Unemployment down in Egypt but maintaining trend is a challenge

The Egyptian unemployment rate dropped to 8.1% in the first quarter of 2019, the lowest in 20 years.
Sunday 26/05/2019
A mechanical engineering student from Helwan University checks a solar-powered vehicle in Cairo. (Reuters)
An eye on the future. A mechanical engineering student from Helwan University checks a solar-powered vehicle in Cairo. (Reuters)

CAIRO - The unemployment rate in Egypt is moving down significantly but maintaining the trend is a daunting mission with Cairo needing to boost economic growth and attract foreign investments, economists said.

The Egyptian unemployment rate dropped to 8.1% in the first quarter of 2019, the lowest in 20 years. Approximately 10.6% of the national workforce of 28 million was unemployed in the first quarter of 2018.

“The fact that more people are working is good for the economy because a drop in the joblessness rate means more demand in the market, more production and more social and economic stability,” said Yumn al-Hamaqi, an economics professor at Cairo University.

“Nonetheless, maintaining the decrease in the number of the unemployed is even more important.”

The lower joblessness rate is part of overall improving economic indicators two-and-a-half years after Egypt initiated aggressive reforms that included liberalisation of the Egyptian pound, elimination of most subsidies and the introduction of new taxes.

The reforms, which have been hard on Egyptian consumers, especially those with limited incomes, led to a rise in foreign currency reserves and in exports, as well as a drop in imports and a drop in the inflation rate.

Economic growth rose to 5.3%, from 4.2% last year. Foreign currency reserves totalled $44 billion in March, a marked increase from $17 billion before initiating the reforms in 2016. The basic inflation rate dropped in March to 8.9%, from 9.2% a month earlier.

Economists attribute the drop in the joblessness rate to national megaprojects that include the construction of new cities, thousands of kilometres of roads, electricity plants and bridges. The construction sector employs 14.1% of the Egyptian workforce. Other sectors are also demanding additional labour.

Egypt also started reclaiming tens of thousands of hectares of land to use in agriculture, which is also seeing an increase in its workforce. Gigantic fish farms in the Nile Delta and near the Suez Canal have also provided employment opportunities.

The drop in imports is incentivising local demand-driven production, which is causing industrial projects to hire more workers.

In February, the Central Bank of Egypt reduced its interest rate 100 basis points, contributing to increased market activity.

The tourism sector is also picking up. It is seeing tens of thousands of workers who had lost jobs because of the tourism recession return to work.

Still, there is uncertainty over whether Egypt can maintain the drop in the unemployment rate and continue to generate jobs.

Egypt needs to create 700,000-1 million jobs every year to meet the demands of a growing employment base. To generate this huge number of jobs, economists said, Egypt needs to raise the economic growth rate, reduce inflation and attract more investment.

“The investments will translate into more jobs for the nation’s workers,” Hamaqi said. “The rise in economic growth will also help the government specify more funds for development projects, which, apart from the private sector, create a large number of jobs.”

Egyptian Prime Minister Mostafa Madbouli, speaking May 2, said the government had a plan to raise the economic growth rate to 8% in fiscal year 2021-22. Finance Minister Mohamed Maait referred to a government plan to bring the annual inflation rate to 6-7% in fiscal year 2020-21, from 10% in the current fiscal year, which ends June 30.

Egypt is also trying to raise its industrial growth rate to 10.7% in fiscal year 2020-21, from 6.3% in the current fiscal year.

The success of the plans, economists said, would mean lower unemployment, more jobs and more social and political stability. However, other factors could determine whether Cairo is able to put its economic growth plans into effect.

Egypt’s ability to raise exports depends on the condition of the international economy. Its ability to attract investments and initiate development projects depends on security and political stability.

“We must put all these things into consideration but equally important still is the need for taking actual measures to attract investments by facilitating investment procedures and offering real incentives,” said Ashraf al-Arabi, a member of the Economic Affairs Committee in the Egyptian parliament.

“So far, the focus has been on formulating investment laws, which is good, but is not everything we need to convince investors to come here.”