Trade Liberalization and Gender Equality in the MENA Region:
What explains the difference between the effects of liberalization of trade policy on
women in paid employment jobs in Tunisia and in Egypt?
By
Peri Bakr
Student number.: 11261463
Email: peribakr@gmail.com
Master Thesis Political Science
Specialization: Public Policy and Governance
31 - 08 - 2018
Supervisor (first reader): Dr. Farid Boussaid
Second reader: Lukas Linsi
Acknowledgements
On the due date of my master thesis, I am sitting near the sea in Hammamet (Tunisia) on holiday and reflecting on this journey. With this master thesis I have learned so much about the MENA region and specifically about Tunisia and Egypt. I have gained great insight in political economy and regulation of international trade. With this experience and the extra knowledge, I feel more equipped to start my next journey after graduating, which is a traineeship at one of the largest financial institutions in the Netherlands that works closely with the agricultural sector in trade and investment in developing countries.
Even though this was an individual assignment, I feel like in general all great successes are often a team effort. Therefore, I would like to show my appreciation to some people who have helped me get this far. First, I would like to thank my supervisor Farid Boussaid. You have guided me through this whole research with great advice and motivation. Thank you for all your efforts and patience with me. I would also like to thank my friend Selsela Reha. Writing our thesis’s at the same time was a great experience. Going to the library every day with you and seeing you go through the same struggles, made me feel less alone in this process. You also helped me stay creative this whole time. Lastly, I would like to thank my eldest brother, Bakhtiar Bakr. You are my greatest example in life. Through every hardship or dilemma, I can always count on your support and guidance. Thank you for continuously giving me advice and direction during my research.
Contents
1. Introduction...4
2. Literature Review……... 7
2.1 Trade liberalization in the world economy ... 7
2.2 Trade liberalization in the MENA region...9
2.3 Gender perspective on trade liberalization... 13
3. Theoretical Framework ...16
3.1 Tunisian economic development... 16
3.2 Egypt’s economic development ... 21
3.3 Human development in the MENA region ... 26
3.4 Barriers to women’s economic participation ...29
3.5 Education as a barrier to women’s economic participation ... 35
3.6 Gender Gap Index of Egypt and Tunisia...38
3.7 Enabling environment for women’s rights activism ...39
4. Research Design... 42
5. Research Results ... 46
5.1 Women’s economic participation per trade sector ... 46
5.1.1 Industry……….………..……...………...49
5.1.2 Agriculture……….……...…...………...50
5.1.3 Services………...………...….………...51
5.2 Women’s economic participation by unemployment... 52
5.3 Women’s economic participation by level of poverty... 54
5.4 Women economic participation by educational level... 55
6. Discussion and Conclusion ... 56
Chapter 1: Introduction
“One thing we learned is that we don’t need a boss. We can make a small business work by
taking it in our own hands. And as a poet said, a Tunisian woman is a woman and a half!”
- Dalel Mdimegh, Tunisian textile worker.
Over the last decade the media has portrayed Tunisian women as a prime example of activists fighting for gender equality. After the 2011 revolution the media was flooded with news articles about the role of Tunisian women during the revolution and how this somewhat marginalised group in the Middle East has been struggling for equal rights for decades. The quote above is from an article on the story of Tunisian women that lies behind the “Made in Tunisia” label in many clothing articles that are sold in Europe (Tsiropoulou, 2016). According to this article Tunisian women are playing a crucial part in the textile industry of Tunisia. Since the opening of its economy, Tunisia has welcomed many foreign factories that are now being filled with working Tunisian women. However, the article suggests that despite the Tunisia’s growing trade of industrial goods - in this case textile – this has not lead to the improvement of the position of female workers. They still face many challenges, such as unemployment and poor working conditions, that are posed by Tunisia’s economy. Alessia Tibolo, from the Employment Initiatives in Social and Solidarity Economy (IESS), argues that “We need to change the law in order to allow cooperatives to exist, to access the market and profit from tax incentives. But that should go hand in hand with practices on the ground. Civil society is crucial as we need a solidarity market.”. Her statement suggests that in order to further develop the Tunisian economy through means of trade liberalization, it is crucial that we take into consideration the human and social aspects of the process (Tsiropoulou, 2016).
According to a United Nations (UN) report on gender equality and trade policy, men and women can be affected differently by the liberalization of trade. Trade liberalization has created an increase in the availability of low-skilled, labour-intensive and low value-added jobs in developing countries such as Tunisia. In recent decades, the export-oriented industry has particularly sought women workers to fill these low value-added jobs (UN Women Watch, 2011). The increase in employed female workforce has been mainly visible in the Export Processing Zones (EPZ). These zones have contributed to the export success of many developing countries in East and Southeast Asia and Central America since the late 1960s. Many policymakers have argued that the increase of female workers in EPZs shows that trade liberalization can benefit women by creating new employment opportunities. Some might assume that this significant increase in women’s paid employment opportunities has had a positive effect on gender equality in these developing countries. Trade liberalization is often seen by proponents of neoliberal economic reforms - such as the World Bank - as a driving force not only behind economic growth but also behind the reduction of inequalities such as poverty and gender inequality (Al-Wadi, 2017).
Even though trade liberalization has can increase employment opportunities and labour market participation for women in semi-industrialized economies, there are also many downsides to trade liberalization for women. In the case of trade liberalization in the EZPS, the UN reports that the increase of women’s employment through trade expansion cannot be matched by an equal reduction in poverty in women-headed households (Seguino, 2009). Trade reforms can also worsen women’s relative position in the labour market, since women tend to be concentrated in a few sectors of economic activity. Also, they are limited in geographic mobility and have significant household responsibilities aside from their participation in the labour market. All of this, limits women’s ability to accept many demanding and high-paying job opportunities (Massoud & Nadereh, 2016). Thus, critiques of trade liberalization argue that women cannot properly benefit from these new employment opportunities due to existing social complexities that originate from gender divisions. Therefore, social policies that seek to improve issues related to gender inequalities should be implemented alongside trade liberalization policies.
So far, the literature on the effects of trade liberalization on women is quite large and has examined different causal mechanisms. Yet consensus among scholars has not been reached. Thus, this research will contribute to the extensive scholarly debate by building upon the existing literature and data on the effects of trade liberalization on paid employment of women specifically in the MENA region. Unlike the EPZs, trade liberalization in the MENA region has been very slow in the past few decades. According to a report by the United States Agency for International Development (2013), the MENA region has largely missed out on global trade integration. It argues that this is in large part due to the restrictiveness of national trade regimes, and a lack of policy coordination between countries in the region with the rest of the world. Even though several attempts to deepen trade liberalization have been implemented - such as the Greater Arab Free Trade Area (GAFTA) of 1997 and the Agadir multilateral free trade agreement of 2004 - the MENA region remains among the least integrated in the world economy. Because of the slow integration in the world economy, it is even more important to reflect on the effects of trade liberalization in the MENA region in order to see how the process can be improved and adjusted in order to bring sustainable change in the region. As sectors are being more and more liberalized, the MENA economies are slowly becoming more integrated globally and exposed to international competition. Unfortunately, the region continues to suffer from scarce data on women's productive activities and economic contributions (Dogruel & Tekce, 2011: USAID, 2013). Considering this is one of the main challenges for this research, it will not be possible to analyse data for the whole region. Instead, this research will primarily focus on an in-depth and comparative analysis of two chosen cases.
For this research it is important to apply a feminist political economic approach, in order to highlight the changing gender divisions that are the results of trade liberalization in the region. This approach argues that the discipline of economics is particularly developed by human actors, and thus it is inevitable that it is influenced by its social, cultural and political environment, including the role of gender inequality (Primer, 2000).
Considering that research on gender equality is often times context based, this research will focus on two most similar countries in the MENA region in order to execute an in-depth and qualitative analysis. The countries chosen are Egypt and Tunisia. The main similarity between these countries is that they have had similar paths in liberal reforms of trade in order to integrate in the world economy. However, there is one important difference that this research highlights. Tunisian women have been known as champions in enabling women’s rights in the MENA region. It is believed that over the course of 70 years, Tunisia has successfully implemented many feminist policies that also effect women in the labour market (Arfaoui, 2007). This makes it interesting to examine whether ‘successful’ women’s rights activism in other parts of society is necessary in order for trade liberalization to have positive effects for women in paid employment jobs. In order to research this, the main question will be: What explains the difference between the effects of trade liberalization on women in paid employment jobs in Tunisia and in Egypt? By executing this comparative case study, the expectation is that we can demonstrate that if women’s rights are enabled and improved in a society, trade liberalization will be much more effective in empowering women in paid employment jobs by increasing women’s economic participation. Thus, the hypothesis for this research reads: Women’s economic participation in Tunisia has increased after implementation of trade liberalization policies, as a result of improved gender inequality issues for women in the labour market. This will be examined by comparing results with Egypt.
Chapter two of this research will provide a summary of the theoretical discussion on trade liberalization and gender perspective on the liberalization of trade. In the third chapter, a summary on the literature of trade liberalization and women’s economic participation in the MENA region will be provided in the theoretical framework. Chapter four consists of an overview of the methods, timeline, data selection and case selection will follow in the research design. Based on all of these chapters, we will proceed to the analysis of the data on women in paid employment jobs in the MENA region in chapter five. For both cases, the analysis of this research will focus on the time period after trade liberalization in the main trade sectors in which it is known that women have been most active. In the last chapter, a conclusion will be drawn based on the theory and findings.
Chapter 2: Literature Review
In this chapter contextual information will be provided on the process of global trade liberalization and how this has affected the MENA region. Also, it is important to highlight the feminist perspective on this process. This will be done in the second part of this chapter.
2.1 Trade liberalization in the world economy
Due to globalization, the world economy has been transforming at an accelerating pace. The process of globalization is generally understood as the economic, political, social and cultural integration between countries. This integration has significantly widened and intensified international linkages in economic, social and political relations. It is mostly driven by the increase of liberalization of restrictions and barriers on the mobility of goods, services, capital and technological knowledge. Thus, countries are continuously widening and intensifying the international linkages in trade and finances in order to stimulate further global economic integration (Gupta & Choudhry, 1997). It is believed that countries with lower barriers to international trade experience faster economic progress. The idea that international trade is the engine of growth is quite old. It goes back to at least Adam Smith and David Ricardo, which were important scholars of the classical school of economics in the 18thcentury. According to Smith (1963), consumers should buy products from where they are cheapest. He believed that the only thing that national protectionist measures do was create monopolies, which were according to him “a great enemy to good management”. Adam Smith argued that by increasing specialization and the division of labour, international trade would accelerate economic growth of a nation (Kuo et al., 2014). Ricardo added to Smith’s theory by developing the classical theory on comparative advantage, by stating that even if a country has an absolute advantage in producing certain goods than any other country, bilateral trade with advantage could still be achieved. With this he explains how countries with certain production advantages still benefit from engaging in international trade (Rahimi, 1995).
Currently, one of the most important issues in international economic literature is the relational mechanism between international trade and growth. More specifically, the relationship between trade liberalization and economic growth at the macro and micro level has secured a special place in international economic studies (Hozouri, 2016). Many scholars have been arguing on both sides whether increased foreign trade will lead to more development in a country. Also, many scholars have sought to explain the difference in economic integration through trade liberalization between developed and developing regions. Currently, the literature on trade liberalization and economic growth suggests that despite extensive studies in this regard a clear and definitive answer does not exist (Nasirzadeh, 1996: Abrishami, 2010: Hafezi, 1998). Hence, it is important to continuously evaluate the effects of trade liberalization on economic growth in the selected MENA countries since the existing literature has not reached a consensus on the relationship in this region.
As we look further at the literature on trade liberalization and economic growth, we see that there has been an extensive debate between proponents of trade liberalization and proponents of the protectionist view. Protectionism measures are basically the sum of government trade policies that are intended to restrict trade between countries in order to assist domestic producers against foreign producers. It often concerns measures to reduce the number of imports coming into a country. Such measures include tariffs (taxes on import goods), quotas (physical restrictions on amount of imported goods) and non-tariff barriers (other protectionist measures such as rules and regulations). Many countries within the MENA region still use different types of protection instruments. Ranging from standard tariffs to para-tariff measures (such as custom surcharges, additional taxes and surcharges, stamp taxes, statistics taxes, and sales taxes levied on imports) and non-tariff barriers (such as quantitative restrictions and technical requirements). Non-tariff barriers (NTBs) are often not addressed in research on trade liberalization policies. However, they are very important considering that they represent institutional constraints that would lower the ability of countries to benefit fully from trade liberalization (Minot, 2010). For example, in 2005 standard tariffs were eliminated among the partner countries of the Greater Arab Free Trade Area (GAFTA). However, in practice this did not lead to free intraregional trade because certain non-tariff barriers remained intact (World Bank, 2009). Generally, the reason for countries to use these restrictive measures is that they want to protect their domestic industries and employment. It can be considered as a strategy to prevent dumping, which is the sale of goods in the destination country below the national cost price to break into the market of that specific country (Illy, 2012).
In opposition of protectionism, trade liberalization aims to open and free world trade and break down those barriers to international trade (Abboushi, 2010: Wexler, 1979). Despite the resistance of protectionists, since the 1950s trade liberalization has taken its turn in the world trade with the establishment of neo-liberal institutions such as the General Agreement on Tariffs and Trade (GATT) in 1947 - which culminated in 1994 in the establishment of the World Trade Organization (WTO). It is widely believed that the WTO membership can lead to increasing trade between countries. However, when we look at the empirical analyses in the literature, there are many conflicting results (Cestepe et al, 2014). For example, Rose (2004) suggests that the effect of the WTO membership to trade performance of countries is conflicting with the conventional view that suggests the effects are positive. Lederman and Ozden (2007) support this by finding no significant relationship between WTO membership and exports.
Others main institutions that have contributed to the acceleration of trade liberalization are the World Bank and the International Monetary Fund (IMF), both established in 1945. These two institutions have assisted in the macroeconomic policy reforms in several developing countries, under the impression that economic growth through free trade would reduce poverty in developing countries (Gupta & Choudhry, 1997). In spite of their attempts, the developing world has been quite resistant in going along with the trade liberalization movement in the developed world. During the 1950s till the 1970s a large number of development economies embraced the
protectionist view, however due to the debt crisis that unleashed in 1982, policy views were reshaped in regards to development strategies, growth policies and long-term growth. Thus, during the 1980s economic scholars dealing with developing countries started to increasingly recommend development strategies that favoured the reduction of trade barriers and the opening of international trade to foreign competition. This has led to more and more developing countries shifting from severe protectionist policies to free trade policies (Edwards, 1993: Dornbusch, 1992). Since then, many scholars have been examining whether these shifts have led to more economic growth in the developing world. As mentioned before, there are many conflicting development studies that show different relational mechanisms. While classical economists suggest that trade liberalization in the developing world is crucial for economic growth, many critiques argue that further economic liberalization should be accompanied by other socio-political policy changes in society (Kim, 1996: Bussmann et a, 2006).
2.2 Trade liberalization in the MENA region
Within the developed world, the Middle East and North Africa (MENA) region has experienced relatively slow economic growth. Due to its economic, geographical and demographic potential, the region’s trade volume is much below compared to other developing regions. Although the degree of trade liberalization varies per MENA country, the trade regimes of the MENA are among the most protective in the world. Countries including Egypt, Morocco and Tunisia are among the 15 most protected economies of the world. (Minot, 2010: Cestepe et al., 2014). According to the World Bank, in 2005 Morocco and Tunisia were even among the 5% of countries in the world with the most restrictive trade policies, despite some progress in trade reforms (World Bank, 2005). The level of protectionist and restrictive measures vary per sector and per country. For example, on average developing countries protect agriculture more than industry. Despite the apparent presence of protectionism, trade liberalization in the MENA region has been a policy priority not only through structural adjustment programmes, but also through regional and bilateral preferential trade agreements. Trade reform in MENA countries have been motivated by the region’s participation in several multilateral negotiations in the context of the WTO framework, the North-South regional agreements with the European Union (EU) and in South-South regional and bilateral agreements (Minot, 2010). These kinds of agreements are often driven by political interests. As an example, the Euro-Mediterranean agreements are often seen as a key instrument of the EU in creating security and stopping illegal immigration. This is done through the promotion of a peaceful and stable trade region (Mcqueen, 2002). The implementation of these agreements is often limited by several factors. First, often times there is a lack of coverage, specifically in the agriculture and service sector. Also, we that technical barriers to trade often remain due to differences in regulatory requirements. And lastly, these agreements are limited by restrictive rules of origin that limit the effective market access (Zarrouk and Zallio 2000; World Bank 2005).
One of the first global trade agreements was GATT, which was signed in 1947 with the primary goal to reduce protectionism and discrimination in international trade. GATT was replaced by the WTO after the Uruguay Round was signed in Marrakech in April 1994. With the exception of Syria, the West Bank and Gaza, all MENA countries are currently member states of the WTO, including Tunisia and Egypt that both joint 1995. As developing countries, the MENA countries have been given greater flexibility through special and differential treatment. For example, they have been given more time to meet their commitments (Minot, 2010).
On a more regional level, the MENA region has been involved in several agreements with the EU. For almost twenty years the EU engaged in a multilateral co-operation with its Mediterranean partners, including several MENA countries. After this phase, a new partnership emerged after the Barcelona Conference in 1995. The new partnership is best known as the Euro-Mediterranean Partnership (EMP), or also called the Barcelona Process. The partnership is based on the following adopted principles, as mentioned in Tommaso et al. (2001):
1) a common Euro-Mediterranean area of peace and stability, based on fundamental principles, such as the respect of human rights and democracy;
2) the progressive establishment of a Free-Trade Area between the EU and its partners and among the Mediterranean partners themselves, with a substantial financial support for economic transition from the EU;
3) the promotion of social, cultural and human partnership.
An essential feature of the implementation of the EMP is the Euro-Mediterranean Association Agreements (EMAAs) between the EU and nine of its partners, namely Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, the Palestinian Authority, Syria and Tunisia. These agreements not only set the foundations for the free trade system in accordance with the WTO rules, but also highlights some political indicators such as respect for human rights, democratic principles and co-operation in social and cultural aspects (Tommaso et al., 2001).
The EMAAs are based on nonreciprocal preferences by the EU to developing countries mostly in industrial trade. The clearest measures of these agreements are concerning liberalization of trade in manufactured products. This has primarily benefited the EU considering that with these agreements the EU received duty-free access on manufactured products by its partners’ markets. The agreements largely eliminated the tariffs on manufactured goods exported from the MENA to the EU. Unfortunately, the benefits for the MENA partners were quite low because the EU industrial tariffs were already low and the manufacturing industry in MENA countries could not compete in European markets (Minot, 2010).
The most comprehensive trade agreement within the region is the Greater Arab Free Trade Agreement (GAFTA), which came into existence in 1997. With the GAFTA, all industrial and agricultural goods began to travel through the region duty free. However, the agreement did exclude services and investment (Abedini & Peridy, 2007). Still, the GAFTA seemed to offer some hope of success where other attempts had failed. The full implementation of the free trade area according to the agreement was fully completed in 2005, two years before it was originally set. Even though the agreement was a step up from the EMAAs, it still suffers from weaknesses that limit the expected economic benefits. Aside from weaknesses such as strict rules regarding the origins and other remaining barriers, the GAFTA does not have a regulatory body that will enforce the commitments of the agreement (Minot, 2010).
Another important integration movement within the region is the Agadir Agreement. At the end of the 1990s, four MENA countries – Jordan, Egypt, Morocco and Tunisia – concluded a bilateral free trade agreement (FTA) with each other. By 2004 these countries signed the Agadir agreement, and it was implemented in 2007. In addition to the trade liberalization of goods along the lines of the GAFTA, Agadir makes provisions for the trade liberalization of services within the framework of the General Agreement on Trade in Services. Much like in the GAFTA, NTBs remain an obstacle in the implementation of the Agadir agreement (Minot, 2010: Cestepe et al., 2014).
Other regional agreements include those that led to the creation of the Arab Maghreb Union (AMU) the Gulf Cooperation Council (GCC) and Common Market for Eastern and Southern Africa (COMESA). The AMU was established in 1989 among all five Maghreb countries: Algeria, Libya, Mauritania, Morocco, and Tunisia. The aim was to establish a customs union by 1995 and an economic common market by 2000. Unfortunately, neither objectives were achieved. The two main obstacles for the AMU were: the requirement of unanimity for all decisions to be implemented and the eruption of political tensions between Algeria and Morocco over the western Sahara. The agreement also generated limited benefits to its members, and intraregional trade as a share of total trade remained the same in 2010 as it did in 1989 (Brunel 2008). The GCC includes six oil-exporting Gulf countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. It was created in 1981 and over the next two decades adopted several resolutions relating to the GCC customs union, the common market, development integration, and the economic and monetary union. Overall, the GCC has been more successful in achieving its objectives. These countries are currently in the high-income range of the MENA countries (Minot, 2010).
COMESA is a free trade area which was formed in 1994 and currently has nineteen member states across Eastern and Southern Africa, including Egypt (joined in 1999) and Libya (joined in 2005). COMESA was established to promote economic relations between the member states, specifically the trade relations, and to form a custom union. Overall, the progress in COMESA has been limited due to country-level implementation problems. Even though COMESA has
achieved some progress in areas of free movement of persons, physical integration, energy, information and communication technologies, its intra-trade is very weak (Elmorsy, 2015). Dennis (2006) argues that the intra-MENA trade is hampered by burdensome customs procedures, poor infrastructure and also regulations that impede efficient transportation services. Examples of this are regulations that favour national airlines, restrictions on private transportation companies and various fees and taxes. Hoekman and Konan (2005) add the importance of removal of NTBs, which can increase the welfare of the MENA region twice as much as tariff liberalization.
Figure 1: Regional agreements for MENA countries
Source: Minot (2010)
It is very difficult to measure the effects of these trade liberalization reforms on economic growth in the MENA region. The average growth in per capita GDP for the region as a whole was around 2% over the periods 1990-1999 and 2000-2006. However, this growth was uneven among countries. Lebanon, the West Bank and Gaza, and Tunisia experienced solid economic growth (above 3%) during the 1990s. While Tunisia, together with Morocco, continued to enjoy solid growth between 2000-2006, Lebanon and the West Bank and Gaza on the other hand experienced a sharp slowing of their economies due to conflict. Even though other regions experienced higher growth during this time, economic growth in the MENA region was still relatively low (Minot, 2010). According to a recent study by Naeimeh Hazouri (2016), trade liberalization has in fact contributed to the export growth of the MENA region. On the other hand, she also argues that in this liberalization process MENA countries have applied a so called ‘import management’ policy through restrictive measures. This has made MENA countries export-dependent, despite the fact that they rely on the large imports of raw materials, machinery, capital and intermediate goods and consumer goods in order to strengthen and expand their current industrial system (Cestepe et al., 2014).
Aside from the overall economic growth, it is believed that trade liberalization can affect social issues such as education, healthcare and social inequalities. These issues are important in relation to the human development of workers in the MENA region. Trade theory suggests that, under certain conditions, trade liberalization should equalize the return to labour - meaning the return in wages to an individual’s involvement in the creation of goods/services - across countries. In practice, the impact of liberalization is more complicated due to a variation in protection across sectors and preferential agreements. Few studies are designed to measure the impact of liberalization on different types of households. These studies divide the labour market into skilled and unskilled categories. A study done by Anderson, Martin and Van der Mensbrugghe (2005) showed that unskilled wages would increase by 4.1% for the MENA region. Bayar et al. (2000) found that trade liberalization in manufactured goods would encourage a 1.3% increase in wages for unskilled labour in MENA, while broader all-sector trade liberalization would increase unskilled wage rates by 1.4%. These findings have also suggested that even though trade liberalization can increase unskilled wage rates in the MENA region, the gains may not be distributed equally between rural and urban areas (Minot, 2010). In addition to this, Hoekman and Konan (2005) show that the effects of trade liberalization on wage rates not only differs per area but also between different levels of trade agreements. In their case multilateral agreements were considerably less beneficial to wage rates than regional agreements. Bouet (2006) supports this by suggesting that the affects also differ between South-South agreements and North-South agreements.
Overall in the literature, the effects of trade liberalization in the MENA region has been debated, yet a clear consensus has not been reached. Most of the empirical studies concentrate on OECD countries in general. Very few studies have analysed the effects of trade liberalization policies on the MENA countries specifically.
2.3 Gender perspective on trade liberalization
As mentioned above, there is a lot of criticism on the classical economists’ perception on trade liberalization. One of those critiques has been feminist economists. These scholars argue that gender is a key factor in the complex relationship among trade, growth and development. Yet there is a widespread assumption among classical economists that trade policies and agreements are gender neutral. Some proponents of neo-liberal economic reforms even suggest that trade liberalization is not only a driving force behind economic growth but can also reduce poverty and even gender inequality. They regard free markets as the best mechanisms for resource allocation, wealth creation, wealth distribution, and the narrowing of gender gaps. This school of thought is based on the assumption that trade produces growth, and subsequently growth will open up opportunities for better education, more jobs, higher income and more credit for women entrepreneurs (Al-Wadi, 2017). On the other side, there are also many that criticize this school of thought. The feminist political economy school does not believe that trade liberalization is gender neutral. In contrast to feminist theory, the standard economic approach focuses mainly
on supply and demand of goods and services within a free market system. In addition to this, the political economy approach studies society as an integrated whole. This approach identifies and analyses social relations as they relate to the economic system of production. Feminist political economics, on the other hand, critiques the traditional neo-liberal economic approach that simply focuses on the market economy by analysing growth and accumulation as its primary goals. These feminists do so by focusing on the provisioning of human needs and well-being. They define gender as an important category in order to analyse the human experience of women, men and families (Riley, 2008).
The feminist political economic framework examines the different outcomes of trade openness for women and men and believes that liberal trade policies have deepened the existing inequality due to a lack of understanding of social complexities, specifically in developing economies. Feminist political economists believe that trade liberalization can only be effective in helping to reduce gender inequality if an appropriate mix and order of trade policies is implemented in conjunction with other social-political policies that deal with underlying women’s rights issues. In this mix, gender equality should have great normative value because it is an important component of development (Riley, 2008: Van Staveren & et. al., 2012).
Within this framework, it can be revealed and clarified how gender can determine or influence the social and political relationships and structures of power and the different effects that are caused by these relationships and structures. In general, feminist political economics focuses mostly on women. However, they do not exclude concerns about the whole of society or the environment. According to them, the feminist perspective should focus on understanding gender divisions by looking both at men and women yet emphasize women’s subordination and the importance of pursuing gender equality (Riley, 2008: Van Staveren & et. al., 2012). Based on this approach, feminist political economists would argue that in order to research what the effects are of trade liberalization on women, you need to take into account the already existing position of women and how gender divisions interact with the overall social, political and economic relationships in society. In short, this means that trade liberalization cannot have positive effects for female labour if the underlying gender issues in society have not been dealt with to a certain extent.
While there is a large literature analysing the distributional impacts of trade reforms such as income, very little research has been done on the gender effects of trade reforms. It is generally believed that trade liberalization leads to economic growth and this then leads to poverty reduction. However, alone it is not enough. Productive employment plays a key role in transferring the benefits of economic growth into poverty reduction. In that regard, women’s employment can play an important role (Gaddis & Pieters, 2012). Women’s rising economic activity is an ongoing phenomenon across many developing countries. Over the past three decades, we have seen an intensified globalization through trade liberalization and the increasing integration of the world production markets. Since the 1980s, we have seen a sharp
decline in international tariff barriers in developing countries, which has been analysed in the literature most of the times relation to distributional impacts of trade reforms. However, alongside the trend of rapid trade liberalization in the developed world, we have also seen rising female labour force participation occurring. Yet, there is very limited empirical evidence on the gender effects of trade reforms in developing countries, particularly on the effects on female labour force participation (Gaddis & Pieters, 2012). Thus, this research aims to build upon the existing literature in order to further analyse this relational mechanism.
In this research labour is an important factor of production. However, it is not homogeneous. Gender differences are an important aspect of the heterogeneity of labour. Also, economic and social factors can influence the demand for and supply of female labour, which brings different outcomes than for males. Hence, it is important to devote specific attention to the gender differences in this respect. This is specifically important in developing countries, where women till this day face many barriers to labour force participation. This is concerning due to their important role in contributing to the household income, adding to the labour supply for economic activities and above all their role in empowering other women (Rahman & Islam, 2013). According to feminist economic theorists, it is extremely important to examine the factors that influence female labour force participation and employment. Also, national policies that are used to pursue the goal of raising female labour force should be analysed. Female labour force participation is believed to increase economic development. However, the relationship is not linear or consistent at the country level. There are considerably multiple factors across developing countries that drive women’s economic participation. These vary from economic, political and social factors such as poverty, education, family and reproduction rights and social and cultural norms (Goldin, 1995: Gaddis & Pieters, 2012: Gaddis & Klasen, 2014).
Chapter 3: Theoretical Framework
In this chapter the selected theories, cases and concepts related to the research topic will be discussed. As mentioned in the previous chapter, there has been a lot of research on the subject of trade liberalization and (economic) growth in the developing world. Despite the abundant literature on this subject, there are no clear answers on the relational mechanism. Also, many critics including feminist political economists, have argued that trade liberalization cannot generate sustainable growth if not accompanied by socio-political policy changes that aim to improve gender inequality issues at large. A liberal and open market alone is not enough. First, this chapter will discuss the process of trade liberalization of both cases in order to provide a contextual background. After this, we will discuss the human development in the MENA region and how gender relates to labour force participation in both Tunisia and Egypt.
3.1 Tunisian economic development
Despite the abundant literature on trade and economic growth in many emerging and developiming countries, there is little empirical work on this subject on Tunisia. Tunisia is a small country in the MENA region with a population of only 10 million people. It has very few natural resources. Despite these limitations, the Tunisian economy has undergone significant structural changes since its independence in 1956. The country diversified its economy through important investments in the agricultural, mining and energy, tourism, and manufacturing sectors. Some of the main changes include industrialization, the growth of the service sector, and the development of tourism (Minot, 2010). In order to achieve steady economic growth, Tunisia has increased its trade. Throughout the 1990s, per capita GDP grew at a healthy rate of 2.9% and reached over €3,250 in 2014. This has given Tunisia the third-highest income in the MENA region, behind Turkey and Lebanon. The World Bank has even classified Tunisia as an upper-middle income country (Minot, 2010: WTO, 2016). In spite of the socio-political crisis that hit Tunisia at the end of 2010 and the disruptions that have followed - including the series of violent attacks that culminated in 2015 - economic growth has remained relatively positive. This is mainly thanks to the relative diversification of the country's economy to its trade performance, climate, proximity to Europe, its well-qualified and educated labour force. These advantages have enabled Tunisia’s increase in real per capita income since the beginning of the 1990s (WTO, 2016). According to the 2005 Trade Policy Review - which is a surveillance mechanism of national trade policies by the World Trade Order (WTO) - of Tunisia, between 1994 and 2004 there was a steadily growth of GDP per capita, as shown in figure 2.
Figure 2: Rate of growth of GDP and per capita GDP, 1995-2004, Tunisia
A Ecus up to 1998 and euros as from 1999 Source: National Institute of Statistics Tunisia
According to Ghali (2004), Tunisia’s economic development up until the beginning of 2000s can be identified into three phases. The first phase being between 1962-1970, he identifies as a socialist period. In these years Tunisia experienced high growth rates through substantial public investments in basic infrastructure, human resource development, and agricultural expansion. These improvements set the foundations for new manufacturing industries. However, growth eventually declined due to capital accumulation based on foreign funds, rising deficits and growing debt. At the time of the macroeconomic crisis of 1969, Tunisia had experienced three successive years of drought, popular protests over expropriations and reports of corruption within agricultural production organizations that were established by the government. This all led to several policy changes.
Figure 3: Tunisian economic reforms during the socialist period (Ghali, 2004)
0 500 1000 1500 2000 2500 3000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 0 3 6 9 Chart I.1
Rate of growth of GDP and per capita GDP, 1995-2004
Per capita GDP
Rate of growth of GDP (right-hand scale)
Eurosa Per cent
a
Source:
Ecus up to 1998 and euros as from 1999.
National Institute of Statistics, on-line information. Available at: http://www.ins.nat.tn/.
Policy changes
Investments in basic infrastructure, human resource development and agriculture, collectivism Problems: dependency, poor capital accumulation of foreign funds, reports of corruption within agricultural production
Outcomes
Import substitutions, cooperative system, dependency public sector, new manufacturing industries, advanced
agriculture and food processing
Rising deficits and growing debt, Protests and mistrust,
Reports of corruption in agricultural production
The policy changes were implemented in the second phase between 1971-1986. Ghali (2004) identifies this as the mixed economy period. During this time, Tunisia was marked by the increasing assistance to the private sector in order to dismantle the previous cooperative system between the state and its established organizations. Due to success, the cooperatives gradually disappeared. Private assistance was specifically given in the manufacturing sector. Ever since, the manufacturing sector has been a distinguishing development Tunisia compared to other MENA countries. In 1961 exports of manufacturers accounted for only 8% of all merchandise exports. This increased to 77% in 2000, which was the highest in the region (Ghali, 2004). Despite increased manufacturing, the Tunisian government experienced a period of slowdown of growth and productivity during 1981-86. This was mainly due to economic mismanagement and political instability. In reaction to this slowdown, the Tunisian government put into place the Economic Recovery and Structural adjustment programme (ERSAP). This programme focused on tariffs and tax reduction, facilitating quantitative restrictions on imports and the devaluation of the Tunisian Dinar (Ayadi & Mattoussi, 2014). Also, the government sought to promote exports by giving exporting firms special advantages, such as tariff exemptions. Despite these changes, the government kept a tight grip on key economic and investment activities. This was done through a system of fixed prices and interest rate controls. This eventually led to a programme of structural adjustment and macroeconomic stabilization in 1986 in order to straighten serious macroeconomic imbalances (Baliamoune-Lutz, 2009).
Figure 3: Tunisian economic reforms during the mixed economy period (Ghali, 2004)
According to Ghali (2004), this period of structural adjustment efforts characterizes the third phase from 1987 till the beginning of the 2000s. The adjustments included standard fiscal and monetary policy reforms and the liberalization of the financial sector. Also, this area can be seen as the beginning of the gradual liberalization of Tunisian trade. The main events that started the trade liberalization was the implementation of the current account convertibility (which makes national currency convertible to any foreign currency for the acquisition of assets), followed by the accession to the General Agreement on Tariffs and Trade (GATT) in 1990 and the free trade
Policy changes
Dismantling cooperative system, emphasis manufacturing, promoting export and public sector
Problems: economic mismanagement, political instability, tight grip government
Outcomes
Removing cooperative system, investments in private sector, rise in manufacturing, special advantages
exporting firms
ERSAP: tariffs & tax reduction, quantitative restrictions on imports, devaluation Tunisian Dinar
Fixed prices and interest rate controls
Mixed Economy Period (1971 – 1986)
association with the EU in 1995 (also known as the Euro-Mediterranean Association Agreements, EMAAs). Through these agreements, Tunisia has established support in the form of funds in order to compete in the international and regional market. It has also served to anchor Tunisia’s commitment to reforms.
Figure 3: Tunisian economic reforms during the period of structural adjustment (Ghali, 2004)
In conclusion to his study, Ghali (2004) suggests that trade, taxes and the financial sector did increase productivity and competitiveness of the Tunisian economy. He even suggests that Tunisia would have gained in productivity much greater, if it had liberalized its trade much earlier.
Despite the first attempts to liberalize the economy, trade remained protectionist throughout the 1980s and first half of the 1990s. Since then, Tunisia gradually began to implement a series of liberalizing measures through several multilateral agreements and an adjusted legislative framework. During this time, the Tunisian government sought to encourage foreign investment, to accelerate privatization and to deepen integration in global and regional trade (Ayadi & Mattoussi, 2014).
On the global level, Tunisia became a member state of the WTO in march 1995. Tunisia receives most favoured nation (MFN) treatment to all its trading partners of the WTO. In international economics, MFN is a status of treatment that a state receives in international trade by one or more states. The recipient state receives trade advantages such as low tariffs and high import quotas. This treatment is given to developing countries in order to enable their integration and them eliminate poverty whilst on their journey towards economic development (González-Díaz & Bennett, 2015). Under the WTO most of Tunisia’s commitments have been related to binding and reducing tariffs in the agricultural and industrial sectors (WTO, 2005). Despite the government’s efforts to fully integrate in the WTO, Tunisia has not signed several important agreements, including the plurilateral agreements - the remaining agreements after the Uruguay Round that led to the establishment of the WTO - and the Information Technology Agreement (WTO, 2005).
Policy changes
Program of structural Adjustment and macroeconomic stabilization, Industrial modernization Trade liberalization
Outcomes
Standard fiscal and monetary policy reforms, liberalization of the financial sector and manufacturing
sector (growth of 5,5% per year), implementation of industrial programs
Current account convertibility, multilateral/bilateral agreements: GATT à WTO, EMAAs, GAFTA, etc.
Remaining protectionism on imports
Since 1996, the Tunisian government has gradually liberalized trade of manufacturing goods. This was done by improving the productivity and as a result started to increase the export share of manufactured products. As a result, the manufacturing sector experienced a growth of more than 5.5% per year throughout the 1990s, which was relatively high compared to other African countries (Newman et al., 2016). During this time, the government has also sought to modernize the industrial sector. This was done through the upgrading programme ‘Programme de mise à niveau’, which was launched in 1996. This was followed by the Industrial Modernization Programme (PMI) that was implemented between 2003 and 2009. These programmes were implemented in order to help Tunisia face international competition that arose from the agreements with the EU under the Euro-Mediterranean partnership (EMP) (Ayadi & Mattousi, 2014: Newman et al., 2016).
Tunisia was the first of these nine countries to sign the Association Agreement with the EU in 1995. Through this, Tunisia was bound to protective customs barriers on all manufactured products by 2008 (Tommaso et al., 2001). Aside from manufacturing, the agricultural sector has also been heavily affected by the EMAAs. Trade relations between Tunisia and the E.U. in agricultural and food products has been different than other products. The EMAA have sought to remove tariffs on all products except agricultural products. These are excluded from the agreement and are subject to specific arrangements. Trade in agriculture actually remains affected by barriers to entry in both EU and Tunisian market. Most of EU barriers in agricultural trade stem from the Common Agricultural Policy. This is quite interesting since 70% of all agricultural trade and food exports of Tunisia is taken up by the EU market. Tunisia is one of the most important exporters in several products, including olive oil, dates and harissa. For these and other agricultural products, the EU is a leading exporter country (Minot, 2010). Even though Tunisia’s main trading partner is the EU, Tunisia has not been able to successfully compete in the European market because of the remaining barriers and EU’s paid support to its farmers, specifically in agricultural and food products that are still highly subsidized in Europe. Aside from trade agreements, the EMAA also provided social and political assistance to Mediterranean countries through the MEDA programme, the main financial instrument of the EMP. Through MEDA Tunisia has not only received financial aid to facilitate structural adjustment programmes and develop the private sector but also to implement educational programmes, reform health insurance system and strengthen the socio-economic balance (Tomasso et al., 2001). Thus, the EMP has reached beyond economic integration by supporting socio-political programmes in Tunisia and other MENA countries.
Among MENA countries the direction of trade varies. The EMP is perceived as the most important north-south agreement for Tunisia, due to the fact that the EU is considered as Tunisia’s main trading partner. However, like most countries in the region Tunisia has also engaged in various south-south regional agreements. The most comprehensive has been GAFTA, which seemed to have the most hope in success after 50 years of several attempts to create intraregional integration in the MENA region (Minot, 2010). As a result of GAFTA, Tunisia
has signed Free Trade Agreements (FTAs) with eighteen members of the Arab league and an agreement with Jordan, Morocco and Egypt under the AGADIR agreement. On paper this has led to a duty-free treatment of imports from GAFTA countries into Tunisia. Even though Tunisia did dismantle tariffs of all industrial goods and most agricultural products, Tunisia remained using non-tariff barriers such as technical norms and rules of origin barriers as restrictions to trade. Thus, Tunisian trading partners continue to pay the higher MFN rates (which were given through the WTO) because obtaining the new preferential treatment from GAFTA would be as costly. Tunisian government argues that without the recourse to non-tariff barriers, there would be unfair competition in the local market. Thus, Tunisia continues to maintain its non-tariff barriers (Diop, 2008).
The level of Tunisian protectionism has remained relatively high. Despite attempts to modify tariffs, non-tariff barriers and custom duties in the 1990s, Tunisian government remains to use these instruments in order to protect domestic production from outside competition. The World Bank ranked Tunisia in 2005 among the top 1% of countries in trade restrictions (World Bank, 2005). The reforms of the 1990s have not fully liberalized trade. In fact, the preferred strategy pursued by the Tunisian government has roughly consisted of promoting exports - especially manufactured goods - while heavily protecting enterprises that supply the local market. This strategy has created a dualism within the economy, between an export sector whose competitiveness depends mostly on concessions (including tax and customs) and a domestic sector that is still heavily protected, despite the opening up of trade through the multilateral and bilateral agreements (WTO, 2005). Still, it is worth mentioning that there has been some level of successful trade liberalization. Though full liberalization has not been reached and effective protection remains high, Tunisia did manage to reduce the average tariff rate - compared to other countries in the same period - from 29% in 2000 to about 25% in 2004 (Minot, 2010).
3.2 Egypt’s economic development
Just as the Tunisian case, Egypt’s economy has had a long history of slow growth and high levels of protectionism. According to Sherbiny and Hatem (2015), the Great Pasha Dynasty (from 1805 till 1952) can be seen as a beginning point of Egypt’s modern economy with the emergence of industrial entrepreneurship that was introduced by the first ruler during this era, namely Mohamed Ali. Mohamed Ali’s leadership had created state-of-the art industrial systems that sought to follow the French model of modernization, which focused on technological developments in the industrial sector. He managed to create a modern state out of an agrarian society and economy (Vatikiotis, 1991). However, some critiques have argued that his strategy was forced development mainly to serve the needs of military and political powers in the region (Issawi, 1961). Eventually his reign ended and this had tremendous consequences for the Egyptian economy. Many entrepreneurs left the country as economic opportunities slowly dried up. In this period, Egypt’s economic development declined significantly. It only started to increase after his grandson, Khedive Ismail, gained power in 1863 (Sherbiny & Hatem, 2015).
Khedive Ismail continued his grandfather’s legacy by pursuing expansionary policies to modernize Egypt based on European models of modern industry, public work and infrastructure. This led to vast agricultural and industrial growth and urban development. Despite these improvements, many have argued that the Khedive’s strategy, just like his grandfather’s, was too rushed and forced. His burning ambition to Europeanize Egypt in a hurry, made him borrow massive amounts of money from other countries. This lead to external debts that were beyond Egypt’s capacity. Another important downfall of the Khedive’s leadership was the large infrastructural projects led by the state. The most notable was the Suez Canal. This canal in long-term did improve the investment environment and helped local producers to engage in foreign trade. However, in the during this time, it did not produce any direct benefits and only added to the existing unbearable debt (Vatikiotis, 1991).
Eventually, Egypt’s promising economy became more vulnerable to foreign middling. Consequently, during a period of 40 years British occupation occurred through the implementation of an enlightened self-interest approach to Egyptian economy. By fixing Egypt’s debt problems, Britain assured strengthening relations with an increasingly healthy Egyptian economy. As the British saw it, the benefits of their intervention in Egypt included multiple improvements such as stabilizing national debt, stronger monetary system, expanding stock exchange, setting standard health and education, further investment in agriculture and improved infrastructure (Tignor, 2017). Despite economic improvements, Egyptians were not happy with the British occupation. They felt like they were no longer masters of their own destiny and soon a nationalist movement started to emerge at the turn of the twentieth century. This movement believed that the most modern and vibrant sector of the economy, namely private business, was completely controlled and dominated by Europeans. Eventually the economic developments started to decline by the time the First World War (1914-1918) broke out. For instance, agricultural expansion, which was the engine of growth and modernization, began to quickly decline and a lack of industrial intervention by the British lead to declining growth in the industrial sector. Thus, nationalist sentiment started to grow even faster (Tignor, 2017: Issawi, 1947).
Not long after, Egypt entered into a new era in 1923, which was also known as the Liberal Age. During this period Egyptian’s experienced heavy handed British ruling and occupation as a counter movement to the growing nationalist agenda that sought implement political and economic reforms at the expense of the British leadership (Sherbiny & Hatem, 2015). Despite some growth in the industrial sector, there were still many problems visible in the Egyptian economy. By 1950, manufacturing was still not able to expand its branches and the quality of the local labour did not match the modernized industry. Overall, by 1952, Egypt seemed to have attained development without real growth and the average living standard did not improve. Income per capita was no better in this year than it was in 1914. Only a small group of wealth expatriate businessman who resided in Egypt were profiting from the industrial growth (Tignor, 2017).
Eventually, the Liberal Age ended in 1952 – which also marked the end of the Pasha’s Dynasty - and Egypt entered into a new era of 60 years of military controlled governments (Sherbiny & Hatem, 2015). Since then, rulers that came from the military have pursued vastly different business and economic policies than previous leadership in Egypt. All these military rulers had gained their legitimacy from the enormous - yet quiet - presence of the armed forces in the background. The military leadership ruled with an iron-fist by treating existing socio-political and economic leadership in very harsh conditions (Abdel-Malik, 1968). Some of the major state business policies that were achieved by the military were the annual military budget, where no one from government was allowed to access, and a vast corporate empire built by the military in order to operate owned factories, farms, prime lands and real estate spread all over Egypt (Tignor, 2017). The first military leaders had very strong antibusiness bias perspectives. Quickly, the Egyptian state formed policies to promote Arab socialism. Under these policies Egypt nationalized foreign enterprises, including the Suez Canal, and confiscated Egyptian businesses in order to merge both in the public sector. In seemed that decades of efforts to privatize and modernize Egyptian economy before military rule were slowly being reversed. In this new system there was only limited space for private enterprise, which only focused on activities that the state could not manage itself. Among these activities retail trade was one of them. Thus, leaving space for Egypt to engage in international trade in quite an unattractive environment for international investors (Sherbiny & Hatem, 2015). Also, the nationalists did emphasize on industrial development and thus engaged in joint public-private cooperation with foreign investor by launching large-scale industrial project (8). Despite not having a clear economic action program, the military controlled regime began to implement unpopular acts such as the establishment of agricultural cooperatives under state control. This aimed to manage farm input distribution and output pricing and collection. As a consequence of rising dissatisfaction, the value of farm output declined quickly (Sherbiny & Hatem, 2015).
The regime implemented many protectionist policies during this time in order to compete on the international market. By trying to protect local industries, the military controlled regime lowered custom duties on imports of raw materials and capital goods and raised duties on imports that competed with domestically produced items (Sherbiny & Hatem, 2015). During the following years, there were multiple waves of government’s intervention through socialist and antibusiness policies. As seen in figure 4, this lead to declining household expenditures and increasing government expenditures. Despite a slight increase in export, this was not enough to cover the increasing budget deficit due to increasing debt from international borrowing.
Figure 4: Average national expenditures during first wave of military controlled regime in Egypt (%)
Economic Variable 1954 - 1961 1967 - 1970
Exports 13.3 14.6
Government 14.4 22.8
Investment 14.2 12.6
Consumption 73.6 67.5
It is clear that Egypt’s economic development has suffered a crushing setback during this time. Foreign exchange constraints were becoming more and more tight due to centralized state institutions that ignored alarming market signals (Sherbiny & Hatem, 2015). After 1970, the economic environment changed with the introduction of a new military regime that encouraged policies in favour of private investments. This new regime sought to restore health to Egypt’s economy by dismantling the crippling legacy of state capitalism and economic socialism of previous military regimes. Despite some improvements, many investors and entrepreneurs were reluctant and the public sector continued to operate heavily on the economy for many following years (Waterbury, 2014). In fact, the reversal of many socialist policies was only fully implemented after this new regime ended 11 years later. Still - as shown in figure 5 - the new regime managed to significantly increase exports of goods and services and decrease government expenditure during with this new approach. Household Consumption on the other hand, remained declining.
Figure 5: Average national expenditures during second wave of military controlled regime in Egypt (%)
Economic Variable 1971 - 1975 1976 - 1981
Exports 16.3 23.2
Government 26.2 19.0
Investment 15.2 25.7
Consumption 66.2 65.2
Source: Hansen & Marzouk (1965)
It seemed that since the downfall of the Egyptian economy in the 1970s, there was a light at the end of the tunnel. By means of multiple economic liberalization policies there was a massive increase in export, especially in the service exports. Also, there was a large increase in the flow of tourism. These improvements led the way to generate more foreign exchange revenues than ever before (Waterbury, 2014). In 1981 a new regime under the leadership of Hosni Mubarak continued this path of liberalization. Mubarak pursued many pro-business policies that managed to privatize public enterprises and liberalize foreign trade. However, like his former military predecessors, he continued to rule with the iron fist at the political front, which led to political opposition that managed to become a security issue (Sherbiny & Hatem, 2015). In his first term, in a race against the clock Mubarak was able to clean the socialist mess that was created by his predecessors in order to allow a healthy start for business rejuvenation. He adopted major programs of infrastructure rehabilitation, renovation and modernization through external aid, mostly from the United States. By the early 1990s Egyptian and global firms were ready and willing to assume greater risks in the Egyptian market. With local incomes rising and the market for imports expanding, the stage was set for new trade activity. GDP growth reached above 5 percent per year during the late 90s, which allowed per capita income to increase by nearly 3 percent on average over a 30 year period under Mubarak’s rule. Such growth correlated with expansion of the domestic market and foreign trade (Hatem, 2011).
Figure 6: Average national expenditures during third wave of military controlled regime in Egypt ( %) Economic Variable 1992 - 1996 2002 - 2006 2007 - 2010 Exports 25.4 25.7 29.4 Government 10.3 12.6 11.2 Investment 20.0 17.4 20.8 Consumption 73.2 72.1 73.6
Source: International Financial Statistics, Yearbook: Several issues. Retrieved from: Sherbiny & Hatem (2015)
As shown in figure 6 (above), Mubarak was able to produce multiple macro-policies that managed to produce significant changes in the structure of national expenditures. Most notably, exports of goods and services increased significantly from 23.2 percent in the late 70s to 29.4 percent in Mubarak’s last term. This is most likely explained by increased foreign investment in export-oriented activities due to dramatic reductions in customs and tariffs. Also, during this time the Egyptian government also engaged in multiple trade liberalization efforts on international and regional level. Since the 1990s, due to rapid liberalization of the trade sectors have been increasingly privatized. With 74 million people, Egypt is the most populated country in the region (Minot, 2010). In 2006, the GDP per capita of Egypt was $1,72. growth seems to be relatively the same since 1980s. The growth based on real per capita GDP, was on average 2,9% in the 1980s, 2,4% in the 1990s and 2,5% in the 2000s. The World Bank has classified Egypt as a middle-income country based on its classification system (World Bank 2008
Despite the increased role of the private sector in the Egyptian economy, in reality there were many issues that continued throughout Mubarak’s time. Most importantly, Egypt’s poverty problem remained an important issue. Over time, income distribution had become more seriously skewed in a way that the rich became richer and the poor poorer. The middle class was squeezed very hard in between both groups (Sherbiny & Hatem, 2015). The main reason for this was flying inflation. Prices of basic goods and services began to rise much faster than incomes, resulting in the erosion of the poor’s purchasing power (Korayem, 1994). Just like in Tunisia, another important issue was the high levels of protectionist measures by the government. The economy remained inward looking due to remaining high tariff rates (Minot, 2010). Eventually, in 2011 Mubarak was removed from office by popular revolt during. This has had tremendous impact on business and economic conditions in Egypt. Most notably, GDP growth fell below population growth, the industrial sector decreased rapidly and youth unemployment ascended significantly.
From the literature it is clear that Tunisia and Egypt have had quite similar economic development. Both dealt with similar issues such as rising nationalism and socialism and high protectionism. Still, we see that in Tunisia the liberalization process during the 1990s has been slightly more successful in generating new growth, especially in the new sectors.
