Recent events in Egypt have rightly received a lot of news coverage and commentary. All is clear; Hosni Mubarak should vacate and the people of Egypt should be allowed to exercise their democratic right. What lies ahead for a new regime is, however, not minuscule.
New leadership in Egypt, whether it comes tomorrow or in September, will have to address the most immediate of challenges the country faces and establish long term mechanisms that will bring about economic well-being of all.
Naturally, political instability spawns economic instability conspicuously characterized by capital flight (investors sell their assets and leave), soaring food and oil prices and destruction of infrastructure. It will therefore be imperative for the new regime to employ short term policies that will restore investor confidence, assert downward pressure on food and oil--mainly through addressing supply chain of these commodities as opposed to instituting price controls, and reinvesting in infrastructure--especially transport and security infrastructure.
For the long term, however, I would recommend a lesser focus on building its military and more attention on three key areas, all with important reverberative effects on the economy. The first one is that of free market. Liberalization of the economy will see a rise in FDI which will positively impact job market for the locals. Privatization of organs that offer subsidiary services, for instance, the Suez Canal Authority, would result in lesser corruption while still offering revenue base to the state through taxation.
Secondly, it will be the role of the government to assist those left out of the market for reason of lack of resources. Extensive social safety nets are recommended here. Conditional income transfers (akin to bolsa familia of Brazil), unemployment insurance and pension framework will see to it that a majority of Egyptians can lead economically comfortable lives.
Thirdly, the strength of the future Egypt is predicated upon the size of its human capital. A massive investment in basic and higher education and health will be instrumental in reaching that end.
In short, while we all celebrate the zeal of the Egyptian people and look forward to a new Egypt in a few months, what will make a difference will not be new faces in power. A democratic process could still yield irresponsive crop of leaders. The true difference will lie in the extent of hard economic decisions that the next regime will be willing to embrace. Ensuring that a majority of the populace have a significant command over resources for their well being will be the earmark of a good government--whether democratic or other.
New leadership in Egypt, whether it comes tomorrow or in September, will have to address the most immediate of challenges the country faces and establish long term mechanisms that will bring about economic well-being of all.
Naturally, political instability spawns economic instability conspicuously characterized by capital flight (investors sell their assets and leave), soaring food and oil prices and destruction of infrastructure. It will therefore be imperative for the new regime to employ short term policies that will restore investor confidence, assert downward pressure on food and oil--mainly through addressing supply chain of these commodities as opposed to instituting price controls, and reinvesting in infrastructure--especially transport and security infrastructure.
For the long term, however, I would recommend a lesser focus on building its military and more attention on three key areas, all with important reverberative effects on the economy. The first one is that of free market. Liberalization of the economy will see a rise in FDI which will positively impact job market for the locals. Privatization of organs that offer subsidiary services, for instance, the Suez Canal Authority, would result in lesser corruption while still offering revenue base to the state through taxation.
Secondly, it will be the role of the government to assist those left out of the market for reason of lack of resources. Extensive social safety nets are recommended here. Conditional income transfers (akin to bolsa familia of Brazil), unemployment insurance and pension framework will see to it that a majority of Egyptians can lead economically comfortable lives.
Thirdly, the strength of the future Egypt is predicated upon the size of its human capital. A massive investment in basic and higher education and health will be instrumental in reaching that end.
In short, while we all celebrate the zeal of the Egyptian people and look forward to a new Egypt in a few months, what will make a difference will not be new faces in power. A democratic process could still yield irresponsive crop of leaders. The true difference will lie in the extent of hard economic decisions that the next regime will be willing to embrace. Ensuring that a majority of the populace have a significant command over resources for their well being will be the earmark of a good government--whether democratic or other.
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