The Economic Incoherence of “El Bashmohandis”Posted: April 9, 2012
Khairat El-Shater is hailed as the economic guru of the Muslim Brotherhood. He is certainly a successful businessman (although the details, as with everything relating to the MB, are secretive and murky). But businessmen are not always good macro-economists. What El-Shater revealed today is a rather disjointed and incoherent program, driven more by appeal to public prejudice than an actual desire to build a viable economy. In part this is due to the straight jacket of “Islamist Economics”. However, if the MB assumes all the legislative and executive powers in Egypt, it would be helpful and patriotic to invest some of their political capital in making tough economic choices in the short term in exchange for long term gains. There are several warning signs why an Egypt dominated by the MB will not achieve rapid growth. At the moment Egypt ranks around 130 out of 210 in the world in GDP per capita ($6500 or so). It needs two decades of solid growth ( 6% or more) to join the ranks of the “near developed” , defined as per capita of around $15,000 to $20,000. Only a few nations have achieved that in recent times.
There are multiple reasons to doubt that El-Shater’s policy will lead Egypt to an economic renaissance. Here are a few:
1- Egypt will require a transparent and smoothly functioning financial system. El-Shater personal views and his evident need to appeal to the Salafis will push the country into uncharted waters of “Islamic finance”. There is no working model of such a financial system aside from rentier economies bolstered by oil, such as the Gulf countries or Malaysia. Today he revealed nothing about financial reform that would bolster the economy. There was nothing in his program about potential currency devaluation position, target growth or inflation numbers, and no target deficit or balance of payments. There is too much “inshallah” and too few numbers in his plan.
2- His program was light on manufacturing and new technology and spoke more to a service economy. It is not clear that Egypt is competitive in this area (say compared to India or the Phillipines), especially if creeping Islamisation reduces tourism. Significant gains in manufacturing, which benefits from lower wages, are stymied by lack of foreign investment inflow. These investments are scared away by the political uncertainties and regulatory structures, including lack of transparency, poor labor laws, and uncertainty about the validity of deals done under Mubarak. El-Shater seems to imply a program similar to that of Gamal Mubarak, but with the MB Grandees in place of Gamal’s cronies. That will not attract foreign capital, except from the Gulf countries. But then again the MB is on rocky terms with these countries. Also, any serious manufacturing effort will require dealing with the current military ownership of many enterprises, including joint ventures. The MB is the organization least qualified to do so.
3- Islamic governance will have a ratcheting effect on personal freedoms, which will push many of Egypt’s best out of the country. The young professionals necessary to start and grow innovative businesses are unlikely to suffer kindly the tomfoolery of Salafi strictures.
4- El-Shater mentioned nothing serious or detailed about telecom (Egypt is a main route of West-Far East land telecom traffic along the canal zone) and port development (including canal widening), in both of which Egypt could have a solid competitive edge. These developments will likely involve large capital that will want to bypass the MB favorites. Let us not forget that Israel is creating a high speed cargo rail line from Jaffa to Eilat, which could compete with the Suez Canal.
5- There was more nonsense about self-sufficiency in Agriculture. That is a nice nationalist sounding policy with almost zero chance of success. Climate changes and population growth will dictate that Egypt move from staple farming (wheat, rice etc.) to high-end farming, such as fruits, flowers, and other similar cash-for-export crops. Again, El-Shater’s policy is silent on that.
A quick survey of a few macro-economists reveals the MB program to be largely devoid of any serious plans, missing in any kind of specific “number-driven” forecasting and a profound ignorance of global economics. The program of the MB “renaissance Engineer” is embarrassingly amateurish. This is no way to build a 21st century economy.