As the political debate goes on, the other priority that matters most over the next six months is the economy, specifically, jobs.
The political transition will take two years at least. First, we have to ratify the constitutional amendments, then elect a new president and parliament. The new president will form a new (transitional) government. The new parliament will elect another constitutional committee to draft a completely new constitution. Then we have to ratify it in a public referendum, followed but another round of presidential and parliamentary elections. And then form a new government. It’s a long process that is likely to be bumpy, but I trust will end well.
The real challenge will be: how do we sustain the economy as we go through this political transition? The challenge is not about growth rates, deficit or other macroeconomic indicators, but rather jobs, jobs, and jobs.
First, there is tourism. This sector represents 11% of our GDP and employs more than two million workers. The whole sector has been at halt for the past month. As we regain some of the security, it is likely to restore some of its operations, especially in remote Red Sea resorts and Luxor, and less so in Cairo. Overall, the sector will shed significant number of employees.
Second, there is construction. Most of the large construction projects around Cairo are built by business tycoons, currently residing in Tora Prison, and on large plots of land with disputed ownership. As the state figures out how to deal with these companies, construction is on halt.
Third, there are export-oriented agriculture, manufacturing and services. Many of the factories exporting manufactured goods are suffering from labor strikes seeking higher wages. Farms exporting fruits and vegetables to Europe are suffering from disruptions to their supply chains and similar labor disruptions. IT outsourcing services suffered a lot from the Internet outage during the revolution, and may lose the confidence of their foreign customers. These sectors affect a broad constituency, from illiterate peasants and labor, to well-educated upper middle class engineers and IT professionals.
All of these are primary effects, that are quickly followed by secondary effects: as the layoffs increase and the consumer spending shrinks, many of the retail stores, groceries, consumer goods, and other services that support people in their day to day lives will suffer from a decline in demand, and may also need to cut their labor forces.
And as if this is not enough – we are having a wave of Egyptian refugees coming back from Libya, after losing their homes, jobs and most of their savings. If the violence in Libya continues, the numbers of refugees will grow quickly.
With an official unemployment rate of 9.4%, (2010) and unofficial estimates that go as much as double this figure, an increase of unemployment, especially among youth, is likely to further inflame the political transition and escalates the social unrest. The most important task for the current government to enable and secure an orderly transition is to focus on jobs, quick jobs.
The good news is that the new Minister of Finance, Dr. Samir Radwan, is one of the most knowledgeable labor economists who wrote extensively on Egypt’s labor market and human development at large. He received his PhD in Economics from the School of Oriental and African Studies (SOAS) at the University of London – a school that prides itself with a critical economic discourse, rather than the Washington consensus mindset that dominated the previous government. I wish him well in the daunting task that he’s undertaken. However, his mandate in the Ministry of Finance is limited; it needs to be expanded to oversee other jobs-related functions within the government. This needs to be highlighted as THE priority during the transition period.
So how do we face the jobs challenge?
First, we need to minimize the damage. We need to take all measures to reduce the layoffs. This can be done through a number of informal agreements with large industries and companies, supported by government incentives like delays in tax collections or tax exemptions. Some of the stopped mega real estate projects need to be restarted, even as the government figures out how to deal with the corrupt and shady land deals. This may not be an easy task, but every job saved or layoff delayed will make a different.
Second, we need a stimulus package, focusing on the construction and infrastructure sectors. Construction is one of the most labor intensive sectors. Infrastructure and low-income housing projects can be quickly implemented all over the country. They are also investments in the future rather than lost money. The other good thing about the construction industry is that it activates a number of feeding industries in construction material, which has a high multiplier effect for every dollar spent.
Third, we need to capitalize on the intense media coverage to reactivate the tourism sector as soon as possible. For 18 days, Egypt was on everyone’s screen from the US to Europe to Asia. The world carries a lot of respect for the brave youth who stood to tyranny and defeated it. It’s a best fantasy that bring awe, admiration and human sympathies. Everyone who watched this drama unfold, live on TV, wanted to be part of history and to visit Egypt. We need to capitalize on this burst of positive emotions to invite and welcome visitors from across the globe to come and visit our beautiful beaches and monuments, as well as the infamous Tahrir Square.
I am sure that there are many other innovative interventions that can be identified, especially with the political limitations and corrupt agenda of the previous regime gone. However, the important thing is to understand and clearly highlight jobs at the top of the government agenda during the transition period.
Amin Elmasry. 27 February 2011.