SERIES: Global Working Papers | No. 53 of 69 « Previous | Next »

The Role of Micro and Small Enterprises in Egypt's Economic Transition

The success of Egypt’s transition to democracy will depend crucially on the ability of the democratically elected leadership to develop and implement a new economic vision that responds to the aspirations of the millions of youth who have so far been marginalized. Future growth needs to be much more inclusive than in the past. Therefore, encouraging youth entrepreneurship and the development of small businesses have to be central to any new growth strategy.

Highlights

  • The low participation rate at the December 2012 constitutional referendum, and the fact that the majority of people in Cairo (Egypt’s capitol and by far largest city, as well as its commercial and cultural center) voted against it, indicate that the debate over Egypt’s identity is probably not over.
  • The new economic program needs to be responsive to the revolution’s demands for social justice. This would mean modernizing and expanding Egypt’s social security and safety nets systems. It would also mean adopting a new, more inclusive growth model that ensures greater opportunities for youth.
  • In Egypt the percentage of people living on less than $5 a day has been stagnant at 85 percent between 2000 and 2008, and their absolute number increased from 57 to 66 million.
  • The key short-term challenge is to create more opportunities for youth who currently suffer from social and economic exclusion.

This paper focuses on the economic aspects of Egypt’s transition. It argues that while past economic policies (especially starting in 2004) achieved high growth and poverty reduction, they failed to be inclusive as they left millions of Egyptians trapped in lower middle-class status living on $2 to $4 a day and provided few opportunities for youth who felt economically and socially excluded. There was an increasing sense that the system was "unfair," which explains the strong demands for social justice. Inclusive growth could be achieved by shifting away from a system of crony capitalism that favored large and established enterprises to one that focuses on developing small businesses and on creating more opportunities for young men and women. The paper uses enterprise surveys from 2003, 2008, 2010 and 2011 to describe the Egyptian micro and small enterprise (MSE) sector and identify key obstacles to its development. It concludes by proposing a two-pronged strategy for the expansion and modernization of the MSE sector: a macroeconomic and regulatory environment that is conducive to the development of MSEs, and specific interventions to support the sector and encourage young entrepreneurs.

SERIES: Global Working Papers | No. 53