Egypt is a developing market economy that can-and should-be doing better, in spite of the fact that its macroeconomic statistics in recent years make it look like Egypt is doing very well indeed.
International Monetary Fund (IMF) estimates of Egypt's GDP growth for 2006 show the economy expanding 6.8 percent. For 2007 the IMF predicts 6.7 percent. And for 2008, the IMF's forecasts 6.6 percent growth for Egypt.
While this growth is unquestionably favorable, there is a dark side. The dark side is inflation.
Oddly enough, the most recent inflation information (April 2007) is favorable. According to Egypt's State Information Service (SIS) the annualized rate of inflation declined in April 2007 to 11.7 percent. In March 2006, the rate of inflation was 12.8 percent.
The IMF expects Egypt's rate of inflation to increase 12.3 percent in 2007, and another 10.7 percent in 2008.
Not only does inflation erode consumer purchasing power (and confidence) but it also negatively affects Egypt's competitive position in the global marketplace. In addition, double digit inflation is taken by many investors as a sign that an economy is not being well managed, and thus high inflation becomes a drag on foreign investment. (Although it must be noted that Egypt has done well in terms of FDI in recent years.)
But none of these factors adequately explain why Egypt isn't doing better. The mystery is embroidered by the fact that Egypt began a program of reform in the mid-1990s and has pursued it aggressively ever since.
A March 2007...