FEATURE STORY

Egypt's Private Sector: A Driving Force for Job Creation

September 18, 2014


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STORY HIGHLIGHTS
  • The dominance of a few large, old, and politically connected firms is strangling the growth of a robust and competitive private sector.
  • Egyptian workers want stable jobs with security of tenure and social insurance but those jobs are becoming scarce.
  • Women earn lower wages in the private sector, and mobility constraints kick in disproportionately.

Egypt needs better jobs. It also needs more jobs. The small-sized firms Egypt needed to employ Egypt’s young working population aren’t growing fast enough to meet the demands. Although overall employment has remained stable in recent years, the trend has been toward a growth in jobs in the informal sector that are often disturbingly insecure.  

The World Bank’s Egyptian Labor Market Report 2014 "More Jobs, Better Jobs: A Priority for Egypt" sees this as the result of stagnation in Egypt’ s formal private sector over the last 15 years. Along with a decrease in public sector hiring, the gap in employment has been filled with informal jobs offering neither written contracts nor social insurance.

This burden of the jobs shortage has fallen primarily on Egypt’s youth. More than 75 percent of the country’s unemployed are young—between 15 and 29 years of age. Young Egyptians are two to three times more educated than the previous generation. However, young men find themselves having to work in lower quality jobs than they would like and young women have been withdrawing from the labor market entirely.

The sort of fast-growing small firms that generate employment in most economies today are in shorter supply than needed. Large Egyptian firms haven’t grown and, in the process, created more jobs. These firms were born large as a result of the privatization of state-owned enterprises. Partly due to the country’s economic policies, micro-firms are faced with a myriad of challenges that prevent them from fully joining the formal sector and competing with old, large, privileged firms. 

Within the industrial sector, for example, access to state energy subsidies favors a few old, large firms. The Bank’s new report suggests that if the government stopped giving well-connected firms like these preferential treatment and applied the same regulations uniformly, younger smaller firms would be able to compete with more established ones. This will ultimately result in a dynamic private sector.

If the government also offered the private sector credible signs of transparency and accountability, it could restore the sector’s confidence and encourage investment and job generation.

The Bank’s report proposes a three-level approach to the dilemma facing the informal sector. It suggests that informal firms should turn into formal employers and provide them with incentives to formalize their workers’ contracts. The report also suggests that people employed informally should be provided with job protection through unions, non-governmental organizations (NGOs), or public-private partnerships.

Another issue that affects the job sector in Egypt is that the lion’s share of jobs is/are found within easy reach of the country’s main metropolitan areas, Cairo, Alexandria, and Port Said.  Over half the jobs in Egypt’s formal private sector are located in these areas, where only a quarter of Egyptians live. Egyptians living farther away have almost no real access to the formal private sector. This problem is exacerbated by the limited amount of internal migration in Egypt.

Large scale infrastructure development projects could provide jobs for less well-educated Egyptians. Moreover, improving transport networks into Egyptian cities, as well around them, could help solve several problems and provide people living outside major cities better access to the formal private sector.  Providing safe and reliable commutes could also encourage women’s participation in the workforce and solve the limited mobility challenges they suffer from.  

Egypt’s investment in education has led to secondary (high school) and post-secondary (college) graduation rates comparable to men’s, but more than 40 percent remain unemployed. Women are extremely unlikely to work in the formal private sector because of a large gap in wages, with women earning 35 to 40 percent less than men, compared to a gap in the public sector of only 2 percent. 

In addition, public sector jobs offer women generous benefits, shorter, more flexible working hours, and more leave.  Despite all this, however, women are willing to work in the formal private sector, if they can (literally) get there. The report shows that Egyptian women who lived close to metropolitan centers were six times more likely to find work in the formal private sector than those who didn’t.  

The problems Egypt’s labor market faces are substantial but not insurmountable. By reforming Egypt’s economic policies and public services, the government can help to bring better quality jobs to a new generation of educated Egyptians.




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