Richard Melson

January 2006

Egyptian Center


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 distinguished participants.

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