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The long-term economic challenges Egypt must overcome

Egyptian protesters take part in a demonstration on at Cairo's Tahrir Square as massive tides of protesters flooded Cairo for the biggest outpouring of anger yet in their relentless drive to oust President Hosni Mubarak's regime.

TEXT OF INTERVIEW

Kai Ryssdal: Hosni Mubarak offered this political compromise today. He's not going to resign, but he's not going to run again when his term's up in September -- that announcement came in a speech this afternoon. Whoever follows Mubarak -- and whenever that does happen -- they're going to have some real fence-mending to do politically and economically.

Marcus Noland is a senior fellow at the Peterson Institute for International Economics. Marcus, good to have to with us.

Marcus Noland: My pleasure.

Ryssdal: We talked a little bit on the broadcast yesterday about the Egyptian economy today and how much trouble it's in. Do me a favor and flashback a week ago. How was that economy and how was it functioning?

Noland: The Egyptian economy has actually not done badly over time. There's been steady per capita income growth; improvements on social indicators have been quite impressive; share of people in measured poverty is still high, but it's been steadily falling. So I think one would say the Egyptian economy had been doing pretty well. They were definitely benefiting from the booming commodity prices. Foreign direct investment was way up in Egypt. So up until a week ago, while they still had some very serious long-run challenges, at least the short-run outlook was pretty good.

Ryssdal: Lay out some of those longer-run challenges for me, would you?

Noland: Well the basic problem they have is one of employment. They have, like other economies in the Middle East, a demographic bulge. So the number of new people entering the job force is about 4 percent a year. So they have to generate jobs. Unemployment in Egypt is almost 10 times as high for college graduates as it is for people who have gone through elementary school. So they have a basic problem with unemployment, but particularly urban, youth, educated unemployment and those are precisely the people who you see out in the streets.

Ryssdal: Not to create a false equivalence here, but it's like trying to create jobs here in the United States. How does a government then, with that kind of challenge, create those jobs?

Noland: Ultimately what they have to do is experience more successful globalization than they have to date. They need to be able to penetrate international supply markets -- especially in industrial goods that can generate a lot of employment. They have the advantage of proximity to Western Europe, they have free trade agreements with the EU, so they ought to be focusing on how they can expand manufactures and services exports, especially to that rich nearby market.

Ryssdal: Well speaking of nearby markets, how important is the regional context for the Egyptian economy?

Noland: The regional context is important in the sense that Egypt's economy is very heavily tied to the Gulf. One of the problems the Egyptians face -- and it's the same problem they face in Jordan and, indeed, in the Palestinian authority as well -- is that young college graduates have a choice. They can accept a job in Egypt or in Jordan, as say, working as an accountant. Or they can wait and hope to land a much higher-paying job as an accountant in the Gulf, or hit the lottery and get a visa and go to Western Europe or the United States. So oddly enough, the proximity of these countries that don't have enormous natural resource endowments, but their proximity to countries that do, increases their wage rates in Egypt, in Jordan, in Tunisia and actually makes it more difficult for entrepreneurs in those countries to create jobs.

Ryssdal: How much longer do you think there is, Marcus, in Egypt specifically before the political crisis becomes a lasting economic crisis?

Noland: Well the short-run disruptions have obviously been in the tourism sector, which is about one-sixth of the economy, as well as the linkages to the outside world -- both exports and imports. It is going to get bad fairly quickly because of rising food and fuel prices. But really, those things will ultimately resolve themselves once you get political stability. But the important thing is whoever takes power Mubarak is still going to face the difficult problems of employment and especially educated youth unemployment.

Ryssdal: Marcus Noland. He's the deputy director and a senior fellow at the Peterson Institute for International Economics in Washington. Marcus, thanks a lot for your time.

Noland: Thank you.

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