Report No. 27954-EGT Arab Republic of Egypt A Poverty Reduction Strategy for Egypt September 25, 2004 Ministry of Planning Government of the Arab Republic of Egypt Social and Economic Development Group Middle East and North Africa Region The World Bank Document of the World Bank Abbreviations andAcronyms ABNSME Alexandria BusinessmenAssociation Small and Micro Enterprise Project BFC Business Facility Center CAPMAS Central Agency for Public Mobilization and Statistics CEOSS Coptic Evangelical Organization o f Social Services EDP Enterprise Development Program EEP Education Enhancement Program G M I General Authority for Investment GALAE General Authority for Literacy and Education GDP Gross Domestic Product HDR HumanDevelopment Report HIECS Household Income, Expendituresand Consumption Survey INP Institute o fNationalPlanning LE Egyptian Pound MENA MiddleEast andNorthAfrica MISR Municipal Initiatives for Strategic Recovery MOSAI Ministryof SocialAffairs andInsurance MSE Micro and Small Enterprise NCEEE National Center for Examinations andEducationalEvaluation NGO Non-governmental organization PBDAC Principal Bank for Development and Agricultural Credit PPP PurchasingPower Parity PWP Public Works Program SED0 Small Enterprise Development Organization SFD Social Fundfor Development UNDP UnitedNations Development Programme USAID United States Agency for Intemational Development TABLE CONTENTS OF Page Preface Executive Summary Chapter 1:IncreasingCurrent Income Through Growth 1 Poverty and GrowthPatterns 1 Poverty and Employment Characteristics 2 TheSpecial Caseof Rural UpperEgypt 9 Enhancing Income GeneratingOpportunities 12 Chapter 2: Increasing FutureEarnings Through Education 22 Poverty and Education: General Considerations 22 Poverty and Education: Determinants of Access 24 Improving Education toReducePoverty 33 Chapter 3: Protectingthe Vulnerable Through Social Safety Nets 39 Safety Nets in Egypt 39 Distribution of Benefitsfrom Public Safety Net Programs 41 Improving Coverageand Targeting of Public Safety Nets 44 StrengtheningSocialSafety Nets 47 References 50 Tables Table 1.1:EvolutionofHealthandEducation Indicators, 1980-2002 1 Table 1.2: Regional GrowthandPoverty Patterns, 1994/95-1999/2000 (percent) 2 Table 1.3.a: Sources ofIncome inRuralEgyptby Quintile, 1995/96 (percent) 8 Table 1.3.b: Sources of Income inRuralEgyptby Quintile, 1999/2000 (percent) 8 Table 1.4: Area andNet RevenueSharesby Crop Type 10 Table 1.5: Distribution ofFarmersby LandHoldings 11 Table 1.6: Price and Quantity Indexes for Inputsand Output 11 Table 2.1:Poverty andProportion o f ChildrenEnrolled inSchool, All Egypt, 1999/2000 23 Table 2.2: IntergenerationalTransmission o f Illiteracy, 1999/2000 24 Table 2.3: Distributionof PrimarySchool Classrooms by Governorate 27 Table 2.4: Benefit Incidenceof Spending on Education, by Quintile andLevel ofEducation(1999/2000) 28 Table 2.5: Private Rates o fReturnto Education 29 Table 2.6: Structure o f SpendingonEducation per ChildbyPoverty Status ofHousehold, 1999/2000 (percent) 31 Table 2.7: Students' Foregone Incomes (inLEper year) 31 Table 2.8: Private Rateso fReturnbyEmployment Status 33 Table 3.1: Relative Importance o fCashTransfers from PublicandPrivateSources 39 Table 3.2: Distributionof Social AssistancePayments 40 Table 3.3: Distributiono fBeneficiaries of SocialAssistance Programs, 1999/2000 41 Table 3.4: Distributiono fBeneficiaries ofFoodSubsidies(percent) 42 Table 3.5: Poverty Impacto fDifferentTransfer Sources (percent ofpoor lifted out o fpoverty), 1999/2000 42 Table 3.6: Coverageo fPoor Families byMOSAIProgramsby Governorate 45 Table 3.7: Poverty-Reducing Effect o fUniformDistributionofBenefits, 1999/2000 46 Table 3.8: Poverty-Reducing Effect o f Targeting byFamilySize and Literacy 47 Figures Figure1.1:ChanceofBeingPoorbyEmployment Status, 1999/2000 3 Figure 1.2: Chance o fBeingPoor by Sector o fEmployment, 1999/2000 5 Figure 1.3: Chance o f BeingPoor by Sector ofEconomic Activity, 1999/2000 6 Figure 1.4: Poverty Characteristics inRuralUpperEgypt and inAll Egypt 9 Figure1.5: Time andCosts ofRegistration ProceduresinEgypt 17 Figure2.1:ChanceofBeingPoorbyLevel ofEducation 22 Figure2.2: Educational Attainments ofthe Poor, All Egypt, 1999/2000 23 Figure2.3: EnrolmentRatios byQuintile, 2000 25 Figure2.4: GenderGapsbyRegion 28 Figure2.5: GenderGapsbyQuintile 28 Figure2.6: ChildHealth StatusbyWealth Quintiles, 1995-96 30 Figure2.7: Non-Teaching Staffas aProportion ofTotal Staff 38 Boxes Box 1.1:The Alexandria BusinessmenAssociation SmalVMicro EnterpriseProject 16 Box 1.2: Dakahlia Governorate BusinessFacility Center (BFC) 18 Box 1.3: CEOSS Agro-Environmental Pilot Project 20 Box 2.1:Structure o fthe EgyptianEducation System 24 Box 2.2: The Education EnhancementProgram inEgypt 26 Box 3.1:Can Social FundsReducePoverty? 44 iii Preface This report is the second output from an ongoingprocess of collaboration between the Governmentofthe Arab Republic o f Egypt andthe World Bank. The first output was a report entitled Poverty Reduction in Egypt: Diagnosis and Strategy that was issued in June 2002. Whereas the first report provided a diagnosis of the extent and determinants of poverty inEgyptbased on data from the two most recent household surveys available (for 1995-96 and 1999-2000), the present report outlines a strategy for reducing poverty. It does so by buildingon the earlier analytical work as well as by drawing from various UNDP-sponsored Human Development Reports for Egypt produced by the Institute of National Planning in recent years and from background studies prepared by Egyptian scholars.' It is expected that the work will now move to a third stage inwhich a more detailed poverty reduction action plan featuring ideas for specific interventions will be developed through a collaborative effort between the Government and international development agencies. The report hasbeenpreparedjointly by a team ofEgyptianscholars ledby Hanaa Kheir-El-Dinandby a group ofWorldBank staff ledbyFarrukhIqbal. Onthe Egyptian side, the team consisted of Sonia Ali, Mona El Baradei, Heba El-Laithy, Tarek Moursi, andHebaNassar. On the WorldBank side, the team consisted o f Sherine Al-Shawarby and Arup Banerji. Valuable assistance towards data analysis and other tasks was provided by May Barghouth, Rasha El-Fatairy, M a y El-Mossallamy, Nagwa Riad, and Amira Fouad Zaky. At an early stage inthe planningofthis report, valuable comments were received fromMichael Liptononthe scope andcontent o fthe proposedbackground papers. Inthe course of preparation, the main issues of interest were discussed at workshops held in Cairo on October 19, 2003 and July 26, 2004. These sessions were chaired by H. E. Osman Mohammed Osman, Minister of Planningand attended by representatives from government, international development agencies, academia and non-governmental organizations. Many useful suggestions were offered and these have helpedimprove the analysis and sharpen the focus of the report. The report was also discussed internally at the World Bank on February 25,2004. Useful comments and suggestions were made by Asad Alam, Stefan0 Patemostro, Marie-Helene Collion, Sameh El-Saharty, Alaa Hamed andSarosh Sattar. 'Thebackgroundstudies are noted in the References section. iv A Poverty Reduction Strategy for Egypt Executive Summary The Approachofthis Report A critical objective of Egypt's long-run development plan (through 2022) is the "alleviation of poverty and attenuation of income disparities." Contributing to the refinement of a strategy to meet this objective is the main goal ofthe present report. Since poverty i s a complex and multi-faceted phenomenon any attempt at developing a poverty reduction strategy must necessarily contend with a variety o f perspectives and points of view. To be useful and practical, however, the strategy must be focused and must identify priorities. The approach outlined in this report uses three distinct lenses to arrive at an appropriately focused set ofpriorities. These lenses are: 0 Quantitative evidence: strategic priorities are derived as much as possible from empirical evidence on the nature anddimensions ofpoverty inEgypt; 0 Link with ongoing programs: the strategy builds on the existing programs and policies o f the Government of Egypt, suggesting modifications where warranted bythe lessons ofexperience from ongoing efforts; and 0 Direct impact: the strategy tries to identify measures that have a direct impact on the poor as opposed to those that are aimed at raising the living standards o f the general population or fixing the problems more generally of a given sector (such as education or health). Given limited resources, all strategies involve choices. The poverty reduction strategy outlined here is no exception. It evaluates public policy actions with a clear view to choosing those actions that are likely to have the most durable benefits for the poor. This means choosing sustainable income generating mechanisms like private employment over unsustainable ones like public employment. It means designing subsidy systems that are targeted and focus scarce public resources on the poor while minimizing leakage to the non-poor. The alternative, a universal subsidy system, often leads to a diversion of resources to the non-poor and runs the risk of compromising fiscal balance as well. It also means taking a systemic approach to poverty reduction rather than a case-specific one, emphasizing the generation of opportunities and capacities to earn rather than the provision of income transfers and subsidies (except incertain cases). This yields a strategy that may take time to reduce poverty but, once attained, the outcome is more likely to endure. The approach taken here is to use empirical findings (primarily from the 1999/2000household income and expenditure survey) and experience with a number of government initiatives to construct a broad strategy and to provide examples of the policies and programs that could form the substance of the strategy in various areas. Fleshing out the specific policies and programs in detail is expected to be accomplished at a later stage through a multi-agency process coordinated by the Ministry o f Planning andwiththe help and support ofinternational donor agencies. V Key Pillars of a Poverty Strategy for Egypt Empirical analysis o f poverty trends and characteristics inEgypt suggests that the following three sets o f factors are critical for the poor: income-earning opportunities, education and social safety nets. The poor engage in a wide variety o f income earning activities across all sectors. Such opportunities are better in growing economies and hence ensuring steady growthi s one o f the best ways to raise the current incomes o f the poor. Poverty in Egypt also has a strong intergenerational dimension. The poor o f one generation typically come from the ranks o f the poor o f the previous generation. Obtainingliteracy andeducation, especially for one's children, is a way o f enhancing the potential for future earnings and o f breaking the cycle o f intergenerational transmission of poverty. Finally, some individuals are unable to obtain adequate incomes despite being fully active (either self-employed or working for wages) while others among the poor cannot participate meaningfully in mainstream economic activities on account o f handicaps such as physical disability, illness, or remote location. For this segment o f the population, some public andprivate transfers, incash or inkind, are a critical safety net.2 Thus, the poverty reduction strategy articulated in this report is built around the three pillars o f growth, education and social safety nets. A chapter is devoted to each o f these pillars, describing their empirical connection with poverty and assessing ongoing Government programs in relevant areas. Three common contextual features are also noted wherever appropriate in the report. First, poverty in Egypt has a strong regional dimension in that Upper Egypt is distinctly poorer than other parts o f the country. Second, poverty reduction i s more than simply a matter o f securing adequate financial resources for anti-poverty programs. The manner in which a poverty problem is addressed is often more important to the outcome than the funds that are allocated to its solution. In particular, processes that involve the intended beneficiary population in design and implementation are more likely to be successful than those that are imposed from above without consultation or feedback. Finally, without good monitoring and evaluation systems, it is difficult to find out what works and what doesn't and thus to formulate meaningful policies and programs to combat poverty. Indeed, the issue in Egypt is not so much the lack o f policies and programs to help the poor as the lack o f information about whether or not existing efforts are indeed helping the poor in a cost- effective manner. This lack can only be remedied through a determined effort to bring about an "evaluation culture" within government programs. A brief but separate section has been provided in the Executive Summary to reflect the importance o f poverty monitoring andprogram evaluation as tools ina long-term anti-poverty strategy. 2The fact that we have chosen to focus on these three pillars should not be construed to meanthat no other areais important to the alleviation o fpoverty. Indeed, for some poor communities, factors such as environmentaldegradation or the regular occurrence o fnatural disasters may be critical determinants o f poverty. The issues we have chosen are, however, more generally applicable across the country. Furthermore, we have some quantitative basis for assessingtheir relevance to poverty from the nationally representative data collected by the Government. vi Increasing Current Earnings Through Growth Both international and Egyptian experience suggest that sustained economic growth i s necessary for reducing poverty. Poverty rates declined substantially in Egypt between 1995196 and 1999/2000 (from 19.4 percent to 16.7 percent) as the economy enjoyed a period o f high economic growth averaging 5 percent per annum. Since then, economic growth has slowed and there are signs that progress inpoverty reduction may have decelerated as well. International and Egyptian experience also suggest that the amount o f poverty reduction associated with a given amount o f growth can vary significantly from country to country and from region to region within a country, depending on the nature o f policies, institutions and endowments, including existing patterns o f wealth and income distribution. Accordingly, it i s necessary to consider specific country contexts when attempting to formulate pro-poor growth strategies. A deeper examination o f growth and poverty patterns in Egypt suggests that, within the overall national economic growth framework, special emphasis ought to be given to such intermediate objectives as the expansion o f micro and small enterprises, agricultural and rural development, and growth in Upper Egypt. Key findings from the 1999/2000 householdbudget survey show: 0 The principal source o f income for the poor is their labor. This typically accounts for 85 percent o f their income while non-labor assets such as property, financial instruments andtransfers, contribute only around 15 percent. 0 Unemployment is not an exceptional cause of poverty. The chances ofbeing poor are only marginally higher for the unemployed than for those in other work categories. Nevertheless, the absolute level o f unemployment remains high (at 9.9 percent on average in 2003/04 and very likely higher among the poor) and so reducingunemployment is an important objective o f overall economic policy. 0 The self-employed in metropolitan areas have very low rates o f poverty: this suggests that micro and small enterprise activity offers a way out o f poverty, at least insome areas. 0 Unpaid workers have the highest rates o f poverty. This justifies a focus on the agricultural sector where most unpaid workers are found. Indeed, unpaid workers inruralUpper Egypthave a poverty incidence rate ofas highas 35 percent, more than twice the national average in 1999/2000. 0 Among sectors, the rate o f poverty is highest in agriculture (at 22 percent), and lower in manufacturing (11 percent) and services (8 percent). Also, within the agricultural sector, many families derive significant portions o f their income from non-farm activities. Among regions, rural Upper Egyptis by far the poorest part o f the country with a poverty incidence rate o f 34.2 percent and contributing more than half o f the total number of poor (5.8 million out o f 10.7million). vii Chance of being poor by employment Upper Rural Egyptwas the poorest status, 1999l2000 region in 199912000 30% All Egypt 25% Upper Rural 20% UpperUrban 15% Lower Rural 10% Lower Urban 5% Metropolitan 0% Unpaid Self Empl. Unemployed Self Empl. Wage 0 5 10 15 20 25 30 35 40 Workers NotHiring Hiring Workers PovertyHeadcountIndex (percent) The above suggests that an appropriate anti-poverty strategy must not only include all the macroeconomic and structural policies that promote sustained economic growth but also focus on the special structural features o f poverty in Egypt. Thus the strategy should include prudent monetary and fiscal policies aimed at low inflation, trade and exchangeratepolicies aimed at enhancingcompetitiveness andexpanding integration withworldmarkets, andderegulatory policies that enlarge the scopefor private sectorled growth. In addition, it should attempt to facilitate the operation of micro and small enterprises, ensure that the agricultural sector develops satisfactorily, and pay special attention to the needs o f Upper Egypt. Each o f these is an objective o f one or more ongoing Government programs. The challenge for the hture i s to make these programs more effective intheir ultimategoal ofpoverty reduction. Areas o fhighpriority include: Increasing poverty-oriented investments in Upper Egypt. Increasing the share o f public investments going to Upper Egypt i s already a key target o f development strategy and the planningprocess. For example, between 1998 and 2002, Upper Egypt's share intotal public investment rose fiom 26 percent to 32 percent. The impact o f this orientation can be enhancedby ensuring that such investments are labor-intensive so as to generatelocalemployment, and the investment planning and implementation processis sufficientlydecentralized so as to generateprojects o f highest priority for the poorer residents o f this region. Such an approach underpins the newly launched Municipal Initiatives for Strategic Recovery (MISR)programamong whose distinctive characteristics are the targetingofpoor municipalities, the proposed use o fvillage and markaz level local governments to plan and implement projects o f highest local priority, and the flexibility that is envisagedwith respectto involvingNGOs, community organizations andprivate sector contractors. While not exclusively targeted to Upper Egypt, the MISR program provides a promising approach to local area development that would be appropriate for abroad class of social infrastructure investments inUpper Egypt. Ensuring the availability of critical inputsfor micro amd small businesses. This involves (a) facilitating the supply of finance at market terms to such enterprises through micro-credit and other schemes; (b) disseminating information about market opportunities to such enterprises through local chambers o f commerce; ... VZll and (c) catalyzing business connections between small and large firms that might include the supply of credit and inputs from the large firms to the smaller ones under outsourcing or subcontracting arrangements. Several support programs already exist for these purposes, such as the Small Enterprise Development Organization (SEDO) and the Business Development Service Center program. A new program has also been launched recently under which each eligible village or neighborhood ( h i ) is to receive one million LE to support microenterprise projects. An importantnext step would be to evaluate the impact of existing micro and small business support programs on employment and poverty and identify ways and means to enhance this impact. A special focus on non-farm enterprise opportunities inUpper Egyptwould also be appropriate. 0 Reducing regulatory obstacles to starting, operating and dissolving small businesses. This includes allowing easy registration of start-ups below a certain size threshold, minimizing inspection and other bureaucratic hurdles to operation, introducing simplified and reduced tax requirements, and streamlining impediments to exit imposed by the tax, labor and social insurance agencies. Some promising initiatives, such as the Dakahlia Business Facility Center, have already been undertaken with respect to ensuring easy registration. The replication of such initiatives across the country and the incorporation of measures to facilitate all stages o f operations as well as exit would be important next steps. 0 Supporting agricultural development. This involves (a) the provision of targeted agricultural extension services to encourage more o f a shift towards higher- yielding (non-traditional) crops in Upper Egypt; (b) the relaxing of capital constraints faced by smaller, poorer farmers throughpublic sector credit advances or guarantees for private sector lending to such groups and (c) improvingstorage, transportation and market access. Public extension and credit services have been available in rural Egypt for several decades. What is required now is to ensure that they can be made more effective inresponding to the needs o f the ruralpoor, especially in Upper Egypt. This may require a revamping of procedures, more decentralization of staff, and more flexibility in working with non-governmental groups to reach the poor. Increasing Future Earnings Through Education Egypt has a strong record in ... providing education to its citizens. This Chanceof being poor declineswith education 25, is shown by steadily rising educational attainments in the country: between 1980 and 2002, primary enrolment rates rose from 73 percent to 96 percent while secondary enrolment rates rose from 50 percent to 85 percent, a performance that is amongthe best inthe Middle East region as well as among lower middle income countries. Nevertheless, many Illiterate Literate Basic SecondaryDiploma UniversityPost-univ Levelof Education challenges remain, especially if one focuses on the link between education and poverty. Education is the most prominent correlate of poverty in Egypt and offers the most promising path out of it. The chance ofbeingpoor drops from 24 percent for the illiterate to 2 percent for those with university education. Of course, the ability to acquire education is determined in part by income levels. Children from poor households enroll at lower rates at all levels of schooling, and especially at the university level. But other factors also matter. Among these, the most important are the location o f schools and the cost and quality of education. The nature of the link between poverty and education can be appreciated by reference to the following findings from the 1999/2000 household budget survey and other sources: 0 The poor suffer from high illiteracy: 46 percent o f the poor are illiterate and the situation is worse for poor females. This is a matter of concern also because illiteracy tends to be propagated across generations: households with illiterate heads tend to have higher proportions of illiterate children. 0 Rates o f return are low for basic and secondary education, suggesting quality problems at these levels. Also, rates of return are lowest among wage earners, which shows that the output ofthe educational system is not well-rewarded by the labor market.3 0 The indirect costs of education can be burdensome for poor families. For example, the income foregone from attending secondary school amounted Students' Fore one Incomes (LE per year) Level of educa& 199912000 to 2615 LE in 1999/2000. This was ~~~i~ vsilliteracy 2,111 more than half the level o f the poverty Basic vs read andwrite 1,978 line (4549 LE) for a family of two Secondary 2,615 adults and three children in rural 2,383 Upper Egypt. Source: Calculated from CAPMASand HIECS, various years. 0 Kindergarten education, unlike other levels o f education, is not free of tuition charges. This means that children from poor families are likely to get a later start than those from non-poor families. Indeed, the lowest kindergarten enrolment rates are found in the poorest governorates, a fact that may reflect boththe costs of kindergarten tuition and the lack ofkindergarten classes inthese governorates. The results of the 1999/2000 survey confirm what has been known for some time within government and development circles. Indeed, these considerations led the Government of Egypt to launch an Education Enhancement Program (EEP) in the mid- 1990s whose objectives were to (a) increase the number of schools in poorer areas through a targeted school-building program; (b) increase parental demand, especially for girls' education, through an awareness-raising campaign and a stipend program for The data available inthe HIECS do not distinguishbetween the two broadtracks o f secondary education, namely, general and technical. Hence, the returns calculated inthis report are an average for these two tracks. It i s widely believed that the returns to general education are muchhigher than those for the technical, vocational stream. X qualifying families; (c) improve the quality o f education through various initiatives aimed at the teaching and school evaluationprocess; and (d) improve the efficiency o f education spending through changes in the organization and management o f schools and the civil service administration incharge o f education. Evenprior to the EEP, the government had launched an illiteracy eradication campaign as early as 1991 under the aegis o f the General Authority for Literacy and Adult Education (GALAE). Both these initiatives have met with some success in their main objectives. Illiteracy has been reduced from around 53 percent in 1990 to around 45 percent currently while youth illiteracy has been cut from 39 percent to around 27 percent. Similarly, enrolments have risen in the areas in which targeted school building and awareness raising campaigns have been implemented under the EEP. The results have been especially notable for girls for whom gross enrolment rates have increased faster thanthe average: for example, while overallprimaryenrolment rates increasedfrom 97.5 percent in 1995/96 to 105.8 percent in2002/03, those for girls jumped from 93.4 percent to 103.2 percent. Some o f the most dramatic increases have occurred in the poorest areas: for example, between 1996/97 and 2002/03, girls enrolment rose by 21 and 19 percentage points respectively inBeni Suef andFayoum, two o f the poorest governorates inEgypt. The above findings and the experience to date with various government programs in the area o f education and literacy suggest that the challenge now is to build on past progress ina way that is especially beneficial for the poor. Inthis regard, four areas are especially promising. Combatingilliteracy The Government o f Egypt and many NGOs are engaged in an illiteracy eradication campaign that has achieved a measure o f success. Continuing with this campaign carries a substantial payoff since the illiteracy problem is concentrated among the poor and the private rate o f return to becoming literate is high (between 12 and 15 percent). The effectiveness o f the ongoing programs, especially those run by GALAE, could be enhanced through such measures as: Using civil society groups more strategically. GALAE has partnerships with some 700 NGOs that help it identify the illiterate and recruit them into illiteracy- eradication programs. These and other NGOpartners can be used strategically to connect with hard-to-reach groups, such as illiterate rural females who suffer from a disproportionately highincidence o filliteracy. Adding a parental education focus to literacy programs. Inaddition to making participants literate, literacy programs should impart information on good parentingskills and sound family health andnutrition practices. Better health and nutrition from an early age is likely to have a beneficial impact on the learning ability o fchildren. xi Enhancing access and reducing costs of educationfor thepoor While education is free in public schools, the direct and indirect costs that are involved pose a burden for very poor households. The EEP has been successhl in improving access andreducing costs for poor families inthe areas that havebeentargeted to date. Expanding the EEP program geographically can extend the benefits of this approachto a larger area. Among pertinent measuresare: Making more classrooms available in poor areas. The EEP has demonstrated that it i s possible to improve access for the ruralpoor to basic education through a targeted program of school building and community involvement. While much progress has been achieved in recent years, there remain several underserved areas. The EEP approach should be replicated across the country to reach such areas. Inaddition, it would be useful to incorporate more kindergartenclasses in poor areas so as to enable early childhood education to becomepossible for poor families as well. Further increasing girls' enrolment. The EEP has also demonstrated that it is possible to increasethe enrolment rates o f suchhard-to-reach groups as girls from poor, rural families. The principal elements o f this approach have involved choosing school locations that minimize the need for young girls to walk long distances; staffing schools with female teachers; improving sanitary facilities within schools, and providing information to parents of the beneficial effects o f female education to the individual, the household andthe nation. Replicating this approachnationwide shouldbe ahighpriority. Offering conditional stipends to the poor. Stipends could be made available to poor families to offset the costs of school supplies, transport and group tutoring charges, conditional on continued school attendance of their children. In particular, such stipends could be used to help poor families enroll their children inkindergarten. Indeed, they could conceivably be used as vouchers withwhich to obtainprivately-provided early childhoodeducation services as well. Improving the quality of basic and secondary education Low rates o fretumto basic and secondaryeducation inEgypt make it more likely that the poor will choose to drop out o f school, especially at ages when the opportunity costs o f staying in school are high. The Ministry of Education already has in place several initiatives to improve school quality. These canbemade more effective through: Emphasizing performance, through instituting evaluation processes that are superior to the inspectorate system currently in place and through linking performance to awards for both schools andteachers. Enhancing accountability in some contexts, through empowering parents and community associations to have more say in teacher hiring, firing and compensationmatters. 0 Improving teacher skills, through more instruction in the use of classroom technology, for example. xii 0 Emphasizing technology skilZs for students, through adequate investments in telephone lines, computer equipment and educational software. This could help inreducing the present degree ofmismatchbetween what istaught inschools and what i s valued inthe workplace. Enhancing access of poor to higher education The poor have less access to higher education than the non-poor for two main reasons. First, entrance to universities is constrained by very restrictive grade requirements which students from non-poor families have a better chance to attain because they are able to afford better quality secondary education as well as private tutoring. Second, very few poor families can affordto have children enrolled at university rather than contributing to family incomes. Financial aid packages could be used to offset the opportunity costs o f higher education for qualifying university students from poor families. However, the handicaps faced by the poor in competing for university entrance may be more intractable. Improvements in the quality of basic and secondary public education, especially in locations where the poor are concentrated, will surely help. Increasing the supply of tertiary education spaces through facilitating the establishment ofmore private colleges anduniversities will also help. Protecting the Vulnerable Through SocialAssistance Thoughcreating opportunities to obtain income from work is the most powerful way to reduce poverty, there will always be individuals who are unable to fully avail of these opportunities for reasons related to age, health, literacy, location or other circumstances specific to them. Sometimes such individuals receive sufficient private transfers inthe form of charity and help from family and fiends to enable them to afford a decent living standard. However, private safety net mechanisms are often insufficient andpublic transfers are also needed. Over the years, an extensive public safety net system has been built up in Egypt. This consists of various subsidies, employment programs, and cash transfer arrangements. A review of the public safety net arrangements reveals the following notable features: 0 Cash transfers amount to 10 percent of the income of the poor. This is almost equally divided between transfers from public sources (5.1 percent) and those fromprivate sources (4.9 percent). 0 Social assistance programs runbythe Ministry of Social Affairs and Insurance are modest in scope and not necessarily targeted to the poor. Social assistance payments amounted to around 560 LE per recipient family in 2001/02 and covered just under 900,000 families o f whom almost 85 percent were non-poor. The limited hding and broad coverage of the social assistance schemes leads to their having a small impact on poverty. Only 4 percent of the poor were lifted out ofpoverty in 1999/2000as aresult ofreceiving suchpayments. ... X l l l 0 Food subsidies are more substantial but are also not well targeted to the poor. For example, while 66 percent o f the poor benefit from the baladi bread subsidy, almost 75 percent o f the non-poor also benefit. The importance o f the baladi bread subsidy can be assessed from the fact that it reduced the incidence o f poverty by 11 percent in 1999/2000. However, the subsidy is less effective in Upper Egypt and rural areas because there are fewer baladi bread distribution outlets there. 0 The Social Fund for Development (SFD) conducts many different programs that canprovide a safety net for some o fthe poor. However, it is difficult to assessthe impact o f the SFD on poverty because o f the lack of program evaluation systems anddata. The foregoing suggests that the effectiveness of the social safety net inmitigating poverty could be enhancedby increasing budgetary resources for some programs and/or redesigningexisting programs to makethe available resourcescover more poorpeople, in other words, to improve targeting. To the extent that fiscal pressures constrain new funding, it will be even more important to seek adequate coverage of the poor through better targeting. This will require: Improving geographical coverage. The geographical coverage o f the safety net programs could be improved if resources were allocated in accordance with the size o f the poor population ineach governorate or, better still, ineach district. For example, the coverage o f the baladi bread subsidy could be improved by increasingthe number o f outlets inrural areas. At present, a smaller proportiono f the poorbenefit from this source of subsidy inrural areas thaninother areas. Introducing more poverty-focused targeting. Focusing safety net resources on the poor requires a cost-effective targeting mechanism. Since individual means- testing is administratively costly, targeting could be attempted through the use of such easy-to-measure characteristics as literacy status, size o f household, and location. Simulations done in this report show that even such broad targeting mechanismswould producebetter poverty results thancurrent mechanisms. 0 Enhancing the poverty-orientation of the Social Fund. The Social Fund for Development disburses public h d s for micro-credit, small enterprise development, temporary employment inpublic works and selected infrastructure and services projects. It is a potentially important source of anti-poverty initiatives on account o f its relatively large funding base and reach. Its impact in this area could be enhanced ifthere were a sharper poverty focus to its activities, expressedinthe choice andlocation o fbothprojects andbeneficiaries. Poverty Monitoringand ProgramEvaluation For a poverty strategy to work, it i s critically important that there be in place a poverty monitoring andprogram evaluation system that generatesinformationthat can be usedto assess the seventy o fthe poverty problem over space and time and the degree to which various anti-poverty interventions are having an impact. Without such a system in place, the formulation of poverty strategy can become detached from considerations o f xiv cost-effectiveness and subject to arbitrariness in choice o f interventions. Priority areas for improvingpoverty monitoring and program evaluation include: 0 Data qual@. Technical studies should be commissioned to examine: (a) the desirability and feasibility of more frequent surveys of households, workers and firms, including the collection o f panel data; (b) the optimal sample sizes that should underpin such surveys; and (c) ways to improve the quality o f data collection. 0 Data availability.The foundation of goodpolicies is robust analysis. This can be facilitated by making available all publicly collected data in a conveniently accessible form. The greater the number of researchers that have access to such data, the greater the probability that the data will be subjected to a broad variety of analytic techniques and consistency checks. Significant improvements have occurred in recent years with regard to the volume, timeliness and availability of social and economic data in Egypt, including publication of many data series on the websites of various public agencies. However, some data, notably those generated from household income and expenditure surveys, are only made available on a discretionary basis. Since such data are directly relevant to poverty analysis, wider and easier access would be beneficial to the formulation of anti- poverty policies. Concerns about privacy can easily be managed by removing individual respondent identifiers fiom the data before making them public. 0 Program evaluation. The assessment and improvement of anti-poverty programs is often hampered by the lack o f internal systems to collect and analyze relevant data. This can be rectified by making evaluation modules a necessary part of any initiative that seeks public funds. Such a requirement would force more attention to be paid, at the design stage, to the need for collecting baseline, mid-program and end-of-program data as well as encourage the alignment o f funding choices more directly with programoutcomes and effectiveness. xv Poverty Reduction Strategy for Egypt:A Schematic Summary Desired Strategic Orientation I Current Situation ISuggestedAction Plan Ideas Pillar A: IncreasingCurrent Earnings Through Growth and Employment Conduct macroeconomicand Greater scope for private sector