Egypt’s Next Big Challenge: Overcoming Reliance on Rents

February 14, 2011
After the ouster of President Hosni Mubarak last Friday, I invited Arvind Subramanian, a former IMF resident representative in Cairo and a regular columnist for the Business Standard, the leading business daily in his native India, to share his views on Egypt’s economic prospects.

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In the interview, Arvind argues that Egypt’s biggest economic challenge is reliance on rents, which he defines as wealth derived from historical and geographical legacies rather than job-generating economic growth. Arvind includes among these the Suez Canal, which I was surprised to learn generates some $5 billion a year in fees; aid received in exchange for peace with Israel; the pyramids and other antiquities that draw tourists, and even remittances, which he says are the result not of Egyptian success but of failure that forces its citizens to seek work abroad.

Creating the conditions for development will require a complete break with this ineffective economic model, he says. Future leaders must build a flourishing private sector and a vibrant entrepreneurial class.

“This political economy has to be broken in order for sustainable economic development to take place,” Arvind declares. “Egypt needs to create a culture of raw hustling dynamism as we see in parts of East Asia.”

In the second half of the interview, I ask Arvind—a senior fellow at CGD and the Peterson Institute for International Economics—to share his unique perspective on China’s undervalued currency. While most of the public policy debate has focused on U.S. concerns, Arvind has drawn attention to the impact of the undervalued yuan on developing countries unable to compete with China’s cheap exports.

Arvind has been urging poor and emerging market countries to voice their concerns and he says that their arguments have been more successful in shifting China’s policies than prodding from the United States, whose complaints are seen as bullying by the world’s richest and most powerful country.

We end with a quick discussion of the list of books and movies from India that Arvind gave to President Obama when he was invited to brief him on India’s economy ahead the president’s trip there last year.

Have something to add? Ideas for future interviews? Post a comment below, or send me an email. If you see iTunes, you can subscribe to get new episodes delivered straight to your computer every week.

My thanks to Wren Elhai for his production assistance on the Wonkcast recording and to Will McKitterick for drafting this blog post.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.