ANALYSIS: Unemployment and the future of Egypt

Theodore May
6 Min Read

CAIRO: While Egypt appears to have weathered the global economic crisis in a way that has international economic observers applauding, there is an underlying current of fear that Egypt’s economy might face setbacks over the next decade, not due to international economic conditions, but rather to a homegrown problem.

Egypt’s unemployment crisis has taken a backseat this year to the government’s efforts to keep GDP growth afloat in rough economic seas.

But unemployment continues to grow, and it seems that the numbers just don’t add up to suggest that Egypt is on a sustainable course.

At the heart of the issue are two competing numbers: population growth and GDP growth. What is clear is that Egypt will have to ramp up its GDP growth significantly to outstrip a growing population.

But the issue goes further. Underemployment is also a serious problem in Egypt, as is the mismatch between available jobs and the skill sets of those who aim to fill them.

Official government figures put unemployment at 9.42 percent at the end of the second quarter of this year, showing only a modest rise in unemployment. A year earlier, the government had reported a 9.37 unemployment rate. Unemployment in March 2009 was reported to be 8.89 percent.

Some reports, though, suggest that the government is downplaying unemployment numbers, and that maybe as many as a fifth of Egyptians are out of work.

One pundit blames these problematic figures on Egypt’s president.

“Mubarak has been unable to make the reforms necessary to address unemployment, inflation, housing, food crises, and Egyptians’ other urgent needs, wrote Aladdin Elaasar, a former professor at the Monterey Institute of International Studies, in a recent article for The Middle East Quarterly.

GDP is the primary driver of job creation. But Egypt’s population is mushrooming, meaning a boom in the number of young people entering the workforce. Fifty-eight percent of the country is reportedly under 25 years old.

With the population growing, Egypt’s government has come under increased pressure to boost its GDP growth in order to create jobs for new entrants into the labor market.

Minister of Trade and Industry Rachid Mohamed Rachid said earlier this year that Egypt would have to maintain 6 percent annual GDP growth to keep unemployment steady.

“We are at the moment at 4.5 percent (growth) which means that we are creating jobs but we are not creating enough jobs to cater to the 650,000 new applicants every year, Rachid said, according to Reuters.

The country had managed to boost GDP growth recently, recording consistent increases from 4.1 percent in the 2003-2004 fiscal year to 7.2 percent in the 2007-2008 fiscal year.

Then the global economic crisis struck, and GDP tumbled.

Even though Egypt is one of the few countries maintaining GDP growth, the country’s youthful population demands it to maintain a higher rate of growth than many other nations. Egypt’s GDP growth slowed to 4.7 percent for the nine months between July, 2008 and March of this year.

“We believe that, at this point, the economy would be capable of achieving positive, but low, growth rates ranging between 3 percent and 4 percent, unless economic reforms are implemented in a number of sectors to create new momentum for growth, which has been undermined by the crisis, wrote Reham ElDesoki, an economist at brokerage firm Beltone Financial.

“Egypt needs to sustain high growth rates for an extended period of time to be able to absorb the new entrants to the labor market every year, estimated to be around 600,000, she added.

Perhaps more important than Egypt’s unemployment challenges, though, are the low wages and problems with underemployment.

It’s estimated that as much as half the country lives on less than $2 per days. While many of those are, in the strictest sense, considered employed, they’re well below the poverty line.

According to Elaasar, GDP must grow by 8 to 10 percent per year to halve the number of workers earning less than $2 per day by 2015.

But the government is taking strides to make up for the decline in GDP growth by creating employment opportunities through deficit spending.

The government, wrote Alia Mamdouh from CI Capital, “is collaborating efforts to alleviate the impact on unemployment starting with its stimulus package that focused on infrastructure development – a labor-intensive industry; the announced incentive of deducting an amount of LE 15,000 from taxes paid by companies for each job opportunity provided by investors; and the continued commitment to provide investment opportunities.

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