Reducing the dependency of the economy on public expenditure and benefitting from the skills and financial resources of international businesses are two of Egypt’s greatest opportunities to increase its economic openness.
The Legatum Institute’s mission is to create a global movement of people committed to creating the pathways from poverty to prosperity and the transformation of society. Our research work is focused on understanding how prosperity is created, and to that end, with the generous support of the Templeton World Charitable Foundation, we have published a Global Index of Economic Openness to rank countries’ ability to interact with, and benefit from, both domestic and international commerce.
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This Egypt case study is one of a number of in-depth reports which analyse an individual country’s performance on the key characteristics of openness to trade, investment, ideas, competition, and talent.
Our report highlights the substantial investment and reform efforts across the Egyptian economy, since the extensive political upheaval of 2011-2014. Much of this reform has produced tangible benefit for Egypt’s people: unemployment had fallen, and prior to the COVID-19 pandemic Egypt was one of the fastest-growing emerging markets.
However, at the same time, the quality of governance in the country has significantly deteriorated and the state has become further involved in the economy. This has contributed to the persistence of economic vulnerabilities such as under-performing exports and low productivity caused by a lack of dynamism in the private sector.
Looking ahead, Egypt faces a complex situation as the response to the COVID-19 pandemic reduces economic growth and puts further pressure on public finances, compounded by a growing population which requires substantial physical and social investment.
However, our analysis does suggest that Egypt has many untapped strengths which can help it navigate the next few years and create the potential to generate widespread opportunities for its population to prosper. We are hopeful that, even in these times, Egypt will be able to start laying the foundations for greater Economic Openness in the coming years.
Executive Summary
This report explores the extent to which Egypt has the fundamental characteristics of open economies, and where the opportunities lie for further development.
It reveals that Egypt ranks 102nd overall in the Global Index of Economic Openness, and 13th in the Middle East and North Africa region.
- Egypt performs most strongly in Enterprise Conditions, ranking 81st, up 27 places from a decade ago. In recent years, there have been several reforms in the Environment for Business Creation which have led to an improvement over the last decade, and the country’s Labour Market Flexibility has seen a continuous and strong improvement in the last 10 years. However, the state owns and provides extensive subsidies to a large number of public enterprises, including in sectors that compete directly with the private sector which reduces Domestic Market Contestability.
- Egypt ranks 88th for Market Access and Infrastructure, up 12 places over 10 years. The country has seen improvements and expansions in its communications, electricity, and transport infrastructure across the decade, and has a significant opportunity to benefit from a well-functioning and extensive multi-modal transport network due to its strategically advantageous geographic position for trade. The country has also reduced barriers to international trade over the past decade, but border administration still imposes high financial and non-financial burdens on imports.
- Egypt ranks 103rd for its Investment Environment, a fall of two places compared to a decade ago. Although the ranking has not changed significantly, there have been several developments over the decade. The adoption of new laws on bankruptcy and investment have been important steps in providing investor protection and confidence, and these laws have aimed to enhance sustainable economic development as well as providing a safety valve for financial failures. However, Contract Enforcement is a weak point for Egypt where, despite the introduction of the new investment law in 2017, it ranks 163rd globally.
- Egypt ranks 146th on Governance, having fallen 30 places over the last decade. Executive Constraints deteriorated during the three years of political instability that started with the Egyptian Revolution; and over the past decade the country has fallen 37 places to rank 158th. Equally, Political Accountability, Government Effectiveness and the Rule of Law have all deteriorated, and Regulatory Quality in Egypt is also poor. Despite this, the report highlights a range of initiatives that have been implemented to tackle corruption in Egypt, which was one of the grievances of the 2011 protests.
The report identifies a number of areas of opportunity to increase Economic Openness in Egypt, including the following recommendations:
- Reduce dependence of the economy on public expenditure and benefit from the efficiency, skills, and financial resources of international businesses.
- Deepen trade agreements and focus on measures that foster exports rather than limit imports.
- Foster the business environment for small and medium sized enterprises to ensure the formal private sector becomes capable of generating more and better jobs that can boost shared prosperity and reduce poverty.
- Improve public sector governance to reduce barriers to business growth.