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Reshaping Egypt’s Economic Geography:
Domestic Integration as a Development
Platform
The World Bank
Cairo
July 2012
Welfare and agglomeration are associated:
location is the most important correlate of
individual welfare.
QAT KWT
OMN
ARE
LBN JOR LBY
SYR
YEM
SAU
ALG 67.2
EGY
TUR
JPN
BRA
IDN
IND
CHN
0
10
20
30
40
50
60
70
80
90
100
5.00 6.00 7.00 8.00 9.00 10.00 11.00
Agglo
mera
tion I
ndex
Log GDP per capita (current PPP$)
Economic density and poverty density do not
overlap in Egypt.
Main messages:
Inclusive development requires policy focused
less on balancing industrial location and more on
facilitating factor mobility and spreading out
opportunities.
Policies to promote higher income in lagging
regions take time to operate- START NOW!!
Policies work better when they reinforce market
signals.
Today’s Roadmap
What has Egypt done to tackle regional
imbalances ?
Where are the gaps? Consumption and
opportunities across Egypt.
How big are they and what explains them?
What are the policy options to bridge the gaps?
In the last 40 years, Egypt has tackled regional unbalanced
development mostly through industrial location policy.
But despite some progress in living standards,
poverty remains focused in the same areas.
Metropolis/rest of
the country
Lower-Upper
Urban-rural
Welfare disparities are associated with the duality of space.
Since disparities are spanned in three
dimensions, three types of instruments are
needed.
• Spatially blind institutions
• Spatially connective infrastructure
• Spatially targeted interventions
Examples of proposals discussed in the
report:
• Spatially blind institutions-universal coverage
– Regulation of land market.
– Taxation of land and real estate.
– Rent decontrol and out-of-court mediation for owners
and tenants.
– Equalization transfer to local governments.
– Functional cooperatives-land dispute resolution.
– Improving coverage and quality of education.
Examples of proposals discussed in the
report:
• Spatially connective infrastructure
– Goods and factor mobility
• Spatially targeted intervention
– Conditional cash transfer –Upper rural Egypt
– Cairo Ring Road
There are consumption and opportunity gaps
between leading and lagging regions. This
report…
• Shows how big are the gaps.
• Explains the gaps.
• Proposes policy options to bridge the gaps
without sacrificing growth.
Consumption increases with welfare, and the gap
across regions increases for the better-off.
The consumption gap between leading and
lagging regions is stable over time, except for the
top deciles.
What explains the consumption gaps?
Endowments of capital (human
or physical)?
Or returns to endowments?
Increasing coverage of basic services has led to
convergence in some endowments HDI-Education
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Cairo Metropolitan Lower Egypt Upper Egypt
1999
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Cairo Metropolitan Lower Egypt Upper Egypt
2008
Returns to endowments matter more now.
Size and explanation of the welfare gap between GCA and other regions
2000 2009
-20% 0% 20% 40% 60% 80%
Upper All
Upper Urban
Upper Rural
Alexandria
Lower All
Lower Rural
Lower Urban
Characteristics Returns
-20% 0% 20% 40% 60% 80%
Upper All
Upper Urban
Upper Rural
Alexandria
Lower All
Lower Rural
Lower Urban
Characteristics Returns
Opportunities are more available in metropolitan areas. There
was uneven progress in equality of opportunities.
0
10
20
30
40
50
60
70
80
90
100
2000 2009 2000 2009
Metropolitan Upper Egypt
Aggregate HOI
Education
Basic housingservices
The five factors more closely associated
with opportunity gaps in Egypt also explain
gaps in other countries.
• Household income per capita
• Regional location (Upper/Lower/Metropolitan)
• Number of children in the household
• Urban-rural location
• Parent’s education level
Policy options to support domestic integration and
bridge gaps:
• Promoting labor mobility.
• Enabling capital mobility.
• Mitigating the diseconomies of agglomeration.
• Providing equalization transfer to local
governments -enables them to provide basic
services.
• Making a conditional cash transfer to Rural
Upper Egypt households-supports demand for
basic services.
Policy options and types of instruments
• Labor mobility ( spatially blind, spatially connective )
• Capital mobility (spatially blind )
• Diseconomies of agglomeration (spatially blind,
spatially connective, spatially targeted).
• Equalization transfer (spatially blind)
• Conditional cash transfer (spatially targeted)
Egypt has low internal labor migration by
international standards.
The mechanistic link between migration and unemployment does not operate in
Egypt: migrants are more likely to have a job than non-migrants.
2.6
6.5
9.5
9.2
0 1 2 3 4 5 6 7 8 9 10
Migrants to Work
Migrants
Non-migrants
Overall
Unemployment Rate 2010
Migrants earn higher wages on average, but
those with less education do worse.
-12.3
0 0
10.8 13.8
27
43.3
-20
-10
0
10
20
30
40
50
Re
ad &
Write
Le
ss th
an inte
rmed
iate
Gen
era
l S
eco
nda
ry
Te
ch.
Se
co
nda
ry
Above I
nte
rmedia
te
Un
ivers
ity
Above U
niv
ers
ity
Migrants Wage Premium (%)
damietta
sohag
assiut
sharkia
menoufia qena
menia
dakahlia
garbeyya
aswan
beheira
fayoum
cairo
luxor
bani suef
south sinai
kafr el sheikh
new valleymatrouh
helwan
alexandria
gizaqualiobia
north sinai
ismailia
6-Oct
red sea suezport said
-10
-50
51
0
-400 -200 0 200 400dmwage
denetmig2 Fitted values
To facilitate labor mobility:
• Improve education coverage and quality: reduces
distance to markets.
• Increase productivity of agriculture: reducing the
distance of small farmers to markets:
- ensure land tenure security for contract farming;
- land titles can facilitate mortgage credit, has to be
complemented by collateralizing mobile assets;
- reform of cooperative law to make cooperatives
supportive of innovation and generators of value
added by linking farmers to markets.
To facilitate labor mobility:
• Increase supply of affordable housing in Cairo,
Alexandria (vacancy reflects resource
misallocation, rent decontrol, out-of-court
mediation, taxing real estate).
• Reduce congestion. International evidence
shows that lowering commuting costs by 10
percent increases labor productivity by 1-2
percent, and reducing travel times by 10 percent
increases job creation by 2.5-5 percent
To enhance capital mobility:
• Let land markets operate with adequate
planning and information systems (supply-
driven sectoral approach leads to policy
fragmentation and dysfunctional land market)
1. Freeze temporarily public land sales.
2. Make inventory of available public land with
external audit.
3. Establish a land management committee that
centralizes strategic policy decisions.
4. Gradually decentralize all land sales to the
governorate level.
To enhance capital mobility:
• Ensure seamless operation of industrial zones
(lack of transportation and connectivity to Cairo;
lack of services and infrastructure; licensing delay
in spite of GAFI one-stop shops).
• Simplify property registration and taxation
(start with industrial zones and new towns)
Dealing with diseconomies of agglomeration
Congestion in Cairo costs 1.2% of GDP yearly.
• Adjust gasoline price and tax mileage.
• Implement dedicated bus lanes and
extend metro (subsidized rates).
• Enforce traffic management.
• Enforce proper vehicle inspection.
• Monitor public spending: one dollar of road
spending reduces commuting costs by 11 cents.
A needs-based equalization transfer (ET) would
allow local governments provide basic services
• Proposed ET is a function of population and
poverty. In many countries, it is constitutionally
mandated.
• Based on Brazil’s distribution to municipalities, an
illustrative distribution across governorates can be
obtained.
• The ET has to be fiscally sustainable and must be
complemented by reforms in accountability in the
use of public funds and monitoring of public
spending at the local level.
Equalization transfer- the current distribution
cannot be used as blueprint.
cairo
alexandria
port saidsuez
damietta
dakahlia
sharkia
qualiobia
kafr el sheikh
garbeyya
menoufiabeheira
ismailia
giza
bani sueffayoum
menia assiutsohagqena
aswan
luxor
red seanew valleymatrouhnorth sinaisouth sinai
05
10
15
Sha
re o
f Cur
rent
Tra
nsfe
rs (
%)
0 5 10 15 20Proposed Shares of Equalization transfers (%)
To bridge opportunity gaps, countries have used
spatially targeted conditional cash transfers, with
positive impact on education and nutrition
outcomes.
• Bolsa Familia (Brazil)
• Female Secondary School Assistance Program
(Bangladesh)
• Familas en Accion (Colombia)
• Oportunidades (Mexico)
• Punjab Female School Stipend Program
(Pakistan)
Summing up
More inclusive development, with fewer
disparities across regions, requires a policy
focused less on balancing industrial location
and more on facilitating factor mobility and
spreading out opportunities in access to basic
public services.