Egypt and Knowledge Economy:

Seizing the Opportunity

Douglas Zhihua Zeng

Economist
Knowledge for Development Program
The World Bank

March, 2006

WBI Training Course in Collaboration with IDB

 Structure of Presentation

• Current Economic and Social Context

• Major Challenges
• Egypt’s Readiness for the Knowledge
Economy
• Economic and Institutional Regime
• Education and Human Capital
• Innovation System
• Information Infrastructure
 Economic Growth

GDP Growth in Egypt (1980-2005)

12
11
10
9
8
7
6
5
4
3
2
1
0
1980 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: World Bank DDP database. Figure for 2005 is estimation.

 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 52.4

Source: World Bank DDP database
 Employment Structure (1990-2001)

1990 1991 1993 1995 1997 1999 2001

Agriculture 39 31 35 34 31 29 28

Industry 21 25 22 22 22 23 23

Services 40 44 43 44 46 49 49

Source: World Bank DDP database and EIU

 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 men
and over 50% for women.
• Weak private and public investment. This can be
attributed to: poor financial intermediation; low savings
(13-15%), and insufficient access to finance
• Poverty reduction. Although from 1996 to 2000, the
overall poverty rate declined from 19.4% to 16.7%, the
Upper Egypt actually experienced an increase in
poverty. In early 2000s, the situation may have
deteriorated: lower growth and higher inflation.
• Transition towards a knowledge-based growth by
enhancing technology intensity and productivity.
 Agricultural Productivity
Agricultural productivity (value added per w orker, US$)
12000

10000
Egypt

8000 Tunisia
Algeria
6000
Morocco
4000 Poland
Malaysia
2000
Korea
0
1980 1985 1990 1995 2000 2001 2002 2003

Source: World Bank DDP database

Egypt’s Readiness for the Knowledge
Economy: A Global View
 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
Cross-country Comparison: 1995 v.
Most Recent

© K4D, WBI
Basic Scorecard

© K4D, WBI
Economic and Institutional Regime
Economic Incentive Regime

WBI K4D Program

 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-agricultural
sectors (see annex). The contribution of
TFP to economic growth is small.
 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 by
privatization and introducing market discipline;
strengthening non-bank financial sector.
• Promote FDI. By 2004, about $21 billion. Need to attract
more high-quality and export-oriented FDI.
• Reform the labor market. Improve flexibility by reforming
the 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 enforce
contracts, 193 days to register property);
- Tax systems (504 hours to pay taxes);
 Education and Human Capital

Source: WBI K4D

 Education Scorecard

Source: WBI K4D

 Key Issues of Education System

• High Education Expenditures but low

efficiency: 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 low
relevancy to the market needs, and overall
low educational attainment.
• A relatively significant number of
professional and technical workers but with
low quality.
 Secondary Enrollment
Secondary School Enrollm ent (% gross, 1990-2002)
120
100
80
60
40
20
0
1990 1992 1994 1996 1999 2000 2002
Egypt, A rab Rep. Tunisia A lgeria
M o ro cco P o land M alaysia
Ko rea, Rep.

Source: World Bank SIMA database

 Tertiary Enrollment
Tertiary Enrollm ent (% gross, 1990-2002)
100
80
60
40
20
0
1990 1992 1994 1996 1998 2002
Egypt, A rab Rep. Tunisia A lgeria
M o ro cco P o land M alaysia
Ko rea, Rep.
Source: World Bank SIMA database
 Boost Education and Training
• Improve the quality of education, especially
higher education: reforming curriculum and
pedagogy 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

©Knowledge for Development WBI

 Egypt: Innovation Scorecard

Source: WBI K4D

 R&D Personnel & Expenditure
• Most research personnel in Egypt is located in the
higher education sector – 71.2%, compared to
13.5% in production sector and 15.3% in service
sector.
• R&D expenditure is around 0.6%. About 90% from
public, and remaining 10% from foreign sources.
Researchers in R&D (1998-2000)
Egypt Tunisia Malaysi Poland Korea
a
Researchers in
26415 3149 3415 55174 108370
R&D
Researchers in
R&D per million 492.7 333.2 154.0 1427.5 2292.6
people
Source: UNESCO; World Bank SIMA database.
 Key Issues for Innovation
• Weak linkages among government
institutions, 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 with
little diffusion in the local market;
– An obstacle for subcontracting is the limited
availability of technically skilled local suppliers;
– The impact of foreign funding on the quality of
research is minimal.
 Strengthen the Innovation System
• Improve the relevancy of government R&D policy
incentives and public institutions through increased
public-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 & economically
significant areas.
• Improve the research quality through more training and
reform 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 more
international cooperation, such as joint ventures, joint
R&D projects, licensing…
 Information Infrastructure

Source: WBI K4D

 Basic Scorecard for ICT

Source: WBI K4D

 Telephone Penetration

Telephones (fixed and mobile per 1,000 people)

1400
Egypt
1200
Tunisia
1000
Algeria
800
Morocco
600 Poland
400 Malaysia
200 Korea

0
90

91

92

93

94

95

96

97

98

99

00

01

02

03
19

19

19

19

19

19

19

19

19

19

20

20

20

20
Source: World Bank
 PC Penetration
Personal computers penetration (per 1,000 people)

600

500 Egypt
Tunisia
400
Algeria
300 Morocco
Poland
200
Malaysia
100 Korea

0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Source: World Bank

 Internet Users (per 1,000 people)
Internet Users (per 1,000 people)

700
600 Egypt

500 Tunisia
Algeria
400
Morocco
300
Poland
200
Malaysia
100 Korea
0
1994 1995 1996 1997 1998 1999 2000 2003

Source: World Bank

 Key Issues
• 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 legal
guarantees for online transactions.
 Enhance the Information Infrastructure

• Improve the legal and regulatory environment;

• Raise the public awareness of ICT potentials;
• Develop local language contents and
applications;
• Reinforce the ICT education and training;
• Strengthen the government leading role;
• Improve the financial infrastructure, such as
credit and online banking system;
• Promote the ICT universal access.
Annex
 Egypt: Value-added, Employment and
Productivity Growth (1995-99 average), and
Productivity Level Index 1999
 International Competitiveness

2003 2004 2005

GCI 58 62 53
Technology 65 58
Public institutions 70 53
Macro economic environment 57 55
BCI 58 66 71
Company operations and strategy 57 58
Quality of business environment 68 74

(Source: WEF)
 Global Comparison
• ITU: Digital Access Index 2002 (178 countries).
Egypt belongs to “medium access” with a score of
0.40, 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).
Egypt’s ranking increased from 65th in ‘02-03 to
57th in ‘04-05, still lower than Morocco (52nd) and
Tunisia (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).
Thank you very much!

Zzeng@worldbank.org