Although not among the world’s poorest countries, Egypt is considered by the World
Bank to be a lower middle-income country. Egypt ranks as the world’s 39th largest economy
(Economist, 2003), with a gross domestic product in 2003 of US$82 billion. In that year, it had an adjusted per capita GDP of US$3,950. The ratio of the income of the top 10% to that
of the bottom 10% is 8.0. It was ranked as 62nd out of 104 countries in the World Economic
Forum’s (2004) competitive index. Egypt has experienced a hardy economic growth over the
years, with an average annual growth rate of 2.7% during the years 1975-2003 and 2.5% from
1990 to 2000. This compares with the U.S. growth rate for these periods of 2.0% and 2.1% respectively. While economic growth in Egypt has been encouraging, the high poverty rate
impedes the country’s economic progress. The UNDP (2005) cites a figure of 44% of the population living under the poverty level of US$2 a day. Almost 900,000 people join the labor force in Egypt each year and the economy absorbs just under 60% of this supply (Radwan, 2002). The UNDP (2005) credits Egypt with only a 55.6% adult literacy rate and literacy is particularly low among women (43.6% compared to 67.2% for men). These conditions, among others, currently constrain the type and amount of economic growth that
Egypt can expect in the near future.
In response to the global trends mentioned above, Egypt is in the process of social and
economic reform. The government recently instituted modest electoral reform that allowed citizens to vote directly for president for the first time in the fall of 2005, although opposition
candidates faced significant qualification hurdles and constrains on press and speech freedoms. The country is also transitioning from a heavily state-directed economy to a less regulated, more open economy. There has also been some limited progress in privatizing state
enterprises and state banks. The government has recently taken steps to bring some tariffs into World Trade Organization compliance but overall protection remains high. And while the rate of reform has been slow, the Prime Minister and Cabinet have taken macroeconomic
measures to increase growth, including tariff reduction and tax reforms (“Mubarak fully supports…,” September 30, 2004). But the country is burdened by a top-down organizational structure and entrenched bureaucracy associated with a command economy and these conditions inhibit reform.
In August of 2004, the new Prime Minister presented an economic development strategy intended to turn Egypt’s ICT sector into a major engine for economic development. Entitled Egypt’s “Information Society Initiative,” the initiative offers a vision of providing equal access for all to information technology, nurturing human capital, improving government service, providing companies with new ways to do business, improving health services, promoting Egyptian culture, and developing an ICT export industry (Ministry of Communication, Information, and Technology, 2005). However, as common among latecomers to this sector, the development of Egypt’s ICT cluster is not straightforward. For
example, Egypt spent a mere .02% of its GDP on research between 1997 and 2002, according to the UNDP (2005), compared to 2.2% for Singapore and 3.5% for Finland. And while a recent study by the International Telecommunications Union (2001) recognized that Egypt has one of the largest ICT sectors and among the highest levels of computer and Internet use
in North African and Middle Eastern countries, the ICT penetration in Egypt is quite low as
compared to countries that have grown their economy through the ICT sector. For example,
there are only 22 PCs per 1000 people in Egypt, according to the World Bank 2005 World Development Indicators, and only 4% of Egypt’s population is connected to the Internet (UNDP, 2005). This compares to 53% of the population for Finland, and 51% of the population for Singapore. The UNDP (2001) rates Egypt as 57th on its Technology Achievement Index, with a score of .236. The low penetration rate of technology interacts with the country’s geography and poverty. Most of the infrastructure is concentrated in the Cairo area. Most of the country’s poor are concentrated in Upper Egypt and Lower Rural Egypt (El-Laithy & Lokshin, 2003) and they are least serviced by the current ICT infrastructure, according to the International Telecommunications Union (2001). Consequently, there is concern that ICT-based developments might exacerbate the situation
for the poor in Egypt by creating a two-tiered information society that increases inequity in
the country (Wheeler, 2003).
This case highlights some of the issues for developing countries as they consider strategic options for economic growth, particularly the development of an ICT cluster to tap into the global value chain and support a knowledge economy. The World Bank (2003) identifies four pillars of the knowledge economy: supportive macroeconomic policies and institutions, an educated and skilled population, a dynamic information infrastructure, and an innovation system of firms, universities, and R&D centers. Egypt lacks many of these conditions, as do many other less developed countries. Egypt is still emerging from a highly state-controlled economy, a large bureaucratic infrastructure, and, as we will see in the next section, an education system that is focused on rote memorization. Egypt has a constrained political process with limited public participation and a controlled press. These conditions reduce the capacity for technology absorption and innovation and this, in turn, limits the potential economic growth. Yet the experience in Singapore and Finland suggests that if sustainable growth is to occur in Egypt, public policy must support the development of physical capital, raise the quality of the workforce, and promote knowledge creation and sharing. If social transformation is to occur, these changes must be focused on reducing inequities, improving the standard of living, and increasing civic and political participation. But everything does not, nor cannot, change at once, particularly with limited resources. Faced with this dilemma, the task of Egyptian policymakers is to find the key pressure points and strategic levers that, if applied, will make the system dynamic and launch a virtuous cycle of sustained growth within the economic and social systems.