement the first stabilization program (1992) and another ten years (2003) to push ahead with the privatization program. The political reform seems still harder to achieve. It is true that a multi-party system is recognized, elections are held, human rights are declared. But the facts on the ground are completely different. The State remains all powerful. The same State inherited from a previous totalitarian regime, continued to rule with the same symbols, the same methods and in many cases with the same faces as well.
Strong State and bad governance:
But what is wrong with a strong State and a weak society? How this affects the economic performance?
First and foremost, a strong State is not a bad thing in itself. In fact it is an asset. The problem is that the combination of a strong State and a weak society breeds the malfunctioning of both the State and the society. In such situation, power prevails over legitimacy, politics takes priority over economics and loyalty precedes merit. Good governance in such a situation is most unlikely. And this was true under a central planning regime (Nasser era) as much as under a market economy (Sadat & Mubarak).
But first, let us recapitulate how industrial management started under Nasser, and to what extent has it changed since.
Under Nasser’s central planning regime, the industrialization program was managed directly by the State. Industrialization became more of a political venture than an economic endeavor. Since at the time, Egypt’s relations with the West were constrained, it had to rely heavily on the Eastern bloc as a supplier and then as a model. Importing machinery and spare parts from the Eastern bloc, severely limited the choice of appropriate technology. The Soviet model of industrialization and management crept into the Egyptian industrialization program. Costing, efficiency, marketing were looked upon as of secondary importance. There was an obsession of building new factories, and if bigger, so much the better. The viability, let alone the profitability of these projects, were of no concern. The public sector enjoyed a monopoly without competition. Foreign imports were severely restricted. Industrial management was mainly a technical or engineering matter with very little emphasis on economic or financial considerations. Industry was a national symbol, a prestige venture. But industry was also assuming a certain social responsibility, it had to absorb minimum numbers of new employees every year. The increase in the cost of production was not a concern. Industry operated in a captured market with no competition. If public sector enterprises needed more liquidity for working capital or for expansion, banks were there (also public sector) and funding could be secured with no limit. If other pressing needs for spending rose, money borrowed from banks did not have to be repaid promptly. Prices could not go up, because the government is always ready to subsidize them, and if need be, it will impose official administrated prices. The emergence of a black market or shortages was not the concern of industry. Shortages, black markets and queues became parts of daily life.
In this fancy world with no economic or financial restrains, there was no need for efficiency, competitiveness or productivity. Costs and prices had no economic meaning, they were vitiated by subsidies and administrative decisions. The industrial public sector was in fact a branch of the bureaucracy governed by political decisions and totally divorced from the world of economics and finance.
This system could continue as far as the economy was kept closed without competition and foreign trading partners were prepared to trade with the country on a barter basis. The Eastern bloc provided Egypt with a complex network of barter relations.
Since the mid-seventies, Egypt underwent a drastic change in its foreign relations moving from a staunch anti-Western country into a close friend and eventually a docile ally of the Americans. In regional politics, Egypt also shifted from a so-called radical to a moderate State. Sadat, who before many others, felt the new wind of changes, bet on the West. Two decades later, his bet was vindicated with the demise of the Soviet Union and the end of the cold war.
Troubles started to emerge in the seventies, when Egypt embarked on the new “Open Door Policy” by opening up its market to imported goods. Politicians (read Sadat) faced at the time a dilemma of choosing between keeping the economy protected, or opening it up to benefit from the new affluence of the Arab money. Foreign money would not, of course, flow into a closed economy. Egypt chose the second option, but at a price. The public sector had to suffer from the new competition. Burdened by excessive manpower and large indebtness to the banks, the industrial public sector was deep in trouble in the eighties as it had to face the new realities of the market.
Sadat knew too well that the new alliance with the West would require, sooner or later, a parallel change in the internal political and economic system. But like his predecessor, Nasser, he was brought up in an authoritarian regime and acquiesced with it. So he chose to make a compromise; to lay the basis for a future change provided that the real change does not happen during his reign, only after him. He wanted to be the “last” Pharaoh. He announced the “Open Door Policy” for the initiation of a market economy and tolerated a multiparty system by decreeing the establishment of three new parties, and, did not forget to nominate their heads himself. It was a tailor-made democracy. Plural political system, in theory, but full power remained in the hands of the State, i.e. the Head of the State. The “Open Door Policy” during Sadat was, in fact, no more than a small enclave of market economy within a large sea of public sector. A special legal status was laid through an investment law (1974) which provided privileges and incentives to new foreign (and national) investors. Import licensing was eased allowing the workers remittance money to be used to satisfy the increasing demand for imported consumer goods by a long suppressed middle class.
Mubarak followed in Sadat’s foot steps, but more cautiously. He took more than ten years to embark on a first stabilization program encouraged by strong support from the international financial institutions and with generous financial assistance from the Americans and the Arab Gulf States, as has been mentioned. Ten years later, he gave another push to the privatization program. The private sector grew quite substantially in the meantime. If Mubarak was slow in pushing economic reform, he was even more reluctant to engage in political reform. Only very recently and after almost twenty five years of his reign, did Mubarak openly speak of the need for political reform. The State remained with Mubarak as it was with Sadat and Nasser before him, very strong, overshadowing all other players.
It is no exaggeration to conclude that Egypt implemented its development programs over the last fifty years or so, under a regime of a strong State and a weak society. Egypt has followed during this period two different strategies for industrialization. In a first phase, Egypt followed, to a great extent, a Soviet-type industrialization model. The model itself was flawed due to the fact that it overlooked efficiency considerations. The later collapse of the Soviet-Union made this flaw obvious. In a second phase, Egypt opted for a more market-oriented economy. However, the necessary institutional prerequisites good governance were lacking. During these two phases, Egypt suffered from a serious governance gap. Egypt lost its place in comparison with successful examples in the Far East and elsewhere.
During the centrally planned phase (Nasserite), concepts like efficiency, profitability, etc. were almost alien to the political vocabulary, they were at most of secondary importance. Later phases although characterized with more private sector participation, were not much better. The dominant State inherited from the past continued to infect the good governance of the economy.
All studies undertaken by the World Bank and other institutions indicate that Egypt suffers from a serious deficit in its governance context. The quality of the administration in the public sector is far below the equivalent equality in Southern Asian countries. The World Bank estimates that if MENA countries (Egypt included), had matched the average quality of the administration in those countries of South East Asia (Indonesia, Malaysia, the Philippines, Singapore and Thailand), its growth rates would have been higher by about one percentage point a year. In thirty or fifty years such a change would have created a quantum change in the economic landscape. The same study refers to the ambiguity of laws and regulations doubled by non-transparency giving rise to discretion and also to corruption. Additionally the weak property rights limit access to finance. The perceptions of corruption and unfairness are high. Indices on the corruption perception (Transparency International) or on economic freedom (Heritage Foundation), creditworthiness (Moody’s, S&P’s), etc. all confirm the same impression of a serious deficit in governance.
The World Bank publishes on its website the results of a study on governance in the world . To measure governance, the World Banks’ study uses six indicators; voice and accountability, political stability/no violence, government effectiveness, regulatory quality, rule of law and control of corruption. In the chart and the statistical table below, we show the results for Egypt in 1998 and 2005. The bad news are that it seems that in all cases the situation seems to have worsen in 2005 compared to 1998
The same study allows making comparisons among countries. We have selected other five stars from the Far Eastern Asian Countries (Hong Kong, Singapore, Taiwan, South Korea & Malaysia) for comparison with Egypt. In all cases, Egypt ranked at the lowest position. The charts and the statistical tables speak for themselves and need no further comment.
That there is a governance deficit in Egypt, is not subject for dispute. The real question is: whether this deficit can be rectified through economic reforms only without a political reform? In other words, is a democratic political system a prerequisite for good governance? Singapore has done it and to a lesser extent, South Korea. Then why not Egypt?
Democracy and good governance:
In theory, a democratic rule is not a prerequisite for good governance. Philosophers (Plato) conceived a non-democratic republic ruled by philosophers. In the Arab world, some thinkers voiced similar ideas, such as the need for a “just despot”. But this would not work in Egypt or elsewhere in the Arab world. The genesis of Egypt’s authoritarian regime is based on grounds directly opposed to the requirements of good governance. In particular, there are limits as to what can be achieved in the areas of the rule of law, transparency and accountability. This does not mean that there is no room for any progress in these areas. In fact, there is a lot that can be achieved, and in fact, some improvements have already been realized. But the fact remains, that there are limits beyond which the political interests will fight back. In authoritarian regimes, the rule of law, transparency and accountability are tools in the hands of the ruler , and can only be allowed to function within certain limits and boundaries.
There is also another factor of no less importance; credibility. One of the problems facing any political regime is credibility. By and large in the Arab World, there is a credibility crisis. Because many promises were made in the past without delivering tangible results, most people became indifferent and unmoved. Without a political reform, people will remain skeptical about changes. The cry of warning about the wolf would not necessarily be heard. People have memories. They want to see real change on the ground to believe it. So, many would continue to be just cynics. And without people’s commitments, little can be achieved.
Let us begin, with the Rule of Law. Every one agrees that a market economy cannot function properly in the absence of the rule of law. While present Egypt could not be considered a police State, it cannot be viewed as the Land of Law either. Perhaps, Egypt is the only country in the world which, with the exception of two years, has been continuously ruled under Emergency laws since the Second World War. Though the government does not resort to the prerogatives given under this exceptional law, the mere fact that this exceptional power exists is an effective deterrent to assure that people would behave according to the State’s will. Also, since a non-freely-elected government needs the loyalty of its administration, it is no wonder that high ranking officials would be rewarded in the form of power and financial benefits. Ambiguities and discretions in laws and regulations are not always the result of ignorance or bad law drafting. In many cases, they are intentionally designed to increase the power of the administration. Also very often, the government has to turn a blind eye to many irregularities. No less serious is the habit of disrespect of the law. In many cases, the government took it upon itself to give the bad example. During Nasser’s era, one of his lieutenants declared triumphantly, that the “law is on vacation”. Nasser practices of indiscriminate sequestrations, arrests, and nationalizations of wealth confirmed that the law was, in fact, on vacation. It is true that these abuses have not been in use lately, though police practices against the government’s opponents from the radical Islamic movements are sometimes reminiscent of the old methods. This gives the impression that these methods are not dead, they are just frozen. Moreover, the public sector, very much alive until the nineties, was not very orthodox in respecting the law. Very frequently, the public sector did not comply with the norms and standards of production issued by the government. Governmental departments frequently violated building and zoning regulations. Defaulting by government departments and public sectors entities on payments to suppliers as well as to banks was normal practice. Judicial sentences were not easily enforced. When it comes to sentences against the government, it becomes even more difficult. The Rule of Law is in many ways anathema to authoritarian regimes. For them, law is an expedient in the hands of the government. It can be disposed of, if need be.
That was for the Rule of Law. What about transparency?
The same as with the Rule of Law: transparency can be accepted, but only to a limit. As has been said about the Rule of Law, the market needs accurate, continuous and reliable flow of information. Since the market system is based on decisions made by individuals, these cannot be made rationally and efficiently in the absence of information. The market is a place for the exchange of information. The genesis of the political regime in Egypt– as has been mentioned –was laid by the military coup of 1952. For military people, as for many others, information is power. However, because the military outlook is focused on the enemy, information – as a power - is better withheld from the enemy. Thus, secrecy and confidentiality became, a second nature of the decision making process. The statistics office was rebaptized to become “The Central Agency of Public Mobilization and Statistics” (CAPMAS) and has always been headed by a military Ex-General. The emphasis on “mobilization” is very indicative. Information is very much linked to security, i.e. national security. It is not an economic means to wealth; rather, it is a weapon in the face of the enemy. But information is not only part of the warfare; it is also a tool of government. The first thing that the new military regime introduced in 1952, was the establishment of a new Ministry of Information and “Guidance”. The word “Guidance” was dropped later, but the idea remained. Accordingly, the press was nationalized, and of course, the radio and television were kept under government control.
Though we are now witnessing a tide of relaxation on the control of information, particularly within the context of the global revolution. New opposition newspapers appeared and even private television channels were licensed. Yet, Egypt is far from free press, the government is keeping a tight hand on the “national” press and television.
Like most developing countries, Egypt’s statistics suffer from unreliability, untimeliness, and contradiction. However, it is to be recognized that as of recently and under the advice of the World Bank and IMF, a serious effort has been undertaken to upgrade the data base of the financial information. This is a very important step forward. One can still recall that as late as the nineties, Egypt faced a hard time – during negotiations with the Paris Club –figuring out the total sum of its foreign public debt.
It remains true that in spite of the efforts to upgrade the quality of information, there remains few areas of total blackout related to what is considered sensitive political areas. Defense and armaments are among such areas, but not the only ones.
Information is not limited to public data, it should also cover many private areas as well. Financial statement of corporations, financial securities data, etc. are of no less importance. Disclosures of relevant information for the market are very important.
Finally, accountability does not feature any better. It is much less respected in authoritarian regimes. In Egypt, the political elite has a wide immunity. The decision making process is not clear. Many important decisions are taken behind closed doors by people with no names or faces. Except for the President, real power is illusive. No one knows for sure, who are the people around the President, how they work, what are their responsibilities? Their responsibilities are barely well defined. And the President is, of course, above accountability, because he is always right. It is also not uncommon in Egypt, that wild projects pop up out of the blue as strategic to the survival of the country. Few years later, and after spending a couple of billions of pounds, these same projects disappear, also suddenly, without serious investigation and/or discussion. Abu Tartour project for phosphate was an example of such sudden appearance and disappearance, Toshka in Southern Egypt was another. But the range of unaccountability goes far beyond these examples.
With such poor respect for the requirements of the rule of law, transparency and accountability, it was hard to learn from previous mistakes and unsatisfactory performance. It is no surprise that the learning curve in Egypt, does not seem to be working properly. The same mistakes were repeated over again and again. It is thus clear from the above, that the requirements for good governance cannot be satisfied sufficiently in Egypt, without a serious and credible political reform. Recent experiences of economic reforms in countries of transition, confirm the dominant current view that increased democratization makes economic reforms and hence growth more likely.
Finally, we have to emphasis that with strong State there is another face of the coin; a weak society. More on this aspect will be dealt when we will discuss the impact of education in the last section. A market economy needs a dynamic, vibrant society. Market success requires a special breed of individuals; entrepreneurs. As of the mid-seventies, Egypt tilted towards a market economy. At this juncture, Egypt found herself among rentier economies. The regional environment has impacted Egypt’s experience as well. For Egypt, neighborhood did matter.
II. Semi Rentier Economy
Egypt has always been part and parcel of the Arab Middle-Eastern politics, influencing and being influenced by its neighbors. The Yom Kippur War (1973) and the subsequent oil prices shocks (1973-74 & 1979) did not leave the region nor Egypt unaffected.
Oil prices, which have shown a splendid stability during the first seventy years of the 20th century, suddenly soared quadrupling between October and December 1973. At the beginning of the century, the oil barrel costs about $1.2 in the U.S, to reach $1.69 in 1970 (Ahmadi, Kuwait); a remarkable stability with no parallel in commodity prices in recent history. Following the 1973 war, OPEC ministers met in Tehran in December 23-24, and, raised posted prices of oil to $11.65 from $3.01 per barrel. Spot markets reacted nervously pushing prices to more than $20 per barrel. Five years later (1979), the market witnessed, yet, another shock with the Iranian Revolution. Oil producing countries – The Gulf States in particular – were suddenly promoted to world financial prominence as major suppliers of liquid money.
Rentier mentality:
A windfall wealth of unprecedented magnitude in very short time revived the idea of unearned income, thus giving rise to the concept of rentier economies. The basic idea behind such a concept is that it creates a specific mentality; a rentier mentality . The difference between such a mentality and the conventional economic behavior is that it embodies a break in the work-reward causation. Reward – in the form of wealth or income – is no more related to work or risk bearing, but rather to chance or situation. For a rentier – an individual or a state – reward becomes a windfall gain, an isolated fact, situational or accidental, as opposed the conventional outlook where reward is integrated in a process as the end result of a long, systematic and organized production circuit. The link between a new-found wealth and the emergence of a rentier mentality, is a general phenomenon sparing no country; rich or poor. Holland, for example, though quite rich and advanced, was affected by the same virus subsequent to its exploitation of natural gas (the Dutch disease). Of course, individuals and societies learn from experience.
Most oil producing countries went through painful experiences in the 1990’s after the decline of oil prices and learned their lesson. In the seventies and most of the eighties, it was, however, a time for euphoria and unbounded optimism. This was a time when the rentier mentality manifested itself loudly and clearly. It was precisely at this very moment, that Egypt announced its conversion to “Open Door Policy”. Whether this was a coincidence intended or not, is beside the point. Oil money with its corollary – the rentier mentality – were reigning high in the whole Arab region and Egypt was no exception. It would, however, be an exaggeration to attribute the emergence of the rentier mentality in Egypt to the impact of the oil money, in fact rent was not a new element in the Egyptian economy. Since the mid fifties, Egypt has benefited from the Suez canal revenues, the American wheat shipments and massive economic assistance from the Soviet Union. It remains true that from the mid seventies, oil money – directly or indirectly – became a dominant factor in the whole Arab economy, Egypt included.
Usually, but not necessarily, rent breeds bad quality institutions. The so-called natural resource curse has been amply discussed in the economic literature . With windfall gain, people would be more tolerant with corruption and also less insistent on the rule of law. More often than not, Rentier economy and bad governance go together. Announced at the height of the oil era, the “Open Door Policy” shaped a newly emerging Egyptian market economy, by favoring consumerism, profiteering, speculation, etc.. This is precisely the opposite of the intellectual environment which prevailed during the Industrial Revolution in Europe or Japan. Max Weber attributed the success of the Capitalist market economy to puritan ethics of hard working and thriftiness in what he called the capitalist spirit. Schumpeter liked to emphasize the role of the entrepreneur as a vehicle for innovation. Though he later puts the emphasis on the economic organization rather than the entrepreneur, he remained attached to the idea of innovation as the engine for growth. In Japan in the late 19th century, and in other Far Eastern Asian Countries in the late 20th century, national pride combined with a political will helped achieve their success. A market economy cannot strive to success without a proper culture akin to the capitalist spirit; a spirit of risk-taking, innovation, cost-effectiveness, competitiveness, far-sightedness and rationality. Non of the these qualities are part of rentier mentality.
Rent in Egypt:
Egypt is not, of course, a rentier economy in the full sense. It remains true, nonetheless, that the whole Arab world – oil rich as well as oil poor – has been affected one way or the other by the oil phenomenon. The whole region gained strategic position on the world chessboard simply because of its oil endowment. Egypt, in particular, as a key player in the region politics, enjoyed a sort of a location rent, and it was cashed in. It is no surprise, then, that Egypt received in 1960’s the highest Soviet aid to a foreign country outside the socialist block, and subsequently became, together with Israel, the highest American aid recipient a decade later. There is no harm to benefit from a strategic location, the problem is that with a rentier mentality, this could result in a diversion of national priorities, as foreign policies become substitute for development efforts. For politicians in Egypt, foreign policy has always been the top priority. It is true that in most cases, this has paid handsomely, but one is entitled to ask whether it added effectively to developmental potential or else, it increased Egypt’s dependence on foreign aid. Very few countries have relied so much and for so long on foreign aid as Egypt did. After almost a quarter of a century in the business of receiving American aid, it is legitimate to ask whether this aid was a good cure or whether it became an addiction.
Moreover, foreign aid has helped create different layers of parasitic, rentier-seekers around the use and distribution of the aid. In Egypt, the American aid has bred a huge business of professionals helping in processing proposals and their implementation. The staff of the U.S. Aid in the American embassy in Cairo is one of the largest in the world, but it is also surrounded by an outside army of accountants, financial analysts, engineers, experts in every aspect of social and economic life. Their contribution to the public welfare is doubtful, to say the least. It is worth referring also to the large bureaucratic Egyptian counter-part which benefits from the largess of the aid; trips, workshops, retreats, etc… Corruption is not totally absent, too.
Aid to Egypt is not confined to the Americans, The Arab Gulf States, through Arab Summits or unilaterally, contributed generously to help Egypt in its effort to rehabilitate its dilapidated economy after the 1973 war and again after the first Gulf war (1992). The American aid came, in fact, to reward Egypt for its Camp David Accords with Israel and to replace the Arab aid which was stopped, at the time, after the signature of the same Accords.
Workers’ remittances are a special form of rent. True, it is not easy to equate workers’ remittances to external rent. From the worker’s point of view, he is earning his income at the cost of effort and work. He is no rentier. However from the recipient country’s point of view, remittances are more akin to aid or non-requited money transfers.
Over the last three decades or so, workers’ remittances in Egypt represented a substantial and stable flow of financial resources. They represented the single largest source of foreign exchange revenue. Egypt is, in fact, one of the five largest recipients of remittances in the world (the others are India, Mexico, Philippines, & Turkey). Over the period 1970-98, it was estimated that Egyptian remittances contributed, on average, 7.2% of the GDP and 13.5% of the exports of goods and non-factor services, and at times, reaching a maximum of 31.6% and 57.4% of GDP and exports respectively .
Workers remittances are not simply capital flows such as foreign direct investment, for instance. Generally speaking, they are not profit-driven. The World Bank and the IMF have analyzed these flows worldwide. Their analysis distinguishes between what they call the “endogenous migration” approach and the “portfolio” approach. In the latter approach, remittances behave like other capital flows in their search for better economic opportunities. The “endogenous approach”, on the contrary, proceeds from the relation between the migrant and his family as motivated by altruism and not profit. The remittances become then a kind of “compensatory transfers”. Since most of Egypt’s workers remittances are drawn from its expatriates working in the oil producing countries, we believe that the compensatory approach is more relevant to our case. The bulk of Egyptian workers in the Gulf states are drawn from lower middle class and many of them are semi-skilled and unskilled labor. While Egyptian labor migration to Europe or America is primarily a drain on its brains, migration to the Gulf states is a drain on its muscles as well. For most Egyptian expatriates, the trip to the Gulf was their first encounter with the world at large. And, what they discovered, was a world of abundance and affluence. Most of the workers were singles without their families, and, more often than not, living in hard and difficult conditions. Their only joy was to make their families – back home – happy, by inundating them with imported goods, and if they were wiser, they would save to buy a piece of land to enhance their social standing. Remittances transferred from the Gulf states to Egypt were part of family economics. Moreover, they carried with them the new culture of the host countries, including the rentier mentality.
Egypt’s economic policy in the face of the new situation of increasing demand on remittances transfers, was quite strange, to say the least. With the hindsight, it seems as if the governmental response, at the time, was designed to promote imports of consumer goods, create a black market for foreign exchange and encourage speculation. A poor Government management seemed to collude with a rentier mentality to squeeze fast profits and to help form new fortunes. How? The “Open Door Policy” announced in 1974, eased imports restrictions and introduced a new system called “import without cash transfers”, which meant that banks were not bound anymore to make foreign exchange available to importers. Importers should manage on their own to procure foreign exchange. The implicit assumption was, of course, that workers’ remittances would provide the supply of foreign exchange to importers. With the removal of import restrictions and the introduction of the new system of “import without cash transfers”, demand for foreign exchange increased substantially. One would have expected a depreciation of the local currency. At the time, however, foreign exchange rate was sacrosanct, and the government persisted in maintaining the official exchange rate unchanged. The market response was immediate; a black market emerged and an informal network of money chargers was formed with offices in most of the Gulf states to collect foreign exchanges from Egyptian expatriates. Workers’ remittances were thus rerouted away from the banks and rechanelled almost exclusively through this new informal network of money changers. The only sources of foreign exchange available to banks were the sovereign sources (oil, Suez canal and public sector exports proceeds). To make things worse, many banks – including public sector banks – supported this emerging network by extending credit to money changers. Thus, the combination of the government mismanagement and the prevalence of the rentier mentality, resulted in the emergence of black market, speculation and the formation of sudden fortunes. To add insult to injury, a new form of “Islamic savings societies” were established to cater for those who have religious apprehensions of “usury” banks. These societies collected billions of pounds from small savers – mostly expatriates – and became active players in import and trading activities. The odd thing was that these societies functioned freely with hardly any supervision from the central bank or any other governmental body. Naturally, these societies ended up being involved in fraud and scandals.
Over and above this financial disarray, the flow of workers’ remittances fueled speculation on land and real estate. A rentier mentality is basically a land-oriented mentality. Many Gulf investors rushed to invest in the real estate market, thus adding to the pressure on its prices. The strange thing was that the government itself joined the fray by starting to sell land with a view to encourage the establishment of new industrial zones and tourist resorts. Government land sales were implemented through local authorities that were not always above suspicion. It was rumored that many beneficiaries from these land sales succeeded in building huge fortunes for themselves. A multi-billions tourist resorts were built on the North Coast (West of Alexandria) as well as on the Red Sea area. The Red Sea area became an attractive tourist spot, while the Mediterranean Coast, in the North remained highly under-utilized.
Beside these external types of rent, Egypt is not totally denuded of other forms of rents. Oil and gas are typical natural resources generating rents. Historically, Egypt was the first country in the Middle East where oil was discovered. For the time being, Egypt possesses modest reserves in oil and a brighter situation with respect to natural gas reserves. Egypt is also importing petroleum products, but still is a net exporter in energy products. Suez canal, which was nationalized in 1956, is another important foreign exchange earner. Finally, with its rich historical heritage, moderate weather and its marine coast attraction on the Red sea, Egypt enjoys a large potential for tourism.
Rent to the government:
Many of foreign exchange earners in Egypt (foreign aid, oil and gas, Suez canal) are sources of government income. Giacomo Luciani . emphasized the fact that the external rent available to governments, free them from the need of raising revenue domestically, mainly through taxation. This relative independence of governments vis-à-vis their tax payers alleviate the pressure for political accountability. Rentier states have, in fact, a wide margin of maneuverability to spend unwisely and to get away with impunity. The utilization of Egypt’s revenues from foreign aid, oil and gas exports, and, Suez canal incomes are usually not strictly monitored. Their accounting systems are not fully transparent and sometimes difficult to decipher.
Rent, as income to governments is not only a relief for governments from serious accountability but often an invitation to adopt solutions of facility. This is not simply a manifestation of laziness, it could also make sense. If there is a line of least resistance, why choose the one with hard resistance? Unfortunately, progress often requires choosing lines of hard resistance. Arnold Toynbee in his “Study of History”, formulated a theory for civilizations based on challenges and responses. With no enough challenge, no creative action would take place. Rent as easy money induces the choice of easy solutions, which are not necessarily the best ones. I will refer to two recent examples of Egyptian government’s decisions, reflecting this kind of least resistance, i.e. of rentier mentality.
The first example is related to Egypt’s response to competition from other producers of textiles exporters. Egypt is a member of GATT since the seventies, and, accordingly participated in the eight-years Uruguay-Round negotiations which were concluded by the signature of the December 1994 agreements establishing the WTO. According to this agreement, the cloth and textile exports were to be integrated in the GATT system, and, the quota system would be abolished over a period of ten years (ending on 31st December 2004). Egypt was, of course, fully aware of this arrangement and had ample time to take the necessary measures to upgrade its cloth and textile industry to face the new competition once the quota system was abolished. It seems that this did not happen. The minister of trade and industry, announced in December 2004, few weeks before the end of the quota system, that in order to maintain its share of cloth and textile exports in the American market, Egypt has no option but to sign an agreement with U.S (Qualified Industrial Zones, QIZ) to benefit from a free trade arrangement for the Egyptian exports. The issue is not whether this agreement was politically correct and/or economically beneficial? The issue is that the minister did not find it embarrassing to justify his decision by referring to the imminent exposure of Egypt exports to foreign competition, as if ten years were not enough to take the necessary measures. Within a rentier mentality you need not plan for the future. God-given gifts will be available on time! The American proposals (QIZ) saved Egyptian textile exports!
The second example is related to the exports of natural gas. In late April 2006, the headlines of major governmental newspapers announced the inauguration of the largest plant for liquefied gas in Egypt and that Egypt, will, thus, be the sixth largest exporter of natural gas in the world. Less than four months later, the government announced its intention to acquire nuclear reactors because of the expected future shortages in energy resources. It is generally known that oil and gas reserves in Egypt will be depleted within two or three decades. Under the circumstances, one would question the wisdom of expanding Egypt’s exports of gas against such a background of energy shortage. However, within the framework of rentier mentality, gas exports are the easiest way to generate foreign exchange. God will take care of the future generations!
Rent and Egypt’s economic performance:
A rentier mentality cannot provide all the explanation relevant to the history of economic development in Egypt over the last three or four decades. It helps, nonetheless, understand many decisions and reveals some of the motives behind some of the actions taken. In a recent paper on “economic growth in Egypt” , the authors distinguished five distinct phases of Egypt’s economic development over the last four decades. They based their model on the correlation between per capita growth in Egypt and the high-income OECD countries in what they referred to as the “convergence phenomenon”. Without disputing the validity of the assumption behind their model, the growth trends in the different phases, mentioned in that model, could equally be explained by the rise and fall of the external rent available to the Egyptians economy.
Phase 1: 1961-1973 Low growth with and divergence from OECD: This phase included, in fact, two parts; 1961-65 and from 1965 to 1973. In the first part, Egypt showed relatively reasonable growth rates during the implementation of the first quinquennial plan (1961-65). This growth was, however, disrupted by the termination of the American food aid, for political reasons, in 1964. Egypt was subsequently fatally crippled after 1967 war with the closure of the Suez canal and the loss of its oil resources in Sinai. A mobilization for a war economy then prevailed between 1967-1973. The poor performance of this phase can be mainly attributed to these external factors.
Phase 2: 1974-1985 High growth and convergence with OECD:During this phase Egypt received substantive Arab financial donations, reopened the Suez canal and recovered its oil fields in Sinai. Moreover, workers remittances started to reach higher levels due to the increase in the numbers of Egyptian workers in the Gulf States.
Phase 3: 1986-1991 Low growth and divergence from OECD: This was the time of the first decline of oil prices, which negatively affected both Egypt’s oil exports and workers remittances. It was also a politically turbulent and unstable domestic period which was reflected on tourism as well. Oil revenue, workers remittances and tourism, all were down during this phase.
Phase 4: 1992-1998 High growth and convergence with OECD: At the end of the second Gulf war (Iraqi invasion of Kuwait) Egypt received, as a reward for its political stand, the write-off of the American military debt, the Arab debt and half of the other public debts through Paris Club. A handsome God-gift Egypt also benefited from a substantial Arab financial support. This phase also saw the implementation of the first IMF stabilization program which helped stabilize the macro aggregates.
Phase 5: 1999-2003 Lower growth and slowdown in convergence: This phase witnessed several shocks including the after math of the Luxor terrorist attack on tourists in 1997 which seriously affected tourism. Oil prices also declined to their lower levels, and the effects of the global financial crisis of 1997-99 and a domestic financial scandals in 1998-99 were also instrumental to the overall decline in economic growth. The growing importance of rent in Egyptian economy since the mid-seventies, thus helps explain a great deal of Egypt’s growth pattern during this period. However, it would be overstretched to attribute this rentier mentality only to neighborhood considerations. The educational system in Egypt failed to provide the skills and values needed for an efficient industrial society.
III. Inadequate Education System
Education is the lifeblood of a good society, but also of a prosperous economy. Sweden was probably the first European country to introduce compulsory education. With a small population, limited natural resources and no imperial ambitious, Sweden always managed to maintain a prime position among advanced economies. On the other side, Japan’s economic success since the late 19th century and other Far Eastern countries success stories in the late 20th century, cannot be dissociated from their achievements in education. It is significant that students from Japan, Korea and Singapore systematically score high marks on international tests . If there is no strict causational law between education and economic progress, historical observations confirm beyond any doubt an obvious correlation between the two. In their essay on “Education for Growth” Krueger and Lindahl, concluded their study by asserting that “cross-country regression indicate that the change in education is positively associated with economic growth” .
It is not our intention here to discuss here the entire issue of education in Egypt with all its ramifications. The author has no pretension to special expertise on the subject. However, it is our conviction that Egypt’s educational system, as it stands now, help explain some features of the unsatisfactory performance record of the Egyptian economy over the last three decades.
A bit of history:
Until the beginning of the 19th century, the Egyptian educational system was traditionally based on religious teaching. It was Mohamed Ali who, first introduced a parallel technical and secular education to support his efforts for modernization. He sent missions to Europe (France) to train young Egyptians in technical schools while soliciting in the same time foreign experts to supervise his new ventures. He also founded a military school, as well as, new medical, engineering and languages colleges. By mid 19th century, many foreign communities; French, English, Italian, and American, established their missionary schools. At the same time, the Egyptian civil society was active in opening up new schools through the establishment of trust funds (Islamic Wakf). As a result of such efforts, the Egyptian University was opened in 1908 thanks to generous donations from rich families (in particular princess Fatima).
With the announcement of Egypt’s independence in 1922, education ranked among the high priorities of the new government. One of the first measures adopted by the new parliament was to enact a law introducing compulsory education (1925). The private Egyptian University was converted into a governmental institution, Cairo University (Foad University) in 1925. Subsequently, many schools were built, yet, the rate of illiteracy remained high. In the 1937 census, illiteracy was estimated at some 85% of the population. In response to this alarming state, a new law for the eradication of illiteracy was enacted in 1944, though with little success. By mid 1940’s and 1950’s new universities were added to Cairo University; Alexandria (Farouk University) 1942, Ein Shams (Ibrahim University) 1951 and Assut (Mohamed Ali University) 1949. Until the 1950’s, Egypt’s education system followed, by and large, the western model of education. The quality of education was not far behind western standards. Egypt suffered more from the insufficiency of education opportunities than from the quality of the education products.
By mid 1950’s a new political regime took over with a different approach to education. Emphasis shifted to availing free education for all. Secularization trends continued. Al Azhar University (a religious institution) was reformed (1961), introducing new modern disciplines alongside the religious teaching. Women were also allowed to enter to Al Azhar Colleges. The numbers of new schools increased substantially, though not enough to match the population growth. Moreover, the quality of education was relegated to a secondary priority. With the “Open Door Policy” in the mid seventies, yet another ideological reversal took place with the proliferation of private schools, and later on, the opening up of higher education to the private sector. Another notable reversal was the increase in setting up new religious schools attached to Al Azhar. The actual education landscape seemed quite heterogeneous including a large variety of different types of schools; private/public, secular/religious, free/paid and Arabic language/foreign language schools. This variety in types gave rise to a sharp social divide within the society. Well off families send their children to private mostly foreign schools, while the poor has no alternative but the public governmental schools and/or the religious ones; both are tuition free.
Education was, no doubt, a major factor in Egypt’s development. Moreover, its education system played a leading regional role in the propagation of education in the Arab World. Until the mid 20th century, Cairo, and to a lesser degree Beirut, were the two leading centers of education in the Arab World. In the second half of the 20th century, Egyptian teachers and other professionals were to be found in every corner of the Arab World. Egypt owed its cultural leadership in the region to its role as the educator of the Arab World during most of the 20th century. Notwithstanding this vital role, there is the consensus that Egypt’s education system failed to match the growing needs of an emerging industrial society. In what follows, we shall touch briefly on some of these shortcomings.
Quantitative aspects:
First and foremost, Egypt’s efforts to eradicate illiteracy were quite slow and inefficient. Seventy years after the official introduction of compulsory education, close to one third of male adults and more than 60 percent of female adults are still illiterate. Compared to other developing countries, Egypt’s record in this respect is not particularly good.
Primary school enrolment in 1991-92, was only about 80 percent of the corresponding age cohort. Middle school enrollment represented less than 70 percent of its age cohort. The highest dropout rate, nearly 15 percent, occurred near the end of the primary cycle with additional 10-15 percent leaving school by the end of middle secondary school . Comparison in dropout ratios between Egypt and some selected countries are useful. It is to be noted that the situation has lately improved. According to the latest statistics of the World Development Indicators (2006), the gross intake rate in Egypt, in schools in grade 1 has reached 100 percent for male and 98 percent for female of the relevant age group. The average male enrollment between 1994 and 1999 reached 7.4 years .
Except for the persistence of illiteracy for so long, other quantitative indicators put Egypt within an average ranking. There seems to be a general agreement that Egypt had made a substantial progress with respect to access to education . Perhaps the more serious problems of Egypt’s education system reside in its qualitative features.
Qualitative aspects:
Education aspires, among other things, to provide skills needed for economic growth. In their study on education quality, Hanushek and Wossmann conclude that existing evidence suggests that quality education measured by the knowledge that students gain as depicted in tests of cognitive skills, is substantially more important for economic growth than the mere quantity of education. They have noticed that East Asian countries consistently score very highly on the international tests and that they also had extraordinarily high economic growth over 1960-1990 period. In the measurement of the quality of education, the authors used a simple average of the mathematics and science scores over international tests. Egypt’s position in these tests is quite modest far below East Asian countries but also below Israel, Jordan and Iran. The proportion of science graduates in the total number of higher education is lower in Egypt than Tunisia, Morocco, Israel, Iran, Jordan & Turkey. No wonder that under these conditions. research work in Egypt was very limited indeed.
Education is not simply the transmission of knowledge; it is bringing about a way of thinking as well as helping to establish a system of values. One of the basic shortcomings of the Egyptian education system is that it disproportionately emphasizes memorizing abilities over problem solving capabilities. There is obsession with collecting facts (even scientific laws) over developing an analytical, and critical mind. Education is mainly paternalistic with little room for discussion. It is a one way road, students are passive at the receiving end. Examination and evaluation methods are biased towards rewarding memorizing and eventually penalizing creativity.
Over the last few decades tens of conferences were held, as well as hundreds of reports produced on education reforms. This is not the place to present or even to summarize their findings. Suffice for our purpose, to enumerate some of the burning issues and to comment on one or two of them:
• teachers’ qualifications,
• private lessons,
• cheating in classes and in examinations,
• female education, • academic freedom,
• technical schools inadequacies,
• encouraging talents and creativity,
• eradication of illiteracy,
and the list is very long indeed.
Traditionally, Egypt had a cult of education. The educator was called allem, holder of science (savant), and was highly respected, if not venerated. This is no more the case. The profession of teaching is on decline.
A substantial percentage of public school teachers are poorly qualified. It was observed that less than one in five of the instructors in primary schools has pedagogical qualifications and almost half of the instructors in the secondary technical schools have no college degrees . Teachers are, moreover, very poorly paid.
With the deterioration of the socio-economic status of the teacher, the traditional cult of education degenerated in a new cult of diploma holding. Everyone wants to hold a diploma or a college degree, no matter by which means and/or at what cost. The diploma is a status symbol. With low salaries, mediocre qualifications and declining social status, teachers and instructors in public schools diverted their efforts to private tutoring which became a prosperous business. It was estimated that around 60% of students take private lessons .
A teacher who continues private tutoring until late hours at night, can hardly be fit to instruct in the class the next morning. Public schools ceased to be a place for teaching, and accordingly the slogan of “free education for all” became more of a fiction than a fact. In such environment characterized by the collapse of the social function of the public schools and the degradation of the teachers social status, it is no wonder that absenteeism in schools and the phenomena of cheating in classes became widespread. More alarming is the fact that teachers and parents are often aware of these facts.
The decline in the education system does not only negatively affect acquired skills, but also undermines the values and the code of ethics of the new generations. When the teacher is perceived as uninterested in his class and only concerned about his private tutoring, the notion of duty and responsibility will inevitably be distorted. If cheating in class is accepted as a fact of life, the notion of fairness and honesty will be trivialized.
No less serious is the social cleavage that resulted from the failure of education in public schools. In the past, the best education was provided by public schools. The public school was, in fact, a kind of melting pot where rich, middle class and poor students share their schooling experience. Today, public schools are mainly for the poor. The rich go to private and foreign languages schools. Thus, students are not only separated by the quality of education, but they belong to two different worlds. Two stereo types; one is cosmopolitan, open, mostly arrogant and not infrequently unable to express himself properly in his native language (Arabic). The other, is exactly the opposite, yet in many cases equally unable to write in good Arabic, nor, of course, in any other language.
Education and weak Society:
In the first section about “strong state and weak society” we mainly referred to strong state. Perhaps we can elaborate here a bit more on the weakness of the society. The shortcomings of the education system brings about many manifestations of the weaknesses of the society. An illiterate population are mostly unaware of their rights and also incapable of meeting the requirements of an industrial society. Dealing with machines and equipments in a factory assumes a minimum level of education. Technical instructions, disciplinary regulations, security measures, etc. cannot be implemented in an analphabetic society. Of course, an industrial society needs more than the ability to read and write. It requires above all creative minds, risk takers and farsightedness. Education based on memorizing is not suitable for such a dynamic industrial society. A rentier mentality would flourish and acquiesce in a such a system of uncritical mind. Finally, an industrial society needs to develop the values of hard work, discipline, and honesty. Many of these qualities are sharpened through good education programs. We are not sure that these qualities are deep rooted in the present Egyptian education system.
Conclusion:
Notwithstanding an average economic performance, Egypt failed to join the club of high performers in Asia: China, India, Korea, Taiwan, Indonesia, not to mention Singapore or Hong Kong. Whether this state of affair is considered success or failure, is not simply a matter of personal taste, it depends, to a great extent on the initial conditions. We claim that Egypt started the race with reasonably favorable initial conditions to qualify for a better performance record.
The basic assumption of the paper is that Egypt has faced in the 20th century a new challenge; a need to transform itself into an Industrial Society. This objective was only partially achieved. There were rigidities preventing the smooth transition to such a society. There were many reasons for this. First and foremost is the presence of an hegemonic State keen to preserve its prerogatives and powers. The result was a strong state facing a weak society. This civil society was not only oppressed by an overwhelming State but also burdened by the lack of appropriate skills and proper values needed for the new society. The inadequacy of the education system helped perpetuate these conditions of unpreparedness for the establishment of a new industrial society. At that conjuncture, the availability of easy money generated through a rentier economy, reduced the urge for changes thus helping the continuation of the status quo.
We identified three interrelated factors that helped hinder the accession to a new Industrial Society. First, an authoritarian state which in its endeavor to preserve its prerogatives had to give up good governance practices and to limit the creative initiatives of the individuals. Second, the availability of windfall money not only reduced the pressure for the need for change but also promoted new mentality that undermined the emergence of an industrial spirit.
Finally, an inadequate education system failed to provide the proper skills and values required for the industrial society. These factors are, moreover, mutually interdependent reinforcing each other.
One Final note, we have deliberately overlooked the impact of the external factors. We chose to only emphasize the internal factors which lie within the control of the society. It remains true, nonetheless; that Egypt’s political economy was, to a large extent, subject to various regional and international constraints.
Article Date:
5/9/2007 12:00:00 AM
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