Understanding Egyptoconomy

The government …

• The government has failed to provide a top-notch education system.
• The government has struggled to provide education that is in synch with market needs.
• The government has been unable to provide support to small businesses.
• The government has failed to provide incentives for industries.
• The government has … (you fill in the blank)

Governments need money to provide yet ours isn’t collecting due taxes from all entities and individuals. Only a few get taxed massively while the majority are unaccounted for and seep through the cracks.

Ask the average Egyptian and they will agree with these statements. Well. If the government is failing to meet needs on so many levels, why are we waiting for it to change our lives? Government is a body entrusted with handling the “other stuff” so we can focus on our own specialties.

“The government is merely a servant – merely a temporary servant. It cannot be its prerogative to determine what is right and what is wrong, and decide who is a patriot and who isn’t. Its function is to obey orders, not originate them.” – Mark Twain

“That government is best which governs not at all; and when men are prepared for it, that will be the kind of government which they will have.” – Henry David Thoreau

“The proper role of government is exactly what John Stuart Mill said in the middle of the nineteenth century in On Liberty. The proper role of government is to prevent other people from harming an individual. Government, he said, never has any right to interfere with an individual for that individual's own good.” – Milton Friedman

Adam Smith centuries ago introduced the philosophy of laissez faire (French for “let it be”); a market operating outside the boundaries of government – an economy in charge of its own balances, driven predominantly by its needs and controlled by competition. It has been the strategy of oppressive Regimes in the past to instill in their people the illusion of a “parental” institution responsible for every aspect of their well being in order to keep them under its control. At the beginning in most cases it was a post revolution, post-war or post inauguration tactic to get hold of all the reigns of the country and synch it with their own pace. However, in time this strategy has resulted in creating black holes of corruption and has established influential power centers that have handicapped progress and have created huge social gaps; merely a few elite hoarding the wealth while the remainder of the population remains oppressed and underprivileged.

A healthy unconstrained market economy is one based on the spontaneous order of things.

Spontaneous order is what happens when you leave people alone—when entrepreneurs … see the desires of people … and then provide for them. They respond to market signals, to prices. Prices tell them what’s needed and how urgently and where. And it’s infinitely better and more productive than relying on a handful of elites in some distant bureaucracy. – Lawrence Reed

When hundreds of thousands of Syrians flooded Egypt after the Arab Spring, all the government provided them with was access into the country. They did not receive any subsidies or special treatment. They were not given land or even housing. As a matter of fact all they got from the government were the endless levels of bureaucracy that the rest of the population suffers from. However, they had no choice but to survive so they began to operate in the market individually. They identified key areas where they have a competitive edge, developed supply chains, either self financed or found support from welcoming Egyptian unofficial investors, worked night and day, and produced high quality goods and services that have been very well received by the market. Their only concern was the market and their competition. Did they fail because the government didn’t intervene? Quite the opposite, they flourished!

The only three things that can hold you back are wrong thinking, inability to access resources and/or wrong government intervention.

The fundamental elements of laissez faire are:

• The individual is the basic unit and mover in economics
• Individual rights and freedoms are to be protected, this is the role of government
• The natural order of things is nature, the physical world, and economics are self-regulating creating a harmony
• Watch corporations for the disruption of the spontaneous order

Adam Smith’s laissez faire however does not mean monopoly, greed, abusing workers, or criminal activity. These are some of the areas, or as described before, the “other stuff” that the government must regulate in order to maintain the spontaneous order.

Egyptoconomy – An Unendorsed Spontaneous Order

It has always intrigued both Egyptian and non-Egyptian analysts how Egypt has maintained its balance in light of this endless flow of economic turmoil and instability. A French colleague who is an expert on global economic strategies once told me that instability is the primary stabilizing factor of the Egyptian economy. At the time I did not understand what he meant but later on, and after operating within the various layers of Egypt I understood exactly what that statement meant. On its own the statement seems rhetorical and linguistically inconsistent, however, by understanding the realities within this exceptional country it becomes enchantingly logical.

Egypt, a country of almost 100 million people has 50% of its populations within the active working age with the rest of the population operating at different levels of the micro-economy. What is suspiciously unknown to many is that almost 84% of the economy is grey! Unregistered and untaxed. This fact alone renders all the country’s reported statistics inconclusive and basically unusable. The government’s failure to provide expedited means to officially register a company and the tiers of bureaucratic red tape that such a desire entails coupled with the corruption of the over populated government bodies responsible for inspecting and compiling all revenue generating establishments has led to the creation of a massive grey economy that is protected by the corrupt inspectors themselves who are getting paid in return for their silence.

Three very critical elements come into play here. First, the over-population of the public sector in general has resulted in a crippling annual line item in the budget that is nonetheless appallingly insufficient to maintain a mere decent standard of living, leading to a regulated, systematic, corruption methodology that has been inherited and perfected generation after generation. Second, this exponential over-population of the public sector resulted in the creation of a massive body comprised of over 40 million beneficiaries. Imagine the 6 million public servants today. Now multiply each by a husband/wife and 2 kids. If each of those directly linked individuals provides a consistent service to just 3 people on a regular basis, you end up with an army of over 40 million beneficiaries whose livelihood depends predominantly on the sustainability and maintenance of this corruption system. On the bright side, and contrary to common propaganda, for the first time in centuries, the country is now governed by an administration not a Regime. This administration has inherited hundreds of years of oppression and is now on an impossible mission to clean it’s house from the inside. Only time will show whether they will break those vicious cycles or get swallowed by their massive currents.

Last but not least, all the money circulating within this grey economy is also unaccounted for and does not appear within the official financial circles. So where does it go? This was a question in my mind for a long time until I had the pleasure of meeting a very successful trader who operates within this parallel world. We had talked for sometime regarding his request for my assistance to take his business to the next level. During one of our many initial meetings I was presented with his financial statements and realized right away that there was no line item for taxes. When I asked I was answered with a smirk and the fact that the company was unregistered!! When I asked where all that residual cash was being kept, I was taken to a warehouse that, to my utter shock, contained piles of cash in the millions. It was quite intriguing yet it instantly explained a million and one phenomena that have been puzzling me regarding this Egyptoconomy.

For starters, it explained the complete inconsistency between the economy’s reported per capita income and the tremendous boom in the real estate sector in Egypt with units sold at ridiculous price marks. But of course! Where else would such enormous profits be hidden better than real estate? It also explained the unchanged purchasing power after the huge reductions in subsidies of all utilities and fuel, which has basically impacted the prices of everything, and was further compounded by the massive floating of the currency.

It also explained a few other mindboggling statistics. When President Sisi came out and asked for US$8 billion Dollars from the people of Egypt to upgrade the Suez Canal in return for 12% on their investment, he was able to collect the full amount in just under 6 days!! When a few months later banks offered a 12% return on 3-year bonds they received around the same figure. Not to mention the hundreds of millions spent every month on mobile phone ringtones, imported pet food, fireworks for wedding and sports celebrations, etc.

The delivery-of-everything, what I call the DOE philosophy, in Egypt is unlike anywhere in the world. My friend, colleague and US business partner Raoul Davis, CEO of Ascendant Group, the world’s leading CEO Branding firm, on a visit to Cairo was sitting in the car with me one day and spotted a McDonald’s motorcycle swerving by. I noticed a look of surprise on his face and waited for the question I knew he was going to ask. When I answered that it was a home delivery motorcycle he cracked up in disbelief, simply because McDonald’s does not deliver anywhere in the US. As a matter of fact nothing gets delivered there but pizza and Chinese food. He was further awed when I explained the DOE philosophy to him. As I explained, it dawned on me the amount of financial spending involved in this delivery operation and how massive an industry it is. An industry built on the laziness of the consumer and more importantly to service the previously described grey economy. The segment of the DOE that was created to service this grey economy is a perfect example of the spontaneous order; it was created to service an existing need and solve a growing problem, the pricing was determined by the market and the limit at which the customer is willing to pay, and operates completely outside the intervention of government. The result, a perfectly self regulating industry that is growing exponentially.

However, the most fundamental pillar that holds together the Egyptian economy and is the primary characteristic of the Egyptoconomy is the level of socio-economics demonstrated by the Egyptian people. I had mentioned earlier the influx of Syrians to Egypt after the events of Syria began and how they had been so well received with open arms.

This came about so seamlessly, simply because it is historically deep-rooted within the fabric of the Egyptian people among themselves and with others in need. Egyptians are just built that way. It is embedded within all social strata that everyone is responsible one way or another for those around him/her. The downside to this is that everyone is too involved in everyone else’s matters. However, Egypt is a country where no one dies of hunger or is left to fend for himself/herself. Parents are responsible for their kids’ education from kindergarten to PhD. They are expected to provide not just the necessities but also cars, phones, summer vacations, marriage costs, apartment rent or ownership, business venture support, medical expenses, financial crises, and of course ringtones, dog food and fireworks.

This responsibility then partially trickles down to the grandchildren as long as the grandparents are alive. Even more phenomenal is the case where parents are deceased or unable to provide support, there is always the rest of the support system that is available, which is comprised of siblings, uncles, aunts, and even friends and neighbors. This is applicable to all levels of society with different financial capabilities. It is also worth noting that there is a huge socio-economic trickle where the wealthy provide for the underprivileged in Godly, undocumented, religion-based streams in the form of donations through regulated and unregulated channels.

In short, Egyptoconomy is a unique phenomenon made up of the actions and beliefs of a phenomenal population. An Egyptianized version of Adam Smith’s laissez faire that is in play wherever and whenever the government fails to provide, and though unrecognized, undocumented, unendorsed and unintentional, it subconsciously holds this economy firmly together and lays the foundation for it’s humanitarian, distinguished socio-economic fabric. It is in essence the closest achievement in the world of the long called for Spontaneous Order … It's just people dealing with people.