<h3>Current employment situation in Egypt</h3>
Egypt has experienced severe cyclical fluctuations and significant economic and political upheavals due to the global financial crisis of 2008-2009 and the subsequent Arab Spring. Afterwards, the unemployment rate climbed to 13.4% in the third quarter of 2013, compared to 11.9% in the same quarter of 2011. The labor force is the sum of employed and unemployed individuals who are actively searching for jobs. The unemployment rate is measured as the percentage of the labor force who are unemployed. Due to the rise in the number of discouraged workers who stop actively looking for a job, the unemployment rate decreased from 2013 to 2019 (World Bank, 2020). Therefore, it must be understood that the decreasing trend in unemployment has been because of the shrinking labor force rather than the increase in employment or job creation.&nbsp;
Given the persistently low employment levels (between 38.5% to 45%) in the last 10 years and the slow growth performance recorded 3.8% as the ten-year average since 2010, there is an increasingly strong focus among policymakers on job creation and productivity growth. Furthermore, due to the COVID-19 crisis, the situation has worsened. Although the last unemployment rate (7.5% in third quarter of 2021) is lower than those of the beginning of COVID-19 (9.6% in second quarter of 2020), the last annual employment rate estimated was at the lowest level (38.5%) of the last 10 years and job creation, especially in the formal private sector, remains a challenge. For comparison, the annual employment rate was 45.1% in 2010 (Central Agency for Public Mobilization and Statistics in Egypt [CAPMAS], 2021). Moreover, real growth was recorded at 5.31% in the fiscal year of 2018 and declined to 3.56% in 2020 due to the ongoing impact of the pandemic (World Bank, 2021).
This commentary assesses the link between firm characteristics, obstacles for state-business relations and employment creation in Egypt using firm-level data derived from the World Bank Enterprise Surveys (2013 and 2016). We specifically examine which groups of firms perform better (young vs. old, small vs. large), and what type of obstacles to the quality of state-business relations explain the low level of job creation and destruction in Egypt (Giovanis &amp; Ozdamar, 2018).
<h3>The role of firm characteristics on employment creation</h3>
Regarding firm characteristics, we first analyzed the job creation by sector. We focus on two main sectors, which are services and manufacturing due to the data availability. We observe that the net job flows or net job creation rates (job creation minus job destruction as the ratio of existing jobs) are all positive, reflecting that job creation exceeds job destruction in both manufacturing and services sectors. However, net job creation rates are low in both sectors, at 0.022% in services and 0.191% in manufacturing.&nbsp;
Furthermore, our analysis suggests that small and medium enterprises (SMEs) seem to be the engine of job creation growth in Egypt. We observe that the share of the employment in SMEs, which employ less than 100 workers, is almost 75% while the remaining 25% of the employment share consists of large firms (with 100 employees and over). In general, medium-sized firms have higher net job creation rates (0.14%) than the large firms (0.106%) in Egypt. If we look at firm performance in the sectors separately, in manufacturing, the net job creation rate is highest for medium-sized firms (with a number of employees between 20 and 99). In contrast, in the services sector, we show that large firms present positive net job creation rates while small and medium-sized firms destroy more jobs than they create.
Figure 1: Net Job Creation Rate by Firm Size in Egypt
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://api-aps.aucegypt.edu/uploads/tinymce/1641282306imageScreen Shot 2022-01-04 at 9.43.18 AM.png" alt="" width="500" height="318">
Source: Giovanis &amp; Ozdamar, 2018
Firm age, expressed by the firm&rsquo;s years of operation, also matters for job creation. In this regard, the two sectors present differences, where the young firms (aged 3-5 years) present the highest net job creation rates in the manufacturing sector, while older firms in Egypt hire more in the services sector (see Figure 2).
Figure 2: Net Job Creation Rate by Firm Age in Egypt
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://api-aps.aucegypt.edu/uploads/tinymce/1641282353imageScreen Shot 2022-01-04 at 9.43.33 AM.png" alt="" width="500" height="297">
Source: Giovanis &amp; Ozdamar, 2018
The percentage of firms with female owners is only 6.8% in Egypt, as women in Egypt have fewer opportunities to establish businesses. This can be the reason for our finding that female ownership has no effect on Egyptian firms&rsquo; job creation, as the percentage of female ownership is so small in Egypt that it is difficult to derive significant implications. It is worth noting that a survey conducted by Ernst &amp; Young (EY) in 2016 among 2,673 entrepreneurs around the globe suggests that female ownership should in fact increase job creation, as 43% of the women surveyed stated that they hired more employees compared to 39% of the male entrepreneurs (EY, 2016). Another significant result is that 56% of the female entrepreneurs younger than the age of 35 reported a better job creation than their male counterparts.&nbsp;
<h3>The role of state-business relations on employment</h3>
Figure (3) illustrates the major obstacles in state-business relations in Egypt. Based on the responses of firms participating in the World Bank Enterprise Surveys, we find that Egypt's key obstacles to the quality of state-business relations (in decreasing importance) are political instability, followed by firms&rsquo; limited access to capital and credit and access to electricity. In the World Bank Enterprise Survey, the interviewers ask firms to rank 15 components of the business environment, indicating which one presents the largest obstacle and to rank them on a scale of 1-5, with 1 being no obstacle and 5 being a severe obstacle. Thus, this allows us to identify the top obstacles of a firm.
Figure 3: Major Obstacles in State-Business Relations for Egypt
&nbsp;<img style="display: block; margin-left: auto; margin-right: auto;" src="https://api-aps.aucegypt.edu/uploads/tinymce/1641282473imageScreen Shot 2022-01-04 at 9.43.49 AM.png" alt="" width="500" height="347">
Source: Giovanis &amp; Ozdamar, 2018
Following the Arab Spring in 2011, Egypt experienced around 6,200 violent events and 4500 of which were related to riots/protests (Khalil et al., 2020). There have been eight cabinet changes between the years of 2011 and 2014, a number equal to that of the entire period of 1981&ndash;2010 (Abdelkader, 2017). Socio-political instability generates an uncertain politico-economic environment, raising risks and reducing investment. Political instability also leads to higher inflation and lower economic growth. Our analysis shows that political instability is the most serious obstacle both for the gross and net job creation rates in Egypt. However, political stability is not enough to increase levels of economic growth and employment. Democracy, not autocracy, should be used to achieve political stability. To create many new jobs in the near future, Egypt should reach the growth rates of South Korea or Taiwan, not the modest growth of the Mubarak era. This will necessitate an overhaul of the civil service and bureaucracy, a reduction in the role of the military in the economic and social arena, improvement of the legal environment and investments in human rights, equal opportunities and social protection.
Firms&rsquo; limited access to capital and credit prevents them from reaching their long-term potential and achieving sustainable growth targets. Easing access to bank loans through credit guarantees, interest subsidies and direct lending are important in promoting entrepreneurship, production and employment. Our analysis shows that the constraints to access to finance are negatively correlated with both gross and net job creation rates in Egypt, but it does not play any role in the job destruction rates. As a result, limited access to capital restricts Egyptian enterprises from creating new employment, but the issue is not as dire as job elimination as a result of financial constraints.
The next strongest correlation is observed in electricity. Even though the association with the gross job rates is insignificant, obstacles in access to electricity decrease net job creation rates in Egypt. In the World Bank Enterprise Surveys, the majority of the firms state that electricity is a major constraint. Unreliable supply of electricity, power outages due to lack of proper infrastructure and also expensive supply of power may have a negative impact on sales and consequently on job creation.
<h3>Policy recommendations&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</h3>
Our main findings have the following policy implications:&nbsp;
- Policymakers should provide a reliable infrastructure of electricity and give incentives in terms of lower tax rates or favorable tax credits to firms that can be highly productive, such as firms with high-skilled employees and technology and those using energy-efficient sources.&nbsp;
- Access to finance should be eased for SMEs as their job creation rate is higher in manufacturing compared to the larger firms. An effective legal framework, which promotes the enforcement of creditor rights, may increase financing opportunities from banks. A well-functioning cadastre system expands SMEs' collateral options while lowering lender risks. Credit guarantee schemes can help SMEs while getting bank funding by alleviating banks' concerns about the risks they pose. Alternative forms of funding, such as microfinance, leasing and factoring, can also be actively promoted.
- Policymakers should first and foremost shield the economy against corruption and destabilizing political events. Policymakers should focus on reducing political instability and corruption in regions that were the most affected.
- Reducing inequalities in labor force participation and encouraging female entrepreneurship may increase the net job creation rates. The development of entrepreneurship among the women borrowers through micro credit programs can be an effective policy tool. It is also critical to enforce equal opportunity laws, regulations and necessary interventions&nbsp;for women&rsquo;s empowerment. Social and economic policies are required to mitigate the unequal domestic burden to promote gender justice in the country. For instance, introduction of free kindergartens into public schools may reduce childcare costs and increase mothers&rsquo; labor supply. Moreover, working outside the household premises is sometimes assessed as an immoral behavior for women; this attitude should be combated by public campaigns, educational seminars or courses.
- Labor and trade regulations may hinder the job creation rates, so flexible labor markets could be more desirable. However, the reforms and policy changes should improve worker protection and social welfare while increasing investment and job creation.
- Egypt has a large informal economy, where a large proportion of the workers are not registered with the social security institution and therefore do not enjoy the protection associated with the system. Formalization of workers with reforms should be encouraged. The government should provide an enabling climate for long-term formal firms and expand social security coverage, particularly for those in the informal economy. For instance, non-contributory social safety programs, such as the Bolsa Familia, tax simplification for small enterprises, increasing incentives for businesses to formalize their personnel and improved enforcement of tax and labor standards have all contributed to this achievement.
- The best approach to raise people out of poverty and ensure a fair distribution of social goods is to create quality jobs. Job creation is fostered by economic growth which is closely linked with human rights, democracy, trust and transparency. After a certain level of economic growth, democratic economies may grow at a slower pace than authoritarian economies, but their growth is usually more robust, and democratic economies are better prepared to deal with economic crises. Research (e.g. Goldsmith, 1995; Leblang, 1996) also indicates that there is also a connection between democracy, the protection of property rights and the increased foreign investments which create employment. Egypt&nbsp;is rated Not Free in Freedom House's&nbsp;(2021) yearly study of political rights and civil liberties worldwide. &nbsp; &nbsp; &nbsp; &nbsp;&nbsp;
<hr>
1 Job creation refers to provision of new jobs in the labor market while job destruction refers to the elimination of jobs over time.&nbsp;
<hr>
References
<ul>
<li style="font-weight: 400; font-size: 10pt;" aria-level="1">Abdelkader, H.E.M. (2017). Political instability and economic growth in Egypt.&nbsp;Review of Middle East Economics and Finance,&nbsp;13(2).</li>
<li style="font-weight: 400; font-size: 10pt;" aria-level="1">Central Agency for Public Mobilization and Statistics in Egypt. (2021). Quarterly unemployment rate. Accessed 5 December, 2021 from <a href="https://cutt.ly/QY5Ij3L">https://cutt.ly/QY5Ij3L</a></li>
<li style="font-weight: 400; font-size: 10pt;" aria-level="1">Ernst &amp; Young. (2016). Does disruption drive job creation? EY global job creation survey 2016.</li>
<li style="font-weight: 400; font-size: 10pt;" aria-level="1">Freedom House. (2021). Freedom in the world 2021. <a href="https://freedomhouse.org/country/egypt/freedom-world/2021">https://freedomhouse.org/country/egypt/freedom-world/2021</a></li>
<li style="font-weight: 400; font-size: 10pt;" aria-level="1">Giovanis, E., &amp; Ozdamar, O. (2018). State business relations and the dynamics of job flows in Egypt and Turkey (Working Paper No. 1271). Economic Research Forum.&nbsp;&nbsp;<a href="https://cutt.ly/yY5IvA0">https://cutt.ly/yY5IvA0</a></li>
<li style="font-weight: 400; font-size: 10pt;" aria-level="1">Goldsmith, A. A. (1995). Democracy, property rights and economic growth.&nbsp;The Journal of Development Studies,&nbsp;32(2), 157-174.</li>
<li style="font-weight: 400; font-size: 10pt;" aria-level="1">Khalil, C., Mirza, D, &amp; Zaki, C. (2020). The impact of political instability on Egypt&rsquo;s exports: Evidence from firm-level and geo-localized data.&nbsp;Egyptian Center for Economic Studies. <a href="https://cutt.ly/IY5IiPr">https://cutt.ly/IY5IiPr</a></li>
<li style="font-weight: 400; font-size: 10pt;" aria-level="1">Leblang, D. A. (1996). Property rights, democracy and economic growth.&nbsp;Political Research Quarterly,&nbsp;49(1), 5-26.</li>
</ul>
<ul>
<li style="font-weight: 400; font-size: 10pt;" aria-level="1">World Bank. (2020).&nbsp;Egypt economic monitor, November 2020: From crisis to economic transformation: Unlocking Egypt&rsquo;s productivity and job-creation potential.&nbsp;<a href="https://elibrary.worldbank.org/doi/abs/10.1596/34785">https://elibrary.worldbank.org/doi/abs/10.1596/34785</a></li>
<li style="font-weight: 400; font-size: 10pt;" aria-level="1">World Bank. (2021). World development indicators: GDP growth (annual %). Access Date: 05.12.2021 <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG">https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG</a></li>
</ul>

آراء

Commentaries

العمل والتوظيف

Read Also