Straight from Egypt — A Lesson in Managing an Economy

(All references are below the article)

On May 29, 1984, Chinese President Deng Xiaoping met with Brazilian President João Baptista de Oliveira Figueiredo. This meeting spurred another meeting on April 26, 1988, when a team of high-ranking Chinese officials met with another important Brazilian figure in Brasilia. Antônio Delfim Netto (1), often called “the father of the Brazilian economic miracle” met with this delegation to explain how he engineered what has been called Milagre Econômico in Brazil, a time of unprecedented economic growth. The level of development these Chinese officials saw in Rio de Janeiro, Brasília, and São Paolo astonished them.

But before then, on that Tuesday in 1984, Xiaoping delivered a speech in the presence of Figueiredo which read in part, (2),

“…cooperation among Third World countries should be stepped up… Exchanges, learning from each other and cooperation among these countries can help solve many problems, and prospects are promising. China is still poor, with a per capita GNP of only US$300. We aim to increase this to $800 by the end of the century, which is a lofty goal. Eight hundred dollars is nothing to developed countries, but it is an ambitious target for China…”

In 1984, the per capita GNP of Brazil was 1,420. Today, the per capita GDP of China is $21,364 while that of Brazil is $17,208.

This story came to mind a few days ago as I witnessed the negative reactions which attended the travelling of Peter Obi, Labour Party’s presidential candidate’s self-sponsored trip to Egypt on a supposed ‘learning mission’ (3).

Two Countries, One Problem

As China developed, it sought out many paths. Chinese intellectuals toured the world; first world countries, second world countries and third world countries. But as would be acknowledged later by Zhao Ziyang, former Xiaoping’s right-hand man (4), one of China’s development secrets is developing a close relationship with countries that were not too far off from where the Chinese were, for they considered learning from them easier.

Egypt is such a country to Nigeria. Both countries had a terrible 2016. It’s likely some of you don’t remember what happened in 2016 because subsequent years have proven to be even more difficult. So let me refresh your memories.

2016 was the year almost all reasonable supporters of the Buhari administration gave up on getting good governance from him. It took the president 6 months to announce his cabinet (5). The economy shrank by 1.7%. For the first time since 2004, the country’s economic growth turned negative (6). Foreign investment declined markedly, and foreign exchange reserves stood at $26.5 billion at the end of May 2016 down from $39 billion about two years ago. Core inflation was at an 11-year high of 15% (7). The official unemployment rate more than doubled over the previous two years (8); this meant that over half of those aged 35 years and under were unemployed, and one in every four individuals in the country lived in poverty. In the second quarter, non-oil growth contracted by 0.4% with manufacturing shrinking by 3.4%. The dollar was trading for around 390 and Nigerians considered it a disaster (9). For the first time, the First Lady condemned his husband saying he “does not know 45 out of 50 of the people he appointed” (10).

Egypt’s case was probably worse. President Abdel Fatah al-Sisi’s government was also grappling with the country’s worst economic crisis in decades (11). Food was being rationed. People were being arrested for buying more food than was mandated by the government. There was the story of a man who was arrested for possessing an amount of sugar that exceeded what the government thought was reasonable for personal use (12). Some household foods were almost non-existent in shops, while imports of items like powdered infant formula and even some contraception were on the decline. Egyptian authorities were blaming traders and suppliers for hoarding and smuggling goods (13). A video of a driver ranting about the state of Egypt’s economy quickly become the country’s top viral video (14). “A poor citizen can’t even find one kilogramme of rice on the street,” he said, arguing that the country’s rulers would face divine judgment for what they were doing to the poor. Two days after the video, a taxi driver in the coastal city of Alexandria set himself on fire in protest over rising prices (15).

One Problem, Two Paths

Looking at the problems, the two countries were given identical advice by economic experts. They were told that to counter the crisis of low oil prices and improve government revenues, they would have to eliminate the country’s disastrous foreign exchange controls (16)(17). They were also told to cut subsidies and other big-government expenses, increase taxes, and float the exchange rate.

In response, Buhari vowed not to ‘kill’ the Naira (18). The CBN went along, continuing to manipulate the exchange rate and discouraging foreign investors. In return, there was the crippling shortage of dollars became worse, hurting businesses that need to import, and feeding the currency black market. To artificially stop the downward movement of the Naira, Buhari’s government began to arrest those selling dollars in the black market (19). The CBN increased the rate by which it printed money for the federal government through Ways and Means Advances (20). It became a glaringly ineffective way of stimulating the economy that I teamed up to take the Central Bank of Nigeria and its governor, Godwin Emefiele to court (21).

On the contrary, Egypt devalued its currency — the Egyptian pound. Immediately, inflation soared and borrowing costs rose. From 13%, inflation rose to 28% (22). Financial Times reported businesses complaining of borrowing at 24% and needing to increase their prices by 30% (23). It got worse. The Egyptian pounds went from 8 to 18 against the dollar. As soon as the fuel subsidy was removed, inflation got to 33% (24).

The Results Are Out

When COVID hit at the beginning of 2020, it laid bare the strategies (or lack thereof) of the two countries. But even before then, it was becoming obvious which country made the better decision.

GDP Growth Rate (25)
2019 — Egypt recorded 5.6%; Nigeria recorded 2.2%
2020 — Egypt recorded 3.6%; Nigeria recorded -1.8%
2021 — Egypt recorded 3.3%; Nigeria recorded 2.6%
While Nigeria’s growth rate is expected to be stuck at the 3% benchmark, IMF expects Egypt’s to inch close to 6%.

Unemployment Rate (26)
2019 — Egypt recorded 8.3; Nigeria recorded 23.1%
2020 — Egypt recorded 8.6%; Nigeria recorded 27.1%
2021 — Egypt recorded 9.3%; Nigeria recorded 33.3%
As of April 2022, Egypt has an unemployment rate of 7.3%; Nigeria has stopped publishing hers (27).

Exchange Rate
While the Egyptian Pounds got devalued from 8 to 18, it is now at 16. That’s a 10% appreciation. On the other hand, from around N390, the dollar now costs N610 in Nigeria, a 56% depreciation.

In May 2022, the Nigerian Statistics office released a report stating inflation is now at 17.71% (28). In the same period, Egypt recorded a 13.3% inflation (29). IMF predicts that by 2026, inflation in Egypt would be at 7.1% (30, Page 14)

GDP per Capita (31)
2019 — Egypt had $3,019; Nigeria had $2,229.
2020 — Egypt had $3,569; Nigeria had $2,097.
2022 — Egypt has $4,162; Nigeria has $2,356. (32)

A Call for Humility

The standard of living of Nigerians has plummeted. In 2020, Nigeria’s economy faced the worst recession in four decades (33). In 2021, the World Bank compared the revenue-to-GDP of 115 countries and found that Nigeria took first from the bottom among them. It performed worse than even Haiti (34). A few days ago, the World Bank released a frightening report saying that the Nigerian economy has sunk to the lowest level in the nation’s history (35). The result of this is that worse than in 2021, inflation would push seven million more Nigerians into poverty by the end of 2022. At the risk of being called a gloat, this pattern was predicted in a July 2021 piece I wrote called ‘How Nigeria Manufactures Hunger’ (36). As the CBN cracked down on providing Forex to the BDCs, I released another piece called ‘Emefiele’s Forex to BDC Ban; A Circular Dance’ on August 2, 2021 (37). On that day, the dollar was N515.

Therefore, this is not the time to turn our noses at those who seek to learn from other countries. I was speaking to a buddy who is at a top business school and he says the Nigerian economy is being taught as an example of how not to run a country. Well, just as countries are learning what not to do, we can learn from a country like Egypt what to do. For example, Egypt reminds us that removing foreign exchange controls will almost certainly result in a short-term increase in inflation. However, doing so will not only attract foreign investment and boost productivity and competitiveness, but it will also close a loophole for corruption. Egypt also teaches us how to cushion the effects of the temporary inflationary rise.

Egypt is still not perfect. IMF complains that Egypt would have done better if it had not allowed its army to run amok, stifling the private sector in the process. This is especially true in the manufacturing sector where businesses complain of the president’s generals making a mockery of the free market (38). The state-owned firms still enjoy tax breaks and other perks and this has increased debt service to about a third of the country’s revenue (39). But even with these challenges, the Egyptian economy is in a much better shape compared to Nigeria’s after the reforms.

Contrary to what most people said to defend Nigeria’s decision not to implement these painful reforms, the process enabled Egypt to improve the process of doing business by providing funds for small and medium-sized enterprises and removing bottlenecks in the business environment. This helped Egypt double its Foreign Direct Investment (FDI) to about $9 billion from 2014’s $4.6 billion. Nigeria is not generating enough revenue and spent 96% of its revenue on debt servicing in 2021 (40). Learning from Egypt which boosted its power generation capacity from 22000 MW in 2010 to 59000 MW by attracting foreign investment is laudable (41), considering as I covered in my piece titled ‘In Search of Solutions to Nigeria’s Power Challenges’ (42), one of the challenges in the sector is the inability to effect reforms to increase our generation capacity from a paltry 4,000 MW (43).

Interestingly, just like Peter Obi, Deng Xiaoping did not need to be in office before he immersed himself in what needed to be done. Before the time came for him to battle the ‘Gang of Four’ for the leadership of the Chinese Communist Party (44), he had taken trips abroad understudying other economies and taking lessons on what he wanted for the huge Asian nation in hopes of assuming office. Effective leadership include learning from all angles because in Xiaoping’s famous words,

“I don’t care if the cat is black or white, so long as it catches mice.” (43)





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