A Tale of Reforms, Structure, and Institution -Egypt….a part of the story.
Welcome to the second part of a series I am hoping to keep at — doing this research on reforms and positive change across the African continent.
In my opinion, the Africa story remains a story of context, as it is difficult to have the same narrative for 54 economies, as we have seen some countries make strong strides compared to others, while others have plateaued. Africa is appealing and it requires contextual and customized approaches to navigating its markets.
North Africa is particularly spectacular and seems to have advanced and moved further away from the rest of Africa in terms of economic development and prosperity. Egypt- this Arab nation has been in the media in times over its economy and the boost, following a number of uprisings or maybe revolutions over recent years. Its latest economic growth projections range 6 -7% over the next three years, and through its National Structural Reform programme, launched in 2021, the government will focus on three key sectors — manufacturing, agriculture and telecommunications, and information technology. These positively received growth projection figures are after a pandemic that has left many African countries still struggling to find their feet.
Beyond the beauty of lots of its historical sites, for investors, it has remained on top investors' destinations list for five years in a row. As you can imagine, it hasn't been an easy feat, although, citizens still say this growth is not being felt by the common man, especially with tough pills to swallow, under its IMF monitored reforms.
As I highlighted at the start of this write-up, context is very key, as, with most African countries, Egypt implemented inconsistent macroeconomic policies prior to 2016. All leading to imbalances across its economy, large budget deficits, loose and tight monetary policies, fixed exchange rate, depletion in foreign reserves, of course, the mother of all would surface — high inflation and unsustainably high debt levels, and this cascaded into high unemployment and a struggling nation with extensive fuel subsidies.
Sometimes the similarities of economic problems across Africa can lead one to agree when the developed nations say `Africa is a country, but as we know it is not.
The Reform
On November 11th, 2016, the Egyptian government and the IMF signed a $12billion loan agreement and a reform plan that included the government implementing tax and fuel price increases to reduce its balance of payments and budget deficits, which further aggravated poor daily living for its people.
Before I move on quickly, it is important to note the massive protests that took place prior to this arrangement, some described it as a revolution and one of the largest uprisings in the state — was a back against the wall moment for the Egyptian government and quite instrumental to the events that ensued. The acute foreign exchange shortage was crippling its economy, particularly the manufacturing sector and something needed to be done.
Moving on, with some IMF money and a program that involved the usual terms– float the currency, lower fiscal costs, increase taxes, enable the economy with investor-friendly regulations amongst others. The government started to feel some relief. It is important to note that in the past, Egypt had undertaken some structural reforms to spur economic growth, but underlying structural challenges remain.
The Institution.
As events unfolded, The Central Bank of Egypt was the key implementing institution in the change in trajectory for the Egyptian economy. For an import-dependent economy, the flexible market-driven exchange rate was important to absorb external shocks and improve competitiveness, whilst ensuring price stability and anchoring inflation expectations. Other structural reforms for state-owned enterprises, improving fiscal transparency and governance, changes to business regulations to attract foreign investments were instrumental to its story.
As you can imagine large sections of the income-earning class still suffer economically, with high-quality employment moving at a slow pace, execution risk on some of the policies being implemented still exist, and corruption challenges. Yes, as the pandemic hit you can imagine the dilemma for many nations, particularly economies that tourism was key as with Egypt, contributing at least 10% of its GDP.
However, the COVID-19 pandemic definitely revealed the benefits of some of the reforms, particularly its fiscal, monetary, and energy sector changes for this Arab nation`s economy. There are still cries for more transparency, progressive taxation, poverty alleviation, women`s participation in the economy, amongst others, are some of the underlying problems that still exist.
Continuous reforms will remain in my opinion and some will not be easy, but with a deep commitment by stakeholders, the Egyptians might be able to bite the bullet again as they did in 2016 for the next phase of growth.
