Industrial Policy and the Role of the State in Egypt: The Relevance of the East Asian Experience

This paper assesses Egypt's industrial strategy as embodied in its current economic reform and structural adjustment program (ERSAP) and appraises the role it implies for the state in light of the East Asian experience of industrialization. The argument for the lack of coherence in the industrial policies pursued over the past two decades in Egypt is presented on the basis of estimates of a Dutch Disease index for the manufacturing sector over the period 1959/60-1990/91, evidence on exchange rate, interest rate and real wage behaviour and some initial (theoretical and empirical) assessments of the effects of the current ERSAP. The results cast doubt on the sufficiency of the present mixture of policies in reversing the de-industrialization trend inherited from the oil-boom era and in promoting long-term growth in the manufacturing sector. Based on a comparison with the East Asian, in particular South Korean, experience of successful industrialization, the paper argues for the central importance of a developmental state that takes on the responsiblity of designing and implementing a coherent industrial strategy. This includes provision of 'entrepreneurial' vision and coordination for large-scale changes, institution building (in both the government and private sector) and a prudent management of both integration in the world economy and internal conflict in the domestic economy. Under each of these areas, important lessons and proposals for industrial policy design and an alternative reform program for Egypt are presented.