Job Creation in Egypt: A Sectoral and Geographical Analysis Focusing on Private Establishments 1996-2017

This policy paper examines the evolution and structure of job creation in private establishments in Egypt from 1996 to 2017 using data from the recently released 2017 Establishment Census and its predecessors in 1996 and 2006. We examine the pattern of job creation by industry, firm size category, and location. By linking data from the Establishment Censuses, the Labor Force Survey and the 2013 Economic Census, we are also able to characterize the jobs created during this period according to their educational, age and gender distributions of the workers hired, and according to the formality and productivity of the industries in which they are created. Finally, we analyze the pattern of non-operating establishments to determine the extent to which non-operating establishments constitute new establishments being readied for production in expanding industries or whether they are the result of establishment closures in struggling industries. Our findings suggest that Egypt has experienced steady deindustrialization as the share of manufacturing in employment fell from 32% to 21% over the 1996-2017 period. Moreover, approximately two fifths of employment is in the retail sector, which is the largest industry sector in terms of employment. Some of the fastest growing industries in terms of employment growth from 2006 to 2017 include finance and insurance, real estate, transportation and storage, and construction. The information and communications industry also exhibited rapid rates of growth, but its growth rate slowed down somewhat compared to the 1996-06 period. Nonetheless, nearly two-thirds of net employment growth is contributed by industries that require relatively low skill levels and provide mostly informal jobs. The exception are financial services, which grew fast and tends to have relatively educated workers and more formal jobs. Egypt had been known to suffer from the phenomenon of the “missing middle,” whereby employment is concentrated in micro establishments at one end of the establishment size distribution and in large establishments at the other, with a relatively small share of jobs in small and medium establishments. A major finding of this report is that the middle of the establishment size distribution is reemerging. Employment in the small and medium establishment segment of private establishments grew more rapidly in the 2006-2017 period than either the microenterprise segment or the large establishments segment. This reemergence of the “missing middle” has substantial implications for the evolution of productivity and formality in the economy and for job creation for the growing ranks of educated workers. As for the geographic distribution of employment, the Cairo region continues to occupy a dominant position, but one that is declining over time. The fastest job growth in 2006-2017 was in Upper Egypt, a region whose employment growth had lagged in the past. Employment growth in the Suez Canal region has lagged in recent years, primarily due to a particularly sharp reversal of manufacturing and in tourism related jobs. Together with the neighboring governorate of Damietta, the governorates of Port-Said and Suez have seen especially sharp reversals of their manufacturing industries. Finally, the distribution of non-operating establishments by industry suggests that education, and accommodation and food services represent two potentially struggling industries. They had the highest and fastest growing share of non-operating establishments, combined with a sluggish annual job creation rate between 2006 and 2017. Our policy recommendations center around three axes:

1. Continuing to support the growth of small and medium establishments,
2. Reversing or slowing the relative decline of manufacturing,
3. Identifying and promoting promising sectors for job creation.

While the procedures to start SMEs has been substantially streamlined and access to finance has greatly improved, there is still a great deal to be done to reduce the costs of being formal and to make them more predictable and rule-based and less subject to the discretion of officials at all levels of government. This includes reducing the tax burden and increasing the ease and predictability of tax payments, streamlining health and safety regulations and licensing requirements and relying on greater digitalization of transactions with the bureaucracy. With regard to reversing or slowing the decline in manufacturing, it is necessary to assist manufacturing firms of all sizes to integrate into local and global value chains through an improvement in the climate for foreign investment and a greater intermediation role on the part of the relevant government agencies and industry councils. Finally, some of the promising sectors for employment growth in Egypt include tradable services, such as business process outsourcing and information technology services. They also include horticulture and agro-processing for export. The care economy, which includes health, education and social care also offers good opportunities for growth in the private sector, especially if supported by public investments in early childhood care and education and in universal health insurance. Finally, the recovery of the tourism industry is essential to job growth in a number of related industries and needs to be supported to the extent possible.