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Egypt and Knowledge Economy:Seizing the Opportunity

Douglas Zhihua Zeng

EconomistKnowledge for Development Program

The World Bank

March, 2006

WBI Training Course in Collaboration with IDB


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Structure of Presentation Current Economic and Social Context

Major Challenges Egypts Readiness for the Knowledge

Economy Economic and Institutional Regime

Education and Human Capital

Innovation System

Information Infrastructure


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Economic Growth

GDP Growth in Egypt (1980-2005)

0

1

2

3

4

5

6

7

8

910

11

12

1980 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: World Bank DDP database. Fi ure for 2005 is estimation.


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Economic Structure for Egypt (1990-2004)

1990 1992 1994 1996 1998 2000 2002 2004

Agriculture 19.4 16.5 16.9 17.3 17.4 16.7 16.8 15.5

Industry 28.7 33.3 32.8 31.6 31.7 33.1 33.0 32.1

Services 52.0 50.1 50.4 51.1 50.9 50.2 50.2 52.4Source: World Bank DDP database


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Employment Structure (1990-2001)

1990 1991 1993 1995 1997 1999 2001

Agriculture 39 31 35 34 31 29

23

49

28

Industry 21 25 22 22 22 23

Services 40 44 43 44 46 49

Source: World Bank DDP database and EIU


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Major Challenges Unemployment is an acute problem: from 7.9% in

1999/2000 10% in 2005. Independent estimates 15-25%. Unemployment among graduates: 40% for menand over 50% for women.

Weak private and public investment. This can beattributed to: poor financial intermediation; low savings(13-15%), and insufficient access to finance

Poverty reduction. Although from 1996 to 2000, theoverall poverty rate declined from 19.4% to 16.7%, the

Upper Egypt actually experienced an increase inpoverty. In early 2000s, the situation may havedeteriorated: lower growth and higher inflation.

Transition towards a knowledge-based growth byenhancing technology intensity and productivity.


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Agricultural Productivity

Source: World Bank DDP database

Agricultural productivity (value added per worker, US$)

0

2000

4000

6000

8000

10000

12000

1980 1985 1990 1995 2000 2001 2002 2003

Egypt

Tunisia

Algeria

Morocco

Poland

Malaysia

Korea

E R di f h K l d


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Egypts Readiness for the KnowledgeEconomy: A Global View


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Strengths of Egypt from a KE Perspective

A stable macroeconomic and social environment

A democratic system and relatively established rule of

law A relatively large market with rising purchasing power

A rather cheap and relatively educated labor force

Incomparable cultural and tourist attractions

A significant number of scientists and engineers in

R&D Comparatively high secondary and tertiary enrollments

A vibrantly growing ICT market


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Cross-country Comparison: 1995 v.Most Recent

K4D, WBI


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Basic Scorecard

K4D, WBI


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Economic and Institutional Regime


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Economic Incentive Regime

WBI K4D Program


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Key Issues of Economic Incentive

and Institutional Regime

Low integration with global market

Weak financial market

Rigid labor market

Low productivity of the whole economy

Slow productivity growth in non-agriculturalsectors (see annex). The contribution of

TFP to economic growth is small.


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Further Improve the Economic Regime Increase the openness, and promote exports. Growth of

exports 1983-93: 7.8%; 1993-03: 2.3%.Tariff/non-tariff barriers; custom procedures

Improve the financial sector: improving governance byprivatization and introducing market discipline;strengthening non-bank financial sector.

Promote FDI. By 2004, about $21 billion. Need to attractmore high-quality and export-oriented FDI.

Reform the labor market. Improve flexibility by reformingthe rigid labor laws and regulations. Enhance productivity.

Strengthen technical and skills training

Promote technology diffusion Improve the investment climate:

- Strengthen infrastructure;

- Reduce bureaucratic red tape (410 days to enforcecontracts, 193 days to register property);- Tax s stems 504 hours to a taxes



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Source: WBI K4D


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Education Scorecard

Source: WBI K4D


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Key Issues of Education System

High Education Expenditures but lowefficiency: in 2000, about 8.8% of GDP

(5.3% public and 3.5% private).

Relatively high education enrollments (only

lower than Korea and Poland), but lowrelevancy to the market needs, and overalllow educational attainment.

A relatively significant number ofprofessional and technical workers but with

low quality.


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Secondary Enrollment

Secondary School Enrollment (% gross, 1990-2002)

0

20

40

60

80

100

120

1990 1992 1994 1996 1999 2000 2002

Source: World Bank SIMA database

Egypt, Arab Rep. Tunisia A lgeria

M orocco Poland M alaysia

Korea, Rep.


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Tertiary Enrollment

Tertiary Enrollment (% gross, 1990-2002)

0

20

40

60

80

100

1990 1992 1994 1996 1998 2002

Source: World Bank SIMA database

Egypt, Arab Rep. Tunisia Algeria

M orocco Poland M alaysia

Korea, Rep.


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Boost Education and Training

Improve the quality of education, especiallyhigher education: reforming curriculum andpedagogy and increasing market

relevancy, and critical skills. Strengthen technical and vocational

education and training. Currently

fragmented, supply driven, poor efficiency,especially MTI.

Further improve the education equity,especially at the high-end education.

Increase efficiency. Strengthen quality assurance mechanism; Encourage private provision; Promote ICT-based education.

Innovation System


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Innovation System

Knowledge for Development WBI


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Egypt: Innovation Scorecard

Source: WBI K4D

R&D Personnel & Expenditure


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R&D Personnel & Expenditure

Most research personnel in Egypt is located in the

higher education sector 71.2%, compared to13.5% in production sector and 15.3% in servicesector.

R&D expenditure is around 0.6%. About 90% frompublic, and remaining 10% from foreign sources.

Researchers in R&D (1998-2000)Egypt Tunisia Malaysi

a

Poland Korea

Researchers inR&D

26415 3149 3415 55174 108370

Researchers in

R&D per millionpeople 492.7 333.2 154.0 1427.5 2292.6

Source: UNESCO; World Bank SIMA database.


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Key Issues for Innovation

Weak linkages among governmentinstitutions, business and universities;

Poor research quality and relevancy; Limited technology spill-over from FDI:

In most joint ventures, transfer of know-how is

limited to the production facilities in Egypt withlittle diffusion in the local market;

An obstacle for subcontracting is the limitedavailability of technically skilled local suppliers;

The impact of foreign funding on the quality ofresearch is minimal.

Strengthen the Innovation System


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Strengthen the Innovation System

Improve the relevancy of government R&D policy

incentives and public institutions through increasedpublic-private partnership.

Audit and assess the S&T efforts and institutional

performance and link their funding with performance. Restructure the system towards efficiency, and

increase funding for strategically & economicallysignificant areas.

Improve the research quality through more training andreform of tertiary education.

Encourage the business sector involvement in R&D and

promote venture capital. Strengthen the linkage between GRIs/universities and

industry.

Accelerate technology transfer through moreinternational cooperation, such as joint ventures, jointR&D projects, licensing



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Source: WBI K4D

B i S d f ICT


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Basic Scorecard for ICT

Source: WBI K4D

T l h P t ti


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Telephone Penetration

Telephones (fixed and mobile per 1,000 people)

0

200

400

600

800

1000

1200

1400

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Egypt

Tunisia

Algeria

Morocco

Poland

Malaysia

Korea

Source: World Bank

PC Penetration


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C e et at o

Personal computers penetration (per 1,000 people)

0

100

200

300

400

500

600

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

EgyptTunisia

Algeria

MoroccoPoland

Malaysia

Korea

Source: World Bank

Internet Users (per 1 000 people)


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Internet Users (per 1,000 people)

Internet Users (per 1,000 people)

0

100

200

300

400

500

600

700

1994 1995 1996 1997 1998 1999 2000 2003

Egypt

Tunisia

Algeria

Morocco

Poland

Malaysia

Korea

Source: World Bank

Key Issues


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High level of monopoly. ICT skills shortage. A shortage of about

2,274 (33%) networking specialists in 2004.

Low ICT usage, in all areas, such as e-commerce, education, and health:

- High costs and low per capita income;- Low literacy level (over 40% illiterate);

- Lack of awareness;- Language;

- Lack of credit system and legalguarantees for online transactions.

Key Issues

Enhance the Information Infrastructure


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Enhance the Information Infrastructure

Improve the legal and regulatory environment;

Raise the public awareness of ICT potentials;

Develop local language contents andapplications;

Reinforce the ICT education and training; Strengthen the government leading role;

Improve the financial infrastructure, such ascredit and online banking system;

Promote the ICT universal access.


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Annex

Egypt: Value-added, Employment and


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gyp , p y

Productivity Growth (1995-99 average), and

Productivity Level Index 1999


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International Competitiveness

2003 2004 2005

GCI

Technology

Public institutions

Macro economic environmentBCI

Company operations and strategy

Quality of business environment

58 62 5365

70

57

58

53

55

58 66 71

57

68

58

74

(Source: WEF)

Global Comparison


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Global Comparison

ITU: Digital Access Index 2002 (178 countries).Egypt belongs to medium access with a score of0.40, higher than Morocco (0.33), Algeria (0.37),

but lower than Tunisia (0.41), Malaysia (0.57),Poland (0.59), and Korea (0.82).

WEF: Networked Readiness Index (82 countries).

Egypts ranking increased from 65th in 02-03 to57th in 04-05, still lower than Morocco (52nd) andTunisia (31st).

EIU: E-readiness rankings (60-65 countries).Egypt slipped from 48th in 2002 to 53rd in 2005,higher than Algeria (63rd), lower than Poland

(32nd), Malaysia (35th), and Korea (18th).


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Thank you very much!

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