If You Wanted to Open a Bakery in Egypt, It Would Take 500 Days

Egypt’s economy is at the heart of the protests and calls for Mubarak’s exit. A few stories I’ve read have provided some background to the situation, which, despite some pundits’ claims, is not the fault of the US government or Wall Street, but mostly a result of an entrenched system that’s people and business un-friendly.

Hernando de Soto, the president of the Institute for Liberty and Democracy in Peru wrote in the Wall St Journal about what he calls ‘Egypt’s Economic Apartheid,’ and described some of the problems, such as their giant black market and unclear legal situation for property owners. The country’s underground economy is the largest employer, with more than 9 million people versus 6.8 million working legally.

A staggering 92% of Egyptians hold their real estate without proper title, which means that they can’t use their house or business as collateral for loans. So this keeps most Egyptian businesses small and relatively poor. It’s almost impossible to legalize ones property there, so nearly everyone just ignores the law and goes underground.

One example he cites is trying to open a bakery: it would take 500 days and require permits from 56 government agencies! What this also means is that ordinary Egyptians ‘have been smoldering for decades…because despite hard work and savings there is little they can do to improve their lives. If the legal system were reformed, as much as $400 billion in assets would be unlocked and it would empower the poor far more than all of the foreign aid that pours into the country.

Another huge reason for the riots and anger is simple—the price of government subsidized bread has risen from one cent to 12 cents. Because there are so many people, there is a huge market for black market bread sold at a higher cost. Kids stand in line for hours pretending to be bread customers when in fact they’re buying the bread so they can set up their own stall on the street and sell the bread for a tiny profit. When the government tried to get rid of the subsidy in 1977, there were huge riots, yet everyone sees the bread situation as a parallel to the whole society–corrupt and going all wrong.