Egypt

• The uprising in Egypt has created the opportunity for long-term political, economic and social change.

• The impact on the economy has limited the government’s ability to deliver on popular expectations.

• Foreign currency reserves are running low as a capital flight and lower foreign receipts increase the risk of devaluation.

Weeks of demonstrations brought down Hosni Mubarak’s administration in February 2011.  Free and fair parliamentary elections were started within months, however, and by July 2012 the country should have an elected president in place. The new dominant parties have committed themselves to enhancing representative, accountable and transparent government along with efficient public services and efforts to alleviate poverty. The new political dynamic could create economic opportunities for young people who are desperate for change. About 60% of the population are aged under 30 and a high proportion of the 15-29 age group are unemployed.

The revolution has also brought new challenges. Economic growth, which was recovering after the global financial crisis of 2008, fell from 5.1% during fiscal year 2009/10 to an estimated 1.8% in 2010/11 and is projected at 1.7% for the year ending in June 2012. The unrest has also hit tourism and foreign direct investment, two key sources of foreign reserves. The central bank is running out of foreign currency to maintain the exchange rate of the Egyptian pound.

As political reforms continue, Egypt must tackle social shortfalls and inequality that disproportionately affect women. Poor quality education does not produce the right workers for the job market. The illiteracy rate was estimated at about 30% in 2006. By the end of the second quarter of 2011, unemployment, especially among the young, had risen in 12 months by a third to 11.8%. Poverty remains high in rural areas. Upper Egypt is home to more than 51% of low wage earners, of whom 44% are aged between 18 and 29.

Reform of inefficient energy subsidies and non-performing state enterprises must be carried out to create room for increased government spending on education and health and to create targeted social safety nets for the very poor. As Egypt strives to meet the short-term demands of its political upheaval, it will need a medium to long-term strategy to secure inclusive economic growth for all Egyptians. This would require increased co-ordinated effort across government agencies, and a strong partnership between the government, civil society, the private sector and development agencies.

The dramatic change came with economic costs as the ousting of Mubarak and the upheaval that ensued badly hit economic activity. Foreign and domestic investors are waiting until uncertainty eases and a more accountable political and economic governance emerges. On top of the lower growth already mentioned, the government estimates the economic cost of the uprising at EGP 40 billion (Egyptian pounds), about 2.9% of gross domestic product (GDP) for 2010/11, and EGP 65 billion (4.9% of GDP) for 2011/12. This is mainly due to lower tourist arrivals and foreign direct investment. Owing to sporadic unrest and lingering uncertainty around the June presidential election, economic growth in 2011/12 is expected to be about 1.7%, with 3.6% in 2012/13.

Foreign currency reserves fell as foreign direct investment dropped sharply and capital outflows increased after the protests, which caused a five-week closure of Egypt’s stock exchange. On reopening, the main EGX-30 index lost 27% of its market capitalisation to EGP 329 billion. The EGX-30 index fell to 4 451 points by October 2011 from 6 670 in October 2010. Tourism, a pillar of the economy because of the jobs involved, has been especially hard hit. The sector, representing 3.9% of real GDP, shrank by 5.9%. The Suez Canal, communications, energy, construction and building, and real estate sectors were the main contributors to growth in 2010/11. The Suez Canal, which saw 11.5% growth, accounted for 3.3% of GDP. The previous year its activity had declined by 2.9%. Electricity grew by 4.5% and represented 1.5% of GDP, Communications expanded by 6.7%, constituting 4.3% of GDP. The construction and building sector grew by 3.7% comprising 5.3% of GDP. Real estate grew by 2.8% and represents 3.3% of GDP. 

Private and public consumption – 84.7% of real GDP – were the main drivers of growth in 2010/11. Private and public consumption grew by 5% and 3.8% respectively. However, total investment decreased by 4.4%. Exports and imports of goods and services increased by 3.7% and 8.1% respectively. However, as a percentage of GDP, exports and imports decreased. In 2010/11 exports of goods and services reached 27.9% of GDP (compared with 27.4% the previous year) and imports of goods and services reached 31.5% of GDP (compared with 29.7%).

Total implemented investment reached USD 38.8 billion (US dollars) in 2010/11. Petroleum, natural gas and real estate activities constituted almost 30% of total investment, while modest investment was directed at agriculture and construction – 2.7% and 2.5% of total investment respectively. Investment in social services, communications and information, transportation and manufacturing ranged between 9% and 11% of total implemented investment for each sector.

Petroleum extraction grew by 2.4% and constituted 5.6% of GDP. In June 2011, the minister of petroleum and mineral resources laid the foundation for the largest polyester production project in the Middle East at Ain Sukhna in the North West Gulf of Suez economic zone. This is one phase of the National Petrochemical Master Plan and is being carried out by the Egyptian Petrochemicals Holding Company.

Owing to political doubts, the extent to which exports and investment will contribute to growth in 2011/12 is uncertain. It is expected that economic activity will be driven more by consumption and less by investment and exports. The government quickly moved with supportive policy measures and social transfers to counter rising commodity prices and reduce discontent from high unemployment.

The political and security uncertainty and accompanying economic costs also mean real GDP is expected to grow at a modest rate of 1.7% in 2011/12 and 3.6% in 2012/13. The mood could also lead to greater demand for dollars and lower bank deposits, which in turn would encourage more capital outflows.

The use of dollars in the economy had been declining since 2006/07, both in total liquidity and in deposits, accounting for 17.2% and 22.9% respectively of the total in 2009/10. In 2010/11 dollarisation slightly increased to 17.5% and 24% respectively, still below the rates of 2008/09 when it recorded 20.8% and 25.8%.

The fiscal deficit widened by 1.7 percentage points to 9.8% of GDP in 2010/11 as a result of a decline in revenues compared with the increased total spending. Total expenditure rose 9.8% in 2010/11. In response to widespread demonstrations, the government added 1 million extra staff to the public workforce in 2011, which drove up the wage bill by 12.8%. There was also an increase of 19.6% in subsidies, grants and social benefits. The cost of debt servicing rose 17.6% as yields on domestic debt increased through the year.

With the high toll on economic growth and international trade, there was a 1.1% decrease in total revenues during 2010/11. A 12.7% increase in tax revenues could not compensate for a 25% fall in non-tax revenues. The higher tax revenues came from increased sales taxes, the elimination of some tax exemptions and new measures to improve tax collection. But a widening of the tax base by tackling the large informal sector and combatting tax evasion will be required to substantially raise tax revenues further. Because of some high-profile corruption cases, public protests led to a temporary freeze of the government’s privatisation programme.

Weakened growth in Europe, volatile commodity prices and the political events will delay an increase in tax revenue, resulting in a fiscal deficit of 7.9% of GDP for 2011/12. The deficit should improve to 7.3% for 2012/13 as economic activity slowly picks up. The old government’s objective of fiscal consolidation by 2015/16 will remain dependent on economic activity and the future government’s ability to reform subsidies.

The future authorities will have to broker a new social contract to be able to make the trade-off between fiscal consolidation and providing sustainable social protection to the most vulnerable. The government priority is the elimination of energy subsidies (85% of total subsidies), followed by better targeted food subsidies, which are given to much of the population. Timing will be crucial to avoid destabilising the fragile political process while phasing out the subsidies. The government has already announced a 33% increase in energy prices for energy-intensive industries.

Egypt started a transition towards a flexible exchange rate regime in 2004, but still has a managed float of about EGP 6 to the US dollar to contain inflation from food and energy imports. Once fundamental conditions have improved the aim is to move to an inflation targeting system. Following the government change, the central bank in 2011 tackled two related short-term challenges: ensuring liquidity in the banking system and the interbank market by introducing a repo facility and countering exchange rate speculation. So far these measures have contained the impact of the political turmoil on the exchange rate and other monetary indicators. The cost has been about USD 2 billion a month in currency reserves.

Egypt’s net international reserves dropped from USD 35 billion in January 2011 to USD 16.4 billion in January 2012, increasing the risk of speculative attacks. Avoiding a devaluation of the Egyptian pound against the US dollar will become increasingly difficult if the government cannot find new sources of foreign reserves. In December 2011 the military granted USD 1 billion to the central bank to ease the pressure. The military’s reserves are not accounted for in national accounts though some estimate the military’s economic activities at about 20% of GDP. Bringing the military budget – a “restricted area” up to now – under the scrutiny of the new parliament is a sensitive issue for the new political leadership.

Headline inflation dropped steadily from an annual average of 11.0% in November 2010 to 9.1% in November 2011, despite a small relative depreciation of the Egyptian pound against the dollar, an inflationary spike in August 2011 and imported pressures from rising international food and commodities prices. Inflation will remain at 11.8% and 11.0% for 2012 and 2013 respectively.

The central bank has warned that the unclear political future, local supply bottlenecks for food and butane, and distortions in the distribution channels for food products are inflationary risks. In anticipation, it increased the overnight deposit rate to 9.25%, the discount rate to 9.5%, the overnight lending rate to 10.25% and the seven-day repo rate to 9.75% in November 2011. These measures could have an impact on fragile economic growth.

Large capital outflows following the January 2011 protests resulted in a balance-of-payment deficit of 4.1% of GDP for 2010/11 compared with a surplus of 1.5% of GDP for 2009/10. The financial account dropped from USD 8.36 billion in 2009/10 to a deficit of USD 4.79 billion in 2010/2011. A 30% increase in remittances from workers in neighbouring countries, which also saw protests, kept the current account deficit at -1.2% of GDP compared with -2.0% in 2009/10. Following the stabilisation of international oil and food prices, the current account should hover around -2.0% and -0.2% for 2011/12 and 2012/13 respectively. Once foreign investment and tourism receipts return to pre-crisis levels, the balance of payments should become positive again.

The trade deficit improved by 5.3% during 2010/11, following a 13.1% increase in exports, while imports grew only 3.6% even though Egypt is the world’s biggest wheat importer. Petroleum exports (+18.3%) and non-oil exports (+9.1%) benefited from the weakness of the euro against the dollar. Despite an 11.9% increase in Suez Canal receipts, the services balance surplus dropped to 3.3% of GDP, compared with 4.7% the previous fiscal year.

A 1999 trade and investment free trade agreement with the United States and a 2001 accord with the European Union gives preferential treatment to Egypt’s industrial exports to these key markets. Egypt also has integration arrangements with the Common Market for Eastern and Southern Africa (COMESA), the European Union, the Africa Union, the Greater Arab Free Trade Area (GAFTA) and the Nile Basin Initiative (NBI). Egypt’s exports to the Arab region increased to 18% of total exports in 2010/11, compared with 12.4% in 2006/07.

Foreign direct investment decreased by 67.6% in 2010/11, to a low of USD 2.2 billion, less than 1% of GDP (against 3.1% of GDP in 2009/10). These flows were mainly to the petroleum sector and real estate.

Authorities blamed the unrest in 2011 on locally based, US-funded non-governmental organisations. This will complicate dialogue between the authorities and international donors.

Egypt’s gross domestic public debt increased to 68% of GDP during 2010/11 compared with 63.8% the previous year, following a decision to finance the widening budget deficit by issuing treasury bills and bonds. The government plans longer term maturities of three, seven and ten years following the decrease of average maturity of outstanding bills and bonds from 1.7 years to 1.3 years. Of immediate concern however is the increasing yield on government debt due to the loss of investor confidence and the lack of competition in the banking market. Total domestic debt servicing increased from 5.4% of GDP for 2010 to 5.8% of GDP at the end of 2011. Egypt issued its first dollar-denominated one-year treasury bills in November 2011, raising USD 1.53 billion at a rate of 3.87%, lower than the rate for Egyptian pounds.

Egypt’s sustainable and low external debt level gives room to restructure the government debt portfolio, from domestic borrowing that has short maturities and high funding costs, to long term foreign debt at concessionary rates. Total external debt decreased from 15.9% of GDP in June 2010 to 15.2% of GDP in June 2011. The government’s external debt increased by 3.2% however to USD 27.1 billion, totalling 77.6% of total external debt.

The government is now considering taking on more external debt, including an IMF stand-by facility, which would allow it to finance itself at more competitive interest rates (around 2.5%) than domestic rates, and benefit from technical assistance and enhanced credibility with investors. In June 2011 authorities rejected a 12-month International Monetary Fund (IMF) stand-by facility of USD 3 billion that had been agreed at staff level. As a result it revised down budget deficit estimates for 2011/12 from 11% to 8.6% and decided to finance the debt domestically.

The bias towards domestic financing is the result of the central bank’s reticence to completely open up the domestic banking sector, heavily represented by government banks, to foreign players. This has resulted in artificially high interest rates that benefit domestic banks but not private sector development. There was some banking liberalisation by the old government. In 2010, Egypt privatised one of its largest state-owned banks which is now owned by a large European group. The new leadership must continue this liberalisation.

Gulf Co-operation Council countries have promised an additional USD 5 billion through Islamic financing mechanisms. Moody’s downgraded Egypt’s rating in October, however, to B1. Standard and Poor’s and Fitch downgraded it to B and BB- respectively in December 2011. The outlook by all three agencies remains negative because of the political risks, increased spending pressure and a fall in receipts.

Over the last five years the private sector has accounted for some 62% of GDP.  It accounts for approximately 70% of Egypt’s workforce in the formal and informal sectors. A decade of strong government commitment to strengthen the business environment came to a halt after the uprising however. Egypt ranked 81st out of 146 economies on the World Economic Forum’s Global Competitiveness index in 2010/11.  In 2011/12 it had fallen to 94. It also dropped two places in the World Bank’s Doing Business Report 2012, to 110th out of 183 economies. This is probably to be expected in the political turmoil.

Since the upheaval, there have been more than 6 000 corruption investigations and several high profile incriminations that have tarnished the image of business. Among measures taken, several land allocations made by the former government through direct contracts have been withdrawn. Courts have also issued four judgments cancelling the privatisation of former state-owned companies. These judgments have led to widespread concerns about all privatisations carried out in the past two decades. The government has appealed against the judgments but it remains to be seen how the previous dealings will be normalised.  The government has set up a special committee to settle land disputes, focusing particularly on those with foreign investors.

The steps and time needed to set up a business could be considerably improved. The insolvency law as well the unified company law that have been on the legislative agenda for two decades need to be implemented. On a positive note, the independence of the Competition Authority was reinforced when it was granted the right to commence criminal actions on its own.  And in a clear break from the past, corrupt business practices are no longer condoned. Further, the government, civil society and business groups are working together to streamline anti-corruption strategies.

The new parliament has yet to tackle the security and policy reforms that the business sector says needs to be carried out. Fears that the new administration’s policies could harm tourism have been countered by the Islamic majority, which says the worries are unfounded and that the private sector is at the centre their economic development policies.

Egypt’s financial sector remains underdeveloped and is a serious bottleneck for economic development and job creation. With a loan-to-deposit ratio of 50% in December 2011, the banking sector appears to enjoy ample liquidity. But major banks prefer to target credit at bigger companies and the government, rather than to small and medium-sized enterprises (SMEs). The government has sought to enhance financing for the private sector, however. In 2010 access to credit information was expanded with the addition of retailers to a private credit bureau database.  However, the government remains the largest borrower, squeezing credit for private sector investment. Financing small and medium-sized businesses remains difficult as major banks face high transaction costs and lack the incentives and infrastructure to serve smaller, local economic actors. Additionally, smaller companies often do not have the capacity to comply with the requirements, set up a business plan and provide their own collateral. Overall access to finance remains a problem for small and micro-enterprises which account for about 90% of businesses. A law was passed which intended to double the size of microfinance in coming years. At present, microfinance is restricted to non-government organisations that are solely funded by grants. Donors provide credit lines for the government’s Social Fund for Development targeted at smaller companies. A number of commercial banks have created financing units for small and medium firms and the government plans to transform a state bank into a funding bank for SMEs. The government is also looking into a banking sector development project using the wide network of postal agencies.

Since the fall of the Mubarak administration the authorities have slowed efforts to reform and privatise remaining state-owned commercial banks. As a result the banking sector remains overly fragmented with a large number of small banks. The National Bank of Egypt, the largest government-owned bank, is no more than a medium-sized institution by international standards. In January 2011, as political protests grew, the central bank guaranteed all deposits across the banking system and then limited withdrawals in February when banks reopened.

Egypt has a large, inefficient, underpaid civil service that is subject to political pressure. During 2010/11, the government took measures to increase civil service efficiency in the short term. In the long run it aims to restrain the size of the public administration by only replacing those who retire. However, the decision to take on an additional 1 million public jobs highlighted the strong social pressure facing the new government which must also carry out reforms.

Egypt has more state-owned enterprises than the average for developing countries. The scope for privatisation remains high, but recent, high-profile corruption cases in privatisation projects hit the popularity of selling state companies. Public entities in Egypt are typically over-staffed and need large-scale redundancies once privatised. With the current need to create jobs, the government has made no new engagement to further privatisation.

Decentralisation can help make public sector management more efficient. A national strategy for decentralisation, launched in July 2009, is based on ensuring the rights of local communities in deciding on their own needs and priorities. The Ministry of Finance is developing a fiscal decentralisation plan, but local communities are not yet able to raise revenues or create revenue sources without cabinet permission.

Despite increased investment and targeted government policies, progress on environmental sustainability has been slow. High population growth is imposing a heavy burden on Egypt’s natural resources, particularly water. Implementation of a national water management plan will be crucial for organising the supply and demand of available water. Renewable energy presents huge potential in Egypt, notably in wind and solar energy. The government aims to obtain 20% of its energy from renewable sources by 2020. It has a five-year plan (2012-17), aimed at positioning Egypt as a top generator of solar energy in North Africa.

The last environmental impact assessment was conducted in 2005. The sixth Five-Year plan that ends in June 2012 includes seven pillars related to environmental protection focusing on waste management, water and air quality, the eradication of industrial pollution, environmental protection, training and environmental awareness and decentralising environmental administration.

The 2010 World Economic Forum/Yale University Environment Sustainability Index ranked Egypt at 68th of 142 countries, a relatively high performance compared with its peers by income and geography. Nevertheless, the environment continues to be affected by hydrocarbon production, the expansion of tourism, the intensive use of irrigation for agriculture, rapid industrial development and high demand for energy, as well as the expansion of transportation and human settlements.

The government has taken measures to address these concerns including in the National Environmental Action Plan for 2002-17. The plan aims for broad-based economic and social development while acknowledging the link between sustainable agricultural and environmental development, food security and poverty reduction.

When Mubarak and his government were ousted, the Supreme Council for Military Forces said it was taking power temporarily. In March 2011 a referendum passed 11 constitutional amendments to pave the way for an interim government. A new constitutional declaration of 189 articles was issued by the military council in April. The political scene has remained turbulent however, with frequent clashes between the military and protesters, raising concerns over how the supreme council is handling the transition. In response, the council issued a streamlined roadmap to handing over power to a democratically elected president by July 2012.

There are nevertheless some positive aspects to the political transition. Egypt’s first free and fair parliamentary elections in more than 60 years started on 28 November 2011. Turnout for the three-stage elections was on average 60%. The results surprised, not because of the comfortable lead taken by the Muslim Brotherhood, but because of the large number of votes received by the radical Islamist party.  A controversial issue that remains to be settled is the selection criteria for the committee drafting a new constitution that will pave the way to the presidential election. Liberals are calling for the inclusion of all social groups, while the Islamists maintain that it is up to parliament to decide. The military’s role in the new administration is not yet clear. 

Social injustice played a key role in the protests against Mubarak. Despite various reports indicating that Egypt has achieved significant progress on the United Nations’ Millennium Development Goals (MDGs), poverty, unemployment, and the marginalisation of youth, women and rural populations have not been tackled over the past three decades. Social unrest remains a serious challenge as the youth population grows and becomes more assertive. Their social demands remain clear: freedom, justice, equality and human dignity. 

The Egypt Human Development Report 2010 by the UN Development Programme (UNDP) indicates that the major challenges for social protection are the labour market – especially for the young and women – gender discrimination and sanitation. The deterioration of the economy after the uprising caused social challenges across the country and slowed progress on the MDGs. The high turnover in government – three different administrations have taken charge of the country since Mubarak’s departure – has led to deteriorating progress on social and human issues. Poverty and unemployment rates are high. The 2011 UNDP Human Development Index ranked Egypt number 113 out of 182 countries.

Public spending on education is about 3.8% of GDP compared with 6.4% on health. Yet 27% of public expenditure goes to subsidies on food, fuel and other consumer commodities. Despite progress on the Millennium goal of universal primary education and efforts to reform the education system in recent years, the sustainability of such efforts is in question.

According to the Egypt Human Development Report 2010, 27% of young people aged from 18 to 29 do not complete basic education (17% drop out of school and 10% never enrol). Public education is of poor quality and fails to provide the necessary skills for the job market. The overall illiteracy rate is approximately 30% with a higher rate among women, especially in rural areas. There are approximately 5.8 million illiterate people in the 10-35 age range, meaning there are twice as many illiterates as there are registered high school and university students.

Egypt has a large higher education system which produced 320,000 graduates in 2010. As in other North African countries, the profile of Egyptian graduates is heavily tilted towards social sciences, business and law; more than half of all students are in these fields. Only 10% of graduates are in engineering and science.

In terms of health, the World Health Organization (WHO) 2011 report indicated that most of the population has easy access to health care. Public expenditure on health represents about 6.4% of total GDP.

Nevertheless, equity and access to health care for rural populations remains tough. The Health Insurance Organisation covers only 50% of the population and there is a growing unregulated private sector. The major health challenge is to control Hepatitis B and C. Egypt has the highest prevalence of Hepatitis C in the world. According to the 2009 Egyptian Demographic Health Survey, some 9.8% of the population is estimated to be chronically infected. As for HIV/AIDS, the 2008/09 country report on Egypt carried out for the UN General Assembly Special Session (UNGASS) on AIDS indicated that Egypt has low HIV prevalence among the general population (below 0.1%). The WHO/UNAIDS estimated the total number of people living with HIV to be 10 400. Several projects are being carried out with the help of the UN Children’s Fund (UNICEF), UNAIDS, the Global Fund on Aids and Malaria in addition to other donors.

Although the MDG target on extreme poverty reduction has been achieved, general poverty remains daunting. Some 25% of all Egyptians are poor, according to the Household Income and Expenditure Survey of 2011 (against 21.6% in 2008). Social justice and income distribution, notably in rural and slum areas, are major challenges in a society where large regional disparities occur. Rural Upper Egypt is the most deprived with 51% of its residents now considered poor compared with 43% in 2008. About 44% of those aged between 18 and 29 in Upper Egypt are considered poor. According to the Survey of Young People in Egypt (2010) those in the poorest households are distributed among three main groups on education: those who never enrolled (29%), those who dropped out before finishing basic education (24%), and those who completed technical secondary education (29%).

A "poverty map" made as part of a 2007 poverty assessment report shows more than 1 million poor households live in villages. These are about 5 million people who represent about 46% of the population of these villages and about 42% of the country’s poor population.

The Social Fund for Development with a mandate to reduce poverty has disbursed more than USD 2.5 billion since its inception in 1991. Nearly two-fifths was devoted to supporting microcredit and community development infrastructure. The outreach, results and effectiveness of such programmes are in question. There is little communication with the general public.  

The government’s stated efforts to cut poverty levels will be difficult to achieve with the social unrest of 2011 and the economic slowdown this caused.

The government spends about 27% of GDP on financing essential services and subsidies – especially food and energy subsidies. The government has used several mechanisms to reduce poverty. Certain services or benefits, such as energy and bread subsidies, go to all people, not just the most needy. Support for health and education also benefits all Egyptians. The government has however targeted some subsidised commodities (sugar, oil, rice and tea), and liquefied petroleum gas for cooking. Although Egypt’s huge food subsidy system provides a social safety net for the poor, it is a drain on the budget as it is fraught with weaknesses that reduce the quality and efficiency of delivery.

It is too early to estimate the precise impact of the civil unrest and political instability on jobs. However, preliminary indicators for the first half of 2011 show a substantial rise in unemployment to 11.8% in the second quarter of 2011, more than 30% higher than in 2010. After the upheaval, the government approved a new monthly minimum wage of EGP 700 for the public sector from January 2012. The burgeoning Informal sector, labour rights, wages, women’s participation and child labour remain major challenges.

Unemployment schemes and labour market protection are only available to workers in the formal sector. Pensions and old-age savings programmes cover 70%-90% of the labour force and pay benefits to more than half of those over 60. Five schemes are administered by two public institutions and 630 occupational pension plans are privately managed.

Progress on the third MDG of empowering women is slow. Women are marginalised by economic, social and political obstacles. They are the most vulnerable group in the labour market since the highest percentage of women work in the informal sector, or are non-wage family workers. Their share of paid non-agriculture employment is very low.

Culture and tradition are obstacles to women’s full participation in Egypt’s economic, social and political life. Nevertheless, women’s access to education has improved. For 2007/08, the ratio of boys to girls in primary education stood at 93% and 110% in secondary education. Large disparities can however be observed in technical education, the ratio of boys to girls stood at 88%. Girls were highly concentrated in commercial education.

The National Council for Women and National Council for Childhood and Motherhood were the leading institutions on women’s rights and gender and development issues. Nevertheless, these are widely perceived as defunct as they were led by Egypt’s former first lady and key figures in the old government. Civil society and non-government groups have built up capacity in recent years with donor support. With a religiously conservative parliament that may challenge women’s accrued rights from past years, more support is needed for sustainable gender equality programmes.

Demands for social justice, equality and a brighter economic future figured prominently in the protests led by Egypt’s youth against Hosni Mubarak, and they remain loud.

In 2008 almost 2 million people aged 15-29 were unemployed, compared with only 183 000 adults. The latest MDG Egypt progress report (2010) indicates that unemployment rates reached nearly 23% in the 15-24 age group and exceeded 60% for young women. In other words, 90% of the unemployed in Egypt were under 30 years old.

Despite the fact that around 2 million unemployed youth are looking for jobs, employers claim to face difficulties in recruiting qualified workers as the educational and training systems fail to provide the skills they require.

Egypt developed a youth employment strategy between 2003 and 2009. The country started preparing a national action plan on youth in 2006 and in 2009 formally launched its implementation for 2010-15.  The plan aims to increase youth skills, provide job opportunities and develop new labour market policies and programmes to improve standards of living and equal opportunities. It is hoped this will reduce youth unemployment from 23% in 2006 to 15% by 2015 by creating 3 million jobs.

No information has been given on the success of the national plan so far.  Furthermore, the Social Fund for Development which sought to create jobs by promoting small, medium and micro-enterprises has had mixed results. It has not fostered the entrepreneurial spirit among youth that would generate more small firms. The limited outreach strategy and the complex procedures required for obtaining financial assistance from the fund have been a major obstacle for youth to access such opportunities.

The MDG Egypt progress report (2010) suggests that numerous indicators show poor quality of jobs in Egypt’s official labour market in recent years. Just having a job is often not enough to avoid poverty. Almost 75% of jobs created between 1998 and 2006 were in the informal sector. Therefore, quality and equal opportunity are critical elements in making employment lower poverty.

The Egypt Human Development Report 2010 confirmed that the labour market fails to address gender challenges. One of the most striking features of Egypt’s labour force is the very poor representation of women and unequal opportunities between men and women with a similar education. The Survey of Young People in Egypt (2009) indicated that male participation and employment rates exceed 80%, compared with lower than 15% for female employment and participation in the labour market.

There are supply and demand reasons for Egypt’s youth unemployment problem. On the supply side, vocational training and youth skills development are plagued with being badly organised and funded. There is not enough practical training and the curriculum is misaligned with technological development resulting in shortages of modern and advanced specialisations.

On the demand side, the private sector complains that Egyptian workers do not meet  market requirements. This has been a critical brake on private sector growth in Egypt. 

Egypt will see a fast rate of population growth to more than 140 million people by 2050. However youth poverty represents a major and growing risk. If such challenges are not eradicated, the waste of human potential will drastically affect economic development.

Despite the youth employment strategy, Egypt faces labour challenges, such as the lack of education and the growing informal sector. The only way for youth to escape this vicious cycle of poverty and lack of work is through deep reforms. Young people need more career guidance and professional orientation to build a gateway to lifelong learning and productive work.

Incentives are needed at every level, ranging from upgrading curriculum and equipment and cost-sharing for training, to tax incentives for employers. Such options must be implemented to make technical and vocational education and training a viable option for youth. There must be accountability and proper certification, based on internationally recognised performance standards.

Resolving labour market failures is a shared responsibility between youth, employers, federations/chambers and the government. Close links between training-education providers and employers is essential to address these challenges. Employer-driven packages of training and services, with active involvement of employers in curriculum content, equipment and training, backed by strong vocational organisations that can set good standards, are essential to bridge the youth employment gaps, the school-to-work transition and to provide employment for Egypt’s growing population.