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A Damaged Nation or a New Opportunity?

March 9, 2011
Photo credit to prweb.com

Photo credit to prweb.com

As the tens of thousands of people participate in rallies in Tahrir Square, we can’t help but wonder if these efforts made by the disappointed, passionate proletariats will pay off?  Will  democracy in the Middle East flourish? Will there be a social revitalization?  Can nations such as Egypt, that are “plagued with economic inequality” sustain a democracy?

Currently, 16 million live on or under the poverty line in Egypt. “Among the Middle East and North Africa (MENA) countries, on average more than 50 percent of the population is younger than 25. Within this demographic group, the unemployment rate averages about 40 percent.” With a high regional literacy rate at an average of 80%, this fuels tension and revolts.  The Egyptian economy is a twisted, unfair jigsaw puzzle.  One-third of the economy is under state jurisdiction, “a legacy of the Nasser regime.”  The second third is under military control, which covers factories, resorts, companies, and banks. The state and military operate as a monopoly, erecting a wall between the wealthy elite and the rest of the poor nation. The last third of the economy is in the private hands.  With convoluted administrative procedures and a corrupt bureaucratic system, people try to escape paying taxes and fail to follow the regulations, thus making the private economy informal.

What makes this kind of economy fail? Arvind Subramanian, joint senior fellow at CGD and the Peterson Institute for International Economics argues that Egypt’s greatest economic hurdle is its “reliance on rents”. Here, rent is defined as the “wealth derived from historical and geographical legacies rather than job-generating economic growth.”  To map it all out: the Suez Canal generates close to $5 billion in fees annually, Egypt receives aid in exchange for peace with Israel, the antiquities draw and thrive the tourist economy, and roughly $5 billion a year come from remittances.  Subramanian does not find the remittance economy as an achievement because as he indicates that making money overseas is easier than in the country itself, Egyptians are forced to work abroad.

Since the unrest, foreign exchange houses closed, causing a negative impact on the Egyptian $7.69 billion remittance economy.   According to the World Bank, remittances makes up 4% of Egypt’s GDP, which makes Egypt the largest recipient of remittances in the region.  With blocked avenues to send money to Egypt, remittances have been hard to track.  Unofficial flows are on the rise due to suspended operations, which has depreciated the Egyptian pound.  Hopefully, the remittance economy will return back to normal once exchange houses and banks are open and running.  The revolution, however, has destroyed two main factors that were supporting the Egyptian pound, tourism and foreign investment.

Due to the slow-moving growth rates, there is no room for private entrepreneurship or opportunities for the population.  The 2009 Arab Human Development Report indicates that Arab states were less industrialized in 2007 compared to 1970.  Governments used revenue from oil, gas and “rents” to invest and maintain the large public workforce and cheap goods.

Unfortunately, because of the unrest foreign investment deals have reached a stalemate.

“a private equity consortium moved to sell its 93 percent stake in the Egyptian drug maker Amoun Pharmaceutical.  In January, the consortium of American investors, including a Citigroup fund, seemed hopeful they could sign a deal for $1 billion, more than triple what they paid in 2006.”

Social entrepreneurship may be solution to the people’s call for political, economic reform, and social revitalization.  According to Suzi Sosa, it will help the young, educated population by giving them freedom and a sense of “self-actualization.”  This will pave the path to socioeconomic re-conceptualization.

“For example, in social entrepreneurship, instead of just focusing on shareholders, the enterprise governs itself by taking into account a network of stakeholders, including customers, employees, suppliers, investors, the community, and the environment.  In the [Middle East and North Africa] region many states governed from a semi-socialist approach while informal economies practiced unregulated capitalism.  Social entrepreneurship can balance wealth creation with equity and fairness and can provide greater accountability without the overbearing bureaucracy and regulation that inhibits growth.”

The Middle East houses some of the most impressive social entrepreneurs.  Souk el-Tayeb, in Beirut, was established by a Lebanese entrepreneur, Kamal Mouzawak.  He helps small land farmers providing them with the opportunity to sell their goods at a local market.  Mohammad Kilany and Lana Hijazi founded Souktel in the Palestinians territories to allow unemployed Palestinians receive SMS message about job opportunities available to them.

Options are available and opportunities are rising in Egypt.  Will we see a change in a country that is considered to be the center where ideas and opinions thrive?

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