Development philosophy: Why investing in infrastructure is better for Egypt

One of the main features of the current development programme in Egypt, which was launched after the June 2013 Revolution, is a focus on infrastructure and national projects (in industry, agriculture, fishing wealth, housing, roads, mining, energy, services, and trades).

This approach has come under some criticism. Critics have held, firstly, that the government has given infrastructural projects priority over the human dimension of development, especially in the fields of healthcare and education. International experiences have taken the educational sector as their starting point, since education is the essence and prerequisite of the development process, they argue.

Secondly, they maintain that there is no evidence that the huge investments in these national mega projects are yielding a tangible benefit for the ordinary citizen. If there had been, this would have been reflected in per capita income rates, they say.

Thirdly, they point to the fact that such projects depend on government actors while the private sector was marginalised.

On the surface, such arguments appear logical and sound. In reality, however, they reflect an insufficient understanding of the Egyptian case in the context of previous international experiences and the basic challenges facing the Egyptian developmental process.

Naturally, one must not underestimate the importance of the education and health sectors. Nor can it be said that there does not exist a strong and direct relationship between investment in these crucial sectors and comprehensive growth.

To invest in education is to invest in the human resources needed to carry out and manage the development process. To invest in health is to safeguard these human resources. But, even if we assumed, for the sake of argument, that the government had overlooked these two sectors during the past four years- an assumption that is both inaccurate and refuted by a number of facts (the national programme to end Hepatitis C, for example)- we need to register the following observations:

– The argument that infrastructural investment is a long-term investment that takes a relatively long time for it to pay off in ways that the average citizen can feel totally ignores the nature of public spending on health and education. If the infrastructural projects initiated during the past four years are long term investments, investment in education and health is even more long term.

It is also more capital intensive, meaning larger sums of money are needed to produce the required services than infrastructural projects. For example, proper and thorough educational reform in Egypt requires the development of an entire educational system, starting from nursery school age up.

This means waiting 15 to 20 years for the first generation of graduates to emerge from that system and become assimilated in the development process.

– The critics also overlook the important fact that most developmental experiences, apart from a few exceptions, had to contend with the “dilemma of funding development” due to the scarcity of available financial resources. Those experiences had to resort to one of two means or to a blend of these means in various proportions.

One is to borrow; the other is to attract foreign direct investment. Egypt is no exception. This dilemma, in turn, helps explain the priority given to national projects and infrastructure in the Egyptian national development strategy during the past four years. The availability of efficient infrastructure and a list of proposed projects is a major prerequisite for attracting foreign direct investment.

Returning to the questions of education and health, education and health indexes are not prime determinants of foreign investors’ decisions regarding where and how they channel their investments. More important to them are political stability and security, infrastructure and prospective investment opportunities, and favourable legislative and financial climates.

The Egyptian government has relied on borrowing (in addition to some domestic savings, which are still relatively low) in order to finance the development process in the first phase. It has focused on infrastructural and national projects as a condition for attracting foreign direct investment and augmenting its share of contribution to financing the second phase. This naturally required reform of the legislative and financial environment (the new investment law and currency deregulation) as anothr key factor to attracting foreign direct investment.

– There is no such thing as a developmental experience without a governing philosophy or vision to orient the process and set its priorities, from the economic sectors and geographic regions that require greater focus to identifying the social sectors to be targeted. Once the philosophy is formulated and the priorities are set, economic and fiscal policies can be drawn up and applied.

Clarifying that philosophy is one of the most formidable challenges that had to be addressed in order to set into motion the second and third development waves in East and Southeast Asia and in some Latin American countries. A number of theories and concepts have evolved in the process of the attempt to answer two questions: how can developing nations launch and steer their development experiences and how did those experiences succeed? The most prominent theory to have emerged is called the “Developmental State” which most of the Asian and Latin American experiences followed.

Though the theory has been applied in various ways, all applications share a number of important traits, the most salient of which is the central role of the state in the development process. In other words, the central role that the Egyptian state is playing in the current development process is not an expression of some desire to marginalise or exclude the private sector from the process.

Rather it reflects an awareness of the need to rely on the cumulative ideas and expertise of countries that have preceded us in this domain, as well as the need to free the development process from some of the flaws that have plagued the private sector in recent decades.

Source: Ahram online