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GÜVEN SAK > Egypt is no Sudan

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Egypt and Sudan are neighbors. The Arab Spring has toppled Egypt’s political status quo of three decades. President Omar al-Bashir of Sudan, representing that country’s status quo, has said there would be no similar movement against him. Yet the unrest is already there. The challenge here is to reform your economy without rocking the boat too much. If you fiddle with an extensive subsidy system, as al-Bashir has done, you get caught up in demonstrations. Egypt has an extensive system of subsidies, too. Can President Mohamed Morsi get rid of them? He has to. It is time for price reforms in Egypt. But Egypt is no Sudan. Let me tell you why.

The art of economic policymaking is expectations management. That is, the expectations of the public regarding the possible outcome of any reform process. It’s about building credibility. If there is no new political story, the public is bound to get frustrated. Without hope, there is no obedience. People know when you are desperate to buy time. That is exactly how al-Bashir looks in Sudan nowadays.

Look at the storyline in Sudan: At first, one year ago, South Sudan seceded from the north with 75 percent of the oil reserves. Then, the loss of reserves led to a fiscal crisis. Third came a series of price hikes. In February 2012, cereal prices were about 75 percent higher compared to the same period last year. Cereal is the food of the people. If your poor spend 80 percent of their income on food, as is the case in Sudan, you get sheer unrest with no credible political storyline. That bodes ill for al-Bashir. 
Like Sudan, Egypt’s economic situation looks gloomy. Growth is slowing, mired in an unsustainable system of controlled prices and subsidies. The economy needs a jumpstart. Unlike Sudan there is hope on the ground in Egypt, which is rather good for expectations management. 

Given all these challenges, what kind of president should Mohamed Morsi be? Before Egypt gets to have a Prime Minister Recep Tayyip Erdoğan, it needs a President Turgut Özal. Turkey’s economic transformation started about three decades ago. The late President Özal was a technocratic member of the 1980 military coup government. He was later elected with the blessing of the military and initiated price liberalization reforms during his first term. There was staunch opposition to dismantling the system of government control and subsidies in Turkey, but it worked perfectly. Turkey’s export capacity increased from 3 billion dollars to 30 billion in 2000, from 90 percent agricultural goods to 90 percent industrial products. 

I remember Turkey’s entry into the European Customs Union in 1996. Turkey is the only country to enter into the customs union without becoming a full EU member. In 1996, many expected an erosion of our industrial capacity, but the agreement has enhanced it. Automobile exports to the EU overtook textile exports. Turkey’s export capacity increased from $30 billion to $130 billion.

A presidential election is a good opportunity to start focusing on the economy. Unlike Sudan, there is hope in Egypt following the election of President Morsi. And hope is a good starting point for any economic transformation program. If successful, this will yield political transformation down the line. That means that there is opportunity in Egypt today, but Sudan is less fortunate.

July/14/2012

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