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A country's economy caught between social justice and the "production wheel."
CAIRO, Egypt — In the tense aftermath of the January 25 Revolution and amid the ongoing violence of the ‘Arab Spring,’ the economic situation in Egypt is in turmoil.
But the hard economic impact, in terms of lost tourism dollars, unemployment and inflation, is perhaps not as bad as some feared. The turmoil is largely political and as the labor movement seeks to capitalize on the populist sentiment for social justice that coursed through the Tahrir Square uprisings, the business sector is worried.
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The most persistent problem is still a climate of uncertainty in Egypt as the Supreme Council of Armed Forces (SCAF) is hesitant to send clear signals about a timeline and strategy for a handover of power to a civilian government. The pending November 28 election will serve as a test of sorts of whether Egypt can find the stability it seeks.
But while the country tries to move forward, Mona Said, economics professor at the American University in Cairo, said fears are mounting in the business community that populist economic approaches to achieve social justice could create an economic environment unfavorable to investment.
“We need a civilian president; a military rule cannot create a fertile investment environment.”~Ehab El-Husseini, Mina House restaurant manager
"I think at the moment the biggest hindrance to investment is a lack of clarity about the transition and worries about security. I suppose [investors] are waiting to see if there are strong socialist overtones, and if the elected government will try to nationalize the private sector,” explained Said. “Foreign capital is very [fearful] as they say, they want to steer away from a lack of clarity now."
Said believes there is no conflict between social justice and investment as long as an elected government can set long term economic policies and lay the foundations to a well-functioning economic institutions that will encourage investment.
Magda Kandil, Executive Director of Egyptian Center of Economic Studies told GlobalPost that the lack of a clear vision to hand power to an elected civilian authority causes an investment drain as investors wait for a stable government willing to set a long-term economic policy.
"The government continues to borrow to offset the increasing budget deficit, in addition to the lack of a consistent economic policy to accommodate the demands of labor strikes," she explained, adding that the government met the demands of workers in some sectors, which encouraged the rest of workers to demand the same.
"The government did not clarify from the beginning what could be accommodated and what could not be accommodated,. A firmer approach could have been taken since the beginning so that it would have stabilized the economy before everything is out of control," Kandil added.
But the consensus among economic analysts is that things are not out of control.
The most significant impact, economists say, may come from the country’s budget deficit, which increased about 30 percent to LE 130 billion in September from LE 98 billion last year, according to the Ministry of Finance's September financial report.
The Central Agency for Public Mobilization and Statistics (CAPMAS) said that unemployment rose to 11.9 percent in the first quarter of the financial year 2011, from 9.8 in the forth quarter of the financial year 2010. Meanwhile the growth rate decreased from 5.8 percent in 2010 to 2.6 percent in 2011, according to reports by the Ministry of Planning and International Cooperation.
The interim government and SCAF blame the economic turmoil on the instability created after the revolution, specifically labor strikes spanning across Egypt demanding social justice and setting minimum and maximum wages.
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"The government completely understands the legitimacy of these demands, especially after the long history of injustice and lack of transparency in the available resources during the past regime," Minister Hazem El-Biblawy said at a press conference at the Stock Exchange Market.
"But on the other hand, the situation is really difficult and needs everyone to cooperate with the government where everyone goes to work first," he added.
He also confirmed that the first step to stabilize the economy is that