Main Features of Reform

Economic reform policy may differ from one country to another and from one period to another within the same country. However, most such policy covers the following broad areas:

• (1) Budget reform. The reform of the government budget and reduction of the deficit that now characterizes the budgets of many Arab countries constitute a major step in linking the budget to changing economic activity in a society. Measures under this heading include reforming tax laws to make them more transparent and reducing government spending through, among other measures, the removal of subsidies on goods and services.

  The first phase of Egypt’s economic reform and structural adjustment program for 1990–93 covered major steps in this direction. Actual government expenditures started to decline, and subsidies on many goods—such as fuel, utilities, and bread—were reduced. The Egyptian government was able to reduce the budget deficit from 15 percent in 1989 to about 1.6 percent in 1995. This permitted the government to pursue a tight monetary policy. During the same period, the rate of growth of government spending dropped substantially. Tax reform, however, was limited to the introduction of a sales tax into formally organized sectors. Tunisia, Jordan, and, to some extent, Egypt succeeded in adopting several measures to eliminate restrictions on interest rates, increase the autonomy of financial institutions, restructure state-owned banks, liberalize movements of foreign exchange, and encourage foreign investments.

• (2) Financial reform. Defined in a comprehensive sense, financial reform has several goals, principally, alleviating restrictions on interest rates, deepening the role and effectiveness of money and capital markets in the economy, and strengthening supervisory and control standards. Making financial reform a complementary part of economic reform requires measures to facilitate access to banking services and credit by weak social groups to entice them to participate in private investment activity and to alleviate thereby the hardship stemming from economic reform, from which those groups are expected to suffer the most. Egypt’s reform program had some success in this area. Ceilings on interest rates and credit facilities to all sectors were removed, legislation was issued that promotes the financial market and the use of financial paper, and external transfers were liberalized. The Egyptian government was able to accumulate adequate resources to back the exchange rate of the Egyptian pound. Although financial reform seems to have been effective in the area of external transactions in Egypt, Tunisia, and Morocco, the expansion of banking activities and credit facilities to all sectors and regions is still limited in Syria and Morocco and remains partial in Egypt.

• (3) Market mechanism and promotion of the public sector. Government market intervention policies and the pursuit of rigid pricing systems in many Arab countries created deep-rooted distortions in resource allocation to productive sectors. Allowing market mechanisms to determine prices will, over the longer term, bring resource allocation into line with the effectiveness of the various productive sectors. In the transitional period at least, low-income groups will be adversely affected by such a change because the prices of certain goods and services will increase beyond their means. This phenomenon was quite visible in many countries that initiated and implemented economic reform programs, such as Egypt, Tunisia, and Jordan. Egypt adopted a number of measures to create and foster an investment-friendly environment favoring private sector enterprises: streamlining procedures for company licensing, authorizing private enterprises to venture into all areas of economic activity on par with public sector entities, and treating them uniformly with regard to access to the same financial and institutional resources. Moreover, Egypt, Jordan, and Tunisia offered a number of investment incentives in the form of exemption from certain taxes and facilities for the import of production inputs and the export of products.

• (4) Subsidy reduction and price liberalization. Reform programs in many Arab countries, including Jordan, Morocco, Sudan, and Tunisia, contained measures to liberalize prices of public sector goods and services with a view to eliminating price distortions. Egypt raised power prices gradually and eliminated restrictions on the prices of agricultural crops and quantitative restrictions on agricultural output and marketing. It also reduced subsidies on animal feed and fertilizers. Egypt, Jordan, and Morocco have each adjusted public transportation fares, which are now subject to constant review, in order to secure full recovery of direct costs. Sudan liberalized fuel prices and fares almost fully.

• (5) Restructuring of public sector enterprises and privatization. Many public sector organizations and enterprises suffer from mismanagement, low productivity and quality, accumulated losses, and deteriorating financial and administrative conditions. These organizations can be grouped in two categories: the strategic group includes those that are maintained, at least under current circumstances, as part of the public sector. These enterprises need to be given greater autonomy and liberty in managing their business as well as in adjusting their financial structure and tightening their supervision. The second group comprises those institutions that could be managed on a purely commercial basis. They should be sold to the private sector, which is better equipped to develop their production and improve their performance. Tunisia has made major strides in this direction, privatizing several public enterprises, including a number of loss-making ones. In Egypt, there has been a mass restructuring of public sector enterprises, which have been organized into holding companies with increased autonomy and freedom. Partial and comprehensive privatization remains slow and has affected only a limited number of such enterprises.

• (6) Other policies. Reforms have also included measures to adjust the external sector through the liberalization of external trade, export and import policies, restructuring of external debts, borrowing policies, balance of payments adjustment, customs policies, and the like. The debts of Egypt, Jordan, and Morocco were rescheduled, and Egypt benefited from several instances of forgiveness and write-offs once it started implementing its second economic reform program in 1993.

Expected Social Effects

Arab economies in which economic reform programs are being carried out have been experiencing a difficult transition that began, for many of them, in the late 1980s. The severity and duration of the interim period depend on the country’s ability to select appropriate reform policies, the adaptability of national resources, and the confidence of foreign capital in the country and its reform policies. During this period, various adverse implications will affect several social groups, including (1) excess labor made redundant because of restructuring; (2) marginal labor associated with small industries and services from which subsidies are withdrawn; (3) workers who are unable to adapt, owing to either age or a lack of skills; (4) low-income and destitute groups, which will suffer from subsidy removal, price liberalization, and inflation; (5) residents of rural areas and agricultural farmers who cannot benefit from improved prices of agricultural products; and (6) long-term unemployed persons.

While a liberalized economy will grow in line with the program’s expectations, the number of people who will be adversely affected by the process will increase unless a social mechanism is put in place. This mechanism will affect the different groups to varying degrees. While some of these groups will be more vulnerable than others, they will each be affected by one or more of the following social effects.

Poverty

The reduction of government spending, the elimination or lowering of subsidies on goods and services, and the higher taxes that will eventually be required for the attainment of fiscal balance will primarily affect the poor. This means greater poverty and an inability of certain social groups to secure minimum levels of food, clothing, education, and health care. Currently, in many Arab countries, a growing number of citizens are living below the poverty line; in 1990 their proportion reached about 30 percent in Yemen and in rural areas in Tunisia, 32 percent in Morocco, and 34 percent in both rural and urban areas of Egypt (United Nations Development Program, 1995).

A local survey conducted in 1992 shows that poverty spread in rural areas, areas settled by squatters, and most governorates of southern Egypt and some coastal areas (Fergany, 1992). Published data also indicate that government expenditures on basic social services (housing, health, education, and social security) dropped from about 6 percent of total expenditures in 1990 to 4 percent in 1993 (Table 1). Moreover, the improved income that other social groups reap as a result of economic reforms will create larger income discrepancies, thereby heightening the poverty perception felt by a large segment of the population.

Table 1.

Egypt: Selected Economic and Social Indicators

(In percent, unless otherwise indicated)

Sources: United Nations Development Program (1995), and Arab Fund for Economic and Social Development (1995).

¹Monthly expenditure of less than $35 per individual (purchasing power in 1985 prices) according to UNDP criteria.

²1986 data.

Table 1.

Egypt: Selected Economic and Social Indicators

(In percent, unless otherwise indicated)

		1980	1989	1990	1991	1992	1993	1994
Rate of economic growth		…	2.4	1.3	2.6	5.7	1.8	2.0
Inflation		…	19.1	30.0	19.0	13.6	10.4	8.2
Per capita GDP (in U.S. dollars; current prices)		…	562	560	601	716	790	828
GDP (in millions of U.S. dollars; current prices)		22,100	30,800	35,489	3,428	41,755	47,278	50,807
Government expenditure (in millions of U.S. dollars; current prices)		12,744	12,075	13,572	18,589	19,780	16,339
Deficit in government budget		…	15.3	11.3	6.3	8.9	6.1	2.8
Rate of direct government expenditure on basic social services (in percent of government expenditure)		5.3	6.1	6.1	6.7	4.4	4.2	6.7
Expenditure on social security (in percent of GDP)		…	1.1	…	…	…
Abject poverty lines1
	Urban	…	21	34	…	…	…
	Rural	…	25	34	…	…	…
	Total	…	23	34	…	…	…
	Indicator of visible unemployment	14.72	…	8.5	12	9.5	9.8	9.3
Labor force (in millions)		…	12,837	13,722	15,134	15,788	16,013	16,429

Sources: United Nations Development Program (1995), and Arab Fund for Economic and Social Development (1995).

¹Monthly expenditure of less than $35 per individual (purchasing power in 1985 prices) according to UNDP criteria.

²1986 data.

View Table

Table 1.

Egypt: Selected Economic and Social Indicators

(In percent, unless otherwise indicated)

		1980	1989	1990	1991	1992	1993	1994
Rate of economic growth		…	2.4	1.3	2.6	5.7	1.8	2.0
Inflation		…	19.1	30.0	19.0	13.6	10.4	8.2
Per capita GDP (in U.S. dollars; current prices)		…	562	560	601	716	790	828
GDP (in millions of U.S. dollars; current prices)		22,100	30,800	35,489	3,428	41,755	47,278	50,807
Government expenditure (in millions of U.S. dollars; current prices)		12,744	12,075	13,572	18,589	19,780	16,339
Deficit in government budget		…	15.3	11.3	6.3	8.9	6.1	2.8
Rate of direct government expenditure on basic social services (in percent of government expenditure)		5.3	6.1	6.1	6.7	4.4	4.2	6.7
Expenditure on social security (in percent of GDP)		…	1.1	…	…	…
Abject poverty lines1
	Urban	…	21	34	…	…	…
	Rural	…	25	34	…	…	…
	Total	…	23	34	…	…	…
	Indicator of visible unemployment	14.72	…	8.5	12	9.5	9.8	9.3
Labor force (in millions)		…	12,837	13,722	15,134	15,788	16,013	16,429

Sources: United Nations Development Program (1995), and Arab Fund for Economic and Social Development (1995).

¹Monthly expenditure of less than $35 per individual (purchasing power in 1985 prices) according to UNDP criteria.

²1986 data.

Instruments to Address the Social Effects

The success of economic reform requires that the institutional environment be conducive to human development and that a mechanism to protect the groups most adversely affected by such a program, the so-called social safety net, be made available. The social safety net is a self-contained package consisting of institutional measures that support not only the affected groups but also those that do not benefit directly from economic reforms; financial support designed to create opportunities for investment, rehabilitation, and employment; and legislation to protect the affected groups and to enable their members to enjoy the expected benefits of reform.

Egypt’s social safety net was developed over several decades and has become an integral part of Egyptian social life. It comprises a system of social assistance to destitute families that caters to about 2.7 million eligible beneficiaries; a system of temporary employment covering about 770,000 beneficiaries; food subsidies, from which about 87 percent of the population benefits; and subsidized water, power utility rates, public health, and education available across the board. The economic costs of these components are estimated to represent about 19 percent of GDP, or $6.8 billion of the 1990 government budget (Table 2). Since a major proportion of those costs took the form of price subsidies on goods and services, their value was not listed in the budget under the heading of government expenditures on basic social services, but rather under other sectoral items, such as housing, electricity, and transportation. Because of the nature of Egypt’s safety net, all inhabitants benefit indiscriminately from most of its components, diminishing the equity aspect in distribution and raising its economic cost to society.

Table 2.

Components of Safety Net and Social Subsidy in Egypt, 1990

Source: World Bank (1995). Note: The estimated cost listed in the government budget is about $6.8 billion, based on 1990 GDP data estimated at about $35.5 billion.

Table 2.

Components of Safety Net and Social Subsidy in Egypt, 1990

Safety Net or Subsidy Items	Beneficiaries	Impact	Economic Cost (in percent of GDP)
Food subsidy	87 percent of population	Large; some poor groups do not benefit owing to high cost of required needs	4.8
Social aid	2.7 million	Small; payments are only 5 percent for those below absolute poverty line	0.15
Temporary labor force	771,000	Total beneficiaries represent 30 percent only of entitled poor	0.16
Electricity consumption subsidy	Total population	Declining; it represents 86.4 percent of cost for the poor and 19.2 percent for the rich consumers	1.71
Health subsidy	Total population	Primarily for the poor	2.6
Water subsidy	All water consumers, but prices distinguished in favor of consumers of low quantities	Large	4.9
Education subsidy	Total population	Poor groups do not benefit proportionately to their size	4.9
Total			19.20

Source: World Bank (1995). Note: The estimated cost listed in the government budget is about $6.8 billion, based on 1990 GDP data estimated at about $35.5 billion.

View Table

Table 2.

Components of Safety Net and Social Subsidy in Egypt, 1990

Safety Net or Subsidy Items	Beneficiaries	Impact	Economic Cost (in percent of GDP)
Food subsidy	87 percent of population	Large; some poor groups do not benefit owing to high cost of required needs	4.8
Social aid	2.7 million	Small; payments are only 5 percent for those below absolute poverty line	0.15
Temporary labor force	771,000	Total beneficiaries represent 30 percent only of entitled poor	0.16
Electricity consumption subsidy	Total population	Declining; it represents 86.4 percent of cost for the poor and 19.2 percent for the rich consumers	1.71
Health subsidy	Total population	Primarily for the poor	2.6
Water subsidy	All water consumers, but prices distinguished in favor of consumers of low quantities	Large	4.9
Education subsidy	Total population	Poor groups do not benefit proportionately to their size	4.9
Total			19.20

Source: World Bank (1995). Note: The estimated cost listed in the government budget is about $6.8 billion, based on 1990 GDP data estimated at about $35.5 billion.

In view of these considerations, the new social safety net accompanying reform programs must be conceived in a comprehensive and methodical approach that will address the determinants of poverty and its temporary manifestations; modulate subsidies to specifically benefit the affected groups; protect the most vulnerable groups effectively, focusing on their most urgent needs; avoid creating an additional administrative bureaucracy; and focus on rehabilitation and redirection of redundant labor toward new areas of economic activity.

The required social safety network thus calls for a set of measures that include the following:

• (1) Macroeconomic measures to reduce unemployment. These should be designed to remove the obstacles that impede the growth of labor-intensive activities and to create new employment opportunities. Included here are actions to promote export-oriented small businesses, support small farmers and labor-intensive projects, adopt legislation protecting workers’ rights, and develop tax and banking systems to enable small businesses to acquire production inputs and access credit facilities.

• (2) Prevention of extreme poverty and malnutrition. Actions should deal with issues pertaining to malnutrition and direct, widespread famine in low-income and destitute groups. They include measures to make available at affordable prices, and to facilitate access to, basic foods through effective institutional arrangements.

• (3) Domestic public spending measures. These actions aim to alleviate the hardships of poor segments of the population in certain geographical regions or social sectors. They include subsidies for some consumer products such as fuel and bread or services such as education and health so as to ensure that the benefit reaches the targeted groups. Measures would also initiate local infrastructural works conducive to the creation of durable services to the benefit of the local community.

• (4) Family and childhood protection measures. The purpose of these is to increase job opportunities for women and to improve standards of living of children. They include actions to foster the role of government and national agencies in the alleviation of hardship for rural women, provide basic health care and education for school-age children, eradicate illiteracy, and organize family planning.

Some countries that embarked on economic reform have set up special institutions to carry out some of the above-mentioned measures with a view to reducing the impact of economic reforms on affected groups. Illustrative of such institutions are Bolivia’s Social Emergency Fund and Chile’s Minimum Employment Program. The Social Fund for Development in Egypt, with its new functions and specific mandate to address poverty and unemployment, represents one instrument to support the existing social safety net and redirect its benefits exclusively to eligible groups.

Objectives

The Fund was created primarily to provide an instrumentality through which to alleviate the adverse effects of Egypt’s economic reform and structural adjustment program and protect affected groups. This broad purpose covers several categories of objectives. These include mitigating the acuteness of rising unemployment associated with the implementation of the reform program through the creation of new job opportunities, rehabilitation, training, and contributing to the absorption of new entrants to the job market; alleviating the poverty burden of the most vulnerable regions; improving services in the poorest areas; and absorbing workers returning to Egypt from abroad in the wake of the Middle East crisis.

Beneficiaries

The Fund’s beneficiaries fall into several categories, the major ones being the groups most affected by the privatization of public enterprises as well as by the economic reform program; the poorest segments of the population and very low income groups; inhabitants of the least developed communities and those who live in regions with inadequate services; the unemployed, including new graduates; and women. Beneficiaries within each of these categories are identified on the basis of poverty criteria, employment status, and population size and through surveys and specialized field studies.

Components

The Fund’s activities are organized into the following six principal programs:

• (1) Public Works Program. This program aims to provide and improve labor services and public utilities in the neediest regions that rely on labor-intensive processes, creating new job opportunities for the maintenance and operation of those utilities so that they can generate permanent employment opportunities. Local private sector entrepreneurs implement the program, with the requirement that at least 50 percent of the labor used for the implementation of each project be drawn from the local population. The program focuses on multiple, labor-intensive small projects, such as the rehabilitation of irrigation systems, the delivery of potable water to remote villages, the maintenance of public services and utilities, construction of new buildings, and garbage collection. In accordance with the Fund’s criteria, priority is given to regions suffering from widespread unemployment and poverty. The program seeks to create about 26,000 temporary jobs a year over the Fund’s estimated lifespan of four years, together with about 15,000 permanent jobs involving maintaining and operating Fund-financed projects. Some 2 million persons are expected to benefit indirectly from such projects through improved services, incomes, and living standards.

• (2) Community Development Program. The objective of this program is to mobilize and encourage initiatives in rural and urban populations. It assists individuals in carrying out small projects that will generate a living for them and their families by providing concessional financing for such productive individual activities as farming, food crop production, and distribution services. Business is usually conducted through associations of productive families and other local associations. It normally grants credit against personal collateral and with concessional interest and repayment periods, with a maximum principal of LE 7,000 a project. The program also endeavors to develop social services in poor areas to provide equipment for basic health care, education, nutrition, and vaccination of infants and mothers, as well as family planning, training, and the tools to eradicate illiteracy. The program’s contributions are normally in the form of donations and grants to national organizations involved in implementing such projects. Its aim is to create about 76,000 new employment opportunities in addition to a number of productive, income-generating activities.

• (3) Enterprise Development Program. This is the largest program in terms of financing. It seeks to develop citizens’ aspirations for free enterprise, to encourage them to undertake new small-scale projects or to develop and expand existing ones, with a view to creating employment opportunities. This program is directed to small investors and recent university graduates, offering an integrated array of technical services and training, including techniques for project appraisal and preparation of feasibility studies, credit access procedures, and concessional credit facilities from commercial banks. Loans range from $4,000 for a small individual project to a maximum of $60,000 for collective projects. Such loans carry concessional terms comparable to those commercially available in Egypt, with interest rates varying between 9 percent for new projects and 12 percent for existing ones, a 6- or 12-month grace period, and repayment periods ranging from 6 to 12 years. The program aims to finance about 70,000 small projects in the private sector.

• (4) Program for Employment and Retraining. The goal of this program is to create a mechanism to facilitate, through two types of interventions, the rehiring of labor made redundant by privatized or restructured public sector enterprises. First, neutral interventions seek to protect the employment and income of workers of public enterprises. Actions covered by these include the examination of rules for workers’ termination and procedures for their transfer from the public to the private sector, determination of arrangements to finance unemployment insurance, and early retirement privileges. Second, active interventions cover actions designed to identify suitable options for assisting unemployed labor—by searching for rehiring possibilities, training individuals for new jobs, and providing help until new job opportunities become available. Within the Fund’s administration, a special directorate was established to provide technical expertise, assist the government in identifying targeted categories, and implement relevant programs. The program’s objective was to work with about 48,000 employees of public enterprises likely to be restructured or privatized.

• (5) Institutional Development Program. This program seeks to strengthen the capability of intermediaries implementing the Fund’s projects, particularly the poor among them, to mobilize additional sources for poverty alleviation actions and to conduct studies and surveys to gauge the extent of the impact of the government’s overall economic reform and the Social Fund’s activities for targeted social groups in particular. The program participates in several surveys in collaboration with the Central Authority for Statistics and Mobilization. The focus of the first survey in 1992 was to determine the basic living conditions of targeted groups and regions and the priorities for action. This survey was followed in 1993 by the social survey, which sought to evaluate basic services and infrastructure at the local level, and the comprehensive survey, which measured family indicators in more detail. Finally, another survey of priorities seeks to identify changes in living standards that will be undertaken after implementation of Fund projects. Under this program, a comprehensive study will be conducted to estimate and follow up on changes at the social level so as to assess the impact of Fund projects, or of the economic reform measures themselves, on unemployment, poverty, and level of local services.

• (6) Program of Public Transportation Services. This program sought to improve public transportation services in the Cairo and Alexandria metropolitan areas, which are the most congested. It financed the purchase of vehicles and spare parts for the public transit system in those areas.

Cost and Financing

The costs of executing the programs of the Social Fund for Development in Egypt were estimated at about $572 million in 1991, of which $463 million was investment costs. The foreign component of overall costs was estimated at $180 million. About $255 million was earmarked for the Public Works Program, and about $42 million for the Community Development Program. Approximately $11 million was earmarked for the Institutional Development Program as well as $53 million for the Program of Public Transportation Services. The remaining amount was reserved for the operational costs of the Fund. The Fund’s budget for 1993–96 is estimated at $16 million.

Various Arab and international efforts were coordinated to secure the necessary financing for this social safety net. The Arab Fund for Economic and Social Development, the Kuwait Fund, the Abu Dhabi Fund, the World Bank, and the German government all participated by making available loans amounting to $295 million. Various grants and technical assistance were also made possible in the amount of $277 million from the European Union, the United Nations Development Program, and the governments of Canada, Denmark, France, the Netherlands, Norway, and Sweden, as well as Egypt.

Institutional Framework

The Fund was instituted as an autonomous body under an official decree of the Republic (No. 40) in 1991. It falls under the direct supervision of the Prime Minister, who also heads its board of executive directors composed of 15 members, including 7 ministers, with the rest appointed by the government from the private sector.

An executive committee to oversee the activities of the Fund was agreed upon after it was ordained by the board of directors, which has the executive power to approve projects that do not exceed LE 10 million. The executive committee is composed of eight members and is headed by the Vice-Premier and the Minister of Planning; the membership consists of two ministers and four members appointed by the government to represent the private sector, in addition to the managing director–secretary general of the Fund, who is to oversee the secretariat of the committee and the daily management of the Fund. The Fund consists of five central administrations: Community Development, Public Works, Employment and Retraining, Enterprise Development, and Finance and Administration.

A group of specialized divisions assists in planning, research, information dissemination, public relations, and internal audit, including 16 provincial offices distributed among various governorates. The Fund has various administrative and employment rules, to which flexibility is guaranteed, which enable it to attract experienced professionals. The Fund is subject to the rules and regulations that apply to all public institutions.

Implementation Mechanism

The Fund hires contractors to implement its programs and also goes through executives and intermediaries to carry out limited subsidiary projects (or outreach field projects). These intermediaries include ministries, including the Ministry of Social Affairs, governorates, units of local governance, civil associations, and commercial banks. The Fund remains responsible for overseeing the subsidiary projects that are executed.

Development of the Implementation Stage

Various developments occurred during the implementation of the Fund’s programs, which affected the components of financing:

• (1) The financing available to the Fund rose from $572 million to about $665 million, because of movements in the currency market and the addition of new donors.

• (2) The economic reforms related to privatization slowed in relation to the restructuring of the public sector.

• (3) The public transport sector had been earmarked to receive $53 million. However, this sector requires major changes in public policy to improve its services. Because the Fund does not have control over public policy, the decision was made to transfer this amount to the remaining projects.

Field Results

The Fund put together a database that enabled it to oversee its various programs and subsidiary projects and, from that point, to follow up on their implementation and to issue reports on the outcome. The Fund mobilized financing from 18 donors amounting to $665 million, of which it had received about $444 million as of October 31, 1995. The Fund entered into agreements with intermediaries to implement contracts for a cost of $580 million, of which it has paid $387 million. The intermediaries transferred about $321 million to the final beneficiaries. Table 3 shows the availability of funds, the size of the projects, and withdrawals as well as the distribution of subsidiary enterprises according to the five programs (after the Program of Public Transportation Services was canceled) as of October 31, 1995. The Fund’s goal was to benefit 25 million citizens through its projects and to create 277,000 permanent job opportunities. The cost of creating one permanent job opportunity was estimated at $2,400 (Table 4).

Table 3.

Social Development Fund: Flows of Program Funds as of October 31, 1995

(In millions of U.S. dollars)

Source: Social Development Fund database.

Table 3.

Social Development Fund: Flows of Program Funds as of October 31, 1995

(In millions of U.S. dollars)

Programs	Available Financing	Projects Contracted	Disbursements by Intermediaries	Disbursements for Subsidiary Projects
Public works	167	161	85	87
Community development	89	66	42	22
Enterprise development	303	334	246	205
Employment and retraining	41	9	5	4
Institutional development	26	10	9	3
Expenses of operations and reserves	39	…	…	…
Total	665	580	387	321

Source: Social Development Fund database.

View Table

Table 3.

Social Development Fund: Flows of Program Funds as of October 31, 1995

(In millions of U.S. dollars)

Programs	Available Financing	Projects Contracted	Disbursements by Intermediaries	Disbursements for Subsidiary Projects
Public works	167	161	85	87
Community development	89	66	42	22
Enterprise development	303	334	246	205
Employment and retraining	41	9	5	4
Institutional development	26	10	9	3
Expenses of operations and reserves	39	…	…	…
Total	665	580	387	321

Source: Social Development Fund database.

Table 4.

Social Development Fund: Expected Beneficiaries and Targeted Work Opportunities as of October 31, 1995

(In thousands, unless otherwise indicated)

Source: Social Development Fund database.

¹Only 350 work opportunities.

Table 4.

Social Development Fund: Expected Beneficiaries and Targeted Work Opportunities as of October 31, 1995

(In thousands, unless otherwise indicated)

Programs	Beneficiaries	Temporary Work Opportunities	Permanent Work Opportunities	Average Cost of Permanent Work Opportunity (in U.S. dollars)
Public works	21,500	28	3	48,960
Community development	2,700	35	76	1,170
Enterprise development	980	41	195	1,555
Employment and retraining	1	1	3	15,390
Institutional development	…	1	…	…
Total	25,181	105	277	2,400

Source: Social Development Fund database.

¹Only 350 work opportunities.

View Table

Table 4.

Social Development Fund: Expected Beneficiaries and Targeted Work Opportunities as of October 31, 1995

(In thousands, unless otherwise indicated)

Programs	Beneficiaries	Temporary Work Opportunities	Permanent Work Opportunities	Average Cost of Permanent Work Opportunity (in U.S. dollars)
Public works	21,500	28	3	48,960
Community development	2,700	35	76	1,170
Enterprise development	980	41	195	1,555
Employment and retraining	1	1	3	15,390
Institutional development	…	1	…	…
Total	25,181	105	277	2,400

Source: Social Development Fund database.

¹Only 350 work opportunities.

According to the Fund, 12 million citizens have benefited directly and indirectly from these projects, which have made available 74,000 temporary employment opportunities and about 177,000 permanent employment opportunities, with an actual average cost of $1,810 for each permanent job (Table 5). The Fund invested about $1,300 on average in the direct beneficiary, compared with about $2,400 for a project in Bolivia and about $2,770 in Ghana. The average investment in each beneficiary (direct and indirect) amounts to only about $26 (Table 6).

Table 5.

Actual Beneficiaries and Work Opportunities in Completed Programs as of October 31, 1995

(In thousands, unless otherwise indicated)

Source: Social Development Fund database. Note: Figures of beneficiaries and work opportunities are rounded to the nearest thousand.

¹61 beneficiaries only.

²350 temporary work opportunities.

Table 5.

Actual Beneficiaries and Work Opportunities in Completed Programs as of October 31, 1995

(In thousands, unless otherwise indicated)

Programs	Beneficiaries	Temporary Work Opportunities	Permanent Work Opportunities	Cost of Permanent Opportunity (in U.S. dollars)
Public works	10,828	10	2	43,500
Community development	795	18	70	314
Enterprise development	515	45	103	1,990
Employment and retraining	1	1	2	2,000
Institutional development	2	2	…	…
Total	12,138	74	177	1,813
Ratio of actual to planned (in percent)	48	70	64	76

Source: Social Development Fund database. Note: Figures of beneficiaries and work opportunities are rounded to the nearest thousand.

¹61 beneficiaries only.

²350 temporary work opportunities.

View Table

Table 5.

Actual Beneficiaries and Work Opportunities in Completed Programs as of October 31, 1995

(In thousands, unless otherwise indicated)

Programs	Beneficiaries	Temporary Work Opportunities	Permanent Work Opportunities	Cost of Permanent Opportunity (in U.S. dollars)
Public works	10,828	10	2	43,500
Community development	795	18	70	314
Enterprise development	515	45	103	1,990
Employment and retraining	1	1	2	2,000
Institutional development	2	2	…	…
Total	12,138	74	177	1,813
Ratio of actual to planned (in percent)	48	70	64	76

Source: Social Development Fund database. Note: Figures of beneficiaries and work opportunities are rounded to the nearest thousand.

¹61 beneficiaries only.

²350 temporary work opportunities.

Table 6.

Social Development Fund: Average Realized Investments to Reach Beneficiaries Through the Fund’s Programs

(In U.S. dollars per beneficiary)

Source: Social Development Fund database.

Table 6.

Social Development Fund: Average Realized Investments to Reach Beneficiaries Through the Fund’s Programs

(In U.S. dollars per beneficiary)

Programs	Direct Beneficiaries	Total Beneficiaries
Public works	7,250	9
Community development	250	27
Enterprise development	1,385	398
Employment and retraining	1,333	65,573
Institutional development	8,571	8,571
General average	1,278	26

Source: Social Development Fund database.

View Table

Table 6.

Social Development Fund: Average Realized Investments to Reach Beneficiaries Through the Fund’s Programs

(In U.S. dollars per beneficiary)

Programs	Direct Beneficiaries	Total Beneficiaries
Public works	7,250	9
Community development	250	27
Enterprise development	1,385	398
Employment and retraining	1,333	65,573
Institutional development	8,571	8,571
General average	1,278	26

Source: Social Development Fund database.

According to the Fund, the average of repayments returned from sub-loans that were financed by the intermediaries (the commercial banks and the national associations) was assessed at 98 percent, which is a good average and exceeds the percentage of loan repayments by ordinary commercial banks. In comparison, the project for handicraft industries attained an average collection rate of only 44 percent. This was the first project within which the Fund initiated its operations, with the cooperation of the autonomous domestic units. This project was subject to a number of problems:

• (1) Lack of sufficient professional skills to the targeted small investors from the side of the Fund and their lack of experience.

• (2) Small scale of the projects in particular areas and the tendency to have too many relative to demand.

• (3) Lack of confidence in the small investors in the market.

• (4) Lack of working capital for small-scale projects.

• (5) Lack of spare parts for purchased machines.

• (6) Various administrative regulations that are not encouraging, such as the regulation related to contractual procedures, which requires prior experience, performance guarantees, and a strong financial position, conditions that are not likely to be met by the small contractors targeted for such tasks.

With the exception of the handicraft projects mentioned before, it could be maintained that the Fund has achieved some good results in a short time. But such results have to be viewed in the context of two realities. First, no objective evaluation has been undertaken by a national entity to date, nor has the Fund compiled an unbiased data source, especially in the areas of job formation opportunities, the number of beneficiaries, percentages attained, or the socioeconomic effects of the Fund’s programs. Second, a large number of projects that the Fund has financed have not been finalized because of a lack of clarity as to their prospective capacity and long-term viability.

Achievements

In addition to the quantitative results mentioned before, the Fund has realized several qualitative results at various levels in the short time since its inception.

Administratively, the Fund managed to attract $665 million in financing and was able to reach a large number of targeted beneficiaries in 26 governorates within 30 months only. The Fund would not have had such success if it had not acquired highly qualified professionals, instituted a competent administration and information system, and laid down rules of operation acceptable among the specialized intermediary institutions. As a result, a larger number of citizens will benefit in the second stage of the Fund. Its experience is worth emulating in designing other comparable projects.

By generating employment, many of the Fund’s subsidiary projects have been able to lessen some of the bottlenecks and ongoing problems, as well as ameliorate the level of basic services—especially in some of the poor and remote areas—using realtors and local workers. Some such projects involve shoring up the banks of the Nile River to limit soil erosion, preserving and improving agricultural lands, and bringing potable water to remote villages. Through its projects, the Fund has been able to encourage employers to hire the unemployed, especially recent graduates, by putting together small-scale projects that guarantee the employers and others new opportunities and self-sufficiency, through the following means:

• (1) Educating and training the beneficiaries in such skills as identifying promising projects and examining their feasibility, dealing with commercial banks to secure financing for their projects, and so on.

• (2) Facilitating procedures for acquiring loans, especially rules dealing with the required guarantees and the acquisition of licenses.

• (3) Increasing the grant element from commercial banks by securing lower interest rates, extending the period for repayments, and debt forgiveness.

• (4) Acquiring tax exemptions for five years, enabling the Fund in its secondary projects for the Community Development Program to assist the national associations in institution building and help plant a cooperative spirit among their members so as to assist them in executing various charitable projects, such as the eradication of illiteracy, training of manual labor, education of women, and providing health care and family planning.

• The Fund financed a number of important studies on public transportation policies, public sector enterprise restructuring, available alternatives to the direct subsidies for primary foodstuffs, and poverty and unemployment and their geographic distribution in the different areas of Egypt.

Caring for Women

The importance of women in the development of the family has been an issue that the Fund has seriously considered in its Community Development Program through projects to eradicate female illiteracy, provide information about family planning, and train women in simple manual labor. Thirty percent of the Fund’s loans awarded to women have been small loans for the development of projects. This small-scale orientation is intended to accelerate the standards of living of illiterate women and lower their rate of unemployment in Egypt’s workforce.

Efficiency

The Fund achieved its results with 140 employees, distributed between the secretariat in Cairo and 16 provincial governorates, for a cost of about 3 percent of the financing available to the Fund, which is considered a reasonable average in comparison with other projects (Senegal, 5.4 percent; Bolivia, 5.5 percent; Nigeria, 6.5 percent; and Peru, 4 percent). The Fund’s efficiency can be attributed to certain factors, in particular its proximity to the highest level of executive authority, its independence from the government administrative organizations, and the application of administrative rules to the salaries of the Fund’s workers that approximate those in the private sector and international organizations. The Fund sets an example for how government institutions could improve their efficiency and raise productivity if they could be freed from traditional government routine.

Problems and Obstacles to Program Execution

There is no doubt that the Fund has achieved acceptable results thus far. However, it could have achieved better results had it been able to avoid some negative aspects as well as the obstacles that stood in the way of the execution of its programs over this period. These negative aspects and obstacles are not evidence of the Fund’s inadequacy. Some of these problems could not have been foreseen and others were impossible to avoid. They therefore represent a set of factors that should be taken into consideration in the design of similar projects in the future. As a matter of fact, the management of the Fund has already started tackling some of these issues.

• At present, it is difficult to know whether the Fund has succeeded in reaching its intended beneficiaries and whether they, or the economy as a whole, benefited from its projects. This lack of information is due to delays in carrying out the necessary studies and surveys that the Fund commissioned the National Center for Statistics and Mobilization to undertake and also to the Fund’s internal information and follow-up system, which focuses essentially on financial parameters, such as the number of projects, the value of contracts, withdrawals, and the number of permanent and temporary jobs created. Certainly, difficulties are associated with following up on adherence to targeting methods, evaluating the extent to which recipients are benefiting from the Fund’s projects, and determining the social impact of the projects. The difficulties are due to the large number of projects and recipients, the large geographical area involved, as well as the difficulty of evaluating some projects that do not have concrete returns, such as institution building, the fight against illiteracy, and the organization of the family.

  Among the technical problems is the difficulty of ascertaining the needs of the beneficiaries. For instance, some beneficiaries were not selected objectively, especially in the community and enterprise development programs. However, we are not in a position to determine precisely the extent of these cases. In spite of these difficulties, it would have been possible to design a comprehensive information and follow-up system, including an evaluation of the extent to which targeting factors are adhered to and the effective benefits of the recipients from the Fund’s projects as well as their social impact. These data are of paramount importance to the management of the Fund, the state, and the donors, in order to supervise and direct the Fund’s activities to achieve the objectives for which it has been established.

• To establish its credentials, the Fund may have given the impression, to some, that it has solved all problems related to unemployment and poverty in Egypt. In fact, at present, there are about 3.5 million unemployed people in Egypt, while the Fund will be able to create no more than 400,000 permanent and temporary jobs over the next four years. The Fund’s role in solving unemployment is limited for several reasons; chief among them is the financial resources at its disposal. As for the Fund’s role in solving poverty issues, it is very limited compared with the government’s expenditures for poverty alleviation (about $20 billion in 1993) and the high rate of poverty, estimated at about 34 percent of the population.

• Essentially, the Fund started with the objectives of cushioning the negative impact of economic reforms on the most vulnerable members of society and providing job opportunities for those left jobless by the reforms and by the Middle East crisis. However, when it came to implementing these objectives, they broadened to cover the fight against poverty and unemployment in general. These objectives encompass many large and complex difficulties that require extensive human and financial resources. In its first stage, the Fund focused on expanding its operations by signing many contracts involving large amounts of financing in many governorates, in some instances at the expense of proper targeting. It is better for the Fund to concentrate on clear and narrow objectives in the fields in which it has obtained some results, such as public works and community and enterprise development. This might require a review of the Fund’s structure, its work procedures, and the projects it finances.

• Most of the projects financed by the Fund, especially those related to public works, were selected by the government authorities and not by the beneficiaries. These projects fall within the field of competence of these authorities, and the Fund therefore became an arm of the government. It would have been better for the Fund to complement the government by financing projects suggested by the beneficiaries and that the authorities were unable to finance. To avoid duplication and achieve greater equity among the beneficiaries, there must be more coordination with other social and developmental institutions.

• The projects were designed, and the relevant contracts signed, with the ministries and the central institutions in Cairo. The role of the Fund’s regional office was limited to following up on the execution of the projects. Designing and following up on the projects at the local level would be more effective because the regional offices are closer to the local authorities and the beneficiaries and are therefore in a better position to understand the needs of the latter group. Decentralization would require providing these regional offices with more human resources and adequate training.

• There was no clear feeling about the importance of self-reliance in the projects financed by the Fund in its initial stages. There is no doubt that the Fund has helped provide many temporary jobs, especially in the Public Works Program and Community Development Program. However, it is more important to motivate the benefiting parties (local authorities and local societies) to provide their own financing to ensure the continuity of the projects and to enable them to finance other similar projects instead of relying on financing from the Fund and the Egyptian government.

• The Fund was able to implement many of its subsidiary projects through intermediary parties, which are local and government institutions governed, in many cases, by traditional, complex, and “routine” systems. The Fund was able to upgrade the work methods of these parties to improve their performance in terms of the projects financed. The more important goal, however, is to maintain this spirit of development and to improve the performance of these institutions in their other activities after their relationship with the Fund ends. For instance, the Fund must convince the intermediary commercial banks it deals with to simplify administrative procedures and lower the amount of collateral they request from small investors, even for ordinary commercial loans, especially if the projects financed by the Fund have proved to be successful, and the borrowers serious in paying back their loans. This is an important and beneficial role for the Fund to play because the commercial banks are permanent institutions with large resources, while the Fund is temporary and has limited resources.

• The Fund should increase its role in providing technical assistance to those who benefit directly from its programs, especially in enterprise development, by helping the beneficiaries undertake more accurate feasibility studies that focus on the real needs of the market, on ways and means to improve the quality of the projects while decreasing the cost, on marketing domestically and abroad, and on creating a data bank to help small new investors. Marketing is very important given that many similar projects being financed led to a stockpiling of output and difficulty in marketing in some sectors.

• It will be useful to increase the Fund’s role in encouraging the creation of small complementary industries in order to increase specialization and consequently decrease the investments required for small specialized projects and to increase, and improve the quality of, marketing.

• Like any other new, active institution, the Fund is subject to criticism, some of which has some basis but most of which is due to misunderstandings. The Fund should take this criticism into account and deal with it clearly and transparently. With constructive criticism, the Fund can improve its performance.

• In light of the governmental structure of the Fund’s board of directors and executive committee and the large responsibility and daily activities of the Fund’s managing directors, there is a need for a think tank with world-class capabilities. Such a group would be entrusted with overseeing the Fund’s activities and suggesting ways and means to develop them without government input to improve the Fund’s performance on the basis of continuous innovation.

Mabid Al-Jarhi

We economists must admit that we have failed to give due consideration to social issues by incorporating them into our policies for economic adjustment. When negative social effects began to appear, we took it upon ourselves to address them. For a long time, economic analysts paid little attention to the unequal distribution of wealth, arguing that it involved moral issues outside the realm of economics. But now economists have begun to pay more attention to distribution, and, in the present paper, the following questions are addressed:

• (1) Is the purpose of social policies merely to compensate for insufficient levels of income resulting from the activities of a free economy, or is it to create the conditions necessary for the market system to function effectively?

• (2) What are the available options for social policies to achieve the desired results, and how can we choose from among them?

• (3) What is the position of the Social Development Fund in Egypt with respect to these policies?

To answer the first question on the role of social policies, it is sufficient to consider the situations of the Republic of Korea and Taiwan Province of China in the early 1960s—when they were just two poor countries—before their economies took off.¹ We find that the social indicators of both countries were at much higher levels than their income levels. Both countries had full enrollment in primary education and high levels of literacy. The distribution of wealth and incomes was unusually equitable owing to the agricultural reforms they had carried out in the 1950s, making them the countries with the least disparity in the distribution of incomes and wealth at that time.²

These arguments support the opinion of many economists that there are certain “necessary initial conditions” for an economic takeoff and that the tremendous growth achieved by these two countries was made possible in large part by the existence of these conditions. This view is based on a number of assumptions. First, it is assumed that achieving the conditions necessary to support the basic social structure requires an adequate supply of skilled labor in proportion to available capital and the prevailing level of income, which allows for the accumulation of capital at a high rate of return. Second, it is assumed that implementing appropriate policies to encourage investment and remove any related constraints can pave the way for an investment boom, which is an important factor in accelerating the rate of development. The third assumption is that redistributing wealth can in certain cases convert unproductive resources into productive ones, thus leading directly to an increase in real growth.³

In light of the above, it can be concluded that the role of social policies is not limited to dealing with the effects of transition from universality to economic freedom; such policies must be used to achieve the necessary initial conditions for an economic takeoff, which is the basic goal of reform.

In Egypt, one-third of city dwellers and one-fourth of the urban population live in abject poverty, which means that a fundamental redistribution of wealth and income is required in order to achieve even a minimum level of social equity, not to mention the necessary initial conditions. With this in mind, we shall attempt to answer the second question posed at the beginning of our discussion, concerning appropriate policies for improving such a situation. There are two basic approaches for carrying out redistribution: income maintenance and wealth maintenance. The income maintenance approach involves providing poor people with a minimum income. The most famous policy along this line was the negative income tax proposed by Milton Friedman in the 1970s. This policy is not sufficient to eliminate poverty, because it does not raise poor people’s wealth to adequate levels.

The wealth maintenance approach starts with the premise that an individual requires a minimum amount of capital to generate enough income to achieve a minimum level of comfort, based on the complementarity of labor and capital. This approach offers persons able to work the assistance they need to become productive workers. This assistance may take the form of working capital or the equipment and real estate required for productive activities. The donor also closely monitors the recipient and provides technical assistance to achieve the highest possible rate of return.

Because there are not enough resources to make everyone rich at once, the resources available must be used to lift the largest number of people possible out of poverty while ensuring a minimum income for the rest. Thus, wealth maintenance and income maintenance are considered complementary approaches. To assist the high percentage of its people living in abject poverty, Egypt must adopt policies to redistribute wealth and income that incorporate the elements of these two approaches.

The paper by Messrs. Dau and El-Amach states that the total assistance currently provided by the Egyptian government amounts to 19 percent of GDP, which in 1994 was approximately LE 175 billion ($52 billion). To put these resources to more effective use in the battle against poverty, they should be combined into a single fund⁴ and used to implement a distribution policy aimed at eliminating poverty in the shortest possible amount of time. A simplified model for implementing this policy is shown below:

The required policy can be summarized by determining the value of (P), which will increase the value of indicator (1) under conditions of (2) – (4).⁵

If the poor who are covered by wealth maintenance become productive workers and if the resources allocated for assistance—most of which are considered nonproductive—are used for this purpose, this policy can lead to an increase in real growth in direct proportion to the amount of wealth maintenance achieved.

Tables 1 and 2 present the expected results of implementing this policy in Egypt, starting from the current year. Table 1 shows the basic assumptions, which can be summarized as follows:

Table 1.

Reform of Wealth Distribution in Egypt: Basic Assumptions

Notes: Poverty level income = $35 a month (LE 1,198 a year in 1994); minimum sufficiency income = 1.5 times poverty level income (LE 1,797); minimum level of wealth = 10 times the minimum sufficiency income (LE 17,967).

Table 1.

Reform of Wealth Distribution in Egypt: Basic Assumptions

Year	Population	GDP (in millions of Egyptian pounds)	Assistance Allocated		Poverty Level Income (in Egyptian pounds)	Minimum Level of Wealth (in Egyptian pounds)	Average Inflation Rate (in percent)			Percentage of Poor with Minimum Level of Wealth
			Value (in millions of Egyptian pounds)	In percent of GDP				Expected Growth (in percent)
								Nominal	Real
1996	60,669,015	18,4817	35,485	19	1,282	19,224	7	9.0	2.0	2
1997	62,129,625	201,451	38,175	19	1,362	20,426	6	9.0	2.5	3
1998	63,925,399	219,078	40,968	19	1,437	21,549	6	9.0	3.0	3
1999	65,157,184	237,700	43,856	18	1,505	22,573	5	8.0	3.5	3
2000	66,725,847	257,310	46,830	18	1,565	23,476	4	8.0	4.0	3
2001	68,332,275	277,895	49,882	18	1,628	24,415	4	9.0	4.5	4
2002	69,977,379	301,516	53,368	18	1,693	25,391	4	9.0	5.0	4
2003	71,662,088	328,652	57,350	17	1,760	26,407	4	9.5	5.5	5
2004	73,387,357	359,874	61,898	17	1,831	27,463	4	10.0	6.0	5
2005	75,154,162	395,861	67,098	17	1,904	28,562	4	10.5	6.5	6
2006	76,963,503	437,427	73,050	17	1,980	29,704	4	11.0	7.0	8
2007	78,816,404	485,544	79,872	16	2,060	30,893	4	11.5	7.5	9
2008	80,713,913	541,381	87,704	16	2,142	32,128	4	120	8.0	11
2009	82,657,105	606,347	96,712	16	2,228	33,413	4	12.0	8.5	15
2010	84,647,080	679,109	106,620	16	2,317	34,750	4	12.0	9.0	19
2011	86,684,963	760,602	117,513	15	2,409	36,140	4	12.0	9.5	26
2012	88,771,909	851,874	129,485	15	2,506	37,585	4	12.0	10.0	39
2013	90,909,097	954,099	142,638	15	2,606	39,089	4	12.0	10.0	70

Notes: Poverty level income = $35 a month (LE 1,198 a year in 1994); minimum sufficiency income = 1.5 times poverty level income (LE 1,797); minimum level of wealth = 10 times the minimum sufficiency income (LE 17,967).

View Table

Table 1.

Reform of Wealth Distribution in Egypt: Basic Assumptions

Year	Population	GDP (in millions of Egyptian pounds)	Assistance Allocated		Poverty Level Income (in Egyptian pounds)	Minimum Level of Wealth (in Egyptian pounds)	Average Inflation Rate (in percent)			Percentage of Poor with Minimum Level of Wealth
			Value (in millions of Egyptian pounds)	In percent of GDP				Expected Growth (in percent)
								Nominal	Real
1996	60,669,015	18,4817	35,485	19	1,282	19,224	7	9.0	2.0	2
1997	62,129,625	201,451	38,175	19	1,362	20,426	6	9.0	2.5	3
1998	63,925,399	219,078	40,968	19	1,437	21,549	6	9.0	3.0	3
1999	65,157,184	237,700	43,856	18	1,505	22,573	5	8.0	3.5	3
2000	66,725,847	257,310	46,830	18	1,565	23,476	4	8.0	4.0	3
2001	68,332,275	277,895	49,882	18	1,628	24,415	4	9.0	4.5	4
2002	69,977,379	301,516	53,368	18	1,693	25,391	4	9.0	5.0	4
2003	71,662,088	328,652	57,350	17	1,760	26,407	4	9.5	5.5	5
2004	73,387,357	359,874	61,898	17	1,831	27,463	4	10.0	6.0	5
2005	75,154,162	395,861	67,098	17	1,904	28,562	4	10.5	6.5	6
2006	76,963,503	437,427	73,050	17	1,980	29,704	4	11.0	7.0	8
2007	78,816,404	485,544	79,872	16	2,060	30,893	4	11.5	7.5	9
2008	80,713,913	541,381	87,704	16	2,142	32,128	4	120	8.0	11
2009	82,657,105	606,347	96,712	16	2,228	33,413	4	12.0	8.5	15
2010	84,647,080	679,109	106,620	16	2,317	34,750	4	12.0	9.0	19
2011	86,684,963	760,602	117,513	15	2,409	36,140	4	12.0	9.5	26
2012	88,771,909	851,874	129,485	15	2,506	37,585	4	12.0	10.0	39
2013	90,909,097	954,099	142,638	15	2,606	39,089	4	12.0	10.0	70

Notes: Poverty level income = $35 a month (LE 1,198 a year in 1994); minimum sufficiency income = 1.5 times poverty level income (LE 1,797); minimum level of wealth = 10 times the minimum sufficiency income (LE 17,967).

Table 2.

Reform of Wealth Distribution in Egypt: Proposed Approach

Table 2.

Reform of Wealth Distribution in Egypt: Proposed Approach

Year	Minimum Sufficiency Income		Minimum Sufficiency Wealth		Percentage of Poor to Total Population	Real Assistance as Percentage of GDP
	Number of recipients	Amount of assistance (in millions of Egyptian pounds)	Number of recipients	Amount of assistance (in millions of Egyptian pounds)
1996	20,123,175	25,790	504,289	9,695	34	19
1997	20,090,175	27,357	529,608	10,818	33	19
1998	20,020,164	28,761	566,434	12,206	32	19
1999	19,899,582	29,946	616,205	13,910	31	18
2000	19,712,854	30,852	680,647	15,979	31	18
2001	19,457,916	31,671	745,912	18,211	30	18
2002	19,116,965	32,360	827,359	21,008	29	18
2003	18,670,036	32,868	927,090	24,482	27	17
2004	18,094,271	33,129	1,047,567	28,770	26	17
2005	17,363,442	33,062	1,191,670	34,036	25	17
2006	16,447,407	32,571	1,302,750	40,480	23	17
2007	15,311,476	31,534	1,564,712	48,338	21	16
2008	13,915,679	29,806	1,802,091	57,898	19	16
2009	12,213,925	27,707	20,080,160	69,505	17	16
2010	10,167,689	23,555	2,390,367	83,065	15	16
2011	7,734,013	18,634	2,736,012	98,879	12	15
2012	4,865,360	12,191	3,120,719	117,294	9	15
2013	1,509,177	3,933	3,548,448	138,705	6	15

View Table

Table 2.

Reform of Wealth Distribution in Egypt: Proposed Approach

Year	Minimum Sufficiency Income		Minimum Sufficiency Wealth		Percentage of Poor to Total Population	Real Assistance as Percentage of GDP
	Number of recipients	Amount of assistance (in millions of Egyptian pounds)	Number of recipients	Amount of assistance (in millions of Egyptian pounds)
1996	20,123,175	25,790	504,289	9,695	34	19
1997	20,090,175	27,357	529,608	10,818	33	19
1998	20,020,164	28,761	566,434	12,206	32	19
1999	19,899,582	29,946	616,205	13,910	31	18
2000	19,712,854	30,852	680,647	15,979	31	18
2001	19,457,916	31,671	745,912	18,211	30	18
2002	19,116,965	32,360	827,359	21,008	29	18
2003	18,670,036	32,868	927,090	24,482	27	17
2004	18,094,271	33,129	1,047,567	28,770	26	17
2005	17,363,442	33,062	1,191,670	34,036	25	17
2006	16,447,407	32,571	1,302,750	40,480	23	17
2007	15,311,476	31,534	1,564,712	48,338	21	16
2008	13,915,679	29,806	1,802,091	57,898	19	16
2009	12,213,925	27,707	20,080,160	69,505	17	16
2010	10,167,689	23,555	2,390,367	83,065	15	16
2011	7,734,013	18,634	2,736,012	98,879	12	15
2012	4,865,360	12,191	3,120,719	117,294	9	15
2013	1,509,177	3,933	3,548,448	138,705	6	15

• (1) Real growth rates start at about 3.5 percent a year and increase by ½ of 1 percent each year, reaching a maximum rate of 10 percent in 2009 and reflecting the results of both the distribution and the economic reform policy on production.

• (2) Inflation rates start at about 7 percent and decrease by 1 percent each year, falling to 4 percent by the year 2000 and reflecting the results of the reform policies currently being implemented.

• (3) The minimum levels of wealth and income are assumed to grow at the same rate as the rate of inflation each year.

• (4) The minimum required level of wealth is guaranteed to the largest possible number of poor, and the remaining poor have at least the minimum required level of income, within the limits of available resources.

The results of the calculations in Table 2 show that, as a result of implementing this policy, the percentage of the population living in poverty will decrease from 34 percent in 1996 to 19 percent in 2009 (that is, in 14 years), until it reaches nearly zero in 2015 (in 20 years).

Finally, to address the third question raised by this paper concerning the position of the Social Development Fund in Egypt with respect to social policies aimed at creating the necessary initial conditions for economic takeoff, I present the following comments.

The goal of the Fund—to reduce the negative social effects of economic reform—is much larger than it appears to be. It is hardly reasonable to expect such a small entity with such limited resources to achieve a great deal toward reaching this goal. Nevertheless, the goal of reducing these effects is not directly related, as we have shown, to the goals of reducing poverty and improving the distribution of income and wealth. The former is limited to certain manifestations of this phenomenon.

The quality of projects financed by the Social Fund leaves much to be desired, as most of them were requested by government agencies and have many common features, which leads one to wonder how well they are able to meet the needs of the underprivileged. The data prepared by the Social Development Fund show that it was able to create 177,000 new permanent jobs, which I believe is the only accomplishment that is directly related to solving the problem of poverty. However, in the context of Egypt’s more than 20 million unemployed, this achievement appears to be quite modest. As previously emphasized, policies aimed at reducing the negative social effects of reform do not contribute significantly to economic development because they do not address the issue of poverty. Therefore, defining the Social Development Fund’s goal in these terms places it at the margin of social policymaking, not at center stage.

The Social Development Fund’s mandate will expire in four years, which leads to speculation concerning the future of social policies and what will happen to the data and information the Fund gathered during the course of its creation and operation.

Perhaps it would be appropriate, in light of the approach proposed above for reducing poverty, to transfer the resources allocated for assistance to the Fund, which could use them to fight poverty directly by creating new permanent jobs for the poor.