Category Archives: The wandering economist

Seeing the world with the eye of an economist-ish.

[The wandering economist] Does Egypt run on hyper-Schumpeter?

In this period I am consulting for the United Nations Development Programme and United Nations Volunteers. What it is I am doing exactly is a story for when I have finished doing it. But an interesting (for me, and for this blog) feature of this job is that it requires me to get a broad idea of employment and social inclusion policies in six countries (Armenia, Belarus, Egypt, Georgia, Morocco, Ukraine), and to do it in just a few days. To do this, I read policy documents and check statistics; and visit each of these countries, walk into government offices and ask civil servants questions; then talk to businessmen, NGOs and international development organizations and cross-check the information I get.

It will not make me an expert, but it seems like a great way to learn about these countries and what they are trying to achieve, and to do so very quickly. And there is an added bonus: by looking at how different countries, with their different economic fundamentals and policy styles, approach the same issues, I can learn much about what these issues really look like, when seen from different angles. I thought others might be interested, too, so I will be posting occasional notes from the journey – starting from my impressions of Egypt. As with everything else in this blog, views expressed here are my own and may differ from my employer’s.

Egypt seems to run on a hyper-Schumpeterian ideology. Entrepreneurship is seen as the silver bullet that will solve everything. Social problems will be solved… by social entrepreneurship. There are even talks to teach entrepreneurship in schools, in the curriculum.

Treating entrepreneurship as the critical tool towards improving Egypt’s overall social and economic health appears to be, according to interviewees, a logical move. Every year, 600,000 young Egyptians join the labour market (CAPMAS, 2013). The public sector is already bloated with more people than it can use, and cannot absorb but few of those young people. 70% of job creation is driven by the private sector; and private sector has its own labor needs, which are similar to those of most countries: more “cream of the crop” highly qualified people with specific skills that happen to be in need at this point in time, not so many middle-of-the-road graduates. Labour demand – supply matching and retraining policies can help a little, but they are already being done, so they cannot be expected to bring any additional benefits. That leaves new business as the most likely candidate for creating new jobs.

Two labour policy asides (not directly relevant to the project, but useful as part of the background):

  1. Labour policies seem to be, in some cases, overengineered. A scheme that was reported to us is a scheme of demand-supply matching for apprenticeships and internships directed to boys and girls who are still in school, and therefore are _unqualified_. The thinking behind it is that having a summer job can help youth develop personal and relational skills that will be useful when applying for, or holding, a job. But is there really any need to match schoolboys with farms, and paying the overhead cost of the matching structure?
  2. Entrepreneurship policies have reached the point where they risk distorting the incentives for the budding entrepreneurs. One of the interviewees reported that some young, obviously smart people perceive it as viable to just go from competition to competition, from grant to grant, and stop business when the grant or award dries up.

The Egyptian government appears to be working with the main stakeholders to build an ecosystem conducive to entrepreneurs reaching their full potential. Many efforts are directed towards building funnels that find entrepreneurial ideas and bring them to market in the form of startups. We heard of several startup programs (Injaz Startup Incubator Programme, Misr el-Kheir’s Gesr Programme, Nile University’s NU100 competition). Microsoft offers online coaching for startuppers. The main tools in use seem to be competitions, mentoring, coaching, and incubators. Most of this effort focuses on nano-bio, ICT, greentech.

There are many remaining challenges for the full potential of entrepreneurship to bear fruit. Specifically:

  • the regulatory environment for new business is stiff and unfriendly.
  • regulation on key areas pertaining to startups (patents, IPR, data protection, openness of public sector information) is still missing.
  • university research is subpar.
  • services for tech startups are expensive or missing. There are only two law firms serving startups, and no specialized accountants at all; very few consultants on the specifics of startupping.
  • angel investors are there, but they do not appear to be having a large impact.
  • private sector companies get involved in entrepreneurship competitions, but they tend to recruit the smartest competitors rather than invest in their business.
    incubated firms struggle to move forward and scale.

As a consequence, the funnel is missing pieces both at the beginning (pre-idea) and at the end (second and third round, post-incubator). There are signals that the government is working on improving regulation to make Egypt more business-friendly, but some of the interviewees expected that this would not really accelerate until a parliament is elected.

Social entrepreneurship/social innovation is attracting attention, but it does not feature as prominently in Egyptian policy as it does in Europe. We know of one already active pipeline for social entrepreneurship (Misr el-Kheir), and of another one being considered. (Injaz). The active one, however, insists on “high profitability”, so that the term “social” becomes a bit diluted (and could even be interpreted as a constraint). The Egyptian legal system does not have a specific legal form designed for social entrepreneurs, like the CIC in the UK and the cooperativa sociale in Italy.

Over the past year, we at Edgeryders have met many Egyptians involved in social entrepreneurship and other grassroots initiatives. They seem to have two main focuses. One is greentech (solar, water sanitation, waste recycling etc.), which is supposedly cared for by the fledgling ecosystem of policies directed towards entrepreneurship.

The other one is reclaiming and repurposing public spaces for the common good, with the Al-Mutamidiya ring road ramps story being the most impressive example of self-organization we found so far. UNDP itself has been involved in this scene, with a successful initiative to have young people contribute to designing the renovation of a central street in Giza (the governor of Giza turned out to have urban planning background, which makes him a potential champion for these initiatives). This line of work does not appear to be part of the startup ecosystem.

Other examples include the many coworking spaces that flourished in Egypt (many of which do not appear to have a viable business model, but they do signal a drive of youth to claim spaces), like Mesaha, Rasheed 22. Megawra and Cairo Hackerspace (learn more). Of these, at least the first one is fully grant-free, surviving on a very community oriented “pay what you can” model. The Darb al-Labbanah initiative, currently in its planning stages, strives to revitalise Historic Cairo by adaptively reusing long neglected properties as a hub for social enterprises and cultural businesses.

Cairo is also home to Cluster, an urban planning studio that achieved international fame for doing work on informal settlements and “tactical urbanism” – another sign of societal interest in the matter and a reservoir of high-level technical expertise.

Overall, there seems to some space for Egyptian social entrepreneurs to leverage the hyper-Schumpeterian ideology now prevailing in the country to gain a more central position in society. I certainly wish them my best!

 

 

Dambisa Moyo redux: is Ethiopia’s governance model mimicking China’s?

Since the rise of development economics in the 1960s, the prevailing discourse around development has maintained that liberal democracies tend to grow faster than centralized, authoritarian societies (and this, in turn, is an echo of Max Weber’s then-revolutionary thinking). So, if you want development, focus on giving people freedom: they will use their political rights to start companies, whip their leaders into serving the collective interest and so on. Result: fully developed economies.

This approach has recently become the target of piercing criticism by Zambian-born economist Dambisa Moyo. This model is failing, she says: economic activity seems rather to flourish on the back of economic stability and infrastructure provision. In an already sufficiently developed economy you might think of market forces providing infrastructure (well, that’s the theory – don’t get me started here); but when development needs yet to be bootstrapped – and in a context of low literacy and low standards of education – such provision needs to rely on some central authority – a government. What kind of government? A pragmatic, technocratic one, made up of engineers and scientists rather then lawyers and journalists. One that emphasizes “getting the job done” rather than rules and processes, and economic rights over political rights. In one sentence: China’s government. And sure enough, China’s achievements in fighting poverty are astonishing: this one country has single-handedly lifted some 300 million people out of poverty over the last decade. I recommend you watch the video above in its entirety – especially if you are a Westerner, like me and like most readers of this blog.

I am just back from Ethiopia. It is one of the poorest countries in the world (per capita income: 570$), and it has a fairly poor human rights record. And yet, everywhere we went we perceived a fairly upbeat mood. With robust growth (double-digit in 2013, 8% in 2014), a booming tourism industry and an expanding middle class, many Ethiopians see their lives improving year after year. Crime rates are very low, and the streets safe. Many tribes and religions live together in peace, and Ethiopians seem to think this is a more or less permanent arrangement. With concern to human rights, the mood seem to be ambivalent: while people do not expect much change from the upcoming elections, they seem to be completely unafraid to discuss politics and criticize their leaders.

More than that: many are ready to give their government their due: the Ethiopian government has had the vision to embark in large-scale infrastructural project. Three were most cited to me: the Grand Ethiopian Renaissance Dam on the  Blue Nile; the new regional road network, connecting the country’s main cities across different regions (since regions were designed along linguistic/ethnic lines, this means “bringing Ethiopia’s tribes closer together”); and the new rail network, consisting of a planned national long-distance network, of the Addis Ababa light rail network (under construction – testing began the day after we left Ethiopia),  and of the Dire Dawa-Djibouti line (already in operation; construction work to prolong it to Addis is underway, with the first Addis-Djibouti run to take place in September 2015). These projects, and many more, were carefully planned and are available for public review in a document called the Growth and Transformation Plan (yes, it’s a 5-year plan).

Many Ethiopians take pride in the achievements of their country, and they seem to think yes, in principle you could fight to get different people in power, but why trouble? This crowd seems to be doing a competent job – whatever their ideology, they are quite good at technocracy and pragmatism – and by not having to get involved in politics we can concentrate on improving our own lives. This is similar to the mood I perceived in previous visits to China; another similarity with the Chinese leadership is the background of  Ethiopia’s Prime Minister Hailemariam Desalegn, by training a civil engineer who studied and taught in Finland and the USA.

So, I guess, score one for Dambisa Moyo. I am afraid that, if Western countries want to inspire Africans with its style of governance, they will have to do a better job of tangibly improving life for their people.