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The pain of change

CAIRO: The government has been clear about the objective of its economic agenda: to reduce the dominance of the government in the economic process and increase the role of the private sector. This transition is not without opposition and the change may be painful to many involved. Ania Thiemann, the Economist Intelligence Unit s recently-appointed …


CAIRO: The government has been clear about the objective of its economic agenda: to reduce the dominance of the government in the economic process and increase the role of the private sector. This transition is not without opposition and the change may be painful to many involved. Ania Thiemann, the Economist Intelligence Unit s recently-appointed Egypt analyst, discussed these issues with The Daily Star Egypt on the sideline of Sunday s Economist Conference.

Thiemann explains that the government has begun to address the nation s macroeconomic impediments, and that streamlining the government is the next step.

They now have to look at the real obstacles in the long-term, says Thiemann, which is the bureaucracy of the civil service. And this is also potentially one of the more difficult things, because a lot of the administration is very overstaffed and telling people that they may not have the right skill sets or that they need to be doing other jobs is always very difficult.

Although the government has taken measures to address the red tape that relates to businesses, the continued excessive bureaucracy can have an impact beyond the public sector. It s about the fabric of society in a certain way, says Thiemann. When you have a very heavy bureaucracy, it carries with it a lot of expectations, for instance, of the government being the main provider of jobs.

However, the diminished role of the government needs to be complemented by the stimulation of the private sector. What this government is trying to do is to move away from the government and the public sector being the main driving force in the economy, explains Thiemann. What they re looking to do is for people to turn to the private sector. And therefore, when I talk about the bureaucracy, it s both in terms of keeping back growth due to inefficiencies but also changing the mentality [and] starting to look at the private sector.

In recent years, and particularly since Prime Minister Ahmed Nazif was appointed 20 months ago, the country has been emerging from a centralist, socialist past; the sacredness of state assets is even enshrined in the constitution. In light of this, the public sometimes questions the urge to extricate the government from the economic process.

I m not saying [that] government is bad, Thiemann responds. I d like to make that very clear. I think there is an economic argument, especially in emerging markets, for the government remaining a key player in, for instance, utilities. When you have high levels of poverty, you do need to make sure that it s available to everybody. But I do think that history has shown us there s a tendency for inefficiency when you have a government-driven business.

This tendency is partly due to the importance of the profit incentive as a primary driver of efficiency.

It s an unfortunate truth that what drives good business is the need for profits, says Thiemann. If you are a public company, you don t feel the need, perhaps, to turn out a profit every year. So you can end up with a lot of inefficiencies and also not feel the pressure to reform your management process. And I think the key is in the management, and that s what privatization brings.

In forming its economic agenda, the government is sometimes paying too much attention to the business community. What I know from my experience in other emerging markets is that the key point is transparency, says Thiemann. I think the best way to avoid the coziness [between business and government]. is for all processes to be conducted in an open and transparent way, so people know that there s no money under the table, there s no side agreement, no hidden deals. As long as everything is open and transparent, it is difficult to go wrong.

Thiemann concedes that reducing the size of the government is a sensitive matter in light of the already large amount of unemployment. When you re faced with an economy with high unemployment, says Thiemann, it s even more difficult. And I think that s a very sensitive issue for the government to tackle.

Topics: FJP

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