Corruption in Egypt
In Egypt, corruption levels have been one of the obstacles to business transactions. It involves fund embezzlement, document extortion, and bribery, just to mention a few forms of corruption in the country. In fact, in Egypt, both the cultures of nepotism and favoritism have widely spread within the economy. In short, bribery has engulfed the everyday life of any Egyptian. Currently, due to the poor legal framework in the country, the practice at the present leaves the country businesses to rely on the connection and middlemen for privileges to be involved in the process of operation. Contrary, to what is witnessed in the country, the penal code criminalizes various corruption forms ranging from abuse of office to passive and active bribery. However, it is unfortunate that law enforcement approaches have not been active until today. Gifts and facilitation payments are the factors, which drive the economic progress of the country despite the fact that the law of the country criminalizes such acts. Based on its negative impact on the economy where it is widespread, this paper seeks to examine corruption in Egypt, highlighting the effects and ways of reducing corruption levels in the country.
Effects of Corruption in the Egyptian Economy
The effects of corruption in investments are very critical and can be looked at into three categories. First, corruption increases the cost of business; thus, raising threshold levels regarding revenues, which are required in the business for break-even purposes. Second, the levels of corruption cause many more effects on the producers within the industry in the country. Third, unfortunately, instead of looking for legal avenues to address the issue, such producers resort to bribing so that they can be entitled to more favors rather than investing in technologies, which can reduce the cost of production as well as present new products in the markets. Last, in the event that the funds of the public get into the hands of the officials of the government, taxes tend to rise as the levels of public investments reduce and, hence, the economic activity of the country is not stimulated. The growth process and development are, thus, affected negatively. The effects of this vice have been evident in Egypt for a very long time negatively costing the economy of the country.
The country has witnessed corruption in two fronts: the inter-business and the government corruption, with the former in many cases being regarded as helpful to the economic growth while the latter is being considered detrimental. The inter-business corruption has been treated as a helping tool to boost communication as well as enhancing the relationship that might exist between business customers and suppliers in any form of business. It involves the facilitation payments by either of the mentioned parties. This form of corruption has offsetting benefits, and, in this case, it reduces the costs of a transaction within the business (Abdou and Zaazou 101-103). This has been treated by the citizens of Egypt as beneficial to them and, hence, has been very much rampant across departments and industries all over the country.
However, irrespective of its perceived benefits, there are cases in which this form of inter-business corruption has been seen as very detrimental to the economy. It involves instances where corruption, taking place between businesses, has really cost the country’s economy, causing an uproar from the public. This can involve the cases in which individuals in the industries are the beneficiaries and not the corporate entities and organizations. In this case, inter-business corruption does not play the role of offsetting the cost but becomes detrimental in a way since it eats into the profits. For example, concealing debts and revenue overstatements boosts the levels of stocks of the firm involved in the same and, henceforth, the value of the stocks is increased.
From another perspective, government corruption has nothing to do with the correcting mechanisms of the markets. This occurs if favors are granted to the officials of the government. Corruption takes the form of subsidiaries, regulations, permits, contracts, as well as tax breaks. In Egypt, this form of corruption is not that evident due to the fact that the country is rich in mining. In most cases, this form of corruption shows forth in developing countries, and it is a very negative impact on economic growth since those who are considered the losers are harmed more than those who gain.
This kind of corruption enables firms, which have been operating for a very long time as well as the ones which have government connection, to have a monopoly in the markets. In this case, firms have been identifying some of the government officials who are influential and who can impact the market operations and use them to thwart the actions of both small and emerging firms in the industry. Therefore, it means that such well-established firms have been given an advantage over the others and hence influencing their profitability in the markets (Abdou and Zaazou 56-58). The effect of this form of corruption is the reduction of profits in the monopoly and shifting of the competition from the market into the arena of politics. In the end, firms tend to invest in the sanction barriers by the government, and, consequently, this lowers the profit levels.
In Egypt, sanction barriers include permits, exclusive licenses, and contracts. In this case, firms invest in getting political favors against regulations, tariffs, quotas so that they can gain power in the market to operate and increase their market profitability. This situation is called rent-seeking or direct unproductive profit-seeking or privilege-seeking as brought out by various authors in reference to the situation in Egypt. In fact, in Egypt, it is the case regulation that is the major factor when it comes to promoting and encouraging corruption.
The country’s government uses more of the educated labor force, a situation that leaves few or no options for new business owners and entrepreneurs who want to grow their profits and stability. At the same time, for such firms in the country to preserve the grip, political sycophants ensure that wealth and income are transferred into the supporters of such political leaders. According to the International Monetary Fund report, the ratio of investments to that of GDP in Egypt by 2000 was close to 2% (“Egypt GDP”). This represented a big disparity between Egypt and other developing countries of the world, especially Latin America (Wickberg). This factor was brought about by the corruption level that was very high in the country by then.
In Egypt, it has been considered and argued that bribery, especially with the ‘‘right people,” is what brings in the harmful effects when the government regulation takes another dimension. The choice of payment in order that one may circumvent in the end might give way to efficiency improvement. This is assumed to spur up investments within the economy. Contrary to the belief, on many occasions, it is not the case meanwhile it is common knowledge that corruption of any form has many negative effects than positive effects (Amin 44-47). The reality is that bribe payment has long-term effects on the continuous influence of the officials of either the government or a firm to create more bribery platforms. This has been the contributing factor to the rise in the corruption levels in Egypt since the time of Mubarak, the former president who was removed out of office by revolutions.
Indeed, corruption affects the country. Egypt experiences its influence in terms of freedom, money, and health. It can, thus, be looked in a number of ways; politically, economically, socially, and environmentally. First, it has been an obstacle to the rule of law as well as the democracy in a country. This is the reason the country’s judiciary has not to be able to enforce the full laws of the land. The judiciary has been used for personal and private gains, and this is the cause that the country has never achieved accountability in its leadership. It is such grounds that saw Mubarak being forced out of the office at the time citizens felt that it was enough (Wickberg). Presently, the current president has also not performed as per his manifesto due to the levels that corruption has been able to rise within the country.
Moreover, the national wealth that is meant for all the citizens is depleted by the levels of corruption. The wealth ends up with a few people as they are interested in investment opportunities, which benefit them and not the whole country. This inhibits the growth of the economy. Moreover, the effect is worsened by the trend that has seen most of such resources being used to facilitate only the high profile projects within the country while ignoring those that are considered to be of low profile but are more urgent. Such leaders know that they will be to steal more from the huge and big projects as compared to the low cadre projects. As a result, the development of a fair market is hindered in the country, a factor that discourages competition and, in the end, lowers the investment rates.
In addition, the high level of corruption in the country has caused the corrosion of the social fabric of society. Through this, there is undermining public trust in its leadership, institutions like the judiciary and even the political system. It is this mistrust in the public domain that has eliminated chances of challenging corruption in the country (El Tarouty 67-69). In the end, the rate of foreign direct investment of a country is reduced as more investors tend to withdraw from the country’s investment due to fear of losses in the process of business.
The corrupt system in the country has resulted in the degradation of the environment. Corruption has influenced environmental regulations enforcement. Moreover, the legislation on environmental issues is exploited carelessly. The entire ecological systems are, thus, ravaged as is experienced in the country’s mining, offsets of carbon and even logging. In fact, many companies in Egypt pay more bribes so that their environmental effects may be unrestricted. This has contributed to global warming in the country hence Egypt is becoming un-conducive for some economic activities, thereby influencing the income of the country negatively (Wickberg). The resulting unfavorable environmental condition has seen the GDP of the country being influenced greatly.
Recent History of Corruption in the Egyptian Government
As the revolution anniversary of the country, Egypt, unfolds, it is clear that the politics and security of the country are revolving around corruption. This has to a greater extent caused the country in its return to stability mission under the new government. In fact, the current president has acknowledged that it is not easy to tackle the issues of corruption in just a very short time. In fact, it is a gradual change that needs time for implementation. According to El-Nawawy and Khamis, such systemic and deeply rooted corruption requires a national process of reconciliation (90-91). It is not just proper to be blaming it all on those who benefited from corruption under the Morsi’s government or the neoliberals of that time. The two noted that such corruption cases could have been due to the pressures in the social arena as well as economical complications (El-Nawawy and Khamis 90-91). Therefore, it means that there is a need to close down the current disputes related to corruption and then eliminating the roadblocks to the investment programs. This will ensure that the country’s economy is further boosted through the improved investments within and without the country, hence, the possible economic growth.
Since 2011, the talk on corruption and its challenges have been everywhere, but there has been a misunderstanding of the whole concept. Corruption exists in two folds in Egypt. The first one is a corruption of low levels. This refers to the level of corruption that has broader sweeping powers, especially of bureaucrats such as clerks, health and education officials, police officers who were overseeing the services of the government in the former regime (Blaydes 87-89). The form of corruption is what triggered the protests in the country, especially during the Arab Spring.
On the other hand, there was the abuse of power of the former regime. This gave rise to the second form of corruption since it was coupled with the wealth acquisition that was majorly tied to the business people who were very prominent to the government of the day. This acquisition was uncompetitive since it was inclined towards others who were known by the government, especially those business people who could afford to pay large sums of money to government officials in order to obtain favors. In fact, this form of corruption could not be touched and substantiated, but it formed the basis under which the family of the Mubarak’s torpor.
A year later, after the revolution of the country, Morsi Mohammed was elected the president of Egypt. Despite his hate for corruption cases, Morsi did not do much to curb and bring to control the corruption cases, especially those of low levels. At the same time, he did not manage to bring reforms in the legal fraternity that could have worked to improve the confidence of the public sector on him (OECD). He totally failed and was later removed out of office again in the year 2013 by the military.
However, Sisi, the current president of Egypt, has been at the forefront of fighting corruption. He has come in with a new approach, new constitutional provisions that are against corruption, technocrats’ appointments and investigations, all aimed at addressing corruption in the country. These approaches, however, have proved to be not sufficient in the implementation process as well as in the strategy of anti-corruption (Blaydes 84-85). This has been brought by the agencies in the country that have overlapping jurisdiction in the working of the country’s economy.
However, the new administration seems to have also been caught up in the vice of corruption since its newly introduced technocrats have become the allegation subjects. They have been criticized for promoting the subjects of corruption in the government despite their introduction to curb corruption in the country. Even the former Prime Minister under Sisi’s government did not escape as he was involved in corruption cases during the administration of the Mubarak (Mirzayev). At that time, Mahlab was in the government of Mubarak as the chairman of a construction firm that was purported to have renovated Mubarak’s family property. These allegations tarnished the public’s confidence in Mahlab and also his reputation as one of the technocrats introduced by Sisi to deal with corruption cases.
However, the administration has shown some level of commitment to fighting the graft. For instance, under the Sisi’s regime, there have been a number of prosecutions of high profile businessmen. An example was the case against the Diab, the owner of PICO Group, one of the largest industrial conglomerates in Egypt. Though it was never made clear the reason why Diab was arrested and this to a larger percentage affected the business community in the country, at least, it showed the administration’s commitment to fighting the graft. The government later released Diab, but his accounts and assets were later frozen since he was one of the beneficiaries of the high levels of corruption under the administration of Mubarak.
Despite the revolution, almost five years down the line since the revolution started, the solution to the vice has not been found. Instead, there has been a widespread perception that the low-level of corruption is very helpful in the country in terms of developments. At the same time, it is being argued that dealing with this level of corruption cases is not the only way to dealing with corruption cases and economic restoration of the country (Blaydes 77-78). In economies of the high private sector, the situation is indeed creeping but in economies of the government operations, it is not easier to curb the situation. It has, thus, been recommended that for the government to control the situation there should be an end to the prosecutions, which are politically motivated. The point is that such prosecution of politically motivated nature like that of Diab works to scare away investors in the country.
It is important to mention that there is a need for implementation of investment laws that were introduced in the course of the Sisi’s regime. However, the laws should be amended by the legislation of the country to suit the purpose for which they were introduced into the country, to improve the fallen economy due to corruption cases (OECD). Such amendments should address the tendering processes, especially that of large projects including the sale of public land in the country. Such laws should be able to address the pending corruption cases and that every case that has affected the economy of the country is not left unsettled.
Finally, corruption can better be addressed by a government whose main and only priority is to serve its people. Despite the fact that President Mubarak was in power for a very long time, more than 30 years, it was clear that the country still was characterized by the high rates of unemployment of more than 10%, a poverty rate of more than 20%, and inflationary tendencies. Such tremendous failure is what leaves people with no option but to take part in or accept acts of corruption based on what they stand to gain. It was evident that during the regime, there was a lack of transparency in the government, lack of responsibility and even separation of powers to make the governance easy (Transparency International 73-75). The situation worsened to a level that human activists were forced to act since the citizens were tired of such unfavorable conditions for operation.
Contemporary Politics and Government in Egypt
In the Egyptian market, many unfavorable things have been brought out due to corruption in the state. These are what have infringed into the economy of that country making it less stable as compared to other countries of sub-Saharan Africa. Due to the revolutions, there was devaluation in the currency as compared to the US dollar between the years 2014 and 2016, especially in the informal market (El Sheekh and Tarek 90-93). The period also experienced fluctuations in the prices of the US dollars as revealed by the International Monetary Fund. Thus, in order to finance the Egyptian economy, the government had to borrow money from the IMF.
A report by Mirzayev, backed by data from various sources like the experts of banking and economy of the country, the Arab Bank in Egypt, the existence of such cases lowered the exchange rates. This negative trend limited the ability of the CBE to intervene so that the currency devaluation could cease. Such lack of intervention has become the factor that has led to increased U.S. dollar prices compared to the Egyptian pound. Such price rises have increased the commodity prices in the country (Mirzayev). This led to overall inflation of close to 15% by June of 2016 as a remarkable inflation rate that has never been experienced in the recent past.
This inflation rate has been one of the challenges that have been affecting the economic growth in the country and has been the cause of the burden on the policymakers. The situation has resulted in the value-added tax implementation happening in the country, and this has formed the major objective of the monetary policies of the CBE. However, to achieve this goal, there will be a need for interest prices to be looked into so that liquidity in the market is controlled.
At the same time, the foreign exchange reserves declined tremendously between the year 2015 and 2016 just before the deposition of the one billion by the UAE in the CBE account. It is the responsibility of the state and government to rebuild the foreign exchange reserves. The CBE can help to develop it, but it does not help in providing the resources for building it and cannot be responsible for the decline of such reserve balances (Mirzayev). It might not be easy for CBE to build such status in the economy unless there is a return to the initial position it used to be in 2011 before the revolutions of the country. These gradual revolutions have been affecting all the sectors of the economy of the country.
The study by Transparency International showed that during the periods of turmoil in Egypt, it was noted that the level of growth in terms of GDP was constant at close to 2.5% (66). This was the worst ever witnessed in the country after a very long time and, at the same time, much lower than that of the Pre Arab Spring. This reduction in GDP was also contributed to by the collapse of the manufacturing industry in Egypt. The petroleum industry and tourism sector have been the worst hit due to the corruption cases that have engulfed the state of Egypt and, especially, during the time of Mubarak (Transparency International 66-69). Between 2010 and 2011, before Mubarak could be taken out of office forcefully through the revolutions, billions of money had been lost in the tourism industry as tourists were not willing to visit the country. This made the levels of foreign direct investment in the country to reduce greatly between that during from $6.8 to $2 billion. This situation caused the country to be in a state of bankruptcy, especially the local firms in Egypt. Through this, the rates of unemployment rates increased in the country since many people were losing their jobs through retrenchment upon their companies being declared bankrupt.
Ways of Reducing Corruption
There are various ways in which the government should seek to ensure that corruption is done away in Egypt. First, the country needs legislation to ensure that the power and discretion of the officials of the government are reduced greatly. This strategy will guarantee that the powers of the officials to modify, write, and enforce such issues that result in corruption are removed. In fact, the elimination of bribery in the country should just entail government elimination through privatization and deregulations. The strategy is more geared towards leveling the playing field for businesses to raise competition in the economy as a way of dropping the level of corruption in the country. Alternatively, it can also work from the principle that as the barrier to trade falls, the levels of corruption are also falling. These are recommendations that have been made to the government and if implemented can easily affect the rate at which the economy of the country can improve, thus, people’s empowerment through increased employment opportunities (Odoemene 480-482). Finally, there have also been attempts to reduce the monopoly power of the government to local governments as a way of reducing corruption in Egypt.
The second method through which the government of Egypt can reduce the rates of corruption greatly is by increasing what it is paying to the officials of the governments. This will ensure that in the event that they are found to have exercised corruption, then they lose more. The officials should be entitled to some other allowances besides the basic pay. Efficiency wages, like those in Singapore, need to be introduced as a way of enabling government officials and civil servants to improve their living standards (Piga 82-84). The only task is to make them aware that if they are caught in corruption cases then they automatically lose their jobs. With such a condition as this, the incentives and increased pay approach can work to reduce the level of corruption in Egypt.
Another way in which corruption of bureaucratic nature can be reduced is by effecting a reduction in the monopoly power of any bureaucrat. This implies that if more people are corrupt in a system, they will have less bargaining power for corrupt deals. Therefore, this will reduce the high level of corruption involving large monopolistic firms to close to zero (IRIN). At the same time, there should be overlapping roles of the officials in the government so that each role monitors the other. Hence, bribe reduction would need the involvement of everybody before it can be successful. Such a requirement is hectic and maybe impossible within any setup. This was the case in the United States in which the federal, local, and state agencies responsible for the implementation process had overlapping roles. It saw police corruption is reduced greatly. The same should, thus, be applied in Egypt.
This idea of competition would work well in the event that regulators are monitoring each other so that there is no bribery, which takes place within any department in the country. The proposed businesses must be allowed to compete with one another in the permit obtaining. Whenever, only a given agency is given veto powers to give permits to businesses, obtaining a permit to introduce a new business becomes a challenge, and, consequently, this has a disadvantage. Such a disadvantage is seen in Mozambique, through the World Bank report by the year 2002, which found out so many restrictions when it comes to obtaining a permit to do business in the country. In such a scenario, as an alternative of having a fair competition that offers protection to the businesses as well as the consumers, the resulting monopoly by a few favored firms crushes the activities of the market, economic growth, and investment by a country (Reibman). It means that if Egypt is to use the approach in which regulators are to monitor one another to eliminate corruption; then, it has to be a real power check.
As it is observed from the above discussions, it is clear that the level of corruption in Egypt has done to the country more harm than good. Thus, it is necessary to come up with steps that can help change people’s perspectives on this idea and make them see that it is unprofitable. This will mean that the Egyptian government increases penalties and detection techniques on corruption and such penalties should be on those who receive as well as those who pay for corrupt deals. The regulations should be set clear in the country’s constitution. At the same time, the situation calls for the Sisi’s government to be keen and to adopt Statutes and Acts of Parliaments that will ensure that corruption is eliminated completely in the country. Such statutes should be very strict and clear on the corruption issues to the extent that those who get involved in the activities are fined dearly to scare off those who would be tempted to be engaged in the same act that is detrimental to the economy of the country. It was such stun measures that worked to help the United States from the jaws of corruption when it was also rampant in the country.