From left to right: Samiha Fawzy (Ministry of Foreign Trade and
Industry, Egypt), Ahmed Galal (ECES), Mustapha Nabli (World Bank), and Marcus Noland
(Institute for International Economics) discuss industrial policy during the closing
session of the conference.
Rethinking the Role of the State:
An Assessment of Industrial Policy in MENA
November 13, 2005
The Egyptian Center for Economic Studies (ECES) hosted a conference entitled "Rethinking
the Role of the State: An Assessment of Industrial Policy in Egypt" on Nov. 13, 2005 at the Grand Hyatt
Hotel in Cairo. The conference was attended by over 160
The opening session of the conference discussed government intervention in Egypt and
Turkey. Ahmed Galal (ECES) presented the findings of a paper co-authored with Nihal
El-Megharbel (IMC) on whether governments pick winners and losers in Egypt. He discussed
the evolution of industrial policy (IP) in Egypt, its impact on performance and assessed
its impact in Egypt. He concluded by stating that in order to gain comparative advantage
in new areas of specialization, Egypt needs to rethink its IP particularly by targeting
new activities, rewarding entrepreneurs against measurable outcomes, providing support for
a pre-determined period, and supporting activities rather than specific sectors. Hasan
Ersel (Sabanci University, Turkey) addressed the topic of IP in Turkey by presenting the
findings of his paper entitled "Incentive or Compensation: Government Support for
Private Investment in Turkey," co-authored with Alpay Filiztekin. He concluded that
econometric findings and survey results do not support the argument that incentives are
effective in influencing investment decisions, however, incentives continue to exist.
Ersel noted that "information" and "coordination" externalities are
more important to the business community and the experience in Turkey indicates that the
banking system can play a significant role in assuring the incorporation of such
information in investment decisions through information dissemination and monitoring
functions of banks.
Session 2 of the conference addressed government intervention in Morocco and East Asia.
Speaking about the Moroccan experience, Najib Harabi (University of Applied Sciences,
Northwestern Switzerland) presented the findings of his empirical analysis of industrial
policy in the country. Among other findings, his analysis found that state regulations and
policies appear to have mixed effects. Effective government policies aiming at improving
the quantity and quality of public goods, such a infrastructure, public transportation,
security, education and health, seem to affect firm growth positively. However, all other
government policies included in the econometric analysis seem to have a negative impact on
firm growth. Especially, tax policy towards firms and interest rate policy seem to be
detrimental to employment growth of Moroccan firms. Marcus Noland (Institute for
International Economics) discussed his paper entitled "Industrial Policy in an Era of
Globalization: Lessons from Asia." Based on his research, Noland outlined some
possible lessons for Egypt and other Middle Eastern countries. He noted that while the
odds of a country developing successfully through selective interventions are not
particularly favorable, a modest positive impact could possibly be achieved.
Session 3 tackled deregulation mechanisms and the political economy of intervention.
Mustapha Nabli (World Bank) discussed the findings of his paper on the political economy
of industrial policy. He argued that MENA does not need more industrial policy but better,
more sensible industrial policy, and stressed that the challenge for MENA is to recognize
that the kinds of industrial policy needed in the current international setting are much
different than the traditional reforms of inward-looking paternalistic-state
industrialization strategies of the past. Mona El Garf (Ministry of Foreign Trade and
Industry, Egypt and Cairo University) examined deregulation mechanisms in her paper
entitled "The Role of the State and Deregulation." She discussed alternative
institutional mechanisms for reducing state intervention in economic affairs and
strengthening its regulatory and oversight role. In addition, she attempted to identify
mechanisms that both suits the current phase of economic reform in Egypt and achieves the
desired impact on economic growth and development.
The closing session of the conference featured Samiha Fawzy (Ministry of Foreign Trade and
Industry, Egypt), Ahmed Galal, Mustapha Nabli and Marcus Noland. Samiha Fawzy began the
session by giving insight on government intervention and industrial policy from practical
standpoint drawing on her experience working in the Ministry. Mustapha Nabli then outlined
four steps for improving industrial policy in Egypt including eliminating negative
incentives, reviewing sectoral incentives and eliminating or fixing the most costly first,
determining activities where coordination failures are significant and prevent their
expansion, and finally moving toward horizontal industrial policy rather than vertical or
sector specific policy. Marcus Noland focused on three themes to help promote industrial
policy in Egypt based on international experience, namely, education to promote fields of
study such as IT and engineering, openness to encourage education and prevent brain drain,
and immigration to support cultural ties, create opportunities and pursue activist
policies to help prevent brain drain while recruiting back again those that already left.
Finally, Ahmed Galal brought the conference to a close, noting that the consensus is that
negative incentives must be eliminated and an active industrial policy must be pursued
rather than merely correcting flaws in the current policy.
Egyptian Center For Economic Studies
January 10, 2006