Should Egypt Continue Its Economic Openness Strategy?

By: Mohamed Hassan Youssef

 
Egypt had previously adopted an economic strategy that favors applying controls on capital movements. In the 1970's, however, Egypt chose the "Openness" economic system, a totally different system from the previous one. In early the 1990's, Egypt signed an agreement with both the International Monetary Fund (IMF) and the World Bank, known as Economic Reform and Structural Stabilization Program (ERSAP), to apply the financial globalization policy. Financial globalization, hence, has become a common phenomenon in the Egyptian life, and the need arises to shed light on its implications on the Egyptian economy.
In the 1960's, Egypt followed a social economic system. This system set forth controls on capital movements whether inwardly or outwardly. It also prevented foreign direct investment (FDI) from entry. All these measures led to great economic hardships – ballooning budget deficit, soaring unemployment, and teetering on the edge of recession - from which the Egyptian economy greatly suffered.
Production quality, therefore, sharply decreased. Incentives for new technologies lagged behind. Wages fell dramatically. All these repercussions pushed decision makers to adopt a new economic philosophy, aiming to obtain a firm grip on the imbalance in the current account and credit shortage.
Since the early 1970's, Egypt has started the difficult way to reform its economy. These efforts gained success in concluding the IMF-World Bank agreement to adopt the openness system, or financial globalization. According to this new strategy, FDI was highly welcomed. FDI helps push the economy away from recession, which was typically the case of Egypt. Foreign investors started big projects, which creates many new jobs. FDI also creates a strong competition between foreign and local investors. This also adds to the country's benefit. Many of the world experts were indeed astonished when seeing how Egypt grapples with its challenges.
In sum, one cannot conclude that financial globalization is a magic bullet which can solve all Egypt's economic problems. Yet, at the same time, its valuable implications on the Egyptian economy cannot be denied. The greatest result achieved, still, is the economic and social transformation into a more realistic system which depends on capital market as well as the integration into the mainstream world economy.