Egypt reforms civil service to attract investment

 

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With bloated government weighing the country down, Egypt attempts to reform the civil service in order to attract much needed foreign investment.

The rampant fall of Egypt’s foreign reserves, which now stand at approximately 16.4 billion dollars, was largely due to years of political turmoil that have led to a sluggish economy and a shrinking tourism sector, and thus the country’s inability to attract dollars.

In fact, just last week the Central Bank was forced to let the Egyptian pound drop to a record low of 8.03 EGP against the dollar in the face of a surging black market and a rising demand for US backed currency.

While many reasons behind Egypt’s inability to attract investments remain conjectural, others are structural. Law 18 of 2015 on Civil Service, which was recently met with strong resistance, was introduced with the aim of reforming Egypt’s complex business environment and making the public sector more efficient; two crucial elements for gaining investors’ vote of confidence in Egypt’s economy and attracting foreign direct investment.

Structural challenges

As Egypt embarks on a journey to reinvent its economy with an ambitious goal of becoming among the world’s 30 most developed countries within 15 years, a thriving private sector will be crucial for the country’s development.

It is no secret that attracting investment requires sound and transparent business regulation and an efficient public sector.

However, the way Egypt’s public sector is structured today is deterring domestic and foreign investors away. In fact, Egypt is currently ranked 131 out of 189 in ease of doing business, based on a number of World Bank indicators where Egypt ranks relatively low such as starting a business, registering property, paying taxes and resolving insolvency.

Key challenges lay in Egypt’s old and in many cases contradictory legislative framework and its complex administrative process.

Egypt’s large government body employs 6.4 million employees in more than 2,500 departments and executive bodies and 33 ministries. This highly complex organizational structure often results in conflicting and overlapping mandates between ministries, leaving the government inefficient and ranked 167 in the world for government effectiveness.

This complicated regulatory process often traps what could be sources of important revenue to the government. In fact, a recent survey revealed that 50% of informal employers found that formalizing businesses were too burdensome in Egypt.

Reforming the government through a new Civil Service Law

Some have argued that in order to create a more efficient public sector, the government should be run like a business. While such statements often elicit controversy, they cannot simply be disregarded. In fact, the statement is true in some key areas such as the management of employees and the monitoring and evaluation of performance.

In order to tackle the country’s structural challenges, the Government of Egypt introduced a new Civil Service Law aimed at reforming the public sector and sending a strong signal to investors and businesses.

The public sector has, until now, been regulated by legislation that is more than 37 years old. This law has for years made the government a safe haven for employees who seek jobs in order to secure lifetime employment, seniority-based promotion and guaranteed pensions.

The new law attempts to regulate this inflation of the public sector through merit-based employment and promotion, as well as extensive training for existing employees in order to enhance their productivity. In fact some anecdotal reports indicate that the average length of productive work performed by a public servant in Egypt is as low as 27 minutes per day.

Moreover, while employees were guaranteed lifetime employment under the old law, the new one extends the period of probation to 6 months with the right to terminate an unqualified candidate after conducting a thorough evaluation in which employees are self-assessed and then assessed by their colleagues and supervisors

These measures, if implemented correctly, would create a transparent business environment and boost investor confidence.

Challenges ahead

Although the new Civil Service Law was promulgated in March, there remain key issues to be resolved before it can be fully effective.

Received with resistance by many government employees, there is still a debate over who will be subject to its provisions and who will not.

Moreover, many details were left to be determined by implementing regulations such as rules for employee training, standards for promotion, incentive systems and tools for the new performance evaluation. While it is normal for detailed provisions to be determined upon implementing regulations, leaving too much open can pave the way for greater deviation and ambiguity.

Furthermore, in order to create genuine structural change, the law still has a long way in gaining public support. Last month, hundreds protested against the law, and particularly the new wage-structure, while many labor unions are currently lobbying against it.

With elections currently underway in Egypt, the fate of the new Civil Service Law will only be determined with the start of the new parliament in early 2016 who will review the law recently introduced by presidential decree.

 

source : gloabl risk insights