Axel Baeumler, Nabila Assaf, Sherif Hamdy
Two-thirds of Egypt’s poor—about 12 million people—live in Upper Egypt, where the level of economic development lags significantly behind other regions in the country. But finding solutions to kick start private sector growth in lagging regions like these can be an intractable challenge.
To address this challenge, we’ve spent the last 12 months putting together a $500 million results-based program to benefit some of the country’s least developed areas.
To do this, we pulled together a team from a wide spectrum of disciplines in the World Bank and the International Finance Corporation, including Trade and Competitiveness, Social, Urban, Rural and Resilience, Transport & ICT, and Environment. We came up with an approach that prioritized private sector-led growth and job creation in line with Egypt’s development vision and demand for Bank Group support.
Doing What it Takes to Make Local Businesses Thrive
Both public and micro- to small informal private sector enterprises dominate the local economy more in Upper Egypt than elsewhere in the country. The reasons for a lack of formal private sector jobs are many, and include a dearth of management skills and the region’s distance from markets, ports, and metropolitan areas.
During our visits to Upper Egypt, we found that small- to medium-sized private firms with the potential to grow were few and far between, be they in industry or services.
Nonetheless, there were hidden gems such as the unassuming building in the residential part of Qena that, upon entry, revealed a hive of activity with hundreds of young graduates working in a call center. In Sohag, we found employees making boards out of agricultural waste using cutting-edge technology at a furniture manufacturer’s factory tucked away in a dusty industrial zone. What kind of potential for development in agribusiness and other sectors might these examples of entrepreneurship signal, we thought?
Our team quickly realized, though, that in this context, it is not enough to create more access for entrepreneurs to Government-to-Business services. Instead, we included in our program an element of cluster development, where the potential for growth in agribusiness, industry, and service clusters could be nurtured through support for product development, exposure to new markets, regulatory problem-solving, business development services, training, and other initiatives.
This is challenging work even in much more developed countries, so it is important to provide strong support for implementation, as well as to build capacity throughout. The key will be to reinforce the private sector’s role in identifying and realizing the opportunities that exist for investment, collaboration, and innovation.
Can citizens hope for better services in lagging regions?
Supporting targeted interventions for economic clusters needs to be complemented by more investment in infrastructure and services. For example, we found that 50%-92% of the manufacturing firms working in industrial zones in Qena and Sohag had problems with reliable access to electricity. Only 25% of the roads in the governorates are in good condition. In industrial zones, up to 91% of the roads are unpaved.
However, local and regional authorities have traditionally had a very limited mandate when it comes to decision making and control of funding—essentially, limited to areas such as local roads, solid waste, and street lighting. As a result, infrastructure has suffered from persistent underinvestment and has not always been implemented in a coordinated and strategic manner.
We tried to zero in on these constraints by structuring the Bank’s financing for infrastructure and services as a performance-based grant mechanism to be passed on to the governorates by the central government. These grants would be based on transparent sets of criteria, such as the comprehensive annual development plans, capacity enhancement measures, and the need to disclose financial information.
We hope that by focusing on institutional improvement at the local level we can lay the basis for longer term improvements beyond the actual investments financed by the Bank Group’s intervention.
Making People’s Voices Count
During the program’s design, we also put also put strong emphasis on citizen and business engagement as a means to strengthening the credibility of subnational institutions, enhancing government accountability, and restoring citizens’ confidence in renewing the “social contract.”
It is, of course, early stages, but we hope to learn from the operation and adapt the program accordingly as its implementation unfolds. But what we have already learned during its preparation was that working in a large team across multiple disciplines within the Bank Group has helped to us to define the integrated reform program and vision that is required to have sustained impact on development in lagging regions in Upper Egypt and beyond.
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