What Caused the Deterioration of the Egyptian Economy from the View of Egyptians over 40 - Research Paper Example

What caused the deterioration of the Egyptian Economy from the view of Egyptians over 40? Economic analysts elucidate that the economy of Egypt has been experiencing a downward trend since the year 2011 when revolution took a center stage in the shaking Egyptian political system. As a result of the weak economy, the real GDP growth of Egypt stood at an average of 1.2 % during the 2011-2012 fiscal year. Consequently, there was a higher level of consumption and increased government expenditure coupled with declining investments. Also, the unstable political system gave rise to insecurity due to the absence of well-maintained law and order. This further hampered investment projects which form the backbone of a country’s economic strength. Furthermore, the absence of investment and poor economic system led to currency devaluation and hence increased cost of living. This paper is a discussion to establish what caused the deterioration of the Egyptian Economy. Keywords: economy, revolution, consumption, currency, devaluation, expenditure, GDP, investment, insecurity. Initial Proposal A Congressional Research Service entitled “Egypt and the IMF” conducted by Nelson and Sharp found out that the Egyptian economy has swiftly deteriorated since the 2011 revolution (Nelson & Sharp 2013). The revolution put the Egyptian political system into a state of anarchy. They elucidate that the anarchic political nature led to sudden drop in the flow of foreign capital into Egypt. As a result, policy makers and economic analysts observed that even though the economic growth may be positive, the Egyptian Central Bank faced the risk of being depleted of foreign exchange reserves. This crumbly economic situation further put Egypt and the entire bordering region in jeopardy and instability. Moreover, the Egyptian economic history reveals that the rate of unemployment was at 9.2 % before the revolution took place, but this shot up to 12.3 % in the year 2012. This prompted the Egyptian authorities and the International Monetary Fund (IMF) to engage in negotiations in order to forge ways and reforms of salvaging the collapsing Egyptian Economy. Shockingly, reports emerged that Egyptian authorities were hesitant to commit to such an agreement citing that it might drastically increase the country’s debt. This research is aimed at establishing the cause behind the deteriorating Egyptian Economy. The rationale of this paper lies on the fact that countries, both developed and developing, thrive on stable economic grounds. This is because nations derive their strengths from stable economies which define their growth and development. The evidence of this is likened to dwindling economies reported from countries like Zimbabwe whose economy has completely deteriorated to the level where its dollar is eliminated from circulation. Reports show that this negative Zimbabwean economic system resulted to inaccurate GDP statistics at the official exchange rate in the year 2009 (United States Central Intelligence Agency 2014). Therefore, this research will help prospective researchers, economic analysts and policy makers to prioritize on the ways of curbing impending threats to economic growth and stability. Research question: What caused the deterioration of the Egyptian Economy from the view of Egyptians over 40? Annotated Bibliography (Source One: Primary) Abdou, Doaa S. and Zaazou, Zeinab (2013). The Egyptian revolution and post socio-economic impact. Topics in Middle Eastern and African economies, vol 15, No. 1, May 2013. Modern Sciences and Arts University (MSA), Egypt. In this study, Abdou and Zaazou are exploring the challenges that faced the Egyptian political transition after the 2011 revolution. These challenges included reduced foreign investments, increase in budget deficits, high debt rate, increased unemployment rate and high poverty levels coupled with poor living standards. The revolution also presented Egypt with a prolonged political transitional period. This is evident from the tough government’s process of outlining a clear parameter for the political and economic reforms. All these factors put together have led to a low GDP growth rate hence a weakened economic growth due to steady rise of budget deficit. The rising budget deficit is attributed to increased pressure on domestic prices, low supply of food due to increase in international food prices which consequently shoot up the inflation rate. This study is relevant to the paper because it points out the negative aftermath of the 2011 Egyptian revolution hence outlining the factors which have contributed to the deteriorating Egyptian economy. (Source two: Primary) Saif, Ibrahim (2011). Challenges of Egypt’s economic transition. The Carnegie papers November, 2011. In this study of the “CHALLENGES OF EGYPT’S ECONOMIC TRANSITION”, Saif exposes the state of the economic performance in Egypt following the aftermath of the year 2011 revolution. He reports that the revolution resulted to a decreased GDP growth rate by 4 % and the manufacturing industry declined by 12 %. Additionally, the tourism revenue also experienced a total reduction thereby exerting pressure on the balance of payments. These further resulted to Egypt running out of foreign reserves which implied suffering from external financial gaps. This he puts at an estimated value of 11 billion dollars in the 2011/2012 fiscal year following a reduction in foreign reserves by 9 billion dollars in the first half of the year 2011. Economic reports also revealed that there were complaints from entrepreneurs due to increased cost of financing loans hence difficult to be secured. Furthermore, banks were reported to be reluctant when it came to lending for the fear of shaky political and economic transition. This study is relevant to the paper because it reveals how the 2011 revolution aggravated the financial reserves in Egypt leading to further deterioration of its economy. (Source three: primary) Emann, Heba Talla A.S. (2012). Monetary and fiscal policies post 25th January revolution: Fighters against windmills. London School of Economics, Middle East Center, London, 28 September, 2012. In this study, Emann concentrates on the unfolding political events and impacts of the 2011 revolution on the Egyptian economy. He asserts that all Egyptian sectors were hardly hit by the political turbulences leading to a poor economic landscape in the transitional period. The monetary and fiscal policies suffered heavily bringing about growing inflation with a devaluing domestic currency. There was also pressure on the fiscal policy as a result of increased spending; low public revenues coupled with increasing monetary deficits and debt stocks. The study is important to this paper as it aims at identifying the consequences of the 2011 political events on the Egyptian economy. It also explores how the management of the fiscal and monetary policies was conducted during the transitional period. (Source four: secondary) Bank Audi (2014). Egypt economic report: Growing hopes for macro recovery following transitional years of economic sluggishness. Economic, Egypt, 19 March 2014. This study revealed a new chapter for the shaken Egyptian political system after its second revolution in the mid-2013. It showed that the change of regime revived the hopes of economic recovery after an extended period of hefty losses. Because of the recovering economic system, discharge of aids began to be elicited from the Gulf States which had initially been reluctant to do so. The recent positive growth therefore led to strengthening of economic growth projections for Egypt. Nevertheless, this was at a comparatively gradual pace due to interferences in the tourism and manufacturing industries. The report revealed that the IMF projected the growth to rise to 2.8 % in 2014 up from 1.8 % in 2013. The report also revealed an improvement in the Egyptian external accounts as the Central Bank reported an increase in exports and a reduction in imports. Furthermore, the report showed an increasing need for the structural reforms to expand the domestic currency. This was also coupled with an accelerated growth in the banking industry to encourage investments in order to revive the dying Egyptian economy. The study is therefore related to this paper because it emphasizes the importance of political stability for a positive economic growth. (Source five: Secondary) Afifi, Tamer (2011). Stealth environmental influences on economic migration in Egypt. Cigi Africa Initiative, Discussion Paper Series, No. 1, July, 2011. In this study, Afifi demonstrates how environmental factors have a bearing on the Egyptian economic migration. On the face value, one is prompted to conclude that Egyptians’ migration is anchored on unfavorable economic situations. However, closer inspection reveals that environmental degradation is a major cause which sees people move from region to region in Egypt. The study centers on how the environmental and climatic conditions arising from natural and man-made factors cause economic crisis. Afifi therefore points out that the economic situations in the Northern Africa, with particular concern to Egypt, causes migration with environmental factors as the root causes. This study is important to this paper because it illustrates how environment significantly impacts on the migration of people which consequently influences the economic system of a country. Bibliography Outline: I. The Egyptian revolution and post socio-economic impact (Source 1) II. Stealth environmental influences on economic migration in Egypt (Source 5). III. Egypt economic report (Source 4). IV. Monetary and fiscal policies post 25th January revolution: Fighters against windmills (Source 3). V. Challenges of Egypt’s economic transition (Source 2). References Abdou, Doaa S. and Zaazou, Zeinab (2013). The Egyptian revolution and post socio-economic impact. Topics in Middle Eastern and African economies, vol 15, No. 1, May 2013. Modern Sciences and Arts University (MSA), Egypt. Afifi, Tamer (2011). Stealth environmental influences on economic migration in Egypt. Cigi Africa Initiative, Discussion Paper Series, No. 1, July, 2011. Bank Audi (2014). Egypt economic report: Growing hopes for macro recovery following transitional years of economic sluggishness. Economic, Egypt, 19 March 2014. Emann, Heba Talla A.S. (2012). Monetary and fiscal policies post 25th January revolution: Fighters against windmills. London School of Economics, Middle East Center, London, 28 September, 2012. Saif, Ibrahim (2011). Challenges of Egypt’s economic transition. The Carnegie papers November, 2011 Literature Review According to Nelson and Sharp (2013), the 2011 revolution in Egypt resulted to political instabilities which consequently shook the Egyptian economic growth. The deteriorating economic trend was characterized by low foreign capital into Egypt, high unemployment rate, high inflation and depleted foreign exchange reserves. The delicate economic conditions in Egypt therefore prompted policy makers and economic analysts to predict an occurrence of jeopardy and instability in Egypt and the entire bordering region. The Egyptian revolution exposed the previous underlying conditions for growth to prospective susceptibilities at the forefront. This further crashed the investors’ confidence leading to a sudden decrease in the flow of capital and reduction in tourism revenue. Economic reports reveal that before the onset of the political turbulences, the Egyptian economy was strong and was growing at a relatively rapid pace of 5 % between the years 2000 and 2010 (Nelson & Sharp 2013). The 2004 economic report of Egypt recorded government structural reforms in reducing tariffs, privatization of government enterprises and low regulation of the private sector. All this were done to ensure an improved business environment where economy of Egypt would thrive and become competitive. Moreover, the 2008 World Bank report recorded Egypt as the leading economic reformer in the world. This contributed to attracting foreign capital and direct foreign investment which shot up the GDP from 1.2 % in the year 2000 to 9.3 % in the year 2006. It is also reported that the 2008-2009 global financial crisis did not affect the economy of Egypt. This was because of limited exposure to the structured financial products in the financial crisis. Also Egypt had good fiscal and monetary policies that accommodated the rising of the crisis. However, prior to the strong and flourishing economic growth of Egypt in the 2000s, there were huge vulnerabilities that Egypt encountered. A study of the economy and financial strength of Egypt revealed a continued segregation of the Egyptian economy and high dependency on imported goods (Aliboni et al. 2013). He records that in 1962 Egypt suffered from an extensive deficit in the balance of payments which resulted to devaluing of the Egyptian pound. Again in the 1967, the economy of Egypt suffered due to the closure of the Suez Canal. But these were partially compensated for by the increased merchandise exports. Analysis by Elkhafif also attests to this report for he asserts that there was little growth in the general performance of the Egyptian economy for the period 1966/67 to 1986/87 (Elkhafif 1996). This also concurs with the description by Khayr al-Din and Iil-Dirasat of the Egyptian economy as a service-based one since the early 1990s because of the variations in the GDP, production and social amenities (Khayr al-Din & Iil-Dirasat, 2008). While Ragui and Caroline (2015) later described the Egyptian economy as stable due to its composition in terms of industries and economic activities, Nelson and Sharp reported refuting claims from the average Egyptians. They refuted the praises from the external observers and investors about the economic reforms in Egypt because of absence of tangible evidence to them. Ragui and Caroline majored on the rise and fall in the various sectors of Egyptian economy between 1998 and 2012 thereby concluding there is a fairly stable economy in Egypt due to observable employment records in such sectors. However the refutations were raised because little had been done to remedy the increasing unemployment rates so that poverty levels would be reduced. The large budget deficits run by the Egyptian government which averaged the GDP at 8.2 % between the year 2002 and 2010 contributed to this. This forced the IMF to engage Egypt in combining its fiscal value which left the public debt at 73 % of GDP in 2010 and rose to 80 % in 2012. Piloting The research targeted a total of over 40 Egyptians concerning their views of the deteriorating Egyptian economy. This number was to be in the ratio of 1:1 between the males and females. Interviews would then be conducted at different times in order to get a large expanse of ideas about the deterioration of the Egyptian economy. However, after piloting and mind searching a decision is reached to reduce the number to 10 males and 5 females for effectiveness and efficiency purposes. Also, the interview will not be the main tool for gathering information in this paper. Hence the piloting settled on the retrieving of already recorded researches that are related to the topic Egyptian economic deterioration. Notwithstanding the pilot trial revealed massive reports in regard to the economy of Egypt dating back to 1962 thereby giving the progress of the Egyptian economic history. The piloting included why the topic is necessary and therefore I have been able to look at the rationale of the study from which I have established that studying the causes of deteriorating economic situations in Egypt, future researchers and prospective scholars on economic development will be able to come up with more ways of handling the sometimes fragile economic conditions. I have also established that political system directly affects the economic system of a country. Hence any shake up within the political scene automatically leads to the death of the economic structures/systems. Again, economic stability ensures the strength of a country in terms of investments and developments without which the country crumbles. Final Draft 1. How has the record of Egyptian economy been for the last decade? 2. What are the determining factors to the Egyptian economic development? 3. How was the economic trend before the 2011 political revolution? 4. How is the Egyptian GDP growth rate? 5. What were the underlying reasons that led to the rise of the revolution? 6. Has Egypt been able to cope up with the aftermath of the 2011 revolution? The findings from the research can therefore help me in determining the possible future economic dimension of Egypt. This is because earlier trends coupled with the current prevailing economic conditions can aid in projecting the future economic graph of Egypt. Conclusion The future of the Egyptian economy lies on the ability of the Egyptian government to institute a stable political and economic environment for this will work in favor of the political elites as well as the common man. However there exist numerous challenging factors that act as obstacles to the realization of the goals of achieving a stable economy. These challenges include high public expectations, limited resources and weak fiscal and monetary policies which threaten the success of the transitional period. Also, addressing the current economic downward trend begins by restoring confidence in the private sector and encouraging entrepreneurs and prospective investors. Improving the banking sector and engaging all stakeholders in decision making about erasing the budget deficits can bring total restoration of the economy of Egypt. When all is said and done, the political revolution in Egypt should sound a warning to other countries so that the economic system is embraced with the weight it deserves. References Aliboni, Roberto et al (2013). Egypt’s economic potential. Milton Park: Routledge. Elkhafif, Mahmoud A.T . (1996). The Egyptian economy: a modeling approach. Westport: Praeger. Khayr al-Din, Hana and Iil-Dirasat, Markaz (2008). The Egyptian economy: current challenges and future prospects. Cairo: American University in Cairo. Nelson, Rebecca M. and Sharp, Jeremy M. (2013). Egypt and the IMF: overview and issues for Congress. Congressional Reseacrh Service (pdf). Ragui, Assaad and Caroline, Krafft (2015). The Egyptian labor market in an era of revolution. Oxford: Oxford University Press. United States, Central Intelligence Agency (2014). The CIA world factbook 2015. New York: Skyhorse Publishing. Read More