The Rebirth of Egypt

CAIRO – If macroeconomic indicators are to be believed, Egypt’s economic growth has ground almost to a halt over the past three years. Inflows of foreign direct investment have dried up, and GDP growth rates have plummeted from as high as 7% in 2008 and 2009 to merely 2% in 2013. But are the indicators to be believed?

The answer is yes and no. Though GDP should never be taken as an accurate representation of a country’s economic health, in Egypt, the figures do reflect the collapse of the country’s entire productive capacity in the years following the fall of Hosni Mubarak’s regime in 2011. The major ratings agencies, which previously regarded Egypt as one of the region’s most promising emerging markets, have slashed the country’s credit scores, deterring foreign investors. Moreover, the anti-Mubarak revolution led to massive capital flight, which has halved the country’s currency reserves.

And the bad news does not stop here. There have already been seven governments since 2011, with social turmoil pushing policymakers into a defensive mode that has stifled any reformist impulse. With unemployment running at 30-40%, the government faces a disenfranchised and increasingly bitter population. Meanwhile, crony capitalism fuels income inequality, impedes rural development, and erodes the education system.

Worse, however, the past three decades attest to the failure of conventional macroeconomics to guide policymakers in managing development. A misguided focus on GDP has neglected the costs of natural-resource depletion, pollution and other externalities, and the asymmetrical distribution of growth in predetermined economic sectors, all of which have long been associated with emerging economies like Egypt.