Looking south will benefit Egypt's economy

The nation's first duty is to find sources of investment, so Egypt has to look to the Arabian Gulf states for support.

For the past few weeks Egypt has been convulsed by politics. Its future trajectory, however, will be decided by economics.

The problems of the Arab world's largest country go further than merely finding a representative government. To see why, note only one statistic: 82 per cent of Egyptians under 30 are unemployed. Given that two-thirds of all Egyptians are under 30, the sheer scale of what Egypt's (as yet undecided) government faces becomes apparent.

Egypt's economy, like its politics, defies easy answers. The neoliberal reforms that Hosni Mubarak enacted in his last decade in power, enriched a small elite and, to a much smaller extent, the urbanised middle classes, but was devastating to the rural poor. Further neoliberal "medicine" - such as the reduction in subsidies mooted by the IMF in return for billions of dollars in loans - would only entrench this poverty.

And yet there is no doubt that massive reform is needed: to wean Egypt's economy off unaffordable subsidies, to tackle the endemic corruption that strangles any enterprise, and to fix the lack of clear rules and laws that scare off foreign investors.

The first duty is to find sources of investment. Egypt has to look to the Arabian Gulf states for support. They may have to offer that assistance. Simply, Egypt is too big to fail.

If Egypt's leaders do look here, what might they learn? Economically, the two regions are poles apart, but there are some broad principles. The first is that long-term investment matters. Egypt has some big advantages: the Suez Canal, a large workforce, competitive wages and its geographical location. Too often, Egypt's leaders have been fixated on Europe, the world's largest economic bloc, but there is a vast continent to Egypt's south that could benefit from all sorts of goods that are currently imported from China. The UAE has utilised free zones to good effect; Egypt could do the same.

Or take cotton, historically one of Egypt's best exports. Yet the decision, under Mr Mubarak, to stop subsidising cotton farmers has devastated that industry, leading to a flood of cheap imports, and to the ridiculous situation of the Egyptian government buying cotton from abroad rather than from its own farmers. Were the government to take a proactive approach to developing certain industries, it would find new sources of revenue, vastly increasing its tax base, and finding new places of employment for its many angry young citizens.