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Egypt Scores Dead Last on Schools -- And Egyptians Couldn't Care Less

"At least we're number one at something, even if it's from the bottom," quipped one of my friends in Cairo. We had just finished reading the recently issued World Economic Forum Global Competitiveness Report 2013-2014, which rates Egypt as the worst country in the world in the quality of primary education. The report is based on the WEF's Global Competitiveness Indicator, an aggregate of 114 indicators grouped under 12 categories of "drivers of productivity and prosperity," including institutions, financial markets, technological readiness, and health and education, among others.

Egypt is listed 118th overall, a full 11 places lower than last year. Egypt is at the bottom among almost all other countries in the Middle East and North Africa (MENA) region -- far behind Qatar and the UAE, which are among the top 20 most competitive nations. It's even behind the rest of North Africa, including Morocco (77th), Tunisia (83rd), and Algeria (100th). Only Yemen ranks lower (145th).

Naturally there is more to the Egypt section of the report than the dismal statistics on elementary education, but that was the ranking that drew the most attention from the media and the public. Extremes, whether best or worst, have a particular appeal. And while every Egyptian knows that elementary education is rather abysmal, it was a shock to see just how low it scored compared to the rest of the developed, developing, and underdeveloped world. (The photo above shows children peering through a public school gate in Khosoos.)

Though this particular data point quickly became a matter of public conversation, most people have a standard reaction: they agree, lament the times, and shrug their shoulders.

There was no public statement or reaction from the Egyptian state -- even though we well know that the government monitors such rankings closely in the event there might be something to brag about. But there's clearly no chance of that here, so they seem to have opted for silence instead.

Behind closed doors, however, some government officials could be heard casting aspersions on the report's methodology. And they're not necessarily wrong: the Competitiveness Report's methodology is far from perfect, relying on a mix of objective data gathered from international and local statistical sources as well as well on surveys the report's authors conduct within each country. The survey respondents are not experts in all of the fields they're asked about: topics can range from business facilities and primary education, to the risk of terrorism. So respondents are sharing their more-or-less-educated impressions. And while the sample is large enough to drown out any particularly biased opinion, it does not take into account the generalized demoralization of a country in crisis or an economic downturn, which would drive responses even farther below a more objective perception.

This is not to say that Egypt's elementary school system isn't terrible. But is it really the very worst on the planet? Actual data might paint a different picture. In the Trends in International Mathematics and Science Study (TIMSS) report, an international achievement test that allows comparison between countries and over time, Egypt ranked 38th out of 48 countries in the 2007 edition of the test, the last time Egyptian students participated.

Aside from the elementary education indicator, there are many other alarming areas where Egypt lands at the bottom of the rankings. Egypt also ranks in the bottom 10 percent of the planet in labor market efficiency, for example. This is a serious cause for concern. Egypt's poor rankings in areas like talent retention (or "brain drain"), where Egypt ranks 133rd, and redundancy and employment termination expenses, where it scores 136th, suggest that labor regulation will top any serious reformer's agenda.

Indeed, the report offers a few recommendations for change. Besides labor market reform (increased flexibility and efficiency), which is one obvious way of boosting employment, the report's authors point out how the country's relatively high fiscal deficit and public debt are weighing down on the macroeconomic environment. Yet Egypt continues to cling to its expansionary policies, accelerating borrowing even as it spends more and more. It's obvious that this can't go on indefinitely.

Underlying all of this is a climate of intense political instability and poor security, which undermines economic development and drastically affects Egypt's rankings. Here, understandably, the WEF has little advice to offer: continuing violence leaves dozens of victims every week, and the absence of any real local and international pressure means that it is unlikely to subside any time soon.

The curfew imposed by the military government since early July -- which, incidentally, destroyed the summer tourist season -- has not been making things easy for Egyptians. The national house arrest lasts six hours every night, and a full 11 hours on Fridays, the national day off. Meanwhile the Muslim Brotherhood has launched its "traffic paralysis" plan to block main roads and intersections. All of this angers people and disturbs their lives -- not to mention their livelihoods. While nearly half the population has stated that the curfew affects their income, its effects go even deeper. "The effect of a curfew is mostly in the signaling value it gives," the World Bank chief economist for the MENA region, Shantayanan Devarajan, told me. "The fact that there is a need to put a curfew sends a negative message" to the rest of the world and international partners.

Just as the forced, self-deprecating laughs began to subside, the U.N. Sustainable Development Solutions Network (UNSDSN) published its World Happiness Report, which informed us -- surprise -- that Egyptians aren't enjoying life much these days. Egypt ranked 130th, well below Somaliland (100th), Iraq (105th), Burma (121th), and even the war-torn Democratic Republic of the Congo (117th). Of the 156 countries surveyed, Egypt also had the greatest fall in happiness levels year-to-year. The report points out that this loss is greater than a mere loss in income: "freedom to make key life choices" is an equally important factor.

This is a freedom that Egyptians are not likely to gain any time soon. Improvements in happiness, just as in competitiveness, will have to wait.

Mohamed El Dahshan is the Egypt blogger for Transitions. Read the rest of his posts here.

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Transitions

Why the Markets Are Betting Against Venezuela

If we are to believe the bond markets, Venezuela is the riskiest country in the world. It is riskier than Greece, riskier than Argentina, and only slightly less risky than the bankrupt U.S. commonwealth of Puerto Rico.

In spite of Hugo Chávez's death and the uncertain political situation left in its wake, this is surprising. Venezuela is a major oil exporter, and bond yields should, in part, reflect a country's ability to pay its international obligations. In a period of high oil prices, why are markets so down on Venezuela?

The answer lies in the country's unsustainable fiscal situation, and its government's unwillingness to face reality.

Venezuela had a fiscal deficit of around 11 percent of GDP in 2012. The International Monetary Fund (IMF) projects it will reach 12.6 percent of GDP this year. Both figures are among the highest in the world. Not surprisingly, the country's rate of inflation has shot up to almost 50 percent per year. The Central Bank has practically run out of liquid foreign exchange reserves. Meanwhile, oil prices have embarked on a slow, but apparently steady, trend downward.

Why has it come to this? Two insane policies are (mostly) to blame: foreign exchange controls and the enormous gasoline subsidy.

More than ten years have passed since Hugo Chávez established foreign exchange controls in Venezuela. What began as a policy to control capital flight has evolved into a massive scam, transferring the government's enormous wealth to politically-connected sectors that benefit from subsidized dollars.

The government sells dollars at a rate of BsF 6.30, while the black market rate is upwards of BsF 47, seven times the government rate. Not surprisingly, demand for government dollars has shot up, and people who manage to get them simply save them or exchange them in the black market. Cheap dollars are supposed to finance the import of basic staples. In practice, they are fattening the bank accounts of the local elite, colloquially known as the "bolibourgeoisie."

The other reason for Venezuela's unsustainable fiscal situation is the policy of giving away gasoline for free. In Venezuela, filling up a 40-liter tank of gas costs less than 8 cents in U.S. dollars when one converts using black market rates. The retail price of gas has been fixed for 17 years, and the government has no intention of changing it. After Venezuela's refineries began malfunctioning, Venezuela actually increased its imports of gasoline. The bottom line is that the government is giving away something that it needs to buy at market prices. This has caused a tremendous dent in public finances. Meanwhile, the government denies there is even a problem.

Deep down, however, the government understands it is in a bind. It is simply unwilling to remedy the situation. Just last week, President Nicolás Maduro announced that the government would increase the sale of dollars, partly by issuing new debt. At the interest rates the market is charging, this constitutes an expensive transfer of wealth from future generations of Venezuelans to the well-connected elites of today.

It has also resorted to hunting down no-shows for flights out of Venezuela, looking for those wanting to take advantage of currency controls. And instead of promoting the few pragmatists in his administration, he has sidelined them, instead giving more power to the military and the radical Marxists. The government has also blasted private companies ("parasites" in chavista lingo) for demanding cheap dollars while not exporting enough. President Maduro has publicly lamented that the private sector is still a large portion of the country's GDP, a sign that his dream of "socialism" has not yet been fulfilled.

One of the things that most trouble investors is Venezuela's seeming inability to increase oil production. During the 1990s, previous Venezuelan governments attracted foreign investment thanks to a generous royalty and tax regime. Chávez, upon seizing power, denounced this and proceeded to nationalize the oil industry, later raising taxes on the few multinationals that remained in the country. This has resulted in steadily declining production levels.

The outlook for Venezuela's economy is bleak, and bondholders are worried. Just this week, the IMF warned of growing imbalances in its economy. Everyone outside the government seems to understand that an adjustment is inevitable, and that postponing it will only make it more painful.

Regardless, the government is intent on staying the course. If it continues on this path to "implosion," as the Washington Post has labeled it, alarm bells will continue to ring in the international banking community.

Juan Nagel is the Venezuela blogger for Transitions, co-editor of Caracas Chronicles, and author of Blogging the Revolution. Read the rest of his posts here.

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