Creating jobs in Egypt

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    David Brancaccio talks with a receptionist at Cairo's Invitation Hotel. The hotel is the sort of medium-sized business that experts want to succeed in order to create jobs.

    - Magdi Kassem

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    Invitation Hotel owner Hesham Abass talks about the crippling effects of red tape, as the daughter of a guest checks the web and Marketplace colleague Madiha Kassem translates.

    - Magdi Kassem

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    Hotel owner Hesham Abass and David Brancaccio speak in the hotel's common room. At first, Abass says: "I was the carpenter, I was the designer; I was doing the whole thing from cleaning to the end."

    - Magdi Kassem

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    Upstairs at a sibling hotel also owned by Hesham Abass called "Arabesque." The hotel boasts satellite TV with over 300 channels.

    - Magdi Kassem

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    On the outskirts of Cairo, one of the many places to go when taking the bureaucratic steps to start a business. Hotel owner Hesham Abass Abass had difficulty getting funding for his hotel, despite a government program for tourism-related businesses.

    - Magdi Kassem

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    Yet another part of Egypt's bureaucracy. Get your government approval here.

    - Magdi Kassem

Kai Ryssdal: Quick footnote before we go on about that interview with Alisa. This is the 15th straight week of protests in Syria. I don't know if you remember, but a lot of the protests elsewhere in the Middle East -- Egypt, for example -- didn't last that long and still managed to change the government.

Now though, Egypt's trying to figure out what happens next: How to build a completely new political and economic framework. Part of that has to be somehow getting jobs -- or better jobs -- for millions of people. Our series Economy 4.0 is all about that, how to make the global economy work better for more people.

Today our special correspondent David Brancaccio reports from Cairo that -- in Egypt, anyway -- the road to success goes through a very robust bureaucracy.

David Brancaccio: Reham Mohammed is frazzled.

Reham Mohammed: I can actually see that nothing changed after the revolution. The people are still the same.

It's day two of Reham's long and winding road for registering with the government what should be a simple change to a business contract for her little company. She imports and exports medical supplies. She's inside this "One Stop Shop" in Cairo -- a catch-all government building for getting various business permits. It's like the DMV: clerks in little windows, take a number and wait. Only it's not minutes and hours, it can be days and weeks.

Mohammed: The system is still the same. The procedures are still the same. So nothing changed.

The thing is, unless Egypt untangles the red tape, it may never produce the private sector jobs it needs to bring stability and prosperity to country. Jobs like the ones Hesham Abass provides at his little boutique hotel called Invitation off Cairo's central square.

Brancaccio: OK, so tell me this is a typical room?

Hesham Abass: This is a typical room, yeah. All the rooms are air conditioned, with TVs, satellite...

The place is a deal at $22 a night including breakfast. He employs 23 people -- mostly young folks in college or just out of school. This is a medium-sized business, what experts say may be the future of the private sector. Yet the bureaucracy is killing him. When Abass wanted to apply for a government loan specially targeted to help tourism-related companies like his, he couldn't get an appointment with the director. He called. He emailed. He sent faxes.

Hesham Abass: Twelve faxes.

Brancaccio: Twelve faxes?

Abass: Twelve faxes. Because he refused to meet me for three months.

Abass says he had to threaten to sue just to get the chance to make his case for the loan. So here's the crux, according to Ragui Assaad, a fellow at the Economic Research Forum in Cairo: Too many business-minded Egyptians look at the hassle, the heartache, and sheer waste of time involved and decide not to register their business.

Ragui Assaad: Many people simply cannot afford to do these things and so avoid them altogether and remain under the radar.

Assaad says you can call it the "black market" or you can call it the "informal" economy.

Assaad: This is the issue of informality. Informality is not that people don't want to pay taxes. Informality is that people cannot afford the very high transaction costs that it takes to deal with the bureaucracy in any way.

They keep their businesses small and on the low-down, like this man selling little robot toy cats on a Cairo street. It's a small stand run by Amin el-Shenawi. Just one man and his made-in-China toys that he sells for roughly $2 a piece.

Amin el-Shenawi speaks in Arabic

And by staying small, they don't create enough desperately needed jobs. One advocate for "formalizing," the process by which an unlicensed toy vendor becomes say, a legal chain of robot toy stores that hires lots of Egyptians, is renowned economist Hernando de Soto. He sees the frustration of people in the informal economy as a driving force behind the changes sweeping the region. De Soto reminded us about Tunisia and the tragic story of the man credited with starting the Arab Spring by setting himself on fire. He was a man who worked in the informal market; selling fruit from a small cart.

Hernando de Soto: What makes this interesting is that the whole revolution is set off by informals, people who work outside the legal system and who would like to work in a legal system that supports them.

De Soto argues that this isn't a revolution just of students. It's a kind of Street Vendor Revolution. An uprising of people left out of the formal economy, he says. For stability to come to Egypt it'll have to leverage the revolution to make it much easier for informal businesses to go legit, to come out of the heat to register, get insurance, raise investment capital, and in that way create millions of private sector jobs.

In Cairo, I'm David Brancaccio for Marketplace.

About the author

David Brancaccio is the host of Marketplace Morning Report. Follow David on Twitter @DavidBrancaccio
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And thus is it proven that bureaucracy, not autocracy, is the real immediate cause of suffering in third-world dictatorships. And this is the kind of system that the Left in America is trying its best to move us *toward*.

Re: David Brancaccio’s commentary on ‘Creating Jobs in Egypt’

The similarities between Mr. Brancaccio’s story and what happened in Palestine 15 years ago points to an eerie duplication of historic opportunities.

And like the missed opportunity in Palestine, I’m afraid that the one in Egypt will similarly be blown by the local leaders that have all the best of intentions.

In May 1994, following the Oslo Accords, in which a phased transfer of governmental authority was granted to the Palestinians, much of the Gaza Strip came under Palestinian control. The Israeli forces left Gaza City and other urban areas, leaving the new Palestinian Authority to administer and police those areas. The Palestinian Authority was led by Yasser Arafat. In September 1995, Israel and the PLO signed a second peace agreement, extending the Palestinian Authority to most West Bank towns. The agreement also established an elected 88-member Palestinian National Council, which held its inaugural session in Gaza in March 1996.

It was during this period immediately after the formation of the PNC that I wrote a letter to the editor of the handful of newspapers that I found in Gaza City and in Ramallah on the West Bank. My letter was directed to Yasser Arafat, congratulating him on his success in gaining autonomous control over his divided country. I indicated that now that he had the authority to do so, I made a plea to Arafat’s newly elected council to form a commission that would study a sampling of the world’s great constitutions and the laws and regulations that they were based on. I suggested that his new government examine the regulatory and civil rights laws of the most successful economies on the planet. And in summary, I suggested that if Mr. Arafat wanted to provide the best possible living standards for his people and to alleviate the pain and suffering that his citizens had endured over the ages, I asked that he and his Palestinian National Council replicate the economic regulatory laws, the tax laws and the civil rights laws of Hong Kong province.

I pointed out that Hong Kong and Gaza are of similar size and are of similar population density. Both similarly occupy prime coastal trading locations near prime commercial shipping lanes. Both suffered form extremely high population problems, but Hong Kong dealt with their situation via free market capitalist ideals and by implementing simple, efficient and limited bureaucratic regulations. It was the basis of free market regulations, a low flat income tax and minimum bureaucratic interference for the small entrepreneur and start up company that allowed that tiny province to become one of the world’s greatest capital markets with one of the highest per capita incomes and living standards. I was told that my letter was published in only two of the half-dozen papers that I sent it to.

Today, 15 years later, we can see that my request fell on those with a far different agenda than what was in the best interest of the Palestinian people.

Which brings me to Mr. Brancaccio’s commentary on ‘Creating Jobs in Egypt’. What I said a dozen and a half years ago to Yassar Arafat is still applicable today. I would suggest that the new leadership in Cairo examine the laws and regulations of pre-1997 Hong Kong and simply replicate those simple mandates. And with Egypt's far greater resources and with its proximity to the Suez and to the eastern Mediterranean Sea, if the same regulatory governance from pre-’97 Hong Kong were implemented, you would quickly see a new and dynamic Egypt growing out of the sands.

The similarities between Mr. Brancaccio’s story and what happened in Palestine just 15 years ago points to an eerie duplication of opportunities. And like the opportunity in Palestine, I’m afraid; the one in Egypt will similarly be blown by the local leaders that have all the best of intentions.

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