What not to do economically, as demonstrated by Egypt

Egypt has been suffering from an acute case of doing the same thing over and over and expecting different results for decades. The result has left the country watching as the economies of similar nations leap ahead. Here is my list of six ideas that are deeply entrenched in local economic thinking but simply don’t work.

A strong currency means a strong Egypt

Nope. It’s exactly the other way around. The country’s overvalued currency is the single major factor weakening the economy.

The government has consistently said it cannot devalue the pound because that would make imports more expensive, fuel domestic inflation and hurt the poor. So what does it do? It starts blocking imports. If import restrictions do not push prices up, nothing will.

Furthermore, because the pound is overpriced, foreigners do not want to buy Egyptian goods, which means fewer exports. This in turn brings in fewer US dollars, which means fewer imports. Investors, meanwhile, know that Egypt eventually will have no choice but to devalue, so they stay away. Plus they fear Egyptian banks will not have enough dollars when the time comes to send profits home.

Egypt has spent or borrowed tens of billions of dollars to support the pound in the past five years. For what? In the end, it will devalue anyway.

Egypt has vast desert areas. With only a bit of resolve they can be turned green

It is a romantic idea, but barring an extraordinary leap in desalination technology, it is not going to happen. There is not enough water for a major expansion of Egypt’s agricultural land, even with the vast Nubian aquifer to tap into. Yes, a few bits and pieces will be reclaimed here and there, but the country will remain mainly desert, and the population will stay locked overwhelmingly in or near the Nile valley.

Egypt needs to grow its own wheat so it can stop importing

Perhaps there is a strategic military reason to be wheat-independent, but I doubt it. Economically, it makes no sense at all.

The government for decades has been paying domestic farmers a heavy premium over international prices for their wheat. So much so that enterprising smugglers sneak wheat in from abroad and relabel it as domestic to sell at the official price. This is a tremendous waste of money, and Egypt relies on foreign wheat as much as ever.

Wheat is best grown in temperate regions such as the vast plains of North America, Russia, Ukraine and Argentina. Every Egyptian hectare planted in wheat means one less hectare planted in a crop that could earn the country more money. It would make a lot more sense if Egypt bought cheap foreign wheat and instead took advantage of its bountiful sunshine, warm climate, inexpensive labour and fine irrigation network to produce more profitable avocados, oranges or other cash crops for export.

If some wheat can be grown profitably in Egypt, fine. But let the market decide.

The government needs to build more housing to meet growing demand

Public housing has long been a boondoggle in Egypt. The government builds horrible apartments at great expense in places no one wants to live. If it were my choice, I would abolish the housing ministry once and for all and transfer its resources and employees to the transport ministry.

It would make much more sense to extend metro lines, light rail and other infrastructure into the desert, and then to sell plots of land so people could build housing according to their own taste. The government would earn money selling land with all the hookups ready to go, then reinvest the proceeds into even more infrastructure. The downside for politicians is that they would no longer have cheap apartments to distribute to their constituents.

The country needs megaprojects to get the economy going

There are a few that can work wonders, but most simply squander resources. A new capital, the million new houses, the million-feddans reclamation, the nuclear power station and the new Grand Egyptian Museum will not help the economy.

The good ones, in my opinion, are the Suez Canal corridor project and the rapid expansion of power plants. If only they would add a massive expansion of metro and light rail.

Moving government offices out of the city centre will ease traffic congestion

No it won’t. If a ministry is moved to the outskirts of the city, that means the tens of thousands of employees and citizens needing services will simply have to travel farther, which means more cars and buses on city streets. If you want to reduce congestion, try streamlining and digitising government procedures so people do not need to make as many trips to begin with.

Patrick Werr has worked as a financial writer in Egypt for 25 years.


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