Summary: A report from the Egyptian Center for Economic Studies on Egypt’s labor force setup.
Egypt’s attempts to keep GDP growth rates positive since the January 2011 revolution, the July 2013 uprising, the first float of the pound at the end of 2016, and the COVID-19 pandemic have affected the labor market. “Over the past decade, the Egyptian economy has undergone significant negative structural shifts, skewing job creation toward lower productivity sectors,” a December report from the Egyptian Center for Economic Studies (ECES) said. “COVID-19 has further revealed Egypt’s labor market bottlenecks, vulnerabilities and segmentation.”
Local and foreign investors starting projects in Egypt should understand those labor market issues, as they will likely influence project and hiring decisions. The ECES report focuses its analysis from 2010 onward. Its objectives are to “provide a diagnostic analysis … and dynamics in Egypt’s labor market.” It then highlights “key constraints hindering [the labor market’s] resilience toward a better future of work.”
Labor evolution
According to the Central Bank of Egypt, the labor force (those aged 15 to 64) as a percentage of the total population has declined since 2012, when it was 48.4% compared to 42.9% in 2021. Between 2016 and 2019, the CBE reported that the labor force remained almost stable at 28.4 million, despite the population growing by 9.1 million.
That helped reduce the unemployment rate from 12.7% to 7.4% during that time, with the CBE estimating the private sector accounted for 79.3% of jobs by 2019.
The drop in the labor force relative to the general population might be temporary. The number of university graduates should increase as the percentage of school students who went on to study at universities increased from 8.6% to 9.8% between 2011 and 2021.
However, those figures tell only part of the story. The ECES report said the labor market “experienced a turning point in the aftermath of the January 25th Revolution.” That was evident as the unemployment rate peaked to over 13%, the highest on record.
To reverse that, the government has increased construction, as it is a labor-intensive industry they can upscale easily across the country. “The next four years between 2016 and 2019 witnessed an increase in … construction activities, becoming the key driver of Egypt’s economic growth,” the ECES said. That helped the unemployment rate drop to 7.9%, its lowest level ever, according to CAPMAS.
However, the drop in unemployment didn’t translate to GDP growth after 2011. From 2016 and 2019, for example, the construction sector’s contribution to GDP was 6% despite employing 12% of the workforce. “Employment growth lagged behind GDP per capita growth, especially after 2015,” said the report.
COVID-19, at the start of 2020, further exposed that decoupling. “The labor market was paralyzed for more than 10 months” due to lockdowns. Still, the government’s official unemployment figures remained below 8%, despite GDP growth slipping from 5.6% in 2019 to 3.6% in 2020.
The ECES said, “One explanation for this might be the observed expansion in construction activities since 2016.” Another possibility is that the “percentages of discouraged job seekers … surged rapidly during the last few years, especially among women.” Lastly, the near stable unemployment rate “could be attributed to the demographic changes [from] 2012 to 2018, as it has seen a slowing growth of youth and young adults populations.”
Informal market
The ECES admits it is “unclear whether these declared unemployment rates reflect the unemployment in the formal sector only or informal workers [those working for a registered company but not under contract] were accounted for.”
That is significant, as the ECES estimates informal employees account for nearly 83% of the workforce outside the government and public business sectors. Young people account for almost 66% of informal workers. “This is a pattern that has been almost standardized in the Egyptian labor market,” said the ECES. “As a result, the formal youth employment rate has fallen dramatically.”
A significant reason for the popularity of informal work is that most economic activity is “biased toward certain sectors, such as construction, that heavily employ those groups.”
Another feature of Egypt’s informal employment sector is it hires “highly educated men and women … in urban rather than rural areas … Irregular jobs [usually seasonal employment or gigs] follow the opposite direction.”
An ECES survey accompanying the report found 45% of poor, educated youth seek informal employment, while only 8% of the wealthiest resort to it. That is mainly due to rising prices and the fact that the private sector is more inclined to hire informal workers to bypass the formal employment regulations that require employment protections set by the 2003 Labor Law.
Regionally, Egypt’s informal economy is “sizable compared to neighboring and competitor countries.” The ECES report estimates it to be 1.5 times the size of Jordan’s informal market and twice that of Turkey.
The ECES said, “Informal wage employment has particularly increased as a percentage of total employment. [It went] from 31% in 2012 to 39% in 2018. [That is an] alarming fact.” Economic growth should result in a decline in “irregular employment [work for other individuals or informal companies] among these workers with the relative improvement in economic conditions.”
Further complicating and muddying the labor force is Egypt has no tools to measure underemployment and those who stop looking for jobs, among other situations. That makes it nearly impossible to accurately gauge the effectiveness of the labor market in fueling economic growth.
For example, the International Labor Organization could only estimate that 1 million Egyptians were discouraged from seeking jobs in 2020. The ECES report calculated that to be nearly 4% of the labor force, which is noticeably higher than in comparable economies. That list includes Jordan (2.5%), Indonesia (0.13%), and Vietnam (0.03%), where there are tools to measure those discouraged from seeking jobs.
Formal employment
Formal employment in Egypt has a few peculiarities that “contradict the usual structure of proper employment pyramids in which educated youth get better job opportunities in urban areas.”
The ECES says that is mainly due to the widening skills gap between what university students learn and what companies need. Exacerbating the problem is that “a huge workforce is annually injected into the labor market, exceeding its ability to generate new job opportunities.”
A breakdown shows 11% of the labor force is between 20 and 24 years old. That percentage jumps to 26.6% for those aged 30 to 39. It gets worse, as the unemployment rate among the younger group is triple that of the older one. “Evidently, the main challenge is facing the new unemployed individuals entering the labor market.”
The ECES report found that the older generations (from 40 to 64), representing 37% of the labor force, represent 57% to 60% of Egypt’s economic activity. The oldest sub-segment’s (from 50 to 64) contribution is “almost similar” to the one from 40 to 49.
Another major issue in Egypt’s labor market is the more educated graduates are, the less likely they can secure their first job. “Those with university education and above represent the largest share of the unemployed, at nearly 40%.” That is nearly double those with an “intermediate technical education” and 1.5 times more than those who graduated from “general secondary [Thanawya Ama] or al Azhar.”
Those peculiarities further complicate efforts to combat unemployment and exacerbate its disconnection from GDP. According to the ECES, university graduates should increase from “fewer than 600,000 workers per year [between] 2020 and 2025 to nearly 800,000 per year [from] 2030 [to] 2040.”
Finding talent
Which city local and foreign investors choose to invest in is vital. “The geographic disparities of employment distribution represent a dilemma at the bottom of [Egypt’s labor] pyramid.” The more significant inconsistency is between urban and rural areas. “Urban regions have the larger share of unemployment compared to rural areas” and most industrial activities.
The ECES report said job opportunities in Greater Cairo (including Giza and Qalyubia) are three times higher than elsewhere in Egypt. Meanwhile, blue-collar opportunities are higher in Lower Egypt (the Delta and surrounding cities) than in Upper Egypt. “Unemployment in Lower Egypt is mostly higher compared to Upper Egypt,” it said.
The exceptions are small cities that depend on tourism. The list includes South Sinai (27.5% unemployment), Red Sea Governorate (18%) and Luxor (15%). “This could mainly be attributed to the decline in tourism activity during 2020 due to the COVID-19 lockdown measures, as one year earlier South Sinai, for instance, achieved zero unemployment rate.”
Productivity challenge
Employee productivity is another vital consideration for investors. Egypt’s real GDP per worker is 3.2%, close to “middle-income countries” (3.9%). According to the World Population Review, those nations are primarily in Sub-Saharan Africa, South America, and Asia.
On the other hand, Egypt’s labor productivity surpasses MENA region countries, which average 0.8% of real GDP per worker. Compared to “benchmarking economies,” Egypt’s labor productivity is nearly the same as Turkey’s (3.1%) and four times higher than Jordan’s 1.2%.
However, a unique aspect in Egypt is productivity varies dramatically from 0.02% to 4%. “Mining and extraction [are] a noticeable exception [where] labor productivity on average stands at high levels compared to international standards, given the low share of labor employed and the sector’s high capital intensity.”
The ECES report noted, “Other sectors such as public utilities, construction … insurance and real estate perform particularly poorly by international standards.” ICT and finance are “noticeably higher in labor productivity … even though [their] share [of employment] is not expanding.”
That means that a growing portion of youth would likely find more employment opportunities in low-productivity sectors, most prominently construction, which the government has prioritized since 2016. Some of those workers may come from high-productivity sectors or move sideways from other low-productivity sectors, such as agriculture. “Those sectoral shifts do not tend to contribute to hefty gains in terms of overall productivity when it comes to employment.”
New norm
The government’s strategy to transform Egypt’s economy into a digital one, plus ongoing structural reforms, will invariably bring changes to the country’s labor market. Regardless of whether that proves to be positive or negative, the government has a vital role in developing the next generation of the workforce.
“The state’s readiness to face future demands is based mainly on the status of its education and labor systems,” the ECES report said. The question will be: “How consistent is [that] relationship … and the degree of flexibility and dynamism that allows for rapid engagement with the latest changes?”
The paper said the first step toward reforming the labor market is “filling the gap between productive sector needs and labor supply and skills.” The government should also adopt increasingly innovative approaches when dealing with workers.” Nontraditional actions that used to be undertaken throughout the previous waves of technological progress are no longer applicable.”
