Tuesday, 2 August 2011

Building a better Egypt

In early 2011, the Arab spring caught the interest of the western media with the claim that the uprisings could lead to more democratic societies.

Sadly, the naiveté of that assessment is likely to be further revealed in the next few months in Egypt.

Despite all the hype at the time, there was no revolution in Cairo. Yes, former President Mubarak was overturned and he may go on trial this week, if the military agree, but the military have been in control since 1952 without one day's interruption.

Last weekend the Muslim Brotherhood participated for the first time since early 2011 in a mass demonstration calling for elections. The elections under the new Constitution have been deferred by the military. Clearly the Brotherhood now believes that they have a good chance of securing significant electoral support as indicated by the polls.

Previous demonstrators were seemingly more orthodox liberal and favoured secular government. Probably the majority only wanted lower bread prices, an end to corruption and curbs on the brutality of the secret police but the people we heard on our TVs spoke English and so Australian audiences could identify with them. Of course, being English speakers they tended to be pro democracy and pro the West.

In contrast, last weekend's demonstrators pushed out the liberals and were heard to be calling for Sharia law. This demonstration was described by the BBC as the turning point. But in which direction will Egypt turn?

I doubt that Egypt will turn to democracy. For six years I represented the Government of Egypt on the board of the European Bank for Reconstruction and Development (EBRD). On many trips to Cairo I met senior business people and politicians.

The ruling elite has long convinced itself that Egypt could not allow democratic freedom because this would open the door to well organised Islamic extremists. They talked about economic reform as a means to deny extremists from gathering support from young disaffected unemployed, but their reforms were so slow and insignificant that there has never been enough economic progress to meet the needs of a population growing by about one million every 10 months. As a result, Egypt has never really established a vocal moderate middle class to act as a counterweight to minority extremism.

Egypt is a key strategic player with a population bigger than Germany and an accepted role as a regional leader. What happens next in Egypt is critical for the region. Regardless of the politics, without economic progress, Egypt will face continuing problems.

In the late 1980s, when the Berlin Wall finally collapsed, there was no doubt that the people of Eastern Europe wanted to be free and to rejoin the European community. They threw off Moscow's shackles and genuine democracy soon flowered. Unlike the Egyptians, these Europeans had the cultural and historical background to make the break from brutal communist dictatorships.

They also embraced the concept of a free market to complement their democratic freedom and are now free; politically and economically. Their economic freedom buttresses their political freedom.

An Egyptian government that was secular and liberal would be more likely to respect the basic human rights of women. And a government committed to economic reform would offer the prospect of more jobs and higher living standards. This is Egypt's best option.

Egypt has an old style socialistic economy full of loss-making enterprises, lots of red-tape, corruption is rife and it's banking system needs restructuring. As it was in the former Eastern Europe, the purpose of government owned banks in Egypt today is not to support private enterprise, but to accumulate the meagre funds of the proletariat and pass over the cash to state-owned dinosaurs.

Egypt's government banks need to be re-engineered as soon as possible. Private banks only survive by supporting private enterprise and are an essential element to a successful economy. In capitalist economies banks are not the servants of governments, they are service providers.

Egypt missed the chance to privatise some of its banks before the financial crash. They sold the Bank of Alexandria and were pleasantly surprised by how much they got for it. There would be buyers for banking assets in Egypt. Some could be sold immediately and some could be retained but restructured.

Australia could help in advising on economic reform, for example, by funding training for bank staff on how to support private businesses, especially small business. We could also advise on how to set up a GST or on flat taxes, as in Eastern Europe, where the new flat tax systems brought in more revenue without red tape, endemic cheating and hordes of accountants. And we could help at no cost to the Australian taxpayer by redirecting the monies we have at the EBRD which no longer serves our national interest.

As India demonstrates every day, an ethnically diverse and poor country can be free; politically and economically. Even if the military ultimately reject the ambitions of the Muslim Brotherhood and stay in control, economic freedom through the establishment of a free market must surely be a key element to building a better Egypt.

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