Special Concerns of Developing Countries and the Case of Egypt
While the success of Singapore and Finland are inspiring, most countries are faced with a
different set of current realities. For many countries, achieving economic growth and social
development is a work in progress. Egypt is one such country. In the earlier stages of
economic development, government policymakers are faced with making decisions and
allocating limited resources in ways that are most likely to launch a virtuous cycle of
compounding growth. This task is most challenging for those countries that have the smallest
economic base to begin with and the fewest resources to invest. Governments in least
developed countries are faced with the additional challenge of planning for future growth
when they lack sufficient resources to address the most immediate, often dire, needs of their
citizens—such as imminent epidemics, hunger, and extreme poverty. Within this context,
policymakers must make the difficult decisions of addressing immediate concerns while
selecting those few development goals, policies, and programs that are most likely to create
additional resources and lay the foundation for further development.
The World Bank and the United Nations are among the post-World War II Bretton
Woods organizations set up to assist less developed countries in setting policies and creating
resources. The World Bank (Wolfensohn, 1999; World Bank Institute, 2002, 2003, 2004) and
the UN (2000) have worked together over the past several years to build a global consensus
on a comprehensive approach to development and poverty reduction. The United Nations
established the Millennium Development Goals to reduce poverty, educate children, improve
health, and protect the environment in developing countries by 2015. Through a series of
meetings in Monterrey, Johannesburg, and Shanghai, the UN and the World Bank worked
together to tie economic growth to human development and the reduction of poverty.
The United Nations Industrial Development Organization (UNIDO) recently issued a
series of reports commensurate with the Millennium Development Goals (UNIDO, 2003a,
2003b, 2004a, 2004b) in which they describe how industrial development policies can spur
economic growth, support human development, and reduce poverty. Confronted with intense
global competitive pressures, developing countries may be tempted to take the “low road” to
development by reducing wages, devaluating exchange rates, and disregarding labor or
environmental regulations. UNIDO described an alternative “high road” approach to
economic development in which less developed countries use competitive advantages, create
a stable macroeconomic structure, liberalize trade, and attract transnational corporations, FDI,
and imported technology. The approach builds on competitive advantages and sound policies
and investments to deepen capital, foster local R&D and enterprises, build technological
innovativeness, and move up the value chain to initiate a virtuous cycle of development and
transformation. This was the approach taken by Singapore to launch its development.
Although attractive, this strategy itself presents a challenge for those countries that are
coming to it late, most of which are less developed countries. Relying only on low-cost labor
is no longer a sufficient initial buy-in strategy, as many transnational corporations already
have established production facilities in low-wage countries, currently China. The
development of clusters must be more strategic. In this regard, it can be useful to narrow the
focus of the development strategy from the whole economy to the development of particular
clusters—certain industries (e.g., agriculture, tourism, textiles) and locations (e.g., cities, rural
areas, geographical regions) that have the potential for contributing to global value chains. By
carefully considering geography and competitive advantages, a government can either directly
support (a la Singapore) or foster (a la Finland) the development of a target cluster around
which infrastructure can be developed, enterprises can be agglomerated, private investment
can be accumulated, and competition can be encouraged. For many countries, the
development of a cluster in the ICT sector is tempting because it most directly taps into the
high-road growth path and connects to the high-value global knowledge economy. But the
conditions must be right for this strategy to work (Chang, 2001; Lall, 2003; Navaretti & Tarr,
2000). A large-scale investment in technology and technological infrastructure will not be
sufficient by itself. Beyond the availability of necessary infrastructure, both the work force
and enterprises must have the capacity to absorb new technologies and apply them
innovatively to some aspect of the value chain. This often requires significant public and
private investments in human capital development that, along with supportive economic
policies, a dynamic information infrastructure, and an innovation system of firms, universities,
and R&D centers support the development of a knowledge economy (World Bank, 2003).
The case of Egypt typifies the concerns and challenges facing many countries,
particularly developing countries. (This case is based on Aubert & Reiffers, 2003;
International Monetary Fund, 2004; Kozma, 2004; UNDP, 2004; World Bank, 2002a). Egypt
is a country with a population of 73.4 million, a current annual growth rate of 1.9%, and an
ethnic mix of 99% Egyptians, Bedouins, or Berbers, and 1% Nubians or Europeans. Egypt has
a republican form of government in which the National Democratic Party (NDP) has
controlled the People’s Assembly since 1977 and its leader, President Mubarak, has been the
Head of State for 24 years. During this time the country has been under a continuous state of
emergency. Consequently, the country has limited public participation in politics and limited
freedom of the press, scoring 128th out 167 countries on the Worldwide Press Freedom Index
(Reporters Without Borders, (2005).
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 Indicato