Responding to the Financial and Economic Crisis: The Case of Egypt BY Samir Radwan Thematic Dialogue 3 of the Committee of the Whole International Labor Conference (ILC) 4 June 2009 1 Egypt: Impact on the Real Economy Sectoral Impact of the Crisis 2 Suez Canal proceeds registered a negative rate of growth of -22% compared to a positive growth rate of 12.7% Tourism registered a negative rate of -6% compared to a positive rate of 23% during the same period. Manufacturing, which grew at 8.3% in the Third Quarter of 2007/08 went down to only 3.5% during the same period of 2008/09. Two sectors go against the current, vis, communications and construction which grew at 13.6 % and 16% respectively. Agriculture continued its unchanged pattern with the growth rate hovering around 3%. Egypt: Social and Labor Consequences Unemployment on the rise Unemployment Rates (%) 3 Official estimates point to an increase in the employment rate during the Third Quarter of 2008/09 to 9.4% compared to 8.8% in the previous quarter. A recent survey of the unemployed has shown that 15.3% of the presently unemployed people was due to the economic crisis, while 41.3% was due to a reduction wages. The Center for Trade Union and Workers Service (an activist NGO) has reported that some 88,000 people lost their jobs between January and March this year. According to this report, most job losses are in the textile and tourism sectors. Unemployment Rates in MENA (%) Unemployment rates in MENA are the highest in the world, and rising Region 2007 2009 World 5.7 7.1 Developed Economies and EU 5.7 7.9 Central and South Eastern Europe and CIS 8.5 9.8 East Asia 3.5 5.5 South East Asia and Pacific 5.5 6.4 South Asia 5.3 6.2 Latin America and Caribbean 7.2 8.3 Middle East 9.4 11.0 North Africa 10.4 11.2 Sub-Saharan Africa 7.9 8.5 Source: ILO, Global Employment Trends, January 2009, p34 4 Unemployment Rates in MENA In 2009, unemployment in MENA is roughly in line with earlier estimates of ILO, with an upper estimate of 1.6 million additional unemployed in the Middle East which would represent an increase of approximately 25%, and in North Africa, representing an increase of approximately 13%. Middle East Source: ILO, Global Employment Trends Update , May 09,p44 North Africa 5 School to Work Transition Unemployment in the Arab world is dominated by firsttime job seekers First-time-job seekers as a % of total unemployed Source: based on data from Arab Labor Organization, First Arab Report on Employment and Unemployment in the Arab Countries: Towards Effective Policies and Mechanisms, Table 3 p65 6 Prevalence of Informal Employment Almost half the non-agricultural labor force find employment in low-productivity, low-income occupations. Latin America Asia Sub-Saharan Africa North Africa Algeria Morocco Tunisia Egypt Syria Informal employment as a % of nonagricultural employment Total Female Male 51 58 48 65 72 65 84 65 63 48 43 45 50 55 42 43 41 47 39 46 35 49 43 44 53 57 43 Source: Arab Labor Organization, First Arab Report on Employment and Unemployment in the Arab Countries: Towards Effective Policies and Mechanisms, Cairo 2008, p245 7 Egypt: Social and Labor Consequences Increased Incidence of Poverty A total of 6.7 million people have come into poverty during the period 2005-2008 Poverty Dynamics 2005 – 2008 (All Population=100). Percentage Chronic Poor – Poor in 2005 10 and 2008 Into Poverty - Non Poor in 9 2005 and poor in 2008 Out of Poverty – Poor in 2005 12 and Non Poor in 2008 Never Poor – Non Poor in 2005 69 and 2008 Population, millions 7.4 6.7 8.9 51.0 Source: World Bank, Economic Growth, Inequality and Poverty: Social Mobility in Egypt between 2005 and 8 2008, December 2008, p.6 Working Poor in MENA In addition, working poor is expected to increase with the global crisis. Middle East Source: ILO, Global Employment Trends Update , May 09,p44 North Africa 9 Source: Energy Information Administration, release date: 5/28/2009 Jan 06, 2009 Jan 06, 2008 Jan 06, 2007 Jan 06, 2006 Jan 06, 2005 Jan 06, 2004 Jan 06, 2003 Jan 06, 2002 Jan 06, 2001 Jan 06, 2000 Jan 06, 1999 Jan 06, 1998 Jan 06, 1997 Jan 06, 1996 Jan 06, 1995 Jan 06, 1994 Jan 06, 1993 Jan 06, 1992 Jan 06, 1991 Jan 06, 1990 Jan 06, 1989 Jan 06, 1988 Jan 06, 1987 Jan 06, 1986 Jan 06, 1985 Jan 06, 1984 Jan 06, 1983 Jan 06, 1982 Jan 06, 1981 Jan 06, 1980 Jan 06, 1979 Jan 06, 1978 Impact on the Oil Market Oil Prices Weekly All Countries Spot Price FOB Weighted by Estimated Export Volume (Dollars per Barrel) 160 140 120 100 80 60 40 20 0 10 Impact on the Oil Market Oil Revenues OPEC Net Oil Export Revenues (Billion Dollars) 1200 1000 800 600 400 200 Nominal Source: Energy Information Administration, release date: 5/28/2009 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 0 Real 11 Working out of the Crisis A decent Work Agenda: The Egyptian Government’s Stimulus Package 1. Stimulating demand through an expenditure package of LE 13.3 billion(mainly allocated to infrastructure projects, export promotion and social benefits). 2. A total of LE 1.7 billion reduction in customs on imports of intermediate and capital goods. 3. Reducing interest rate over two successive stages by 1% and 0.5% as inflation goes down. 4. Providing the private sector with other incentives especially to stimulate new investment 12 Dealing with the Crisis Decomposition of Rescue Packages Source: ILO, the Financial and Economic Crisis: A Decent Work Response, Geneva 2009, p48 13 Looking into the Future Laying the Foundation for the Post-Crisis Economy and Society The regeneration of employment-intensive-growth Projections of annual increase in the Labour Force, 2004-2013 Labour Force (m) Annual increase (m) % increase 2004 20.9 2005 21.8 0.9 4.3% 2006 22.9 1.1 5.0% 2007 23.9 1 4.4% 2008 24.6 0.7 2.9% 2009 25.9 1.3 5.3% 2010 26.8 0.9 3.5% 2011 27.6 0.8 3.0% 2012 28.5 0.9 3.3% 2013 29.6 1.1 3.9% Source: EIU, Egypt Country Forecast, March 2009, p 12 In specific terms, the post-crisis recovery should take as its objective the creation of 950 thousand to a million jobs every year in the medium term as suggested by the labour force projections. 14 Looking into the Future Laying the Foundation for the Post-Crisis Economy and Society Restructuring the Egyptian Economy Manufacturing • Deepening of manufacturing activities • Expanding the process of industrialization through joining Global Production Chains Education and Training • Urgent need of massive investment in education and training in order to increase the future pool of medium-and-high skilled workers. • A crash national training program 15 Looking into the Future Laying the Foundation for the Post-Crisis Economy and Society: Elements of a JOBS PACT Improving Labour Market Policies and institutions Amending the legal framework Update Wage Policy Improve effectiveness of institutes for settling labor disputes 16 • Mainly by Labor Law No. 12 of 2003 contains articles that amount to an impediment to attracting investors. • Workable training facilities (the Training Fund) and sanctions an inadequate provision for social protection (the Emergency Fund). • Outdated wage policy makes it difficult to use wages as an instrument of economic and social policy. • Current institutes do not provide for proper social dialogue. • Representative organizations for workers and for the private sector should find an appropriate platform for negotiations . Egypt: Seeing the Opportunity presented in a Crisis A Full-Fledged Vision : The Goals Current Situation Economic Goal to be achieved by 2011 GDP grows at 3.8% (2009 estimate) GDP grows at 7% Gross Fixed Investment accounts for 19% of GDP Gross Fixed Investment reaches 25% of GDP The incidence of poverty currently represents 19% of the total population Poverty incidence not to exceed 20% 17 Egypt: Seeing the Opportunity presented in a Crisis A Full-Fledged Vision : The Means 1. Inject at least LE 25 billion annually from 2009 to 2011 in order to stimulate demand. 2. Use monetary policy to determine interest rates while ensuring a reasonable balance between economic growth and inflation. 3. Execute a multi-faceted plan aimed at creating the ideal investment climate for investors. 4. Enhance domestic credit growth 18 What role ILO? Initiation of interagency missions at the country level to work out the details of employmentintensive growth in the post-crisis period 19