According to the U.S. Economic Development Administration, economic resilience in a local or regional economy is about anticipating risk, evaluating how that risk can impact key economic assets, and building a responsive capacity.
In Egypt, the Egyptian National Competitiveness Council noted in May that “Enhancing economic resilience is crucial for Egypt to mitigate the risks associated with global disruptions and capitalize on new opportunities.”
Under the theme of “Doing Business in a Fast-Changing World,” Mahmoud Mohieldin, U.N. special envoy for financing Sustainable development, spoke to AmCham Egypt members in July about the need for vigilant preparedness to navigate global uncertainties.
The speech came as the new government overhauled the ministries responsible for manufacturing, transportation, investment, international trade, economic planning, and international relations, including merging, separating, and reviving old ones.
Areas of change
Mohieldin stressed the significant impact of ongoing geopolitical tensions on Egypt’s economy, citing a “deficit of trust coupled with a surplus of crises and economic turmoil.”
He said today’s problems first appeared seven years ago and are now accelerating more quickly. The fast pace of demographic transitions, he noted, comes with a significant global need for a talented and skilled workforce, particularly in Europe.
With 60% of Egypt’s population under 30 years old, according to the World Population Review, Mohieldin emphasized Egypt’s youth as a powerful asset that could work abroad, underscoring the country’s comparative advantages and opportunities.
He stressed that upskilling young people “comes with investments in health, human capital, and talents”
Another critical area is rapid urbanization, he said. “Urbanization can happen, however, not necessarily with a good plan, so we can see the beauty of rural Egypt disappearing along with opportunities in farming and agriculture.”
Notably, population growth has increased the demand for land for housing, industry, and infrastructure, diminishing arable land. Mohieldin stressed Egypt’s need for comprehensive urban planning and organized infrastructure to prevent informal settlements and the disappearance of rural spaces.
Climate change is also a significant challenge facing farming and agriculture. He noted that unprecedented heat can cause disruptions to farming and other disasters. “In recent years, Egypt and other Mediterranean countries have faced unprecedented heat waves that have reduced the production of crops like mangoes, maize, dates, and vegetables,” Sayed Khalifa, head of the Agriculture Syndicate, said in July.
Hussein Abu Saddam, head of the Farmers Syndicate, told state-owned Ahram Online in July that those heat waves would significantly increase the prices of fruits and vegetables until the end of the summer. “Most of these crops are grown in open fields rather than greenhouses,” he said, “making them more susceptible to the negative impacts of higher temperatures.”
In this regard, Mohieldin stressed the importance of investing in climate resilience and efficiently mobilizing resources.
He noted that dealing with the ups and downs of commodity cycles requires reliance on risk mitigation tools. Mohieldin emphasized that this would necessitate maximizing trade diversification and the inclusion of different economic sectors—a shift that is happening now in the Gulf region.
Tech and business
Mohieldin also addressed technological disruptions and artificial intelligence (AI), noting that “implementing the technology is affecting macroeconomic stability, fiscal and monetary issues, and balance of payment shocks, directly and indirectly.”
He said the adoption of AI in developing countries will be challenging. The IMF AI Preparedness Index has shown some developing countries are not ready for AI due to a lack of human capital and digital infrastructure. He also noted that regulatory issues related to usage ethics limit countries’ adoption of AI.
He urged the development of clear and balanced regulations. “Regulators shouldn’t rush to enact new laws that restrict AI and prevent it from being adopted thinking that it will take over the world,” he said. “Instead, they need to strike a balanced approach that leverages the opportunities presented by AI while mitigating the challenges that come with its adoption.”
Weakened governments
Mohieldin highlighted some practices governments should avoid, such as relying on civil service to deal with joblessness and underpaying civil servants compared to the private sector. In addition, he stressed that assessing education progress only by enrollment rates hinders overall development.
Mohieldin explained that banning imports or exports disrupts the dynamics of the global economy. He cited the Russian-Ukrainian war and its impact on Egypt’s imports, which he said would last for at least 10 more years.
While Egypt’s imports-to-GDP ratio is within an acceptable range as it mainly imports essential grains and machinery, the challenge lies in exports. He noted exports represent about 13% of GDP; by comparison, Vietnam’s exports account for 105% of GDP.
To increase exports and enhance climate compliance, Egypt needs a supporting industrial policy incorporating green components, rapid digitalization, and incentives like the United States and EU.
The U.S. industrial policy is supported by the Inflation Reduction Act, which created more than 20 tax incentives for clean energy and manufacturing. According to the U.S. Department of the Treasury, the incentives encompass “additional bonuses to enhance investments in communities and workers, as well as mechanisms that will increase private sector investment.”
The EU export system also incorporates a Carbon Border Adjustment Mechanism, which imposes a tariff on carbon-intensive products.
However, Mohieldin explained that Egypt should also minimize the spillovers of such new industrial policies. That is mainly because such new policies are still being tested and may not prove effective in Egypt.
Stop doing wrong
Mohieldin has a set of solutions to deal with the world’s fast pace of change. On the top of his list is the need for investment in resilience and risk management. “Prevention of harm should be prioritized over benefits.”
He noted that savings, as a ratio of GDP, should be prioritized over investment because weak domestic savings would compel the country to seek external capital and investment flows.
The savings gap in Egypt has always been huge. In 1960, the ratio of savings to GDP was 3.5%, compared to an investment-to-GDP ratio of 15%.
In 1974, the Open-Door Policy helped increase the ratio of savings to GDP to 8%, while the ratio of investments to GDP was 19%. In 2014, savings to GDP was 5.2%, while investment-to-GDP was 14%.
Mohieldin emphasized the importance of foreign investments and economic diversification. Gulf countries with their high savings ratio, he said, are still keen to attract FDI by offering various incentives.
Another major challenge for the Egyptian economy is the low 15% ratio of tax revenue to GDP. He explained that such a percentage could ruin the country’s whole business model regarding growth and development. Mohieldin said public investment needs to be doubled in certain areas within the country.
A look ahead
While Egypt’s extended fund facility with the IMF is scheduled to expire by the end of 2026, Egypt needs to plan its way forward two years from now. The IMF projects that Egypt will see higher growth, lower inflation, and less debt in the coming two years.
According to Mohieldin, Egypt should avoid lingering in the IMF’s “intensive care unit.” By 2026, the Egypt-IMF relationship will reach its 10th anniversary, and he believes that is long enough for the country to thrive independently.
Mohieldin underscored that economic growth will happen when the private and public sectors partner to invest in human development, infrastructure, and green transformation. He stressed that investing in human resources will equip the population with needed training and skills to manage shocks and unfamiliar situations. He also discussed the importance of bolstering Egypt’s financial resources and strengthening its provisions for international reserves.
He noted Egypt needs to create a new home-grown development model to help the country work toward “Vision 2030,” which is fully compatible with the UN Sustainable Development Goals. Rather than creating a new vision, the new Cabinet should leverage and build upon the existing framework.
Mohieldin urged Egypt to examine the performance of neighboring nations and study the region to understand better the African trade agreement and investment opportunities that might be forged with Mediterranean countries.
“This new rule of the game is if you have a good relationship, especially with a history of more than 100 years like the one that we have between the U.S. and Egypt, please keep it protected,” he said. “Relationships tested for decades can help Egypt invest and trade better.”
This article first appeared in August’s print edition of Business Monthly.
