Tag Archives: Egypt

The need to promote vocational training in Egypt

University education is considered as the royal road in Egypt. It has contributed to the education of far too many students in recent years compared to the needs of the labor market. Vocational education suffers from a lack of image and does not attract young people. However, according to the latest report of Femise, it deserves to be valued given its relevance in the labor market.

In industry, the shortage of technicians hinders the development of companies

Out of 90 million inhabitants, Egypt currently has 2.5 million students. On the benches of the university, enrollment jumped 20% in four years. The budget devoted to higher education has increased from 18 billion pounds in 2013/2014 to 21 billion in 2015/2016 (ie one billion euros). Admittedly, higher education plays a key role in developing countries. But is it necessary to bet on the university when it is skilled workers that lack Egypt? Is vocational training not also a factor in reducing inequalities?

Femise asks these questions in its latest report (FEM 42-10) published in March 2018 entitled ” Inequality and inclusive growth : Are education and innovation favoring firm performance and well-being?” in three parts. The first, coordinated by the economist Inmaculada Martinez-Zarzoso (Jaume I Universities in Spain) in collaboration with Javier Ordonez from the same University and Dr. Mona Said from the American University in Cairo (AUC), analyzes vocational and technical secondary education in Egypt in 1998, 2006 and 2012.

Femise starts from an observation: “The vocational-general education divide results from a phenomenon of class struggle. The elite relegates the members of the “lower class” to technical schools”. In industry, the shortage of technicians hinders the development of companies.

 

Match vocational training to the needs of the enterprises

Despite the government’s effort to encourage technical education, the number of students dropped by 3% in 2012. According to the study, this phenomenon can be explained by the relatively low level of returns to technical education, which continues to decline, compared to returns to university education (especially for men in the public sector). For women, the returns to education are even lower in the public and private sectors, regardless of their education. Note, however, a smaller gender gap exist in the private sector.

Redesigning technical education could help promote social mobility and equity. “The quality and relevance of vocational education are the keys to effective reform. The labor market lacks skilled workers. The technical pathways suffer from social stigmatization” underlines the report. It is high time to revalue the image of vocational education, believes Femise. Apprentices are generally poorly paid. The Skills Development Project, with the support of the World Bank, directly benefits Egyptian enterprises of vocational training schemes.

Femise suggests strengthening partnerships between training institutions and companies with financial support from the European Union. But, “encouraging private companies to invest in vocational education will be of no use if trainees still face social stigma,” warns Femise.

Access the FEMISE FEM42-10 report by clicking here

Article by in partnership with Econostrum 

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FEMISE MED BRIEF no5 : Egypt and the WTO Government Procurement Agreement

FEMISE is launching its new Policy Brief series MED BRIEF aspiring to provide Forward Thinking for the EuroMediterranean region. The briefs contain succinct, policy-oriented analysis of relevant EuroMed issues, presenting the views of FEMISE researchers and collaborators to policy-makers. 

The fifth issue of MED BRIEF “ Should Egypt join the WTO Government Procurement Agreement (GPA)?” is available here.

Ahmed Farouk Ghoneim (Professeur d'économie, Faculté des sciences économiques et politiques, Université du Caire, FEMISE)

Ahmed Ghoneim (Faculty of Economics & Political Science, Cairo University, FEMISE)

It is also available in Arabic here.

“This Policy Brief, by Ahmed Farouk Ghoneim (Professor of Economics, Faculty of Economics & Political Science, Cairo University), tries to answer the critical question of whether Egypt should join the WTO GPA? The debates on theoretical and policy levels have not reached a clear cut answer regarding the pros and cons of a developing country joining such an agreement. Yet, we try in this policy brief to clarify some of the misconceptions associated with the joining of such agreement, and identify what are the steps needed for membership to be fruitful”

The list of FEMISE MED BRIEFS is available here.

 

The policy brief has been produced with the financial assistance of the European Union within the context of the FEMISE program. The contents of this document are the sole responsibility of the authors and can under no circumstances be regarded as reflecting the position of the European Union.

Inequality and inclusive growth : Are education and innovation favoring firm performance and well-being?

FEMISE is pleased to announce the publication of its research project FEM42-10, “ Inequality and inclusive growth in the South Mediterranean region: Are education and innovation activities favoring firm performance and citizens’ wellbeing?”.

The research project was coordinated by Inmaculada Martinez-Zarzoso (University Jaume I and University of Goettingen) and includes the following 3 papers:

Returns to Vocational and University Education in Egypt

While tertiary skills are important for growth in developed countries, it is primary and secondary education that are related to development in developing countries. Despite the substantial expansion in technical and vocational education in Egypt, the labor market lacks technical skilled workers not only in numbers but also in competences. This paper examines the impact of education on labor market outcomes in Egypt, with a focus on returns to vocational secondary and technical higher education in 1998, 2006 and 2012. We provide estimates of incremental rates of return to education based on selectivity corrected earnings equations and quantile regressions that give credence to the view that technical education has generally been inequality reducing in Egypt. The main policy implication of this paper’s analysis is that quality and labor market relevance of vocational education remains the key to an effective reform. Encouraging private businesses to invest in vocational education will be of little use if the trainees are still faced with social stigma that relegates them to low-paid jobs. Therefore, a policy recommendation is to design governmental measures to improve the ‘image’ of vocational education in Egypt.

Gender Gap and Firm Performance in Developing Countries

This paper uses firm-level data from the World Bank Enterprise Survey (WBES) to investigate productivity gaps between female and male-managed companies in developing countries and to compare the outcomes obtained for different regions in the world. We depart from the previous literature by using the gender of the top manager as target variable, which is newly available in the 2016 version of the WBES. The main results indicate that it is crucial to distinguish between female management and female ownership and also the confluence between both. We find that when the firms are managed by females and there are not female owners, they show a higher average labour productivity and TFP. However, if females are among the owners and a female is the top manager, then their productivity is lower than for other firms. These results are very heterogeneous among regions. In particular, results in South Saharan Africa, East Asia and South Asia seems to be driving the general results, whereas in Latin America and Eastern Europe and Central Asia, female participation in ownership seems to be negatively related to firm performance.

Real convergence between ENP and southern European countries: a cluster analysis

This paper analyses the convergence pattern of GDP per capita, productivity, inequality and unemployment in both ENP and southern European (SE) countries. It follows the methodology proposed by Phillips and Sul (2007, 2009) in which different convergence paths can be distinguished among heterogeneous economies involved in a convergence process. This heterogeneity is modelled through a nonlinear time varying factor model, which provides flexibility in studying idiosyncratic behaviours over time and across section. The main results from the convergence analysis show that whereas there is convergence in unemployment, GDP per capita and productivity between EU and ENP countries, no convergence is found for inequality. Among the challenges of an evolving neighbourhood, inclusive economic development should be included in the new ENP approach.

8th Mont Blanc Meetings: IM and FEMISE at the International Summit of Social Economy

How can the Social and Solidarity Economy (SSE) contribute to supporting growth and employment in Mediterranean Partner Countries (MPs)? This is the question to which the presentation of Dr. Constantin Tsakas (General Manager of Institut de la Méditerranée, General Secretary of FEMISE) offered elements of response at the 8th Mont Blanc Meetings (RMB) (6-8 December 2017, Archamps, Greater Geneva), the International Summit of the Social and Solidarity Economy (ESS) organized by ESS International Forum (Permanent Co-Secretary of the International SSE Pilot Group, Observer Member ate the UN Inter-Agency Task Force on SSE).

Dr. Constantin Tsakas (Institut de la Méditerranée, FEMISE) (photo:RMB)

Dr. Tsakas presented the preliminary results of a chapter of the forthcoming FEMISE EuroMed 2018 report produced by Institut de la Méditerranée (IM) during a session on “Effective responses to sustainable impacts: social cohesion, solidarity and inclusion”.
Dr. Tsakas emphasized that SSE could become a tool for economic, financial and social innovation adapted to MPs. The latter are facing today many problems related to unemployment, lack of inclusiveness, the informal economy, limited growth… The SSE sets a frame of reference for rebuilding social ties around the economy, to better value resources and assets of territories and anchor development, to provide training and mobilize available skills in an entrepreneurial dynamic. The SSE allows for :

  • The mobilization of numerous young people, which are looking for a job and are progressively oriented towards entrepreneurship.
  • The establishment of a more inclusive economy because the SSE knows how to create jobs for vulnerable people that neither the State nor traditional companies can integrate.
  • Economic diversification and upgrading.

As civil society has understood, since the Arab Spring there has been an effervescence and increased emergence of SSE structures. Real success stories help meet the needs of the people …

In Morocco, which counts 15700 cooperatives (including 2287 women’s cooperatives) and 120 000 associations (with more than 15 million members), the value chains of SSE entreprises are made up of private sector companies: production cooperatives in the agricultural sector, crafts and / or fishing market their production in the private sector (local, regional, small and large retail markets).

In Egypt, initiatives are led by the private sector and have emerged to address the growing inability of governments and traditionnal private sector activities to meet the diverse needs of poor households for certain services and products.

In Tunisia, the country has nearly 20000 associations with more than 12 million members, half of whom have been created in the past five years under the impulse of the post-revolution civil society. The agriculture and fisheries sector is one of the sectors with the most SSE entreprises.

Panelists at session on “Effective responses to sustainable impacts: social cohesion, solidarity and inclusion” (photo :IM).

However, in general, the state does not sufficiently support the SSE in the South Mediterranean and does not create the necessary conditions for its sustainability. Dr. Tsakas emphasized that at the heart of the SSE dynamic lies the issue of project funding and resource mobilization. Preliminary results indicate that the financing of SSE enterprises must be a priority of concern for local, national and also EuroMed authorities. A “SSE finance” allowing access to liquidity and credit in relation to shared coordinated objectives is necessary. It would be appropriate for each MP to support, most notably through the establishment of an enabling regulatory framework, the emergence of “social”, “participatory” or “ethical” banks to channel funds to useful, sustainable and inclusive projects. It would also be wise to encourage SSE financing by microfinance institutions that have a developed territorial network. It would also be possible to innovate by proposing types of Social Impact Bonds (SIB), very popular in the Anglo-Saxon world, which make it possible to finance social programs (fair trade, social tourism, access to culture etc.) by private investors. The 2018 EuroMed report will suggest tools that can be supported by all local, national and international actors and which allow addressing the identified funding obstacles.

In conclusion, Dr. Tsakas emphasized the need to develop a strategy for the emergence of SSE ecosystems and social entrepreneurship on 3 axes (Macro-Meso-Micro). Dr. Tsakas provided an overview of FEMISE’s vision for the emergence of such ecosystems:

  • Support to the development of a policy and regulatory environment conducive to the growth of social enterprises through national strategies and advocacy panels.
  • Raising awareness and building the capacity of meso actors in the ecosystem to support the growth of social enterprises. MED mapping of these support actors, the generalization of training activities and the exchange of good practices would contribute to this process.
  • Finally, there is a need to better demonstrate and promote the economic potential of social enterprises in creating value and jobs in MPs. A true methodology that quantifies the social impact is needed here. The same is true for financial support for social entrepreneurship, for entrepreneurs training and for mentoring initiatives.

These and other issues will be developed in detail in the next FEMISE 2018 Report, which will focus on private sector development in the Mediterranean (Q1 2018).

The powerpoint presentation of Dr. Tsakas to the RMB is available by clicking here.

Prior to the publication of the FEMISE2018 EuroMed report coordinated by Pr. Patricia AUGIER (Pt of the Scientific Committee of IM and FEMISE, Coordinator of FEMISE), we also suggest some excerpts from interviews with three key actors of social entrepreneurship in the EU -MED.

You can also  revisit the FEMISE-EIB pilot study (2014) coordinated by IM on the potential of SSE inclusivity in Southern Mediterranean countries.

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Potential Accession to the Revised WTO Government Procurement Agreement: The Cases of Egypt and Turkey

Government procurement concerns how public authorities spend taxpayers’ money on goods, services and infrastructure. In each country public procurement is typically governed at the national level by setting rules that try to balance a number of goals. Of these goals, transparency, non-discrimination, integrity and competition are probably the most important.

The aim of transparency is to ensure that the rules are followed and that non-compliance can be identified and addressed.

The Research Project considers the benefits and costs of accessing the WTO Government Procurement Agreement (WTO GPA) for Turkey and Egypt. While Paper 1 considers the case of Turkey, Paper 2 analyzes the case of Egypt. Finally, Paper 3 provides a Synthesis Report.

The project shows that:

  • The WTO GPA significantly increases the probability that a foreign firm will win a public procurement contract in the EU member and affiliated states.
  • The WTO GPA promotes a more competitive environment by increasing the number of offers for a given contract.
  • The WTO GPA significantly lowers the risk of corruption by decreasing contracts with a single offer, reducing the success ratio of firms and allowing firms with lower network strengths to win contracts.
  • The competitive environment in a country is a significant determinant of the efficiency of public procurement. An increase in the number of offers decreases the contract price with respect to the estimated cost.

Thus, the WTO GPA commitments will secure better value for the money spent by governments in their procurement processes as a consequence of applying the WTO GPA principles of transparency, non-discrimination, integrity, and competition.

Given that the WTO GPA’s provisions will certainly benefit Egypt and Turkey, it is surprising that to date neither of the two countries have become signatories of the WTO GPA.

Simon Neaime : “Reducing the public sphere to preserve macroeconomic balances”

Professor of Economics at the American University of Beirut in Lebanon, Simon Neaime coordinated the latest Femise report on “Twin Deficits and the Sustainability of Macroeconomic Policies in Mediterranean Countries”. ©N.B.C

Professor of Economics at the American University of Beirut in Lebanon, Simon Neaime coordinated the latest Femise report on “Twin Deficits and the Sustainability of Macroeconomic Policies in Mediterranean Countries”. The report suggests a reduction of the public sphere and invites countries to rethink their fiscal and monetary policies. An analysis of the causes of a double phenomenon ensues : the public deficit and the balance of payments deficit.

The Femise report is entitled “ Twin Deficits and the Sustainability of Macroeconomic Policies in Selected European and Mediterranean Partner Countries: Post Financial and Debt Crises”. Which countries are affected by the twin deficits? :  Greece, Portugal, Ireland, Italy and Spain have accumulated budget deficits of 5 to 10% of GDP on average, resulting in a public debt exceeding 120 percent of GDP on average in 2016. The situation is almost similar in the Mediterranean where social, political and military tensions have aggravated an already depressed macroeconomic environment. While the trade balance seems to contribute to the budget deficit in the Mediterranean countries, the relationship seems to be reversed for European countries, where the fiscal balance seems to be the one influencing the current account.

The Femise report assesses the introduction of macroeconomic stabilization programs to propose new combinations of monetary and fiscal policies. Sustainable policies that lead to growth, development, and debt and budget reduction.Femise recommends better coordination of macroeconomic policies between EU countries and those on the southern shore of the Mediterranean. In concrete terms, what should countries of both shores do? :  European and Mediterranean governments will first have to reduce their spending but also the size of the public sector in favor of the private sector. They will also have to channel liquidity through loans and encourage investment in productive enterprises. Given the commercial dependence of the Mediterranean countries on the European Union and the fact that most Member States have implemented austerity policies, we consider that the export-decline in the Mediterranean countries has increased their budget deficit. We therefore call for better coordination of macroeconomic policies between the EU and these Southern Mediterranean partners.

“The flexible exchange rate helps absorb external shocks and limits inflation”

You recommend a restriction of the public sectors’ perimeter and, at the same time, you encourage the same sector to play a central role in macroeconomic balances. Isn’t this a paradox? : We advocate for reducing the size of the public sector to the benefit of the private sector and for playing a central role in maintaining macroeconomic balances and debt reduction through economic policies. This is not paradoxical but complementary. Monetary policies will remain ineffective if private sector expectations are not met and if the banking sector remains in poor health, especially in the case of the Italian and Greek banks.

How can the trade balance be rebalanced? : A first solution would be for the Mediterranean countries to favor the transition from a fixed exchange rate regime to a flexible one, as Egypt has already done. The flexible exchange rate helps absorb external shocks and limits inflation. Egypt has been able to improve the effectiveness of its monetary policy to deal with external shocks through this strategic choice. Tunisia and Morocco also seem to be following this direction. Another option would be for European countries to consider lowering tariffs on some targeted products and move towards further integration with the MENA region. The Euro-Mediterranean trade agreements must be improved to make Mediterranean products more competitive in European markets


Interview by  in partnership with Econostrum 

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Tax reform in Egypt could make its companies more efficient

The latest FEMISE report (FEM41-08) highlights the obstacles to productivity faced by companies in the Middle East and North Africa. Even before corruption or lack of visibility in the business sector, the taxation burden is the main impediment to corporate productivity. A better understanding of this reality by political circles could encourage companies in becoming more competitive.

 

Les entreprises égyptiennes subissent une pression fiscale qui affecte leur productivité (photo : F.Dubessy)

The tax burden is the main impediment to corporate productivity (photo : F.Dubessy)

Did you know that, in Egypt, companies have to pay 29 different types of taxes and that form-filling alone takes up around 392 hours of work time? Furthermore, the tax levy represents 42.6% of profits. Therefore, it should not come as a surprise that the country is at the bottom of the tax burden table, 148th out of 189! The FEMISE report recommends that “in order to boost corporate productivity, the Egyptian government must overhaul its tax policy”.

The report, entitled “Corporate Performance in Transition: The Role of Business Constraints and Institutions in the South Mediterranean Region” (available here) coordinated by Inmaculada Martínez-Zarzoso, professor of economics at the Universitat Jaume I (Spain), was published in December, 2016.

Twenty-two constraints were identified as being responsible for reducing productivity globally. Undoubtedly, internal factors such as workers’ skills and abilities need to be taken into account when analysing a company’s overall level of competitiveness.

While the tax burden tops the list of impediments, other external factors such as corruption, the lack of visibility in the area of legislation, property prices, access to and the cost of financing, or simply the cost of water and electricity can be real problems for companies.

A new reality after the 2011 revolution

The study looks into the negative effects on corporate efficiency before and after the 2011 revolution. It appears that new obstacles have emerged that have made the business climate less attractive to investors, including regulatory and political uncertainty, corruption and crime. As the report underlines, “The aim of the revolution was to generate economic and social opportunities that would open the way to economic growth and jobs. However, the country has become unstable from a political point of view. This transition period has had a direct impact on efficiency in the private sector.”

Prior to the events of the Arab Spring, interventionist policies were the norm in Egypt, as they were in most Middle-Eastern and North African states. In the report, FEMISE economists also focus on other countries in the region: Lebanon, Jordan, Morocco and Tunisia.

Here again, indicators of regulatory and political uncertainty, corruption and criminality appear to have worsened. The report concludes, “These results have important political implications. Measures aimed specifically at businesses should enable a reduction in the number of obstacles and, consequently, encourage Egyptian manufacturing companies to become more competitive.”

For more on this subject, please download the report available here.

Article produced in partnership with Econostrum.

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Decentralization and Economic Performance in Selected South Mediterranean Countries

The project attempts to understand the specific nature of “State” and “Sub-state” relationships in Southern Mediterranean countries and its role in driving spatial economic and social disparities. The report is structured in three parts. The first part provides an overview of the literature on decentralization and regional development. The second part focuses on the political economy of the process of decentralization in the three selected south Mediterranean countries. To a large extent this part presents the key findings of the country studies completed under the research project. Three countries have been covered, namely Egypt, Morocco and Tunisia. The third part presents the findings of the econometric investigation of the relationship between proxies of regional performance and decentralization indicators. This part is a preliminary analytical attempt to understand the channels through which financial decentralization proxies such as the volume of local revenues or the share of central-state transfers in local revenues are interacting with socio-economic indicators such as unemployment rates and firms’ location across the national territory.

South Mediterranean countries have more centralized states when compared to other emerging and developing countries. The three countries (Egypt, Morocco and Tunisia) are unitary states with multiple layers in the sub-national administration. The three countries are endowed with a dual system of elected and appointed authority at each layer. The range of activities devolved to sub-national administration seems to be broader in Morocco and Tunisia compared to Egypt.

Before the collapse of Mubarak’s regime in Egypt, the National Democratic Party (NDP) dominated local popular councils, which led to poor checks and balances on the executive councils. The ex-military officials have been often appointed as heads of the Local Executive Councils (LECs). In Tunisia, Ben Ali’s ruling party (RCD) played a major role in local politics before revolution, which undermined potential benefits of decentralization. In Morocco, no single political party dominated local politics. Yet, the high number of political parties and the election mode adopted has led in many cases to fragmentation of local councils and unstable political alliances.

Decentralization in the three countries is handicapped by limited financial strength of local administration. The share of local administration spending in GDP is estimated to 4.6. Wages and other current costs dominate local spending. The three countries have poor local revenues due to limited fiscal decentralization. Local entities in the three countries suffer from an excessive dependence on the central government’s transfers. Despite multiple and sophisticated criteria used, the distribution of the central state transfers to local entities is questionable and does not fulfil its purposes. Regional disparities, although to a large extent explained by different regional initial conditions and unequal natural endowments; are exacerbated by public policies.

Empirically, the project investigates the specific impact of decentralization on economic and social outcomes. Data availability constrained the extent to which a more ambitious econometric exercise could be conducted. At this stage, the key conclusion of our econometric exercise is that the pattern of decentralization as it stands today in the countries investigated does not seem to affect neither regional unemployment rates nor firms’ location.

The Arab uprisings have liberated people’s voices including in remote areas usually forgotten or marginalized in national politics. The emerging political debate in the transition towards democracy in the south Mediterranean should lead to a new era in the relationships between the central state and the sub-national territories. Further research need to be conducted in order to determine the right mix, for each country, between providing incentives from better service delivery through political and fiscal decentralization while at the same time ensuring that the principle of national solidarity plays its role via central state transfers to adjust for regional disparities.