Job creation is a sign of healthy economic growth. In theory, a stable and growing economy should allow businesses to scale up, taking on new employees to facilitate this expansion. But despite Egypt’s macroeconomic resilience–thanks to different stabilisation policies adopted between 2014 and 2016 (Zaki 2017)–most of its structural problems at both the macroeconomic and microeconomic levels have not been addressed. This has affected the ability of the Egyptian economy to generate jobs and to achieve a more sustainable economic growth path. Output growth alone is not enough – new jobs are vital.

Cyclical and structural macroeconomic challenges

At the macroeconomic level, five main challenges can be identified, three of which are structural in nature while the other two are cyclical.

First, economic growth in Egypt is not even. Growth is led primarily by capital-intensive sectors such as petroleum and construction. Such industries witnessed particularly significant growth rates following the Covid-19 pandemic, at the expense of non-oil manufacturing sectors such as tourism.

The second structural obstacle is the ‘crowding-out’ effect. This is associated with the increase in domestic credit provided by financial institutions to the government and the decrease of those on the private sector between 2010 and 2020. The increase in domestic credit provided to the government by the financial sector (from 64% in 2017 to 67% in 2020) was associated with a simultaneous decrease in credit to the private sector (21%, down from 24% over the same period). Such credit was used mainly to finance the fiscal deficit, as well as domestic debt and its interest payments (with the surge in public investments and mega-projects).

Third, there is the deteriorating investment climate. A combination of a lack of fair competition, an uncertain exchange rate policy, corruption, tax administration, tax rates and customs and trade regulations means that domestic investment is far behind its potential in terms of growth contribution and therefore employment creation. At the cyclical level, exports and investment have been volatile due to a lower demand from Egypt’s main trade partners (mainly European and Arab countries) following the pandemic. External debt has also been rising substantially, with the increase in foreign reserves adding more pressure on Egypt’s foreign currency already affected by the decrease in tourism, exports and FDI. Such macroeconomic developments made the economy less resilient and explain why, at the microeconomic level, the quantity and the quality of jobs created were rather modest after the Covid-19 crisis.

A distorted labour market

The pandemic appears to have only exacerbated existing labour market challenges in Egypt. These include relatively low labour force participation rates and employment-to-population ratios, as well as a relatively high unemployment rate, especially among youth and women. The good news is that those labour market indicators largely recovered following the Covid-19 shock, returning to their pre-pandemic levels.

But lower levels of educational attainment continue to be associated with lower participation rates (except for in the case of illiterate males). Despite the disparities in levels, the pandemic had a larger impact on men. Male unemployment rates more than doubled in Q2 2020, reaching 8.6%, compared with 4.3% in Q2 2019. In contrast, female unemployment decreased in Q2 2020 (16.4%) and Q3 2020 (15.4%), compared with 23.1% in Q3 2018. But there is no evidence that more women did actively join the labour market, as female labour participation rates also decreased during the same period.

From a qualitative perspective, three stark findings are apparent in the data.

• First, ‘Young People Not in Employment, Education or Training’ (known as NEETs), especially among females, continue to be one of the major challenges for Egyptian policy-makers. More specifically, more than a quarter of Egyptian youth (26.3%) were neither employed nor enrolled in education nor training by Q4 2020. The dual decrease in labour force participation and NEET rates among women highlights the discouraging impact of Covid-19 on young Egyptian women. This finding confirms the existence of important disparities between genders and suggest that the impact of the pandemic has not been the same across different groups.
• Second, the time-related underemployment rate, as defined as the share of persons in employment working less than 35 hours per week, wanting to change work and/or wanting additional work, has increased during the pandemic.
• Third, informal employment has been increasing. By Q4 2020, 40% of Egyptian workers were informal economy workers, 20% worked for the public sector, 16% were self-employed and 11% were private formal wage workers. Those remaining were employers (6.8%) and unpaid family workers (5.8%).

Creating more and better jobs

A series of differentmacro-stabilisation programmes made the Egyptian economy resilient during the pandemic. But they have not helped to address the deep-rooted causes of Egypt’s structural problems related to employment and inclusive growth. This suggests the need to shift the focus onto policies centred on structural reform, rather than just macro-economic stabilisation. This includes a special focus on the following areas:

• A consistent industrial policy. Reforms must be directed towards labour-intensive sectors to create more jobs (especially for youth and women).
• Fairer competition policy. There is a need to develop a transparent state ownership policy and governance framework to enable the private sector to make informed investment decisions and reduce uncertainty. There is also a dire need to separate the roles of state actors as regulators from operators to resolve potential conflicts of interest.
• Fiscal space for financing universal and adequate social protection. In accordance with ILO social security standards and the UN 2030 Agenda for Sustainable, countries need to invest more and better in social protection, on the basis of principles of universality, adequacy, sustainability, and solidarity. Social policies in Egypt remain largely reactive not proactive. Proactive policies that provide workers with social security and help them get out of vulnerable situations are vital. 

A more sustainable and credible exchange rate policy. The Central Bank of Egypt announced the adoption of a free-floating exchange rate regime in October 2022 as one of the conditions of the recent International Monetary Fund (IMF) loan. This policy must be made more sustainable and more credible in the medium term. While this is necessary to improve the competitiveness of exports, further reforms are needed to foster and diversify domestic production and remove administrative and unjustified non-tariff measures that affect exports, production and job creation.