Final Issue: Problem of unemployment likely to worsen in Egypt

This piece was written for Egypt Independent's final weekly print edition, which was banned from going to press. We offer you our 50th and final edition here.

Whether the economy is growing or slowing, unemployment has been one of Egypt’s most persistent ailments for decades.

Compounding this is the vague relationship between workers and employers that puts little responsibility on the latter, while placing the former in a highly vulnerable position due to poor labor laws.

In today’s beleaguered economy, crushed by a convergence of declining revenues, a ballooning deficit, a devaluating currency and stymied capital inflows, unemployment has risen, exposing with it an array of deficiencies that plague the labor market.

Over the past two years, the battered economy has seen growth rates drop, a shortage in basic food and fuel supplies, and a funding crisis that’s led the government to turn to local banks to finance its deficit. In the process, the government has crowded the private sector out of the debt market, choking expansion and investment plans as well as limiting access to finance by troubled companies. In turn, some have closed while others have downsized.

According to the Global Competitiveness Report 2012/13 recently released by the World Economic Forum, concerning the labor market efficiency index, Egypt ranked 128 out of 144 countries with regard to cooperation between labor and employer. The relationship was defined as confrontational.

Salah Gouda, economic expert and head of the Economics Studies Center, attributes this confrontational relationship to the absence of a clear-cut and binding framework creating a healthy relationship for both sides.

“There is no clear set of rights or responsibilities for the employer/employee. The current labor law does not protect employees from employers’ abuse, nor does it defend business owners from workers’ protests,” Gouda explains.

The labor and social insurance laws date back to the socialist era, and have not changed much since Egypt embraced more open market policies.

In the flexibility of wage determination, Egypt ranked very high — 55 out of 144. Though this may be viewed as positive, it is not, in fact, as wage determination is basically left to individual companies regardless of competencies or any sense of social justice.

Gouda says implementing a minimum and maximum wage is a must to address such flagrant market deficiencies.

For hiring and firing, the country ranked 116 out of 144, meaning this is arbitrary to employers rather than enforced by regulations.

“In the private sector, employers can easily hire workers with Form No. 2 and make them sign the dismissal Form No. 6 at the same time, so an employer can easily dismiss an employee without much hassle,” Gouda says. “In other countries, civil society organizations, labor unions and business associations are strong, and no such thing can happen.”

According to the report, the index of wages in relation to productivity ranks Egypt number 112 out of 144, only proving that production and efficiency are not related to compensation or pay.

Sometimes, especially in the public sector, it isn’t necessary to even work and be productive in order to receive bonuses, incentives and even profits. Also, the Corporations Law 159/1981 stipulates that privately owned companies distribute 5 percent of profits among employees — but that doesn’t happen, says Gouda.

Egypt scored worst when it came to the brain drain, ranking 132 out of 144 as a country that fails to retain or attract talented people. For numerous political, economic and scientific reasons, the best and the brightest normally leave the country to pursue better opportunities elsewhere.

“We have a climate that repels efficient and competent people — for example, Mostafa al-Sayed, Mohamed al-Erian, Ahmed Zewail, Magdy Yacoub, Farouk al-Baz and many others,” Gouda adds.

Unemployment rising

The unemployment rate rose by 0.5 percent in the fourth quarter of 2012 to 13 percent — this being the official figure, while the actual rate is predicted to be higher — up from 9 percent in 2010.

About 242,000 people joined the ranks of the unemployed last year as the total jobless figure reached 3.4 million, out of a total labor force of 27 million. About 1 million Egyptians lost their jobs in 2011 as economic growth slowed, and more than 162,000 Egyptians lost their jobs in the last quarter of 2012 alone.

Youth unemployment rates are predicted to be much higher in the Arab world, and Egypt is no different, with about 77 percent of the unemployed between the ages of 15 and 29.

A deep divide exists, as on the one side more and more young people are searching for jobs, while, at the same time, the private sector continues to encounter difficulty recruiting skilled employees.

According to reports by the Arab Labor Organization, higher unemployment among the educated is a trend now being seen in the Arab world. More than 80 percent of those unemployed have at least a high school diploma, and a third have a university degree.

Urban unemployment is notably higher than in rural areas, at 16.3 percent and 9.9 percent, respectively.

These figures include only registered workers, in turn excluding the massive informal economy that exists outside of a formalized framework.

Six months ago, the Cabinet planned to team up with the private sector to put together a national program for employment and training, with the goal of reducing joblessness to 6 percent by 2022, the State Information Service said.

Planning and International Cooperation Minister Ashraf al-Araby was quoted as saying that Egypt plans to reduce its unemployment rate to 9.5 percent by 2017 and 6 percent by 2022.

Gouda, however, dismisses this as mere talk. “It is all just ink on paper,” he says. “There are no real trainings being provided and there is little investment coming into the country to create the needed jobs,” he adds.

Over the years, faced with a growing deficit and less growth than needed to create enough jobs, Egypt has come to rely on foreign direct investment to fund the kind of projects that keep the labor wheel moving. As this has all but completely dried up, unemployment has suffered further.

“It is a mess,” Gouda says.

Causes and effect

One of the main factors contributing to higher unemployment rates is a labor force that has grown faster than the demand for it, a trend that is likely to continue in the coming years.

In 1960, total unemployment in Egypt was less than 200,000. By 1976, that rose to 850,000, and by 1986, the figure stood at more than 2 million.

Job opportunities, meanwhile, have barely expanded as the population swelled. Graduates have to wait for more than five years on average to find a job, which is why the rate is highest among young graduates in Egypt.

Between 1988 and 1998, the labor force grew at an annual average of 523,000 workers, while employment increased at an annual average of 435,000. Between 2001 and 2010, labor supply grew at 2.6 percent, and new job seekers will increase to an annual average of 638,000.

Within this context, the problem of unemployment is expected to get uglier in the coming years.

Unemployment has also been a result of underperformance in labor markets, which is also the reason for a decline in income. Unemployment among people who are literate in Egypt is much higher than that among people who are illiterate.

Causes of unemployment are varied and may be due to a combination of the following factors: rapid changes in technology, global recessions, attitudes toward employers, and discriminatory behavior in the workplace, which may include discrimination on the basis of age, class, ethnicity, color or race.

“What we need now is a new and fair law that takes into account the correlation between employers and employees,” Gouda says. “A generation of employment opportunities and equality in income distribution are key to dealing with the dual problem of unemployment and poverty.”

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