Conferences and Workshops

Making the Case for Formalization in Egypt

Date : 5/11/2014

Speakers : Speaker: Hernando de Soto, President, ILD, Peru; Discussant: Heba Handoussa, Founder, ENID, Egypt; Moderator: Sherif El-Diwany, Executive Director, ECES, Egypt.

The magnitude of informal economic activities in Egypt in 2013 was equivalent to approximately 40% of GDP generated by 2.7 million enterprises, employing an estimated 5 million workers or 66% of all private non-agriculture employment. The real estate property held by 92% of Egyptians is unregistered and is valued at an estimated LE 1 trillion in 2014, 70% of which is held by the lower income people. Integration of this vast extra-legal sector could generate additional economic growth estimated at 2% annually and would correct many of the institutional and structural problems in the economy. The economy would modernize, grow faster, workers will gain social security benefits, new tax revenues would be generated and poverty would be reduced. Of all the reform efforts being considered today by the government, few if none would achieve such economic progress and social justice at the same time.

However many argue that left alone, the informal economy has repeatedly acted as an economic safety net to the poor during economic downturn in Egypt and other countries. Those opposed to formalization argue that:

i) there are a limited number of successful formalization programs because most governments view formalization as a measure of raising additional revenue for the state and have no institutional capacity for their implementation;

ii) providing the poor with marketable property rights exposes them to market risks, which they are poorly equipped to manage;

iii) formalization may lead to an increase in property prices which puts them beyond the reach of the poor and which may also ‘compel’ poor property owners to sell their properties.