After the �Great Recession�: Africa�s Global Emergence

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					The Call for a Revolutionary Macro-Economic Transition
         The Call for A Revolutionary
         Macro-Economic Transition
   Given Egypt’s low economic base, a revolutionary approach will be required to deliver the
    spectacular growth necessary to produce an exponential upsurge in each of the country’s
    key economic indicators

   With a cohesive, honest and unwavering economic reform program, such growth is
    achievable

   We look to China, with its steadfast and gradualist reform strategy, as such an example:

    – Since 1978 (when Deng Xiaoping and succeeding leaders turned their focus toward
    market-oriented economic development), China has seen average real growth of more
    than 9% per year, with growth in peak years of more than 13%.

    – Output quadrupled by 2000, and GDP increased more than tenfold since 1978

                                                                     Source: The IMF, CIA World Factbook


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         China’s Reform Strategy
The underpinning of China’s strategy is its opening to a market-oriented economy

   Phasing out of collectivized agriculture
   Formation of rural and private small and medium enterprises (SMEs)
   Fiscal decentralization
   Liberalization of pricing
   Liberalization of foreign trade and investment
   Increased autonomy for state enterprises
   Increased autonomy and profit incentives for private business owners/managers
   Investment in industrial production
   Investment in workforce education
   Consistent, interconnected and reinforcing strategy




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        Key Drivers of China’s Growth
While the contributions of capital investment and an abundant labor input cannot be
undervalued, the driving force behind post-1978 growth was higher productivity, accounting
for more than 42% of China’s growth



     Capital                         Labor                         Higher
   Investment                        Input                       Productivity



With a youthful and motivated population, this is good news for Egypt

Admittedly, China’s productivity gains built upon pre-1978 capital accumulation, and for this
reason, the need for investment cannot be ignored
                                                                                         Source: The IMF


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                  A Cohesive Plan for Egypt
   Reinvigorate legitimate privatization efforts

   Channel investment from government, foreign and local sources to value-added industries, improved
    technologies, job creation, and increased quality of goods

   Welcome foreign investment to fuel the economic transformation and link Egypt to international markets

   Fuel productivity by granting enterprise managers autonomy and permitting private ownership and
    retention/reinvestment of gains

   Allow markets to dictate prices, avoiding pricing manipulation favoring insiders and monopolies

   Encourage SME development and growth to transition workers from agriculture and outdated industries to
    higher value-added industries

   Leverage the available (and motivated) labor pool to fuel productivity, eventually driving wage growth

   Decentralize fiscally, granting governorates the autonomy to implement micro-finance strategies and to
    allocate funding to its best use

   Prioritize local economic development strategy (micro-finance, SME-development, and local wealth
    creation) to address the urgent needs of local governorates



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      Extraordinary Growth Requires
           Fuel from All Sources
     National                                Foreign Direct
   Government                                 Investment
    Investment                                (long-term capital)



    Local                                         Foreign Trade
Governorates                                         (exports,
 Investment                                   emerging markets funds)



    Multi-National                              Domestic
      Financial                             Private Business
     Institutions                              Investment
                      The Populace
                     (banking, borrowing)


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               Anathema to Growth

  State             Manipulation        State
Ownership            of Inputs      Intervention
                    and Pricing

  Wealth                            Thwarting
  Creation             Gray           Profit
for Insiders         Economy        Incentives



                     CONFIDENTIAL                  7
Urgent Local Economic Development
               Needs
  A Pillar of the Macro-Economic Reform Program




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         Local Economic Development:
         A Pillar of the Macro Program
   While it is imperative for the incoming government to radically improve Egypt’s macro-
    economic situation, a transition such as is required for Egypt will take many years to fully
    materialize. Nevertheless, an urgent need exists in largely populous and poverty stricken
    parts of the country such as Sohag and Mahalla

       –    Given the government’s priority to create wealth for insiders, limited progress was
            made in the area of local economic development. Local governorates continue to
            exhibit tremendous levels of poverty and to remain in a cycle of economic stagnation

       –    Sohag is an agricultural town, and Mahalla is a “one-company town.” The ginneries
            and textile factories that supported these towns were public sector firms whose
            technology is so outdated that privatization is no longer an option. Their quality of
            production has deteriorated and is no longer competitive. Nevertheless, the local
            economies are dependent upon these industries and these outdated firms

   Given the importance of rural and SME development to the overall economic reform
    strategy, investments to address the immediate needs of the governorates need not conflict
    with the broader, macro-economic strategy



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             Two Case Studies:
    The Governorates of Mahalla and Sohag
                     Sohag                                                  Mahalla




   Population: Over 3.5 million                             Population: Over 500,000
   Location: Central Egypt                                  Location: Middle of the Nile Delta
   Key industries: Ginned cotton and silk weaving           Key industries: Textiles and clothing
   Cause for intervention: Average farm sizes so            Cause for intervention: Local economy
    small that 93% of population has too little land to       fully dependent on a single industry with
    produce an income equivalent to the poverty line          a disgruntled labor force



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         The Proposed LED Strategy
•   The proposed approach involves developing teams of experts that would work with the
    national and local governments, as well as local stakeholders in five key areas:

           – Microfinance
           – Wealth creation
           – Education
           – Urban Planning
           – Outsourcing

•   These teams would be operating out of each of the targeted governorates and would
    have an engagement period of no less than three to five years

•   The focus of these teams would be to help embed a local competitive framework that
    would stand at the core of the regional transformation process




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                                      Micro-Finance
       The micro-finance team would be charged with the development of effective
        micro-finance schemes targeted at the “poorest of the poor”
    −      One component would involve a tie-in to the new mortgage law, seeking to
           assist with helping citizens own their own homes; a second component
           would focus on small and medium enterprise (SME) development


       Nobel laureate Mohamed Yunus developed a similar program to the micro-
        loans initiative in this context, turning $27 in funding into $15 billion in
        Bangladesh
    −      The initiative would support loans of $500 or less for local populace to help
           them meet short-term funding needs (such as helping a daughter with a
           wedding, etc.)




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                   Short-Term Micro-Loans
       The micro-loans program would involve establishing and raising capital for a small public
        sector banking institution that would assist in the disbursement of micro-loans to local
        populace who may not be in a position to provide collateral
    −      These loans would fund activities that range from buying a dairy cow to investing in
           small oven

       These programs would involve a high-level of personal attention, as evidenced by the
        “Yunus model” lead to very high repayment rates
    −      Yunus’ Grameen Bank off-sets weekly meetings with its borrows with high interest
           rates (up to 20 percent) to help the borrows succeed by leveraging the help of experts
           who can assist them in their business goals and have yielded exceptional results in
           terms of loan repayments and bringing locals out of poverty
    −      The success of this program will hinge on ensuring that the banking institution is not
           only a lender, but also an advisor that acts as a de-facto incubator




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Developing a Competitive Local Economy
The micro-loans program would be the first phase in a three-pronged investment strategy that focuses
on developing a competitive local economy:

                        Hands-on training                        Business Incubators
 Capacity            Prototype business ideas         Advisory services/More specialized training
 Building     Advisory services for business planning         Office space and services


Enterprise
                                                                                                    Growth
  Cycle
                                                                        Development
                                                 Startup
Financing             Pre-start


                                                                                 Private
                                                                                Investors
                       Micro-lending            SME lending                   .Government
                        Own Funds                                             Institutional
                                               Micro-leasing
                                                                                Investors




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                           SME Development
       SME Development would build on successful initiatives from the “Pre-start” program by
        leveraging a more dynamic business-enabling environment and better-suited labor force to
        assist local entrepreneurs take on slightly larger loans that are needed to help expand their
        businesses

       This would require changes to the local business environment:

    −      For example, the Government would facilitate a mechanism to help companies register
           and transition to the white economy

    −      Support services/incubators that focus on productivity, growth and SME
           competitiveness

    −      Following the U.S. model: teaming up and growing business base

    −      Enhance diversification, equity base, and availability of sources of finance to SMEs




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                                Wealth Creation
       Wealth creation (NOT employment creation) would focus on identifying avenues
        to create and establish bases of wealth transfer to the impoverished regions
       The initiative would create a cornerstone of a viable business sector to grow
        within target cities
       The newly established micro-finance institutions would have a key role to play
        within this initiative
    −      An effort would be made to support the establishment of small businesses
           (e.g. for bottling juice)
       The institutions would provide SEED capital, and act as a partner by providing
        access to experts that can help instill an entrepreneurial mindset and bring
        experience to the table
       The institutions would have an ownership stake in the enterprises, with the
        wealth generated shared with the locals




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The Virtuous Circle of Wealth Creation
                           INNOVATION


                         Providing funding


               Providing facilities and/or resources


               Providing knowledge of local markets
                   and/or business environment


        Assisting in the learning or acquisition of business
         expertise (e.g., accounting, finance, legal..., etc.)


                      BUSINESS VENTURE



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      Regional Transformation
             Process
   To effect any sort of turnaround in these regions, the governorates must be
    provided a level of autonomy, supported by strong institutions and economic
    structures at the national level, similar to the governance of states in the U.S.




   The focus of this turnaround strategy is to increase the competitiveness of these
    local economies, stimulate intrinsic growth, and create a modern functioning
    economy that leverages Egypt’s multitude of resources at the local level




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Conclusion




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      Government Misrepresentation;
      Now the Need for Unprecedented
                 Growth
   The Egyptian government effectively misrepresented how well the Egyptian economy was
    doing
         –   Very little trickle-down effect came of the government’s actions

         –   None of what they managed to achieve would have helped Egypt reach a point of
             sustainability and growth for the populace

   In actuality, we find that the Egyptian economy is simply too small to create employment
    prospects or wealth-generating opportunities for the population as a whole

   Egypt requires an extraordinary economic transition even to sustain basic living conditions for
    its people, let alone generate a higher standard of living. Given Egypt’s low economic base, a
    revolutionary approach will be required to deliver the spectacular growth necessary to produce
    an exponential upsurge in each of the country’s key economic indicators

   With an honest and unwavering economic reform program, such growth is achievable


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                  A Revolutionary Plan
   Applying the lessons from China’s “miracle growth” macro-economic reform program, a
    program underpinned in a market-oriented strategy, we have presented a cohesive plan
    for Egypt

   Other countries have fashioned similar “growth” and “turnaround” strategies; Egypt can
    succeed as well

        – With a privatization program already underway, a youthful and highly motivated population,
          and well-planted seeds of capitalism, Egypt is well-positioned; Egypt can prosper

   An extraordinary economic turnaround will require a steadfast commitment to
    privatization, liberalization and capitalism, setting aside anger and fear borne of the past
    government’s corruption; it will require technocrats in government; it will require dynamic
    thinking and a clear vision for the future, one that puts forth an interconnected and self-
    reinforcing plan




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               Local Development
              as a Pillar for Growth
   The plan must – for the needs of the people and for the success of the plan itself –
    address the urgent requirements of the most poverty-stricken areas of the country

   Given the importance of rural and SME development to the broader, macro-
    economic reform strategy, investments to address the immediate needs of the
    governorates will serve as pillars of growth, spreading reform country-wide and
    bolstering the broader growth program

   The LED strategy we have presented will increase the competitiveness of these
    local economies, stimulate intrinsic growth, and create a modern functioning
    economy that leverages Egypt’s multitude of resources at the local level




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       A Rare Opportunity for Egypt:
       The Next Great Success Story

   This is an exciting opportunity for Egypt to move out of poverty and to blossom into a
    sustaining country that can feed, employ and create wealth for its people

   Rare is the opportunity when geopolitical forces align for a common aim

   The new government and the people must seize this opportunity to transform Egypt into
    the next great success story




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posted:9/13/2012
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