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Economy 4.0

Creating jobs in Egypt

David Brancaccio Jun 20, 2011
Economy 4.0

Creating jobs in Egypt

David Brancaccio Jun 20, 2011

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.

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