ByJONATHAN BERRPosted 10:00 PM 02/10/11Columns,Economy
Hosni Mubarak, who ruled Egypt with an iron fist since 1981, became aynonymous with despotism and corruption. Despite weeks of recent protests, he refused to hand over power. But on Friday, Egypt's vice president announced that Mubarak was stepping down and turning power over to the military. While much of the attention has focused on Mubarak's dictatorship, most Americans don't realize that he'd actually won international kudos for his handling of the economy.
Economic improvement has been a long, slow process. Since 1991, Mubarak's policies have reduced the size of the government and increased the size of the private sector.
Two years later, he promisedJudy WoodruffofThe PBS NewsHourthat change was coming slowly but surely: "At the same time we are making reform to the economy with another two, three years. There will be stabilization. At the same time we are working hard to raise the standard of the people who have been affected, but we can't do it overnight."
Reform, however, languished during the rest of the 1990s. The economy took another hit in 1997, when terrorists massacred 58 foreign tourists in Luxor, sending the country's$11 billion tourismindustry -- which represents 11% of Egypt's gross domestic product -- into a tailspin. But tourists began returning in subsequent years, although they're now staying away in droves because of the recent political turmoil. (Experts sayit's costing the country $300 million in lost business.)
Improving the Egyptian Economy
Mubarak began undertaking reforms in earnest in 2004. As theU.S. State Departmentnoted, Mubarak's team "simplified and reduced tariffs and taxes, improved the transparency of the national budget, revived stalled privatizations of public enterprises and implemented economic legislation designed to foster private sector-driven economic growth and improve Egypt's competitiveness."
The policies did yield some benefits. GDP grew around 7% between 2005 and 2008, although it then dipped below 5% as the global economic crisis unfolded. Officials from the International Monetary Fund and World Bank were impressed.
"Sustained and wide-ranging reforms since 2004 had reduced fiscal, monetary, and external vulnerabilities, and improved the investment climate,"according to a 2010 IMF Report. "Investors' confidence in Egypt and appetite for risk have improved since March 2009, and the stock market reversed course, capital inflows resumed, and official international reserves have been rising."
The World Bankspoke of the "reform path" that the Egyptian government began in 2004, arguing that it " established a solid track record as one of the champions of economic reforms in the Middle East and North Africa region." Officials praised the Mubarak regime for its business-friendly policies such as lowering taxes and tariffs.
Improvements Didn't Trickle Down
The Egyptian government, like its U.S. counterpart, has boosted spending and slashed interest rates to restart economic growth in the wake of the Great Recession. It has had some limited success. According to the World Bank, real GDP grew 5.3% in the 2010 fiscal year, up from 4.7% in 2009, but still below the rates recorded during the economic boom.
Still, many Egyptians continue to live in grinding poverty, with 44% either illiterate or semi-literate. According to the CIA's The World Factbook, about 20% of Egyptians live below the poverty line. And those that are educated often are underemployed and working multiple jobs to sustain themselves, says David Schenker, Director, Program on Arab Politics at the Washington Institute for Near East Policy, in an interview withDailyFinance.
Inflation was an astounding 12.8% in 2010. Corruption is rampant, and sweetheart deals are common. The country's education system has been such as disaster that businesses often hire foreigners, claiming that they are better trained than Egyptians.
'The economy is doing great in a wider sense," Schenker says. "There was no trickle-down. ... Your average Egyptian guy on the street did not see" the benefits.