U.S.-Egyptian Relations: Time for a Renewal
19 Aug 2009 in Education, Employment
Earlier this week, Egyptian President Mubarak concluded his first visit to the United States since 2004. Amina Fahmy and Diana Greenwald note that, in order for the two countries to deepen their partnership, efforts to improve domestic realities in Egypt must complement the existing focus on regional security issues. Increased economic cooperation that goes beyond government-to-government ties can ensure that growth trickles down to Egypt's youth.
Acheiving a peaceful resolution of the Arab-Israeli conflict, cooperating on defense and intelligence sharing, and countering terrorism and extremism topped the agenda during Egyptian President Hosni Mubarak’s recent visit to Washington. While these issues are of paramount importance, a stronger alliance between the U.S. and Egypt can only be achieved if the Egyptian economy delivers prosperity for its people. Growing economic discontent among Egyptians raises the question: how can Egypt play a decisive role in regional stability and serve the strategic goals of a U.S.-Egypt partnership when institutions within the country are losing legitimacy?
A sustainable alliance will be one which gives Egyptian citizens, especially young people, a greater stake in the partnership through tangible economic and social development outcomes. This means building on existing progress in the country’s development, working to overcome key obstacles, and preparing for the “unknowns” associated with achieving institutional change in an unpredictable global economic landscape. One way for the U.S. to balance these considerations is to recognize that strengthening economic security inside Egypt is closely tied to the country’s ability to play a constructive role in the region.
Harness What is Working
Egypt is by no measure stagnant and, in fact, the space for economic reformers has been gradually increasing. The economy has averaged 7 percent annual growth in recent years and, prior to the global downturn, witnessed a drop in overall unemployment rates to below 9 percent from nearly 12 percent in 1998. Despite deep entrenched interests, the government successfully revised the country’s core labor law (Law No. 12 of 2003) giving employers more flexibility in hiring and firing. Improvements in the ease of doing business have placed Egypt as a top global reformer in the World Bank’s Doing Business rankings in 3 out of the past 4 years. Furthermore, the signing of the Qualified Industrial Zone (QIZ) agreement with the United States in early 2005 has yielded more than $1 billion annual revenues. Companies located within Egypt’s QIZs are granted duty-free access to U.S. markets provided that their products use 11 percent Israeli components. The QIZ is thus a prime example of a partnership based on common goals: bringing investment, export revenues, and jobs to Egypt while encouraging greater regional economic integration.
Tackle Persistent Problems
Yet, enhancing ties between the U.S. and Egypt – whether through official aid, business investments, or trade – does not mean turning a blind eye to worrisome trends in the quality of Egypt’s growth. Due to prevailing institutions which are public sector-dominated, the lack of a diversified economy, and weak social safety nets, Egypt’s booming economy is leaving behind both its young and poor populations.
Youth unemployment in Egypt was recently estimated at nearly 17 percent, a decline from the rate of over 25 percent seen in the late 1990s, but still about twice as high as the overall unemployment rate.[1] Unemployment is also increasingly concentrated among the educated youth, as they endure declining returns to education. Of the 1.6 million young Egyptians out of work, 95 percent have a secondary education or higher. This shows a severe disconnect between the skills and expectations of the young workers and the availability of jobs.
Furthermore, 72 percent of new job market entrants are ending up in what can be described as “bad” jobs in the informal sector where conditions and security are precarious. Most of these jobs lack training to build skills and are characterized by low wages and fewer benefits. Indeed recent data showcases the decreasing quality of jobs and life earnings for the country’s youth, one generation after another (see Figure 1). Of the minority who do secure good jobs, 64 percent do so with their first jobs. This underlines the importance of the quality of one’s first job which, in Egypt, largely defines one’s long-term career trajectory.
What a New U.S.-Egypt Partnership Can Achieve
Following President Obama’s inauguration, a number of Egyptian ministers and public officials have visited Washington to express their interest in working not only with the administration but also with the private sector to deepen economic ties. In March 2009, Mohamed Mansour, the Minister of Transportation, stated while in Washington that he looked forward to a new relationship with the U.S. government and called upon the American private sector to invest in Egypt's transportation infrastructure. In May, the Minister of Trade and Industry Rachid Mohamed Rachid and US Trade Representative Ron Kirk signed a “Plan for a Strategic Partnership” to boost trade and economic ties. Finally in June, shortly after President Obama's speech in Cairo, Tarek Kamel, Egypt’s Minister of Communication and Information Technology, visited Washington and expressed his government’s enthusiasm toward President Obama's commitment to promoting innovation in the Middle East.
By cooperating with Egypt on promoting more inclusive economic growth, the U.S. can ensure that it is no longer perceived as supporting an increasingly non-viable status quo. These visits by Egyptian public officials send a clear message: the Egyptian government is not only open to increasing economic cooperation with the U.S., but it is actively seeking it out. It is critical to extend this partnership beyond government-to-government ties and to build mechanisms for cooperation between non-state actors on both sides. This can be accomplished through a series of both top-down and bottom-up measures.
First, trade between Egypt and the U.S. amounted to $8.5 billion in 2008, a significant increase over previous years, but still a miniscule share of the U.S.’s overall trade with the Middle East region. According to the American Chamber of Commerce in Egypt, U.S. exports to Egypt comprised 9 percent of exports to the region, and imports were only 2 percent.[2]
Second, improving the investment climate in Egypt, a reform process that is already underway, should also incorporate a comprehensive set of benchmarks to improve governance, efficiency, and transparency with regards to reforms and privatization. In this way, the process of making Egypt more attractive for foreign investment will be a process which is owned by its citizens.
Third, much-needed development of Egypt’s infrastructure and partnerships to bolster the services sector are two additional areas where U.S. cooperation and innovative trade agreements could provide real benefits to Egyptian people.[3] Finally, education – an area of strength for the U.S. – and human capital development initiatives that promote skills in the critical areas of innovation and entrepreneurship will equip Egypt’s youth generation with the tools they need to drive a globally competitive Egyptian economy.
The global financial crisis and subsequent recession have proven the fragility and volatility of economic relations across borders. Further, there are no text book solutions to Egypt’s complex social and economic challenges. However, as the U.S. and Egypt continue their strategic dialogue, attention to regional security issues must be complemented by efforts to improve domestic realities in Egypt: this means upgrading institutions, ensuring economic growth trickles down, and preventing Egypt’s demographic bulge from being wasted. These will not be mere political wins for the current generation of public leaders, but lasting gains for future generations of citizens in both countries.
