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

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Se

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Above I

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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

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gizaqualiobia

north sinai

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-10

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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.